☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2019
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Centre 600, 82 King Lam St,
Cheung Sha Wan, Kowloon
Fax: + 852 2307 4368
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Ordinary shares, par value US$0.01 per share* American Depositary Shares, each representing
| SIMO | Nasdaq Global Select Market |
* | Not for trading, but only in connection with the listing on the Nasdaq Global Select Market of American Depositary Shares, or ADSs, each representing four ordinary shares. |
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||
Non-accelerated filer | ☐ | Emerging growth company | ☐ |
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U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
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ii
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Item 1. |
Identity of Directors, Senior Management and Advisers |
Item 2. |
Offer Statistics and Expected Timetable |
Item 3. |
Key Information |
Year Ended December 31, | ||||||||||||||||||||
2014 | 2015 | 2016 | 2017 | 2018 | ||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
(in thousands, except for per share data) | ||||||||||||||||||||
Consolidated Statements of Income Data: | ||||||||||||||||||||
Net sales | 289,323 | 361,297 | 556,146 | 523,404 | 530,348 | |||||||||||||||
Cost of sales | 139,625 | 176,765 | 281,541 | 272,210 | 269,541 | |||||||||||||||
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Gross profit | 149,698 | 184,532 | 274,605 | 251,194 | 260,807 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | 60,949 | 71,161 | 92,405 | 102,053 | 102,028 | |||||||||||||||
Sales and marketing | 16,324 | 20,173 | 25,765 | 25,868 | 29,279 | |||||||||||||||
General and administrative | 13,355 | 15,714 | 17,072 | 16,933 | 17,633 | |||||||||||||||
Impairment of goodwill and intangible assets | — | — | — | 10,337 | 4,069 | |||||||||||||||
Amortization of intangible assets | — | 1,051 | 2,103 | 2,534 | 2,964 | |||||||||||||||
Gain from disposal of noncurrent assets held for sale | — | — | — | (1,880 | ) | — | ||||||||||||||
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Total operating expenses | 90,628 | 108,099 | 137,345 | 155,845 | 155,973 | |||||||||||||||
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Operating income | 59,070 | 76,433 | 137,260 | 95,349 | 104,834 | |||||||||||||||
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Totalnon-operating income | 1,498 | 2,067 | 1,370 | 3,652 | 5,027 | |||||||||||||||
Income before income taxes | 60,568 | 78,500 | 138,630 | 99,001 | 109,861 | |||||||||||||||
Income tax expense | 16,101 | 18,249 | 27,690 | 24,046 | 11,791 | |||||||||||||||
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Net income | 44,467 | 60,251 | 110,940 | 74,955 | 98,070 | |||||||||||||||
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Weighted average shares outstanding: | ||||||||||||||||||||
Basic | 134,604 | 138,100 | 140,919 | 142,738 | 144,123 | |||||||||||||||
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Diluted | 136,787 | 139,634 | 142,050 | 143,606 | 144,512 | |||||||||||||||
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Earnings per share: | ||||||||||||||||||||
Basic | 0.33 | 0.44 | 0.79 | 0.53 | 0.68 | |||||||||||||||
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Diluted | 0.33 | 0.43 | 0.78 | 0.52 | 0.68 | |||||||||||||||
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Earnings per ADS(1): | ||||||||||||||||||||
Basic | 1.32 | 1.75 | 3.15 | 2.10 | 2.72 | |||||||||||||||
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Diluted | 1.30 | 1.73 | 3.12 | 2.09 | 2.71 | |||||||||||||||
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Year Ended December 31, | ||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | ||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
(in thousands, except for per share data) | ||||||||||||||||||||
Consolidated Statements of Income Data: | ||||||||||||||||||||
Net sales | 361,297 | 556,146 | 523,404 | 530,348 | 457,253 | |||||||||||||||
Cost of sales | 176,765 | 281,541 | 272,210 | 269,541 | 235,081 | |||||||||||||||
Gross profit | 184,532 | 274,605 | 251,194 | 260,807 | 222,172 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | 71,161 | 92,405 | 102,053 | 102,028 | 110,305 | |||||||||||||||
Sales and marketing | 20,173 | 25,765 | 25,868 | 29,279 | 25,108 | |||||||||||||||
General and administrative | 15,714 | 17,072 | 16,933 | 17,633 | 17,878 | |||||||||||||||
Impairment of goodwill and intangible assets | — | — | 10,337 | 4,069 | 15,970 | |||||||||||||||
Amortization of intangible assets | 1,051 | 2,103 | 2,534 | 2,964 | 766 | |||||||||||||||
Gain from disposal of noncurrent assets held for sale | — | — | (1,880 | ) | — | — | ||||||||||||||
Total operating expenses | 108,099 | 137,345 | 155,845 | 155,973 | 170,027 | |||||||||||||||
Operating income | 76,433 | 137,260 | 95,349 | 104,834 | 52,145 | |||||||||||||||
Total non-operating income | 2,067 | 1,370 | 3,652 | 5,027 | 19,929 | |||||||||||||||
Income before income taxes | 78,500 | 138,630 | 99,001 | 109,861 | 72,074 | |||||||||||||||
Income tax expense | 18,249 | 27,690 | 24,046 | 11,791 | 7,676 | |||||||||||||||
Net income | 60,251 | 110,940 | 74,955 | 98,070 | 64,398 | |||||||||||||||
Weighted average shares outstanding: | ||||||||||||||||||||
Basic | 138,100 | 140,919 | 142,738 | 144,123 | 140,708 | |||||||||||||||
Diluted | 139,634 | 142,050 | 143,606 | 144,512 | 141,183 | |||||||||||||||
Earnings per share: | ||||||||||||||||||||
Basic | 0.44 | 0.79 | 0.53 | 0.68 | 0.46 | |||||||||||||||
Diluted | 0.43 | 0.78 | 0.52 | 0.68 | 0.46 | |||||||||||||||
Earnings per ADS (1) : | ||||||||||||||||||||
Basic | 1.75 | 3.15 | 2.10 | 2.72 | 1.83 | |||||||||||||||
Diluted | 1.73 | 3.12 | 2.09 | 2.71 | 1.82 | |||||||||||||||
(1) | Each ADS represents four ordinary shares. |
As of December 31, | ||||||||||||||||||||
2014 | 2015 | 2016 | 2017 | 2018 | ||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | 194,211 | 180,519 | 274,483 | 359,453 | 284,989 | |||||||||||||||
Other current assets | 96,229 | 134,657 | 202,417 | 209,344 | 213,501 | |||||||||||||||
Working capital | 234,374 | 226,889 | 330,914 | 391,553 | 384,839 | |||||||||||||||
Long-term investments | 133 | 133 | 120 | — | 4,242 | |||||||||||||||
Property and equipment, net | 35,537 | 50,469 | 47,892 | 51,370 | 101,410 | |||||||||||||||
Goodwill and intangible assets, net | 35,467 | 75,990 | 73,883 | 66,393 | 59,352 | |||||||||||||||
Othernon-current assets | 4,957 | 3,860 | 7,231 | 7,172 | 9,120 | |||||||||||||||
Total assets | 366,534 | 445,628 | 606,026 | 693,732 | 672,614 | |||||||||||||||
Total liabilities | 62,434 | 101,130 | 163,263 | 199,681 | 140,337 | |||||||||||||||
Total shareholders’ equity | 304,100 | 344,498 | 442,763 | 494,051 | 532,277 |
As of December 31, | ||||||||||||||||||||
2014 | 2015 | 2016 | 2017 | 2018 | ||||||||||||||||
As Adjusted | As Adjusted | |||||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Consolidated Cash Flow Data: | ||||||||||||||||||||
Net cash provided by operating activities | 68,725 | 65,946 | 125,568 | 103,881 | 108,242 | |||||||||||||||
Net cash used in investing activities(1) | (11,596 | ) | (58,458 | ) | (8,220 | ) | (14,548 | ) | (79,568 | ) | ||||||||||
Net cash provided by (used in) financing activities | (19,710 | ) | (20,271 | ) | 2,194 | (31,740 | ) | (101,820 | ) | |||||||||||
Depreciation and amortization | 6,917 | 8,987 | 11,585 | 13,133 | 14,796 | |||||||||||||||
Capital expenditures | (11,596 | ) | (23,664 | ) | (12,220 | ) | (11,683 | ) | (74,853 | ) |
As of December 31, | ||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | ||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Consolidated Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | 180,519 | 274,483 | 359,453 | 284,989 | 323,166 | |||||||||||||||
Other current assets | 134,657 | 202,417 | 209,344 | 213,501 | 242,033 | |||||||||||||||
Working capital | 226,889 | 330,914 | 391,553 | 384,839 | 433,711 | |||||||||||||||
Long-term investments | 133 | 120 | — | 4,242 | 3,000 | |||||||||||||||
Property and equipment, net | 50,469 | 47,892 | 51,370 | 101,410 | 98,488 | |||||||||||||||
Goodwill and intangible assets, net | 75,990 | 73,883 | 66,393 | 59,352 | 17,489 | |||||||||||||||
Other non-current assets | 3,860 | 7,231 | 7,172 | 9,120 | 13,553 | |||||||||||||||
Total assets | 445,628 | 606,026 | 693,732 | 672,614 | 697,729 | |||||||||||||||
Total liabilities | 101,130 | 163,263 | 199,681 | 140,337 | 160,945 | |||||||||||||||
Total shareholders’ equity | 344,498 | 442,763 | 494,051 | 532,277 | 536,784 |
As of December 31, | ||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | 2019 | ||||||||||||||||
As Adjusted | ||||||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Consolidated Cash Flow Data: | ||||||||||||||||||||
Net cash provided by operating activities | 65,946 | 125,568 | 103,881 | 108,242 | 77,695 | |||||||||||||||
Net cash provided by (used in) investing activities (1) | (58,458 | ) | (8,220 | ) | (14,548 | ) | (79,568 | ) | 34,668 | |||||||||||
Net cash provided by (used in) financing activities | (20,271 | ) | 2,194 | (31,740 | ) | (101,820 | ) | (70,260 | ) | |||||||||||
Depreciation and amortization | 8,987 | 11,585 | 13,133 | 14,796 | 13,213 | |||||||||||||||
Capital expenditures | (23,664 | ) | (12,220 | ) | (11,683 | ) | (74,853 | ) | (11,015 | ) |
(1) | The selected consolidated statements of cash flow data for the 2016-18 of the classification and presentation of changes in restricted cash on the statement of cash flows. |
Because
decline.
Since
which could result in the procurement forecast provided to us changing at short notice. The majority of our productscustomers are integrated intobuilding storage devices thatsuch as SSDs used in PCs and other client devices and eMMC and UFS mobile embedded storage used primarily in smartphones and are sold directly or indirectly into marketsdependent on OEMs of smartphones, PCs and other client devices accurately anticipating
costs. If we overestimate customer demand for our products declinesor if purchase orders are cancelled or shipments delayed, we may end up with excess or obsolete inventory, which could have a material and adverse effect on our financial results. The risk of obsolescence and/or excess inventory is heightened for devices designed for consumer electronics due to short product lifecycles for these types of products. Conversely, if we underestimate demand or if insufficient manufacturing capacity is available, we may not have sufficient product inventory, which could lead to missed revenue opportunities, loss of market share, damages to our customer relationships and other harm to our business. In addition, any future significant cancellations or deferrals of product orders or the return of previously sold products could materially and adversely affect our profit margins, increase product obsolescence and restrict our ability to fund our operations.
Demandother operating infrastructure in a timely manner to capture anticipated business opportunities. If we expand our business operations and demand for our products isdoes not increase as we may have projected, our operating results could be affected by a number of factors, including the general demand for the productsour higher operating expense levels. Conversely, if we maintain or reduce our business operations and related expenses in theend-markets that we serveaccordance with our projections and price attractiveness of the devices incorporating our products that our customers and vendors offer toend-markets. A significant amount of our sales revenue is derived from customers who use our controllers in expandable and embedded solid state storage solutions used in computing and mobile devices. Any significant decrease in the demand for these devices in theend-market may decrease the demand for our semiconductor solutionsproducts increases more than expected, our operating results could be affected by lost business opportunities, less competitive economies of scale, and may resultdamaged relationships with our customers.
affected when NAND flash customers chose to insource controllers.
the business or entity acquired, geographic and cultural differences, lack of experience operating in the industry or geographic markets of the acquired business, potential loss of key employees and customers, the potential for deficiencies in internal controls at the acquired or combined business, performance problems with the acquired
storage devices, such as SSDs and eMMC and UFS devices, in which NAND accounts for a significant portion of material cost, could also rise and fall with NAND component prices. Falling prices for solid state storage devices could trigger stronger market demand for these devices as well as controllers used in them, and conversely, rising prices for solid state storage devices could cause demand for these devices as well as controller used in them to fall, which could negatively affect our sales and profitability.
