Silicon Motion Technology shares fall, company cuts 4Q gross margin for obsolete inventory

Silicon Motion shares fall on margin concerns

SEATTLE — Shares of chip designer Silicon Motion Technology Corp. fell Friday, a day after the company said it had a bigger reserve of obsolete inventory than it initially believed.

Silicon Motion Technology issued preliminary results for the first quarter on Thursday. Revenue came in higher than forecast.

But the Taiwan-based chip designer also said that because of changes in the market, there is a bigger chunk of its parts inventory that it likely won’t be able to sell than it previously estimated. As a result, it slashed its reported gross margin for the fourth quarter to 27 percent or 28 percent, not 42 percent as reported.

“While it’s tough to see more inventory get washed down the drain in (fiscal year 2009), Silicon Motion Technology does appear closer to break-even than we thought,” wrote B. Riley & Co. analyst Mike Crawford in a research note Friday.

Wedbush Morgan analyst Betsy Van Hees maintained a “neutral” rating on the stock and advised investors Friday to stay on the sidelines, saying the company is dependent on an increasing supply of NAND flash memory, which she said remains “challenging.”

Investors sent shares down 19 cents, or 3 percent to $6.01 in early afternoon trading.

Silicon Motion Technology said it will report full first-quarter results in either the last week of April or the first week of May.