Prospectus Summary
PROSPECTUS SUMMARY The following summary should be read in conjunction with the more detailed information, including the “Risk Factors” section beginning on page 8 and the financial statements and related notes appearing elsewhere in this prospectus. You should read the entire prospectus carefully in evaluating an investment in our securities.Overview
We are a fabless semiconductor company that designs, develops and markets universally compatible, high-performance, low-power semiconductor solutions for the multimedia consumer electronics market. Our semiconductor solutions include controllers used in mobile storage media, such as flash memory cards and USB flash drives, and multimedia systems on a chip, or SoCs, used in digital media devices such as MP3 players, PC cameras, PC notebooks and broadband multimedia phones.
We sell our semiconductor solutions to leading original equipment manufacturers, or OEMs, and original design manufacturers, or ODMs, worldwide. Our controllers serve as the critical enabling component of mobile storage products sold by companies such as Lexar Media, Samsung, Sony and STMicroelectronics. In addition, our multimedia SoCs are also important components of products that are sold by companies such as Casio, Foxconn, Hewlett-Packard, Hitachi, Intel, NEC, Panasonic, Sharp, Siemens and Sony.
We believe we have built our business into a leading supplier of controllers for mobile storage products. We believe that we have a significant advantage over our competitors due to our ability to provide high-performance semiconductor solutions that support the broadest portfolio of flash memory devices and comply with all major industry standards for flash-based storage products. For example, our SM264 secure digital, or SD, controller enables SD cards to be compatible with nearly all types of host devices with SD slots and also supports over 20 types of NAND flash memory.
We have experienced rapid growth in our sales. Our net sales grew from approximately NT$456.9 million in 2002 to approximately NT$915.1 million in 2003 to approximately NT$2,166.7 million (US$68.9 million) in 2004, representing a compound annual growth rate, or CAGR, of approximately 117.8%. For the first quarter of 2005, our net sales were approximately NT$515.3 million (US$16.4 million), an increase of approximately 35.8% from NT$379.3 million for the first quarter of 2004. In addition, our quarterly sales have experienced continued sequential growth for the past eight quarters, growing on average approximately 15.2% quarter-on-quarter. We believe that because of our ability to provide adaptable, universally compatible semiconductor solutions and architectures, we have been able to expand into additional portable digital media devices such as audio SoCs and image processors. We have derived significant additional sales from products such as low-power multimedia display processors used in embedded graphic applications. Our net sales from multimedia SoCs was NT$285.4 million (US$9.1 million) in 2004.
Our presence in Asia and our customer-driven engineering focus allow us to closely monitor our manufacturing sources for quality, as well as align our operations with the outsourcing trend of our customers. Our Asia-based operations provide us with access to a highly educated engineering work force and a competitive cost structure. For the first quarter of 2005, our cost of sales and our operating expenses represented approximately 56.4% and 24.7%, respectively, of our net sales. For the year ended December 31, 2004, our cost of sales and our operating expenses represented approximately 58.8% and 23.7%, respectively, of our net sales. In addition, with the exception of the fourth quarter of 2004, our gross margins have remained above 40% for each quarter since the first quarter of 2003. Our net margin for the first quarter of 2005 was approximately 18.6%. We recorded net income of approximately NT$96.0 million (US$3.1 million) for the first quarter of 2005, an increase of approximately 79.1% from NT$53.6 million for the first quarter of 2004. Our net income increased by approximately 142.7% to approximately NT$268.0 million (US$8.5 million) in 2004 from approximately NT$110.4 million in 2003.
Our Opportunity
We expect the use of semiconductors in consumer electronics to continue to grow through 2008. We anticipate this growth will create a significant opportunity to enhance our semiconductor solutions and for us to become one of the leading providers of semiconductor solutions for the multimedia consumer electronics market. See “Our Business—Industry Overview” and “—Challenges Facing the Market.”
Our Strengths
We believe we have quickly become one of the leading providers of semiconductor solutions for the multimedia consumer electronics market by capitalizing on the following strengths:
Universal compatibility. We believe one of our key competitive advantages is our ability to provide one universally adaptable solution that is compatible with a wide range of protocol standards used by portable digital media devices on the one hand, and the storage architectures used for digital content on the other hand.