In addition,the past, we may not have sufficient management resourceswere able to manage, R&D capabilitiessuccessfully grow our revenue by adding over
Thenumber of factors, including decreases in average selling prices of products over time and shifts in our product mix.
Ferri industrial SSDs, is NAND flash components. Our SSD solutions gross margin is lower than controller gross margin because these products are generally less differentiated and dependent on the capacity of the storage device, with higher capacity device gross margin lower than lower capacity devices because more NAND flash components are used.
A failure
overall sales. In addition, we also sell SSD solutions, mostly Ferri industrial SSDs and Shannon enterprise SSDs, but also Bigtera software-defined storage solutions and appliances. We introduced our Ferri products in 2011, acquired Shannon in 2015 for US$45.6 million and acquired Bigtera in 2017 for US$4.7 million. While sales of our Ferri products have limitedgrown steadily since they were first introduced, both our Shannon and Bigtera acquisitions have not met financial expectations, have been dilutive to our gross margins, operating margins and earnings per ADS, and had led to a US$16.0 million write-down of Shannon goodwill and intangible assets in 2019 and US$4.1 million write-down of Bigtera goodwill and intangible assets in 2018. We cannot provide assurance that in the future, we will be able to sell our Shannon and Bigtera products profitably, and if we are able to expand the sales visibility asof our SSD solutions, we cannot provide
To ensure the availability of our products for our customers,returns, with US$2.5 million in some cases we cause our manufacturers to begin manufacturing our products based on forecasts provided by these customers in advance of receiving purchase orders. However, these forecasts do not represent binding purchase commitments, and we do not recognize revenue from these products until they are shipped to the customer. As a result, we incur inventory and manufacturing costs in advance of anticipated revenue. Because demand for our products may not materialize, manufacturing based on forecasts subjects us to risks of high inventory carrying costs and increased obsolescence and may increase our costs. If we overestimate customer demand for our products or if purchase orders are cancelled or shipments delayed, we may end up with excess inventory2019. We cannot assure you that we cannot sell, which could have a material and adverse effect on our financial results. Conversely, if we underestimate demand, we may not have sufficient product inventory and may lose market share and damage customer relationships, which could also harm our business.
Because many of our expenses are fixed in the short term or are incurred in advancefuture our results of anticipated sales, we mayoperations will not be able to decrease our expenses in a timely manner to offset any shortfall of sales, or expand our R&D and other operating infrastructure in a timely manner to capture anticipated business opportunities. If we expand our business operations and demand for our products does not increase as we may have projected, our operating results could benegatively affected by our higher operating expense levels. Conversely, if we maintain or reduce our business operationsfurther NAND component and related expenses in accordance with our projectionsSSD inventory write-downs and demand for our products increases more than expected, our operating results could be affected by lost business opportunity, less competitive economies of scale, and damaged relationships with our customers.
Bigtera sales returns.
source of our technological and product innovations. We believe our future success will depend upon our ability to retain these key employees and our ability to attract and retain other skilled managerial, engineering, technical and sales and marketing personnel. The competition for such personnel, particularly technical personnel, is intense in our industry. We may not be successful in attracting and retaining sufficient numbers of technical personnel to support our anticipated growth. These technical personnel are required to design and develop integrated circuits, including firmware, and to introduce product enhancements for use in future applications. Despite the incentives we provide, our current employees may not continue to work for us, and if additional personnel were required for our operations, we may not be able to obtain the services of additional personnel necessary for our growth. In addition, we do not maintain “key person” life insurance for any of our senior managers or other key employees. The loss of any of our key employees or our inability to attract or retain qualified personnel, including engineers, could delay the development and introduction of, and have an adverse effect on our ability to sell, our products as well as have an adverse effect on our overall growth. In addition, if any other members of our senior management or any of our other key personnel join a competitor or form a competing company, we may not be able to replace them easily and we may lose customers, business partners, key professionals and staff members. Substantially all of our senior executives and key personnel have entered into confidentiality andChina or Korea,China, we cannot assure you the extent, if any, to which these provisions may be enforceable in Taiwan China, or KoreaChina due to the constantly evolving nature of the Taiwanese Chinese, and KoreanChinese legal systems.
million; and in 2019, we wrote down Shannon goodwill and intangible assets by US$16.0 million.
In April 2019, we reduced our Shannon sales forecast meaningfully, which is a triggering event that will require us to reevaluate our Shannon reporting unit’s goodwill and intangible assets in the second quarter
Laws
incur significant expense.
Our
We are subject
We conductoperations.
assembled, tested and packaged by third-parties located primarily in China Korea, and Taiwan. We generated 89%92%, 92%90% and 90%86% of our revenue in 2016, 2017, 2018 and 2018,2019, respectively, from sales to customers outside the United States, and for the year ended December 31, 2018, 66%2019, 55% of our revenue was from sales in three jurisdictions, — Taiwan, Korea and China. InternationalOur controller research and development is conducted primarily in Taiwan and our SSD solutions research and development is conducted in both China and Taiwan. Most of our corporate functions are located in Taiwan. These operations are directly influenced by the political and economic conditions of the country in which they are located. We do not expect the portion of our business located outside of the United States to change in the future.
Parts
United States and China have increased in recent years.
developments in or affecting Taiwan that are outside of our control. Taiwan has a unique international political status. China does not recognize the sovereignty of Taiwan.China. Although there have beenare significant economic and cultural ties between Taiwan and China, in recent years the political relations have often been strained. The government of China has indicated that it may usetaken a more aggressive posture towards Taiwan, including the suspension of cross-straits communications channels in 1996, regular intrusion by Chinese military forceaircrafts into Taiwan airspace, the sailing of naval ships around Taiwan waters, the conduct of military exercises close to gain control over Taiwan, particularly under what it considers as highly provocative circumstances,and exclusion of Taiwan from international organizations such as a declaration of independence bythe World Health Organization.
nature.
We face substantial political risk associated from doing business in South Korea because of tensions in the political relationship between South Korea and North Korea.
Relations between South Korea and North Korea have been tense over most of South Korea’s history. In recent years, there have been heightened security concerns stemming from North Korea’s nuclear weapons and ballistic missile capabilities and uncertainty regarding North Korea’s actions and possible responses from the international community. More recent concerns over North Korea’s nuclear and ballistic missile testing programs, hostile and threatened actions by North Korea against South Korea, North Korea’s leadership succession, and relations between the United States and North Korea, have created a global security issue that may adversely affect South Korean business and economic conditions. South Korea was not a signatory of the armistice agreement that ended the Korean War, and since no peace treaty was signed between South Korea and North Korea, the two countries are technically still at war. We cannot assure you as to whether or when this situation will be resolved or change abruptly as a result of current or future events, including, without limitation, the effects, if any, of (i) recent increases to previously imposed United Nations and U.S. sanctions on North Korea, and (ii) the general increase in overtures and rhetoric by the North Korean government with respect to its nuclear capabilities and willingness to use such weapons as they see fit. Although talks have recently been held between South Korea and North Korea and between the U.S. and North Korea, political instability has generally continued with the current U.S. administration. We cannot give any assurance that the level of instability and tension in the Korean peninsula will not escalate in the future, or that the political regime in North Korea may not suddenly collapse. An adverse change in economic or political conditions in South Korea or North Korea or in South Korea’s relations with North Korea could have a material adverse effect on our South Korean subsidiaries and our company.
Our business depends on the support of the Taiwanese and South Korean governments, and a decrease in this support may increase our tax liabilities and decrease our net income.
Our Taiwan operating company has benefited from tax incentives provided by the Taiwanese government. For example, under the Statute for Upgrading Industries of Taiwan, we were granted tax credits by the Taiwan Ministry of Finance for qualifying research and development costs and in qualifying employee training expenses. In addition, Taiwan law offers preferential tax treatments to industries that are encouraged by the government. In 2010, “Statute for Industries Innovation” was passed to replace the “Statute for Upgrading Industries” in tax incentives. However, we are still eligible to use certain previously granted exemptions. See “Operating and Financial Review and Prospects — Principal Factors Affecting Our Results of Operations — Provision for income taxes” and Note 16 to our consolidated financial statements for a more detailed description of our ability to enjoy these preferential tax treatments. If any of our tax credits or our ability to take advantage of these preferential tax treatments are curtailed or eliminated, our net income may decrease materially. The last tax credit granted to us by the Taiwanese government expired at the end of 2016.
The South Korean government provides a variety of tax incentives designed to promote designated industries such as the technology industry. We, like many Korean technology companies, have benefited from certain tax incentives, including tax credits for applicable research and development expenses and for investments made to improve business productivity. If these and other tax incentives are curtailed or eliminated, our net income may decrease materially. In March, 2019, we announced that we had entered into an agreement to sell our interest in FCI to Dialog Semiconductor. See “Item 8. Recent Developments”.
Item 4. |
Information on the Company |
April 2005. Originally SMI Taiwan was known as Feiya Technology Corporation (“Feiya”), a Taiwan corporation which was incorporated in April 1997 but had changed its name to SMI Taiwan after acquiring in August 2002 Silicon Motion, Inc., a California corporation (“SMI USA”), which was incorporated in November 1995. Feiya was originally a flash memory products company and SMI USA a graphics processor company.
Semiconductor, and this transaction closed on May 31, 2019.
brands.
Name of Entity | Jurisdiction of Incorporation | |
Bigtera (Beijing) | China | |
Shannon Systems | China | |
Silicon Motion, Inc. | California | |
Silicon Motion, Inc. | Taiwan | |
Silicon Motion, Inc. (Shanghai) | China | |
Silicon Motion, Inc. (Shenzhen) | China | |
Silicon Motion (MCO) Ltd. | Macau | |
Silicon Motion Technology (HK) Ltd. | Hong Kong | |
FCI Inc.* | Korea |
* | In |
USB flash drives, (ii) customized enterprise-grade SSD solutions, for Chinese hyperscalers’primarily enterprise-grade SSDs used in data centers and customized SSD solutions forsmall form-factor specialized SSDs used in industrial, commercial and automotive applications, and (iii) specialty RF ICs.applications. NAND flash controllers for the PC and smartphone markets account for a significant majority of our sales. NAND flash controllers and SSD solutions are productsIn May 2019, we divested our specialty RF ICs for the Mobile Storage market and RF ICs are products for the Mobile Communicationsmobile communications market.
See “Item 8. Recent Developments — Sale of FCI”.
NAND flash controllers are used to manage NAND flash,
All solid state storage devices using NAND flash require a controller, with most using a discrete controller IC and complementary firmware. Different typesbroad range of controllers are usedfor customers to developchoose from in developing different types of storage devices, for example an SSD controller is used specifically to develop an SSD and a UFS controller used to develop a UFS device, and controllers create different types of storage devices by providing the defining interface for the storage device type, delivering performance specified for the storage device type, managing NAND flash used in the storage device and implementing other necessary functionality.
There are many different typescategories of solid state storage devices that use NAND flash, includingare used in a wide variety of applications. We provide controllers for computing-grade SSDs used in PCs and other client devices, enterprise-grade SSDs used in data centers, and enterprise applications and eMMC and UFS mobile embedded storage used in smartphones and other smart devices. These different typesIoT devices, flash memory cards and flash drives used as expandable storage, and specialized SSDs used in industrial, commercial and automotive applications. For most of storage devices are developed using different types of specializedthese applications we offer customers controllers which are designed for a range of different price-performance trade-offs that enable the targeting of different market segments, such as value-line, mainstream and premium. Our controllers are a combination of integrated circuits and firmware and are offered as configurable platforms or turnkey solutions, which provides customers with options to customize products to achieve desired differentiation or focus on fast
In addition to providing the defining interface for a storage device and delivering specified performance requirements, the controller importantly must also manage NAND flash used in the storage device to: (i) ensureensuring data reliability in NAND flash by detecting and correcting bit errors caused by read/write disturbance and adjacent cell interference; (ii) ensure data integrity in NAND flash by mapping bad blocks and preventing bad blocks from being usedsophisticated wear-leveling algorithms for storing data; (iii) maximizemaximizing the usable life of NAND flash with wear-leveling algorithms which spread out the use of the memory array and equalize the use of all the memory cells; (iv) enhance the sequential and random read and write performance of NAND flash by utilizing multiple-plane architecture, interleaving, orcomponents. We may also incorporate other technologies; and (v) prevent data loss during sudden, unexpected host device power failures with advanced power cycling solutions. NAND flash from different vendors and from different generations of technologytechnologies in terms of multi-level cell architecture (for example,2-bits per cell,3-bits per cell and4-bits per cell) designed for 3D NAND flash at different layer stacking (for example, 64 layer, 72 layer, 92/96 layer) have different performance characteristics, which require different controller technology to provide suitable NAND flash management.
OEMs designing storage devices may require controller vendors to implement other functionalitiesour controllers such as: security for protecting software code, personal data andas encryption, power-loss protection, multimedia digital rights;end-to-end data path protection
to protect data inside a storage device, from the connection to the host system, through the circuits of the storage device, to the NAND flash; power-loss security features; Opal-compliant AES advanced full-disk encryption;rights management and active operating temperature monitoring. Finally, controllers are designed to ensure that storage devices are compatible with a wide set of designated host devices and can be tuned to maximize compatibility and performance requirements.
We provide NAND flash controllers for many key applications, including: (i) high performance, cost effective client SSDs for PCs and other consumer-grade applications; (ii) enterprise-grade SSDs optimized for demanding data center and enterprise workload; (iii) embedded SSDs designed and tested for industrial, commercial and automotive applications; (iv) eMMC and UFS embedded memory for smartphones and other smart or IOT devices; and (v) memory cards and flash drives.
Specialty RF ICs
Mobile TV SoCs. Our products include integrated mobile TV tuner plus demodulator SoCs for mobile phones and other portable devices. Our solutions are designed for leading digital mobile TV broadcast standards, specifically Terrestrial-Digital Media Broadcast(T-DMB) for the Korean market and Integrated Services Digital Broadcasting-Terrestrial(ISDB-T) for the Japanese and certain Asian and South American markets.
Low PowerWi-Fi SoCs. We offerultra-low powerWi-Fi SoCs for addressing smart home, commercial, and industrial applications. Specific target applications include smart thermostats and other sensors, video surveillance cameras, smart door locks and video door bells.
See “Item 8. Recent Developments — Sale of FCI”.
smartphones. Sales to our five largest customers represented approximately 58%57%, 57%54% and 54% of our net revenue in 2016, 2017, 2018 and 2018,2019, respectively. Sales to our two largest customers in 2017representing 39%, 34% and 2018, and one customer in 2016 accounted for 10% or more of our net revenue, representing 28%, 39% and 34%31% of our net revenue in 2016, 2017, 2018 and 2018,2019, respectively. In 2017 and 2018,2019, the significant customers were Intel and Micron and in 2017 and 2018, were SK Hynix and Intel and in 2016, SK Hynix.Intel. The identities of our largest customers and their respective contributions to our net revenue have varied and will likely continue to vary from period to period.
benefit from the research and development efforts of leading manufacturers without the requirement to commit our own substantial capital investments. Our fabless business model also provides us with the flexibility to engage vendors who offer services that best complement our products and technologies.
which we compete are highly competitive and many of our competitors have greater resources than we have, we cannot be certain that our products will compete favorably in the market placemarketplace,” in Item 3 above.
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Location | Primary Use | Approximate Square Footage | ||||
Hsinchu, Taiwan | Research & development, management & administration | 200,800 | ||||
Taipei, Taiwan | Research & development, sales & marketing | 74,600 | ||||
Shanghai, China | Research & development, sales & marketing | 43,400 | ||||
Shenzhen, China | Sales & | 20,200 | ||||
Milpitas, California | ||||||
| Sales & marketing, management | 13,300 | ||||
Others (1) | Sales & marketing, management | 21,500 |
(1) |
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Korea, Macau, Hong Kong, |
property.
Item 4A. |
Unresolved Staff Comments |
Item 5. |
Operating and Financial Review and Prospects |
that our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. See “Special Note Regarding Forward-Looking Statements.” In evaluating our business, you should also carefully consider the information provided under the caption “Risk Factors” included in Item 3 of this annual report.and pioneer in developing NAND flash controller ICscontrollers for solid-stateSSDs and other solid state storage devices. We sell morehave over 20 years of experience developing specialized processor ICs that manage NAND flash controllers than any other companycomponents and
brands.
As discussed in more detail below, for
The increase in our revenue for the year ended December 31, 2018 was primarily the result of SSD controller sales increasing by about 30%, partially offset by eMMC plus UFS controller sales decreasing by about 10% and SSD solutions sales decreased by about 5%. SSD controller sales were nearly 40% of total revenue, eMMC plus UFS controller sales were in the range of 25%33% to 30% of total revenue and SSD solutions sales were nearly 20% of total revenue.
Total operating expenses were stable in 2018 primarily due to lower impairment loss of goodwill and intangible assets, offset by increased sales and marketing and other expenses. Impairment loss of goodwill and intangible assets was $6.3 million lower in 2018; in 2017 we recognized aone-time $10.3 million impairment loss of goodwill relating to our FCI acquisition and in 2018 we recognized aone-time $4.1 million impairment loss of goodwill and intangible assets related to our Bigtera acquisition. In 2017, we benefited from aone-time $1.9 million gain relating to the sale of our Shanghai property. Sales and marketing expenses were $3.4 million higher, primarily due to higher Bigtera headcount expenses, as well as larger expenditures for technical services and samples.
Our earnings per share increased primarily due to lower income taxes, increase in gross margin and lower operating expenses.
Year Ended December 31, | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Currency | ||||||||||||
U.S. dollars | 92 | % | 87 | % | 88 | % | ||||||
Korean won | 3 | % | 3 | % | 3 | % | ||||||
Chinese yuan | 5 | % | 10 | % | 9 | % |
Year Ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
Currency | ||||||||||||
U.S. dollars | 87 | % | 88 | % | 95 | % | ||||||
Korean won | 3 | % | 3 | % | 1 | % | ||||||
Chinese yuan | 10 | % | 9 | % | 4 | % |
testing of system architecture, new product or product alternatives, costs for the construction of prototypes, occupancy costs and depreciation on research and development related equipment. We expense research and development expenditures as they are incurred.
In May 2019, we divested our specialty RF ICs product line with operations primarily in South Korea.
and liabilities. We evaluate our estimates on an
conditions in general were to deteriorate, additional allowances may be required in the future and such additional allowances would increase our operating expenses and therefore reduce our operating income and net income.
In 2019, because of rapidly falling NAND prices, we wrote-down US$9.1 million of NAND components and SSDs in inventory.
we believe indicators of impairment exist. Our impairment review process compares the fair value of the reporting unit in which the goodwill resides to its carrying value. We determined that our reporting units are equivalent to our operating segments or components of an operating segment for the purposes of completing our impairment test. Prior to fiscal 2017, we utilize a
In 2016, no impairment charges were recorded.
December 31, 2016, 2017, 2018 and 20182019 was US$10.3 million, US$15.1 million, US$18.7 million and US$18.720.7 million, respectively. As of December 31, 20172018 and 2018,2019, US$3.44.1 million and US$4.14.5 million, respectively, of interest and penalties were accrued. Fiscal years 20132014 through 20182019 remain subject to examination by the US Internal Revenue Service and other foreign tax jurisdictions. The ultimate outcome of tax matters may differ from our estimates and assumptions. Unfavorable settlement of any particular issue would require the use of cash and could result in increased income tax expense. Favorable resolution could result in reduced income tax expense. Within the next 12 months, we do not expect that our unrecognized tax benefits would change significantly. See Note 1615 to the Consolidated Financial Statements for further information regarding changes in unrecognized tax benefits during 2018.
2019.
Year Ended December 31, | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of sales | 50.6 | 52.0 | 50.8 | |||||||||
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Gross profit | 49.4 | 48.0 | 49.2 | |||||||||
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Operating expenses: | ||||||||||||
Research and development | 16.6 | 19.5 | 19.2 | |||||||||
Sales and marketing | 4.6 | 4.9 | 5.5 | |||||||||
General and administrative | 3.1 | 3.2 | 3.3 | |||||||||
Impairment of goodwill and intangible assets | — | 2.0 | 0.8 | |||||||||
Amortization of intangible assets | 0.4 | 0.5 | 0.6 | |||||||||
Gain from disposal of noncurrent assets held for sale | — | (0.4 | ) | — | ||||||||
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Total operating expenses | 24.7 | 29.7 | 29.4 | |||||||||
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Operating income | 24.7 | 18.3 | 19.8 | |||||||||
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Non-operating income (expenses): | ||||||||||||
Gain from disposal of short-term investments | 0.0 | 0.0 | 0.0 | |||||||||
Interest income | 0.3 | 0.8 | 1.2 | |||||||||
Foreign exchange gain (loss), net | (0.1 | ) | (0.0 | ) | (0.1 | ) | ||||||
Impairment of long-term investments | (0.0 | ) | (0.0 | ) | — | |||||||
Interest expense | (0.0 | ) | (0.1 | ) | (0.1 | ) | ||||||
Loss on equity-method investment | — | — | (0.1 | ) | ||||||||
Other income (loss), net | 0.0 | (0.0 | ) | 0.0 | ||||||||
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Totalnon-operating income | 0.2 | 0.7 | 0.9 | |||||||||
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Income before income taxes | 24.9 | 19.0 | 20.7 | |||||||||
Income tax expense | 5.0 | 4.6 | 2.2 | |||||||||
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Net income | 19.9 | % | 14.4 | % | 18.5 | % | ||||||