Complete hardware and software solution. We leverage our modular design architecture in both hardware and software to allow us to quickly penetrate markets and expand our customer base.
Proximity to the electronics supply chain. Our presence in Asia allows us to align our operations with the trend for customers and OEMs to outsource their manufacturing and design to lower cost areas in Asia.
Customer-driven solutions. Our close working relationships with our customers allow us to understand their needs and product roadmaps and enable us to develop solutions that address our customers’ exact needs and new product requirements and features.
Our Strategy
Our objective is to be the leading supplier of controller and software solutions for mobile storage products and multimedia SoCs for digital media devices. We intend to achieve our objective through the following strategies:
Risk of Investment
An investment in our ADSs involves a high degree of risk that includes risks related to our company, risks related to the high technology sector relating to the viewing, transfer and storage of digital media content, risks related to Taiwan and risks related to the ownership of our ADSs. Specifically, risks include but are not limited to those relating to the following areas:
We cannot guarantee profitability in the future. We have sustained losses in the past and cannot assure you that we will remain profitable in the future.
The loss of a significant customer could harm our business. We derive a large percentage of our sales from three customers. Loss, cancellation or a reduction of orders from any of these customers would materially affect our operating results.
Our growth rates may not be sustainable. We may not be able to sustain our current growth rates, and even if we do maintain them, we are susceptible to many operational and other challenges relating to our growth.
We face substantial political risks associated with doing business in Taiwan. Taiwan has a unique international political status. Our business and results of operations and the market price of our ADSs may be affected by changes in Taiwan governmental policies, taxation, inflation or interest rates and by social instability and diplomatic and social developments in or affecting Taiwan that are outside of our control.
Our operating results may fluctuate from period to period. We expect our operating results to fluctuate from quarter to quarter, which may make it difficult to predict our future performance and could cause the market price of our ADSs to fluctuate.
We operate in a highly cyclical industry. The highly cyclical nature of the semiconductor industry, which has produced significant and sometimes prolonged downturns, could have a material adverse effect on our operating results, financial condition and cash flows.
We operate in an industry where standards and technologies evolve rapidly. Industry standards and demands in the multimedia consumer electronics market are continuously and rapidly evolving, and our success depends on our ability to anticipate and respond to these changes and trends.
See “Risk Factors” beginning on page 8 for a more detailed description of these and other risks related to an investment in our ADSs. You should consider these risk factors carefully together with all the other information included in this prospectus.
Corporate Information
We are a holding company incorporated in the Cayman Islands on January 27, 2005. Substantially all of our operations are conducted through Silicon Motion, Inc., our wholly-owned operating subsidiary in Taiwan. Our principal executive office is located at:
No. 20-1, Taiyuan St.
Jhubei City, Hsinchu County 302 Taiwan Telephone: +886 3 552-6888 Investor inquiries should be directed to us at the above address and telephone number. Our website is www.siliconmotion.com. The information contained on our website does not constitute part of this prospectus.
The Offering
You will be required to pay up to US$ per ADS for each issuance or cancellation of an ADS, a fee for each distribution of securities by the depositary based on the number of ordinary shares deposited for issuance of ADSs, up to US$ per ADS per year for depositary services, fees for transfer and registration of your ordinary shares, and certain expenses incurred by the depositary.
To better understand the terms of the ADSs, you should carefully read the section in this prospectus entitled “Description of American Depositary Shares.” We also encourage you to read the deposit agreement, which is an exhibit to the registration statement that includes this prospectus. We may amend or terminate the deposit agreement for any reason without your consent. If an amendment becomes effective, you will be considered, by continuing to hold your ADSs, to have agreed to be bound by the deposit agreement as amended.
ADSs outstanding immediately after the offering
We intend to use the net proceeds we will receive from this offering for research and development expenditures of at least NT$100 million in each of 2005, 2006 and 2007 and general corporate purposes.
We will not receive any of the proceeds from the sale of the ADSs by the selling shareholders.