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Year Ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of sales | 52.0 | 50.8 | 51.4 | |||||||||
Gross profit | 48.0 | 49.2 | 48.6 | |||||||||
Operating expenses: | ||||||||||||
Research and development | 19.5 | 19.2 | 24.1 | |||||||||
Sales and marketing | 4.9 | 5.5 | 5.5 | |||||||||
General and administrative | 3.2 | 3.3 | 3.9 | |||||||||
Impairment of goodwill and intangible assets | 2.0 | 0.8 | 3.5 | |||||||||
Amortization of intangible assets | 0.5 | 0.6 | 0.2 | |||||||||
Gain from disposal of noncurrent assets held for sale | (0.4 | ) | — | — | ||||||||
Total operating expenses | 29.7 | 29.4 | 37.2 | |||||||||
Operating income | 18.3 | 19.8 | 11.4 | |||||||||
Non-operating income (expenses): | ||||||||||||
Gain from disposal of subsidiary | 0.0 | 0.0 | 2.7 | |||||||||
Gain from disposal of long-term investments | 0.0 | 0.0 | 0.1 | |||||||||
Gain from disposal of short-term investments | 0.0 | 0.0 | 0.0 | |||||||||
Interest income | 0.8 | 1.2 | 1.5 | |||||||||
Foreign exchange gain (loss), net | (0.0 | ) | (0.1 | ) | 0.0 | |||||||
Impairment of long-term investments | (0.0 | ) | — | — | ||||||||
Interest expense | (0.1 | ) | (0.1 | ) | 0.0 | |||||||
Loss on equity-method investment | — | (0.1 | ) | — | ||||||||
Other income (loss), net | (0.0 | ) | 0.0 | 0.0 | ||||||||
Total non-operating income | 0.7 | 0.9 | 4.3 | |||||||||
Income before income taxes | 19.0 | 20.7 | 15.7 | |||||||||
Income tax expense | 4.6 | 2.2 | 1.7 | |||||||||
Net income | 14.4 | % | 18.5 | % | 14.0 | % | ||||||
Years Ended December 31 | ||||||||||||||||||||||||
2018 | 2019 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Net sales | ||||||||||||||||||||||||
Mobile Storage | 494,012 | 93 | 441,700 | 97 | (52,312 | ) | (11 | ) | ||||||||||||||||
Mobile Communications | 30,163 | 6 | 10,356 | 2 | (19,807 | ) | (66 | ) | ||||||||||||||||
Others | 6,173 | 1 | 5,197 | 1 | (976 | ) | (16 | ) | ||||||||||||||||
Net sales | 530,348 | 100 | 457,253 | 100 | (73,095 | ) | (14 | ) |
Years Ended December 31 | ||||||||||||||||||||||||
2018 | 2019 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Gross profit | 260,807 | 49 | 222,172 | 49 | (38,635 | ) | (15 | ) |
Years Ended December 31 | ||||||||||||||||||||||||
2018 | 2019 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Salary and benefits | 53,922 | 10 | 57,165 | 13 | 3,243 | 6 | ||||||||||||||||||
Stock-based compensation | 13,278 | 2 | 9,927 | 2 | (3,351 | ) | (25 | ) | ||||||||||||||||
Other research and development | 34,828 | 7 | 43,213 | 9 | 8,385 | 24 | ||||||||||||||||||
Research and development | 102,028 | 19 | 110,305 | 24 | 8,277 | 8 |
Years Ended December 31 | ||||||||||||||||||||||||
2018 | 2019 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Salary and benefits | 15,546 | 3 | 14,586 | 3 | (960 | ) | (6 | ) | ||||||||||||||||
Stock-based compensation | 3,407 | 1 | 1,789 | 1 | (1,618 | ) | (47 | ) | ||||||||||||||||
Other sales and marketing | 10,326 | 2 | 8,733 | 2 | (1,593 | ) | (15 | ) | ||||||||||||||||
Sales and marketing | 29,279 | 6 | 25,108 | 6 | (4,171 | ) | (14 | ) |
Years Ended December 31 | ||||||||||||||||||||||||
2018 | 2019 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Salary and benefits | 8,073 | 1 | 9,202 | 2 | 1,129 | 14 | ||||||||||||||||||
Stock-based compensation | 3,704 | 1 | 2,570 | 1 | (1,134 | ) | (31 | ) | ||||||||||||||||
Other general and administrative | 5,856 | 1 | 6,106 | 1 | 250 | 4 | ||||||||||||||||||
General and administrative | 17,633 | 3 | 17,878 | 4 | 245 | 1 |
Years Ended December 31 | ||||||||||||||||||||||||
2018 | 2019 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Cost of sales | 390 | — | 305 | — | (85 | ) | (22 | ) | ||||||||||||||||
Research and development | 13,278 | 2 | 9,927 | 2 | (3,351 | ) | (25 | ) | ||||||||||||||||
Sales and marketing | 3,407 | 1 | 1,789 | — | (1,618 | ) | (47 | ) | ||||||||||||||||
General and administrative | 3,704 | 1 | 2,570 | 1 | (1,134 | ) | (31 | ) | ||||||||||||||||
Total stock-based compensation | 20,779 | 4 | 14,591 | 3 | (6,188 | ) | (30 | ) |
Years Ended December 31 | ||||||||||||||||||||||||
2017 | 2018 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Net sales | ||||||||||||||||||||||||
Mobile Storage | 480,735 | 92 | 494,012 | 93 | 13,277 | 3 | ||||||||||||||||||
Mobile Communications | 37,447 | 7 | 30,163 | 6 | (7,284 | ) | (19 | ) | ||||||||||||||||
Others | 5,222 | 1 | 6,173 | 1 | 951 | 18 | ||||||||||||||||||
Net sales | 523,404 | 100 | 530,348 | 100 | 6,944 | 1 |
Years Ended December 31 | ||||||||||||||||||||||||
2017 | 2018 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Gross profit | 251,194 | 48 | 260,807 | 49 | 9,613 | 4 |
Years Ended December 31 | ||||||||||||||||||||||||
2017 | 2018 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Salary and benefits | 54,019 | 10 | 53,922 | 10 | (97 | ) | 0 | |||||||||||||||||
Stock-based compensation | 9,255 | 2 | 13,278 | 2 | 4,023 | 43 | ||||||||||||||||||
Other research and development | 38,779 | 8 | 34,828 | 7 | (3,951 | ) | (10 | ) | ||||||||||||||||
Research and development | 102,053 | 20 | 102,028 | 19 | (25 | ) | 0 |
Years Ended December 31 | ||||||||||||||||||||||||
2017 | 2018 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Salary and benefits | 14,425 | 3 | 15,546 | 3 | 1,121 | 8 | ||||||||||||||||||
Stock-based compensation | 3,167 | 1 | 3,407 | 1 | 240 | 8 | ||||||||||||||||||
Other sales and marketing | 8,276 | 1 | 10,326 | 2 | 2,050 | 25 | ||||||||||||||||||
Sales and marketing | 25,868 | 5 | 29,279 | 6 | 3,411 | 13 |
Years Ended December 31 | ||||||||||||||||||||||||
2017 | 2018 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Salary and benefits | 9,386 | 2 | 8,073 | 1 | (1,313 | ) | (14 | ) | ||||||||||||||||
Stock-based compensation | 2,779 | — | 3,704 | 1 | 925 | 33 | ||||||||||||||||||
Other general and administrative | 4,768 | 1 | 5,856 | 1 | 1,088 | 23 | ||||||||||||||||||
General and administrative | 16,933 | 3 | 17,633 | 3 | 700 | 4 |
Years Ended December 31 | ||||||||||||||||||||||||
2017 | 2018 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Cost of sales | 293 | — | 390 | — | 97 | 33 | ||||||||||||||||||
Research and development | 9,255 | 2 | 13,278 | 2 | 4,023 | 43 | ||||||||||||||||||
Sales and marketing | 3,167 | 1 | 3,407 | 1 | 240 | 8 | ||||||||||||||||||
General and administrative | 2,779 | — | 3,704 | 1 | 925 | 33 | ||||||||||||||||||
Total stock-based compensation | 15,494 | 3 | 20,779 | 4 | 5,285 | 34 |
Years Ended December 31 | ||||||||||||||||||||||||
2017 | 2018 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, expect percentage data) | ||||||||||||||||||||||||
Amortization of intangible assets | 2,534 | — | 2,964 | — | 430 | 17 |
0.1 million.
Net sales.
Years Ended December 31 | ||||||||||||||||||||||||
2016 | 2017 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Net sales | ||||||||||||||||||||||||
Mobile Storage | 510,687 | 92 | 480,735 | 92 | (29,952 | ) | (6 | ) | ||||||||||||||||
Mobile Communications | 39,322 | 7 | 37,447 | 7 | (1,875 | ) | (5 | ) | ||||||||||||||||
Others | 6,137 | 1 | 5,222 | 1 | (915 | ) | (15 | ) | ||||||||||||||||
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Net sales | 556,146 | 100 | 523,404 | 100 | (32,742 | ) | (6 | ) |
Our net sales decreased by 6% year-over-year to approximately US$523.4 million may be found in 2017, primarily because of decreasing sales of products to the mobile storage market.
Our Mobile Storage revenue decreased by 6% year-over-year primarily because of increasing sales of SSD solutions more than offset by declining eMMC, SSD and expandable storage controller sales. Mobile Communications revenue decreased by 5% primarily because increasing sales of mobile TV SoCs were more than offset by declining sales of CDMA transceivers, which have reached obsolescence.
Gross profit.
Years Ended December 31 | ||||||||||||||||||||||||
2016 | 2017 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Gross profit | 274,605 | 49 | 251,194 | 48 | (23,411 | ) | (9 | ) |
Gross profit as a percentage of net sales decreased to 48% in 2017 as compared to 49% in 2016 primarily because of increasing sales of lower gross margin SSD solutions and declining sales of higher gross margin SSD controllers. Our gross profit excluding obsolete and unmarketable inventory write-downs as a percentage of revenue decreased from 50% in 2016 to 48% in 2017.
Research and development expenses.
Years Ended December 31 | ||||||||||||||||||||||||
2016 | 2017 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Salary and benefits | 50,925 | 9 | 54,019 | 10 | 3,094 | 6 | ||||||||||||||||||
Stock-based compensation | 10,529 | 2 | 9,255 | 2 | (1,274 | ) | (12 | ) | ||||||||||||||||
Other research and development | 30,951 | 6 | 38,779 | 8 | 7,828 | 25 | ||||||||||||||||||
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Research and development | 92,405 | 17 | 102,053 | 20 | 9,648 | 10 |
Our research and development expenses increased by 10% year-over-year to approximately US$102.1 million in 2017. Salary and benefits increased by 6% year-over-year to approximately US$54.0 million, primarily because of more headcounts in 2017. Stock-based compensation decreased by 12% year-over-year to approximately US$9.3 million. Other research and development expenses increased by 25% year-over-year to approximately US$38.8 million, primarily because of higher ICtape-out and other project expenses in 2017.
Sales and marketing expenses.
Years Ended December 31 | ||||||||||||||||||||||||
2016 | 2017 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Salary and benefits | 15,100 | 3 | 14,425 | 3 | (675 | ) | (4 | ) | ||||||||||||||||
Stock-based compensation | 3,122 | 1 | 3,167 | 1 | 45 | 1 | ||||||||||||||||||
Other sales and marketing | 7,543 | 1 | 8,276 | 1 | 733 | 10 | ||||||||||||||||||
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Sales and marketing | 25,765 | 5 | 25,868 | 5 | 103 | 0 |
Our sales and marketing expenses were unchanged year-over-year at approximately US$25.9 million in 2017. Salary and benefits decreased by 4% year-over-year to approximately US$14.4 million, primarily because of lower bonus payments in 2017. Stock-based compensation increased by 1% year-over-year to approximately US$3.2 million in 2017. Other sales and marketing expenses increased by 10% year-over-year to approximately US$8.3 million primarily because of more product testing fees in 2017.
General and administrative expenses.
Years Ended December 31 | ||||||||||||||||||||||||
2016 | 2017 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Salary and benefits | 9,184 | 2 | 9,386 | 2 | 202 | 2 | ||||||||||||||||||
Stock-based compensation | 3,313 | — | 2,779 | — | (534 | ) | (16 | ) | ||||||||||||||||
Other general and administrative | 4,575 | 1 | 4,768 | 1 | 193 | 4 | ||||||||||||||||||
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| |||||||||||||
General and administrative | 17,072 | 3 | 16,933 | 3 | (139 | ) | (1 | ) |
Our general and administrative expenses decreased by 1% year-over-year to approximately US$16.9 million in 2017. Salary and benefits increased by 2% year-over-year to approximately US$9.4 million, primarily because of more headcount in 2017. Stock-based compensation decreased by 16% year-over-year to approximately US$2.8 million in 2017. Other general and administrative expenses increased by 4% year-over-year to approximately US$4.8 million primarily because of more professional service fees in 2017.
Stock-based compensation.
The following table presents details of total stock-based compensation expense that is included in each functional line item in our consolidated statements of income:
Years Ended December 31 | ||||||||||||||||||||||||
2016 | 2017 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||
Cost of sales | 400 | — | 293 | — | (107 | ) | (27 | ) | ||||||||||||||||
Research and development | 10,529 | 2 | 9,255 | 2 | (1,274 | ) | (12 | ) | ||||||||||||||||
Sales and marketing | 3,122 | 1 | 3,167 | 1 | 45 | 1 | ||||||||||||||||||
General and administrative | 3,313 | — | 2,779 | — | (534 | ) | (16 | ) | ||||||||||||||||
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Total stock-based compensation | 17,364 | 3 | 15,494 | 3 | (1,870 | ) | (11 | ) |
Total stock-based compensation, all of which are RSU expenses, decreased by 11% in 2017.
See Note 18 to Consolidated Financial Statements for a discussion of activity related to share-based awards.
Impairment of goodwill and intangible assets.We performed annual impairment assessments of the carrying value of goodwill in November 2016 and 2017. No impairment was recognized in 2016. During our 2017 evaluation, we compared the carrying value of FCI to its estimated fair value and determined that goodwill was impaired and recognized approximately US$10.3 million for goodwill impairment.
Amortization of intangible assets.
Years Ended December 31 | ||||||||||||||||||||||||
2016 | 2017 | |||||||||||||||||||||||
US$ | % of net sales | US$ | % of net sales | $ change | % change | |||||||||||||||||||
(in thousands, expect percentage data) | ||||||||||||||||||||||||
Amortization of intangible assets | 2,103 | — | 2,534 | — | 431 | 20 |
Our amortization of intangible asset increased by 20% year-over-year to approximately US$2.5 million because of our acquisition of Bigtera in July 2017.
Gain (loss) from disposal of noncurrent assets held for sale. In 2017, we sold an office space located in Shanghai, China and recognized a gain from disposal of US$1.9 million.
Gain from disposal of short-term investments. We realized gains on sales of the trading securities of US$2 thousand and US$103 thousand for the years ended December 31, 2016 and 2017, respectively.
Interest income. Our interest income increased to approximately US$4.3 million for the year ended December 31, 2017 from approximately US$2.2 million for the year ended December 31, 2016.
Impairment of long-term investment.In 2016 and 2017, we determined that our investments in Cashido and Vastview were impaired because a combination of recurring losses and reduced forecasts indicated that our investments were not recoverable within a reasonable period of time and that the impairments were other than temporary and recorded a combined impairment charge of US$13 thousand and US$120 thousand, respectively.
Interest expense.Interest expense increased to approximately US$423 thousand for the year ended December 31, 2017 from approximately US$127 thousand for the year ended December 31, 2016 because of greater use of bank credit facilities.
Foreign exchange gain (loss), net.For the year ended December 31, 2017, we incurred foreign exchange losses of US$157 thousand, compared with losses of US$692 thousand for the year ended December 31, 2016. We do not engage in any hedging activities.
Income tax expense (benefit).Income tax expense was approximately US$24.0 million for the year ended December 31, 2017 compared to an income tax expense of approximately US$27.7 million for the year ended December 31, 2016.
Net income (loss).Net income was approximately US$75.0 million for the year ended December 31, 2017 compared to a net income of approximately US$110.9 million for the year ended December 31, 2016.
Year Ended December 31 | ||||||||
2017 | 2018 | |||||||
US$ | US$ | |||||||
(in thousands) | ||||||||
Cash and cash equivalents | 359,453 | 284,989 | ||||||
Short-term investments | 6,941 | 3,609 | ||||||
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| |||||
Cash, cash equivalents and short-term investments | 366,394 | 288,598 |
Year Ended December 31 | ||||||||
2018 | 2019 | |||||||
US$ | US$ | |||||||
(in thousands) | ||||||||
Cash and cash equivalents | 284,989 | 323,166 | ||||||
Short-term investments | 3,609 | 2,010 | ||||||
Cash, cash equivalents and short-term investments | 288,598 | 325,176 |
Year Ended December 31, | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
(in thousands) | ||||||||||||
Consolidated Cash Flow Data: | ||||||||||||
Net cash provided by operating activities | 125,568 | 103,881 | 108,242 | |||||||||
Net cash used in investing activities(1) | (8,220 | ) | (14,548 | ) | (79,568 | ) | ||||||
Net cash provided by (used in) financing activities | 2,194 | (31,740 | ) | (101,820 | ) | |||||||
Depreciation and amortization | 11,585 | 13,133 | 14,796 | |||||||||
Capital expenditures | (12,220 | ) | (11,683 | ) | (74,853 | ) |
Year Ended December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
(in thousands) | ||||||||||||
Consolidated Cash Flow Data: | ||||||||||||
Net cash provided by operating activities | 103,881 | 108,242 | 77,695 | |||||||||
Net cash provided by (used in) investing activities | (14,548 | ) | (79,568 | ) | 34,668 | |||||||
Net cash used in financing activities | (31,740 | ) | (101,820 | ) | (70,260 | ) | ||||||
Depreciation and amortization | 13,133 | 14,796 | 13,213 | |||||||||
Capital expenditures | (11,683 | ) | (74,853 | ) | (11,015 | ) |
the following reasons:
For
Our net income includes substantialnon-cash charges, namely US$13.1 milliondisposal of depreciationFCI and amortization and US$15.5 million of stock-based compensation and US$10.3 million of impairment of goodwill and intangible assets..
Net working capital increased by US$5.6 million. Inventory increased by US$22.3 million, notes and accounts receivable increased by US$5.2 million, notes and accounts payable increased by US$24.2 million, income tax payable decreased by US$8.7 million, and other assets net of other liabilities provided US$6.4 million of cash.
Investing activities
Financing activities
Our net cash used in financing activities was approximately US$31.7 million for the year ended December 31, 2017, compared to net cash provided by financing activities of approximately US$2.2 million for the year ended December 31, 2016. Our cash used in financing activities in 2017 consists primarily of US$32.1 million of dividend payments.
Amount of Commitment Maturing by Year | ||||||||||||||||||||
Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | ||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Operating leases | 5,887 | 2,802 | 3,020 | 65 | — | |||||||||||||||
Capital leases | — | — | — | — | — | |||||||||||||||
Pension | 1,900 | 1,900 | (a) | (a) | (a) | |||||||||||||||
Long-term payable | 319 | 319 | — | — | — | |||||||||||||||
Other long term liabilities | 6,212 | 477 | 5,735 | — | — | |||||||||||||||
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Contractual cash obligations | 14,318 | 5,498 | 8,755 | 65 | — | |||||||||||||||
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Amount of Commitment Maturing by Year | ||||||||||||||||||||
Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | ||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Operating leases | 9,301 | 3,321 | 4,110 | 1,819 | 51 | |||||||||||||||
Pension | 2,167 | 2,167 | (a) | (a) | (a) | |||||||||||||||
Other contractual commitments | 5,735 | 5,735 | — | — | — | |||||||||||||||
Contractual cash obligations | 17,203 | 11,223 | 4,110 | 1,819 | 51 | |||||||||||||||
(a) | Our pension obligation after one year has not been estimated. |
Item 6. |
Directors, Senior Management and Employees |
Our executive officers are appointed by, and serve at the discretion of, our board of directors. The following table sets forth information regarding our directors and executive officers as of the date of this annual report.
|
| |||||
| ||||||
Name | Age | Position | ||||
James Chow | 69 | Chairman of the Board | ||||
Wallace C. Kou | 61 | President, Chief Executive Officer and Managing Director | ||||
Steve Chen | 48 | Director | ||||
Tsung-Ming Chung | 70 | Director | ||||
Lien-Chun Liu | 62 | Director | ||||
Yung-Chien Wang | 57 | Director | ||||
| 66 | Director | ||||
Kenneth Kuan-Ming Lin | 67 | Director | ||||
Riyadh Lai | 51 | Chief Financial Officer | ||||
Nelson Duann | 51 | Senior VP of Marketing & R&D | ||||
Arthur Yeh | 59 | VP of Sales, Asia and | ||||
Robert Fan | 56 | President of SMI USA | ||||
Ken Chen | 58 | VP of | ||||
Kevin Yeh | 56 | |||||
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| ||||||
| ||||||
| ||||||
| VP of R&D, Algorithm & Technology | |||||
Kevin Tsai | 54 | Senior Director of R&D, | ||||
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| ||||||
|
Sangwoo Han, Senior VP and General Manager, Mobile Communications
Mr. Han became the General Manager of our Mobile Communications product line in July 2008. He was formerly the Chief Technology Officer at FCI, a company that we acquired in April 2007. Mr. Han joined FCI in 2003 and had been in charge of product design, development, production and marketing. In 1997, heco-founded RF Solutions Inc. in Atlanta, Georgia, which became the Anadigics Wireless LAN Center of Excellence. Mr. Han has a BS in Electrical Engineering from Carnegie-Mellon University, an MS in Electrical Engineering from the University of Pennsylvania, and a PhD in Electrical Engineering from the Georgia Institute of Technology.
Xueshi Yang, Senior VP and General Manager, Shannon Systems
Mr. Yang joined us in July 2015 as General Manager of Shannon Systems, our enterprise SSD product line, following our acquisition of this business. Heco-founded Shannon Systems in 2011 and as CEO, led the development and commercialization of enterprise-grade PCIe SSDs that were the industry’s first in terms of storage capacity and scalability,ultra-low latency andlow-power envelope. Prior to Shannon, Mr. Yang was the chief architect at Marvell of its first generations of SSD controllers, a research staff at Seagate and postdoctoral researcher at Princeton University. He holds a PhD in Electrical Engineering from Drexel University and a BS in Electrical Engineering from Tsinghua University in China. Mr. Yang has more than 100 US patents granted or pending relating to SSDs.
Asia and Greater China
sales activities for semiconductor products. Mr. Yeh previously served in management positions at VIA Technologies for 10 years and joined us in 2004. Mr. Yeh holds an MS degree in Management Business Administration from the National Chung Hsing University in Taiwan.
John(Chun-O) Kim, VP of Sales, Mobile Communications
Mr. Kim became the Vice President of our Mobile Communications product line in July 2008. He was formerly the Vice President of Sales at FCI, a company that we acquired in April 2007. Mr. Kim joined FCI in 2006 and had previously served in management positions at Hewlett-Packard’s semiconductor division (which became Avago Technologies) and as a CEO of a private company. Mr. Kim has over 16 years of semiconductor sales leadership experience, including managing marketing strategies, product promotions and sales activities. He has an MS in Electrical Engineering from Ajou University in Korea.
David Yu, VP of Sales & Marketing, Shannon Systems
Mr. Yu joined us in July 2015 as Vice President of Sales & Marketing of Shannon Systems, our enterprise SSD product line, following our acquisition of this business. He joined Shannon Systems in 2014 and has been instrumental in managing its rapid sales growth. Previously and for over 10 years, he held sales leadership positions at Infineon and RF Micro Devices in China. He holds an MS in Management from the University of Ottawa and a BS in Electrical Engineering from Tsinghua University in China.
Leander Yu, VP of Sales & Marketing, Bigtera
Mr. Yu joined us in July 2017 as Vice President of Sales and Marketing of Bigtera, our software-defined storage (SDS) product line, following our acquisition of this business. He founded Bigtera in 2012 to provide enterprise-class SDS to the Greater China market. Prior to Bigtera, Mr. Yu was a senior architect at Trend Micro and its subsidiary TCloud Computing and responsible for the design of software solutions including cloud storage products. He has a BS in Computer Science and Information Engineering from National Taiwan University.
John (Jong Ryul) Lee, VP of R&D, Mobile Communications
Mr. Lee became the Vice President of our Mobile Communications product line in July 2008. He was formerly the Vice President of R&D at FCI, a company that we acquired in April 2007. Mr. Lee joined FCI in 2000 and had been in charge of product design, development, production and quality systems. In 2013, he became a director of the Semiconductor & Device Society of The Institute of Electronics Engineers of Korean (IEEK). He was previously a senior engineer at the Electronics and Telecommunications Research Institute (ETRI) in Korea. Mr. Lee has a BS and an MS in Electronics Engineering from Chung Ang University in Korea.
Derek Zhou, VP of R&D, Shannon Systems
Mr. Zhou joined us in July 2015 as Vice President of R&D of Shannon Systems, our enterprise SSD product line, following our acquisition of this business. Heco-founded Shannon Systems in 2011 with Mr. Yang and as CTO, managed the development of enterprise-grade PCIe SSDs that were the industry’s first in terms of storage capacity and scalability,ultra-low latency andlow-power envelope. Prior to Shannon, he was a senior ASIC design engineer with 10 years of experience at Nvidia and Chrontel. He holds an MS in Electrical Engineering from Binghamton University and a BS in Electrical Engineering from Tsinghua University in China.
Frank Shu, VP
Mike Jing, VP of IT
Mr. Jing became our Vice President of IT in August 2016. He joined Silicon Motion in January 2003 and currently leads our IT/MIS team. Prior to Silicon Motion, he worked for Teradyne. Mr. Jing has almost 30 years of experience in software development and IT management and holds a BS and MS in Computer Engineering from the National Chiao Tung University in Taiwan and an MS in Computer Science from the UniversityTaiwan.
years, with
In April 2005, our board of directors and shareholders adopted our 2005 Incentive Plan. Our shareholders approved our Amended and Restated 2005 Incentive Plan (referred to in this report as the “2005 Plan”) at our Annual General Meeting in August 2006, including an amendment to increase the authorized number of shares available for issuance under the plan from 10,000,000 shares to 25,000,000 shares. In 2009, the board of directors amended the 2005 Plan to increase the authorized shares available for issuance under the 2005 Plan to 40,000,000 shares. The 2005 Plan expired by its terms on April 22, 2015.
Amendments to 2005 Plan in 2009 and 2010. In 2009, our board of directors amended the 2005 Plan to (i) increase the authorized shares to 40,000,000 as discussed above and (ii) allow certain unilateral amendments to outstanding options and RSU grants. Shareholder approval for such amendments was not required under Cayman law and we used the home-country exemption for foreign private issuers under Nasdaq rules to effect such amendments without a shareholder vote. In 2009, the Company cancelled 1,221,875 RSUs. There were no changes to outstanding options in 2009. In 2010, the Company exchanged 4,369 thousand stock options for 3,785 thousand new stock options with a similar value.
As of December 31, | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Management and administration | 121 | 128 | 132 | |||||||||
Operations | 41 | 42 | 41 | |||||||||
Research and development | 767 | 861 | 897 | |||||||||
Sales and marketing | 193 | 219 | 237 | |||||||||
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| |||||||
Total | 1,122 | 1,250 | 1,307 | |||||||||
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|
|
As of December 31, | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
Management and administration | 128 | 132 | 120 | |||||||||
Operations | 42 | 41 | 33 | |||||||||
Research and development | 861 | 897 | 880 | |||||||||
Sales and marketing | 219 | 237 | 204 | |||||||||
Total | 1,250 | 1,307 | 1,237 | |||||||||
Shares Beneficially Owned | ||||||||
Number | % | |||||||
Executive Officers and Directors: | ||||||||
James Chow (1) | 2,361,266 | 1.62 | ||||||
Wallace C. Kou (2) | 1,861,248 | 1.27 | ||||||
Steve Chen | 40,000 | * | ||||||
Tsung-Ming Chung | 70,000 | * | ||||||
Lien-Chun Liu | 224,280 | * | ||||||
Yung-Chien Wang | 828,674 | * | ||||||
Han-Ping D. Shieh | 49,160 | * | ||||||
Kenneth Kuan-Ming Lin | 10,000 | * | ||||||
Riyadh Lai (3) | 2,090,980 | 1.43 | ||||||
Nelson Duann | 42,000 | * | ||||||
Sangwoo Han | 110,408 | * | ||||||
Xueshi Yang(4) | 608,644 | * | ||||||
Arthur Yeh | 43,848 | * | ||||||
Robert Fan | 52,000 | * | ||||||
John(Chun-O) Kim | 43,600 | * | ||||||
David Yu | 17,372 | * | ||||||
Ken Chen(5) | 204,049 | * | ||||||
Kevin Yeh | 76,200 | * | ||||||
John (Jong Ryul) Lee | 23,504 | * | ||||||
Derek Zhou(6) | 349,108 | * | ||||||
Leander Yu | — | * | ||||||
Frank Shu | 49,000 | * | ||||||
Mike Jing | 10,700 | * |
Shares Beneficially Owned | ||||||||
Number | % | |||||||
Executive Officers and Directors: | ||||||||
James Chow (1) | 2,381,266 | 1.69 | ||||||
Wallace C. Kou (2) | 1,917,248 | 1.36 | ||||||
Steve Chen | 50,000 | * | ||||||
Tsung-Ming Chung | 80,000 | * | ||||||
Lien-Chun Liu | 234,280 | * | ||||||
Yung-Chien Wang | 838,674 | * | ||||||
Han-Ping D. Shieh | 60,800 | * | ||||||
Kenneth Kuan-Ming Lin | 20,000 | * | ||||||
Riyadh Lai (3) | 1,793,580 | 1.28 | ||||||
Nelson Duann | 46,000 | * | ||||||
Arthur Yeh | 42,524 | * | ||||||
Robert Fan | 62,000 | * | ||||||
Ken Chen (4) | 200,649 | * | ||||||
Kevin Yeh | 60,600 | * | ||||||
Kevin Tsai | — | * |
* | Less than one percent |
(1) | Represents |
(2) | Represents |
(3) | Represents |
(4) | Represents |
|
Item 7. |
Major Shareholders and |
Identity of person or group | Number of shares owned | Percentage Owned(1) | ||||||
Massachusetts Financial Services Company | 10,934,092 | (2) | 7.5 | % | ||||
Lazard Asset Management LLC | 10,459,832 | (3) | 7.2 | % | ||||
ARGA Investment Management, LP and Avula Rama Krishna. | 7,688,452 | (4) | 5.3 | % | ||||
Investec Asset Management North America Inc. | 7,273,720 | (5) | 5.0 | % |
Identity of person or group | Number of shares owned | Percentage Owned (1) | ||||||
Massachusetts Financial Services Company | 15,272,360 | (2) | 10.9 | % | ||||
Cardinal Capital Management, LLC | 9,457,452 | (3) | 6.7 | % | ||||
Yiheng Capital Partners, L.P. | 7,906,040 | (4) | 5.6 | % | ||||
ARGA Investment Management, LP and Avula Rama Krishna. | 7,688,452 | (5) | 5.5 | % |
(1) | Based on |
(2) | Massachusetts Financial Services Company held |
(3) |
|
(4) | Yiheng Capital Partners, L.P. held 1,976,510 (representing 7,906,040 ordinary shares) according to a Schedule 13G filed April 6, 2020. |
(5) | ARGA Investment Management, LP and Avula Rama Krishna held 2,088,771 ADSs (representing 7,688,452 ordinary shares), according to a Schedule 13G dated February 11, 2019. |
|
Item 8. |
Financial Information |
Recent Developments
Item 9. |
The Offer and Listing |
In January 2019, the board of directors of the Company approved the sale of FCI, our specialty RF IC product line for the Mobile Communications market. On March 7, 2019, the Company entered into a definitive agreement with Dialog Semiconductor Plc for the sale of FCI for US$45 million. The transaction is expected to close in the second quarter of 2019, subject to Korean government approvals.
|
In April 2019, the board of directors approved the sale of the Company’s 49.0% equity interest in ProGrade for $1.7 million. The sale is expected to close in the second quarter of 2019.
|
In April 2019, key customers of our Shannon SSDs notified the Company that their revised full-year 2019 procurement forecasts will be significantly lower than what they had provided to us in January 2019. As a result, we reduced our Shannon SSD sales forecast to a level meaningfully below what we had planned in January as part of our annual operating plan. The primary reasons of the recently reduced sales forecast include: (i) increasingly risk-adverse customers have reduced procurement plans relating to SSD solutions based on new, less mature technologies such as ours, (ii) weakening economic conditions in China have caused Chinese data center operators to postpone expansion plans and reduce SSD procurement forecasts, including from us, and
(iii) NAND prices have fallen more than we had expected and could fall further, and this will result in less revenue received for the same petabyte of Shannon SSDs that we sell.
The reduced sales forecast represents a triggering event which will require the reevaluation of the reporting unit’s goodwill and intangible assets in the second quarter of 2019. Depending on further development of the situation and factors relevant to a revised financial forecast of the Shannon reporting unit, the impairment assessment may result in impairment of goodwill and of certain intangible assets; however, the Company cannot estimate the amount or a reasonable range of amounts of such impairments, if any, at this time. As of December 31, 2018, the carrying value of the reporting unit’s goodwill was $33.2 million and intangible assets were $1.0 million.
|
Price per ADS (US$) | ||||||||
High | Low | |||||||
Annual: | ||||||||
2014 | 28.96 | 12.92 | ||||||
2015 | 37.60 | 20.01 | ||||||
2016 | 55.85 | 27.41 | ||||||
2017 | 55.68 | 37.37 | ||||||
2018 | 61.85 | 31.73 | ||||||
Quarterly: | ||||||||
First Quarter, 2017 | 47.33 | 37.37 | ||||||
Second Quarter, 2017 | 55.68 | 44.00 | ||||||
Third Quarter, 2017 | 49.85 | 40.33 | ||||||
Fourth Quarter, 2017 | 55.12 | 46.50 | ||||||
First Quarter, 2018 | 56.51 | 42.57 | ||||||
Second Quarter, 2018 | 54.62 | 44.54 | ||||||
Third Quarter, 2018 | 61.85 | 47.88 | ||||||
Fourth Quarter, 2018 | 54.76 | 31.73 | ||||||
First Quarter, 2019 | 44.30 | 32.15 | ||||||
Second Quarter, 2019(1) | 43.08 | 36.43 | ||||||
Monthly | ||||||||
November 2018 | 40.99 | 31.73 | ||||||
December 2018 | 38.33 | 32.16 | ||||||
January 2019 | 40.37 | 32.15 | ||||||
February 2019 | 44.30 | 38.52 | ||||||
March 2019 | 42.83 | 38.06 | ||||||
April 2019 | 43.08 | 36.81 | ||||||
May 2019(1) | 42.88 | 36.43 |
Price per ADS (US$) | ||||||||
High | Low | |||||||
Annual: | ||||||||
2015 | 37.60 | 20.01 | ||||||
2016 | 55.85 | 27.41 | ||||||
2017 | 55.68 | 37.37 | ||||||
2018 | 61.85 | 31.73 | ||||||
2019 | 50.87 | 30.86 | ||||||
Quarterly: | ||||||||
First Quarter, 2018 | 56.51 | 42.57 | ||||||
Second Quarter, 2018 | 54.62 | 44.54 | ||||||
Third Quarter, 2018 | 61.85 | 47.88 | ||||||
Fourth Quarter, 2018 | 54.76 | 31.73 | ||||||
First Quarter, 2019 | 44.30 | 32.15 | ||||||
Second Quarter, 2019 | 44.41 | 36.43 | ||||||
Third Quarter, 2019 | 47.23 | 30.86 | ||||||
Fourth Quarter, 2019 | 50.87 | 34.73 | ||||||
First Quarter, 2020 | 53.04 | 26.72 | ||||||
Second Quarter, 2020 (1) | 52.46 | 35.10 | ||||||
Monthly | ||||||||
November 2019 | 44.55 | 41.18 | ||||||
December 2019 | 50.87 | 42.49 | ||||||
January 2020 | 53.04 | 45.62 | ||||||
February 2020 | 49.75 | 35.89 | ||||||
March 2020 | 38.58 | 26.72 | ||||||
April 2020 | 47.35 | 35.10 | ||||||
May 2020 | 52.46 | 41.04 | ||||||
June 2020 (1) | 47.43 | 43.89 |
(1) | Through |
Item 10. |
Additional Information |
the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and U.S. Treasury regulations, rulings and judicial decisions hereunder as of the date hereof. Such authorities are subject to change, possibly on a retroactive basis, which may result in U.S. federal income tax consequences different from those discussed below.
If we are a passive foreign investment company for any taxable year during which a U.S. Holder has an equity interest in our company, unless the U.S. Holder makes a
the disposition of, our ordinary shares unless the U.S. holder provides proof of an applicable exemption or correct taxpayer identification number, and otherwise complies with the applicable requirements of the backup withholding rules. A U.S. holder of our ordinary shares who provides an incorrect taxpayer identification number may be subject to penalties imposed by the IRS. Amounts withheld under the backup withholding rules are not an additional tax and may be refunded or credited against the U.S. holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS.
Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the Securities and Exchange Commission at the SEC’s public reference room in Washington D.C. at 100 F Street, N.E., Room 1580, Washington D.C. 20549. You can request copies of these documents upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
Item 11. |
Quantitative and Qualitative Disclosures About Market Risk |
bond funds, principal protected notes and interest expenses payable on our bank loans.notes. We have not entered into any interest rate swap transactions. We do not believe that a 1% change in interest rates would have a significant impact on our operations.2016, 2017, 2018 and 20182019 was US$(0.7) million, US$(0.2) million, US$(0.6) million and US$(0.6)0.1 million, respectively. Currently, the majority of our revenue, cost of sales, accounts receivable, and accounts payable are denominated in U.S. dollars. Increases in the value of the U.S. dollar relative to other currencies would make our products more expensive, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our suppliers raising their prices in order to continue doing business with us. Fluctuations in currency exchange rates could harm our business in the future. We do not utilize foreign exchange derivatives contracts to protect against changes in foreign exchange rates.We are subjectOur business, financial condition and results of operations could be adversely affected by the political and economic conditions of the countries in which we conduct business and other factors related to risks associated withour international operations which may harm our business.operations.”andwhich was accounted for this investment under the equity method.method and we disposal it in 2019. As of December 31, 2018,2019, the aggregate carrying value of these investments on our balance sheet was US$4.23.0 million. We monitor these investments for impairment and make appropriate reductions in carrying value when an impairment is deemed to be other than temporary. The impairments losses for the years ended on December 31, 2016, 2017, 2018 and 20182019 were US$13 thousand, US$120 thousand0.1 million, nil and nil, respectively.2018,2019, we also had the short-term investments of US$3.62.0 million in principal protected notes.ITEM DESCRIPTIONOF SECURITIES OTHER THAN EQUITY SECURITIES
2018,2019, we received from our depositary bank a reimbursement of US$0.80.6 million, net of withholding tax, for our continuing annual stock exchange listing fees and our other expenses incurred in connection with maintaining and promoting our ADS program. In addition, the depositary bank has agreed to reimburse us annually for a fixed number of years for our continuing annual stock exchange listing fees and our other expenses incurred in connection with maintaining and promoting our ADS program. The amount of annual reimbursements is subject to certain limits.
Item 13. |
Defaults, Dividend Arrearages and Delinquencies |
Item 14. |
Material Modifications to the Rights of Security Holders and Use of Proceeds |
Item 15. |
Controls and Procedures |
statements and included an explanatory paragraph regarding the Company’s adoption of a new accounting standard.
May 15, 2019
Item 16A. |
Audit Committee Financial Expert |
Item 16B. |
Code of Ethics |
Item 16C. |
Principal Accountant Fees and Services |
2017 | 2018 | |||||||
US$ | US$ | |||||||
(in thousands) | ||||||||
Audit Fees(1) | 880 | 1,011 | ||||||
Audit-Related Fees(2) | — | — | ||||||
Tax Fees(3) | 213 | 200 | ||||||
All Other Fees(4) | — | — | ||||||
Total | 1,093 | 1,211 |
2018 | 2019 | |||||||
US$ | US$ | |||||||
(in thousands) | ||||||||
Audit Fees (1) | 1,011 | 881 | ||||||
Audit-Related Fees (2) | — | — | ||||||
Tax Fees (3) | 200 | 200 | ||||||
All Other Fees (4) | — | — | ||||||
Total | 1,211 | 1,081 |
(1) |
|
(2) |
|
(3) |
|
(4) |
|
Item 16D. |
Exemptions from the Listing Standards for Audit Committees |
Item 16E. |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
Item 16F. |
Change in Registrant’s Certifying Accountant |
Item 16G. |
Corporate Governance |
Item 17. |
Financial Statements |
Item 18. |
Financial Statements |
Item 19. |
Exhibits |
|
| |||
13.1* | ||||
| ||||
23.1* | ||||
101.INS* | Inline XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |||
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
Exhibit Number | Description | |||
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |||
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||
104 | Cover Page Interactive Data File — the cover page XBRL tags are embedded within the Exhibit 101 Inline XBRL document set |
* | Filed herewith. |
Silicon Motion Technology Corporation | ||
By: | / | |
Wallace C. Kou, President and Chief Executive Officer |
F- 2 | ||||
F- 4 | ||||
F- 5 | ||||
F- 6 | ||||
F- 7 | ||||
F- 8 | ||||
F- 9 |
May 15, 2019
December 31 | ||||||||
2017 | 2018 | |||||||
US$ | US$ | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | 359,453 | 284,989 | ||||||
Short-term investments | 6,941 | 3,609 | ||||||
Notes and accounts receivable, net | 79,135 | 91,763 | ||||||
Inventories | 94,186 | 81,518 | ||||||
Restricted assets-current | 19,515 | 19,157 | ||||||
Noncurrent assets held for sale | — | 10,576 | ||||||
Prepaid expenses and other current assets | 9,567 | 6,878 | ||||||
|
|
|
| |||||
Total current assets | 568,797 | 498,490 | ||||||
Long-term investments | — | 4,242 | ||||||
Property and equipment, net | 51,370 | 101,410 | ||||||
Deferred income tax assets, net | 3,402 | 5,066 | ||||||
Goodwill | 58,964 | 58,331 | ||||||
Intangible assets, net | 7,429 | 1,021 | ||||||
Other assets | 3,770 | 4,054 | ||||||
|
|
|
| |||||
Total assets | 693,732 | 672,614 | ||||||
|
|
|
| |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Notes and accounts payable | 56,423 | 27,657 | ||||||
Bank loan | 25,000 | — | ||||||
Income tax payable | 11,492 | 4,163 | ||||||
Refund liabilities | — | 2,093 | ||||||
Current portion of long-term payable | 566 | 319 | ||||||
Accrued expenses and other current liabilities | 83,763 | 79,419 | ||||||
|
|
|
| |||||
Total current liabilities | 177,244 | 113,651 | ||||||
Long-term payable, net of current portion | 108 | — | ||||||
Other long-term liabilities | 22,329 | 26,686 | ||||||
|
|
|
| |||||
Total liabilities | 199,681 | 140,337 | ||||||
|
|
|
| |||||
Commitments and Contingencies (Note 19) | ||||||||
Shareholders’ Equity | ||||||||
Ordinary Shares at US$ 0.01 par value per share | ||||||||
Authorized: 500,000 thousand shares | ||||||||
Issued and outstanding: 143,162 thousand shares in 2017 and 144,679 thousand shares in 2018 | 1,431 | 1,447 | ||||||
Additionalpaid-in capital | 242,487 | 263,230 | ||||||
Accumulated other comprehensive income | 2,643 | 495 | ||||||
Retained Earnings | 247,490 | 301,860 | ||||||
Treasury Stock | — | (34,755 | ) | |||||
|
|
|
| |||||
Total shareholders’ equity | 494,051 | 532,277 | ||||||
|
|
|
| |||||
Total liabilities and shareholders’ equity | 693,732 | 672,614 | ||||||
|
|
|
|
December 31 | ||||||||
2018 | 2019 | |||||||
US$ | US$ | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | 284,989 | 323,166 | ||||||
Short-term investments | 3,609 | 2,010 | ||||||
Notes and accounts receivable, net | 91,763 | 108,734 | ||||||
Inventories | 81,518 | 88,439 | ||||||
Restricted assets-current | 19,157 | 24,085 | ||||||
Noncurrent assets held for sale | 10,576 | 10,405 | ||||||
Prepaid expenses and other current assets | 6,878 | 8,360 | ||||||
Total current assets | 498,490 | 565,199 | ||||||
Long-term investments | 4,242 | 3,000 | ||||||
Property and equipment, net | 101,410 | 98,488 | ||||||
Deferred income tax assets, net | 5,066 | 3,948 | ||||||
Goodwill | 58,331 | 17,489 | ||||||
Intangible assets, net | 1,021 | — | ||||||
Operating lease assets | — | 8,603 | ||||||
Other assets | 4,054 | 1,002 | ||||||
Total assets | 672,614 | 697,729 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Notes and accounts payable | 27,657 | 30,687 | ||||||
Income tax payable | 4,163 | 2,465 | ||||||
Refund liabilities | 2,093 | 2,260 | ||||||
Current portion of long-term payable | 319 | — | ||||||
Accrued expenses and other current liabilities | 79,419 | 96,076 | ||||||
Total current liabilities | 113,651 | 131,488 | ||||||
Other long-term liabilities | 26,686 | 29,457 | ||||||
Total liabilities | 140,337 | 160,945 | ||||||
Commitments and Contingencies (Note 19) | ||||||||
Shareholders’ Equity | ||||||||
Ordinary Shares at US$0.01 par value per share | ||||||||
Authorized: 500,000 thousand shares | ||||||||
Issued and outstanding: 144,679 thousand shares in 2018 and 139,110thousand shares in 2019 | 1,447 | 1,391 | ||||||
Additional paid-in capital | 263,230 | 265,210 | ||||||
Accumulated other comprehensive income (loss) | 495 | (785 | ) | |||||
Retained Earnings | 301,860 | 270,968 | ||||||
Treasury Stock | (34,755 | ) | — | |||||
Total shareholders’ equity | 532,277 | 536,784 | ||||||
Total liabilities and shareholders’ equity | 672,614 | 697,729 | ||||||
Year Ended December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
NET SALES | 556,146 | 523,404 | 530,348 | |||||||||
COST OF SALES | 281,541 | 272,210 | 269,541 | |||||||||
|
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|
|
|
| |||||||
GROSS PROFIT | 274,605 | 251,194 | 260,807 | |||||||||
|
|
|
|
|
| |||||||
OPERATING EXPENSES | ||||||||||||
Research and development | 92,405 | 102,053 | 102,028 | |||||||||
Sales and marketing | 25,765 | 25,868 | 29,279 | |||||||||
General and administrative | 17,072 | 16,933 | 17,633 | |||||||||
Impairment of goodwill and intangible assets | — | 10,337 | 4,069 | |||||||||
Amortization of intangible assets | 2,103 | 2,534 | 2,964 | |||||||||
Gain from disposal of noncurrent assets held for sale | — | (1,880 | ) | — | ||||||||
|
|
|
|
|
| |||||||
Total operating expenses | 137,345 | 155,845 | 155,973 | |||||||||
|
|
|
|
|
| |||||||
OPERATING INCOME | 137,260 | 95,349 | 104,834 | |||||||||
|
|
|
|
|
| |||||||
NON-OPERATING INCOME (EXPENSES) | ||||||||||||
Gain from disposal of short-term investments | 2 | 103 | 134 | |||||||||
Interest income | 2,158 | 4,268 | 6,301 | |||||||||
Foreign exchange gain (loss), net | (692 | ) | (157 | ) | (615 | ) | ||||||
Impairment of long-term investments | (13 | ) | (120 | ) | — | |||||||
Interest expense | (127 | ) | (423 | ) | (378 | ) | ||||||
Loss on equity-method investment | — | — | (473 | ) | ||||||||
Other income (loss), net | 42 | (19 | ) | 58 | ||||||||
|
|
|
|
|
| |||||||
Totalnon-operating income | 1,370 | 3,652 | 5,027 | |||||||||
|
|
|
|
|
| |||||||
INCOME BEFORE INCOME TAX | 138,630 | 99,001 | 109,861 | |||||||||
INCOME TAX EXPENSE | 27,690 | 24,046 | 11,791 | |||||||||
|
|
|
|
|
| |||||||
NET INCOME | 110,940 | 74,955 | 98,070 | |||||||||
|
|
|
|
|
| |||||||
EARNINGS PER ORDINARY SHARE: | ||||||||||||
Basic | 0.79 | 0.53 | 0.68 | |||||||||
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|
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| |||||||
Diluted | 0.78 | 0.52 | 0.68 | |||||||||
|
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| |||||||
WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING | ||||||||||||
Basic (Thousands) | 140,919 | 142,738 | 144,123 | |||||||||
|
|
|
|
|
| |||||||
Diluted (Thousands) | 142,050 | 143,606 | 144,512 | |||||||||
|
|
|
|
|
| |||||||
EARNINGS PER ADS (one ADS equals four ordinary shares): | ||||||||||||
Basic | 3.15 | 2.10 | 2.72 | |||||||||
|
|
|
|
|
| |||||||
Diluted | 3.12 | 2.09 | 2.71 | |||||||||
|
|
|
|
|
| |||||||
WEIGHTED AVERAGE ADS OUTSTANDING | ||||||||||||
Basic (Thousands) | 35,230 | 35,684 | 36,031 | |||||||||
|
|
|
|
|
| |||||||
Diluted (Thousands) | 35,513 | 35,902 | 36,128 | |||||||||
|
|
|
|
|
|
Year Ended December 31 | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
NET SALES | 523,404 | 530,348 | 457,253 | |||||||||
COST OF SALES | 272,210 | 269,541 | 235,081 | |||||||||
GROSS PROFIT | 251,194 | 260,807 | 222,172 | |||||||||
OPERATING EXPENSES | ||||||||||||
Research and development | 102,053 | 102,028 | 110,305 | |||||||||
Sales and marketing | 25,868 | 29,279 | 25,108 | |||||||||
General and administrative | 16,933 | 17,633 | 17,878 | |||||||||
Impairment of goodwill and intangible assets | 10,337 | 4,069 | 15,970 | |||||||||
Amortization of intangible assets | 2,534 | 2,964 | 766 | |||||||||
Gain from disposal of noncurrent assets held for sale | (1,880 | ) | — | — | ||||||||
Total operating expenses | 155,845 | 155,973 | 170,027 | |||||||||
OPERATING INCOME | 95,349 | 104,834 | 52,145 | |||||||||
NON-OPERATING INCOME (EXPENSES) | ||||||||||||
Gain from disposal of subsidiary | — | — | 12,409 | |||||||||
Gain from disposal of long-term investments | — | — | 473 | |||||||||
Gain from disposal of short-term investments | 103 | 134 | 48 | |||||||||
Interest income | 4,268 | 6,301 | 6,751 | |||||||||
Foreign exchange gain (loss), net | (157 | ) | (615 | ) | 148 | |||||||
Impairment of long-term investments | (120 | ) | — | — | ||||||||
Interest expense | (423 | ) | (378 | ) | (3 | ) | ||||||
Loss on equity-method investment | — | (473 | ) | — | ||||||||
Other income (loss), net | (19 | ) | 58 | 103 | ||||||||
Total non-operating income | 3,652 | 5,027 | 19,929 | |||||||||
INCOME BEFORE INCOME TAX | 99,001 | 109,861 | 72,074 | |||||||||
INCOME TAX EXPENSE | 24,046 | 11,791 | 7,676 | |||||||||
NET INCOME | 74,955 | 98,070 | 64,398 | |||||||||
EARNINGS PER ORDINARY SHARE: | ||||||||||||
Basic | 0.53 | 0.68 | 0.46 | |||||||||
Diluted | 0.52 | 0.68 | 0.46 | |||||||||
WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING | ||||||||||||
Basic (Thousands) | 142,738 | 144,123 | 140,708 | |||||||||
Diluted (Thousands) | 143,606 | 144,512 | 141,183 | |||||||||
EARNINGS PER ADS (one ADS equals four ordinary shares): | ||||||||||||
Basic | 2.10 | 2.72 | 1.83 | |||||||||
Diluted | 2.09 | 2.71 | 1.82 | |||||||||
WEIGHTED AVERAGE ADS OUTSTANDING | ||||||||||||
Basic (Thousands) | 35,684 | 36,031 | 35,177 | |||||||||
Diluted (Thousands) | 35,902 | 36,128 | 35,296 | |||||||||
Year Ended December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
NET INCOME | 110,940 | 74,955 | 98,070 | |||||||||
|
|
|
|
|
| |||||||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX EFFECT OF NIL | ||||||||||||
Change in net foreign currency translation adjustments | (1,555 | ) | 3,390 | (2,148 | ) | |||||||
Change in deferred pension gain (loss) | (110 | ) | 285 | — | ||||||||
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|
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| |||||||
OTHER COMPREHENSIVE INCOME (LOSS) | (1,665 | ) | 3,675 | (2,148 | ) | |||||||
|
|
|
|
|
| |||||||
TOTAL COMPREHENSIVE INCOME | 109,275 | 78,630 | 95,922 | |||||||||
|
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|
|
|
Year Ended December 31 | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
NET INCOME | 74,955 | 98,070 | 64,398 | |||||||||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX EFFECT OF NIL | ||||||||||||
Change in net foreign currency translation adjustments | 3,390 | (2,148 | ) | (1,265 | ) | |||||||
Change in deferred pension gain (loss) | 285 | — | (15 | ) | ||||||||
OTHER COMPREHENSIVE INCOME (LOSS) | 3,675 | (2,148 | ) | (1,280 | ) | |||||||
TOTAL COMPREHENSIVE INCOME | 78,630 | 95,922 | 63,118 | |||||||||
Ordinary Share | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Total Shareholders’ Equity | |||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||
(thousands) | US$ | US$ | US$ | US$ | US$ | US$ | ||||||||||||||||||||||
BALANCE, JANUARY 1, 2016 | 139,521 | 1,395 | 209,243 | 633 | 133,227 | — | 344,498 | |||||||||||||||||||||
Net income | — | — | — | — | 110,940 | — | 110,940 | |||||||||||||||||||||
Other comprehensive income | — | — | — | (1,665 | ) | — | — | (1,665 | ) | |||||||||||||||||||
Stock-based compensation expenses | — | — | 17,364 | — | — | — | 17,364 | |||||||||||||||||||||
Issuance of ordinary shares upon exercise of employee stock options and restricted stock units | 1,790 | 18 | 51 | — | — | — | 69 | |||||||||||||||||||||
Dividends declared (US$0.20 per ordinary share) | — | — | — | — | (28,443 | ) | — | (28,443 | ) | |||||||||||||||||||
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| |||||||||||||||
BALANCE, DECEMBER 31, 2016 | 141,311 | 1,413 | 226,658 | (1,032 | ) | 215,724 | — | 442,763 | ||||||||||||||||||||
Net income | — | — | — | — | 74,955 | — | 74,955 | |||||||||||||||||||||
Other comprehensive income | — | — | — | 3,675 | — | — | 3,675 | |||||||||||||||||||||
Stock-based compensation expenses | — | — | 15,494 | — | — | — | 15,494 | |||||||||||||||||||||
Issuance of ordinary shares upon exercise of employee stock options and restricted stock units | 1,851 | 18 | 335 | — | — | — | 353 | |||||||||||||||||||||
Dividends declared (US$0.30 per ordinary share) | — | — | — | — | (43,189 | ) | — | (43,189 | ) | |||||||||||||||||||
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BALANCE, DECEMBER 31, 2017 | 143,162 | 1,431 | 242,487 | 2,643 | 247,490 | — | 494,051 | |||||||||||||||||||||
Net income | — | — | — | — | 98,070 | — | 98,070 | |||||||||||||||||||||
Other comprehensive income | — | — | — | (2,148 | ) | — | — | (2,148 | ) | |||||||||||||||||||
Stock-based compensation expenses | — | — | 20,779 | — | — | — | 20,779 | |||||||||||||||||||||
Issuance of ordinary shares upon exercise of employee stock options and restricted stock units | 1,517 | 16 | (36 | ) | — | — | — | (20 | ) | |||||||||||||||||||
Share repurchase | — | — | — | — | — | (34,755 | ) | (34,755 | ) | |||||||||||||||||||
Dividends declared (US$0.30 per ordinary share) | — | — | — | — | (43,700 | ) | — | (43,700 | ) | |||||||||||||||||||
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BALANCE, DECEMBER 31, 2018 | 144,679 | 1,447 | 263,230 | 495 | 301,860 | (34,755 | ) | 532,277 | ||||||||||||||||||||
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Ordinary Share | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Total Shareholders’ Equity | |||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||
(thousands) | US$ | US$ | US$ | US$ | US$ | US$ | ||||||||||||||||||||||
BALANCE, JANUARY 1, 2017 | 141,311 | 1,413 | 226,658 | (1,032 | ) | 215,724 | — | 442,763 | ||||||||||||||||||||
Net income | — | — | — | — | 74,955 | — | 74,955 | |||||||||||||||||||||
Other comprehensive income | — | — | — | 3,675 | — | — | 3,675 | |||||||||||||||||||||
Stock-based compensation expenses | — | — | 15,494 | — | — | — | 15,494 | |||||||||||||||||||||
Issuance of ordinary shares upon exercise of employee stock options and restricted stock units | 1,851 | 18 | 335 | — | — | — | 353 | |||||||||||||||||||||
Dividends declared (US$0.30 per ordinary share) | — | — | — | — | (43,189 | ) | — | (43,189 | ) | |||||||||||||||||||
BALANCE, DECEMBER 31, 2017 | 143,162 | 1,431 | 242,487 | 2,643 | 247,490 | — | 494,051 | |||||||||||||||||||||
Net income | — | — | — | — | 98,070 | — | 98,070 | |||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | (2,148 | ) | — | — | (2,148 | ) | |||||||||||||||||||
Stock-based compensation expenses | — | — | 20,779 | — | — | — | 20,779 | |||||||||||||||||||||
Issuance of ordinary shares upon exercise of employee stock options and restricted units | 1,517 | 16 | (36 | ) | — | — | — | (20 | ) | |||||||||||||||||||
Share repurchase | — | — | — | — | — | (34,755 | ) | (34,755 | ) | |||||||||||||||||||
Dividends declared (US$0.30 per ordinary share) | — | — | — | — | (43,700 | ) | — | (43,700 | ) | |||||||||||||||||||
BALANCE, DECEMBER 31, 2018 | 144,679 | 1,447 | 263,230 | 495 | 301,860 | (34,755 | ) | 532,277 | ||||||||||||||||||||
Net income | — | — | — | — | 64,398 | — | 64,398 | |||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | (1,280 | ) | — | — | (1,280 | ) | |||||||||||||||||||
Stock-based compensation expenses | — | — | 14,591 | — | — | — | 14,591 | |||||||||||||||||||||
Issuance of ordinary shares upon exercise of restricted stock | 1,505 | 15 | (37 | ) | — | — | — | (22 | ) | |||||||||||||||||||
Share repurchase | — | — | — | — | — | (25,103 | ) | (25,103 | ) | |||||||||||||||||||
Treasury stock retired | (7,074 | ) | (71 | ) | (12,574 | ) | — | (47,213 | ) | 59,858 | — | |||||||||||||||||
Dividends declared (US$0.35 per ordinary share) | — | — | — | — | (48,077 | ) | — | (48,077 | ) | |||||||||||||||||||
BALANCE, DECEMBER 31, 2019 | 139,110 | 1,391 | 265,210 | (785 | ) | 270,968 | — | 536,784 | ||||||||||||||||||||
Year Ended December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net income | 110,940 | 74,955 | 98,070 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 9,482 | 10,599 | 11,832 | |||||||||
Amortization of intangible assets | 2,103 | 2,534 | 2,964 | |||||||||
Gain from disposal of short-term investments | (2 | ) | (103 | ) | (134 | ) | ||||||
Loss on equity-method investment | — | — | 473 | |||||||||
Impairment of long-term investments | 13 | 120 | — | |||||||||
Stock-based compensation | 17,364 | 15,494 | 20,779 | |||||||||
Loss on disposal of property and equipment | 33 | 4 | 66 | |||||||||
Impairment of goodwill and intangible assets | — | 10,337 | 4,069 | |||||||||
Gain from disposal of noncurrent assets held for sale | — | (1,880 | ) | — | ||||||||
Deferred income taxes | (3,373 | ) | 581 | (1,664 | ) | |||||||
Changes in operating assets and liabilities: | ||||||||||||
Short-term investments | (2,710 | ) | (3,208 | ) | 3,240 | |||||||
Notes and accounts receivable | (14,620 | ) | (5,156 | ) | (12,628 | ) | ||||||
Inventories | (24,777 | ) | (22,299 | ) | 12,668 | |||||||
Prepaid expenses and other current assets | (1,313 | ) | 1,585 | 2,689 | ||||||||
Other assets | (5 | ) | (138 | ) | 142 | |||||||
Notes and accounts payable | 9,198 | 24,248 | (28,766 | ) | ||||||||
Refund liabilities | — | — | 2,093 | |||||||||
Accrued expenses and other current liabilities | 12,180 | 458 | (4,679 | ) | ||||||||
Income tax payable | 6,876 | (8,779 | ) | (7,329 | ) | |||||||
Other liabilities | 4,179 | 4,529 | 4,357 | |||||||||
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Net cash provided by operating activities | 125,568 | 103,881 | 108,242 | |||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Purchase of long-term investment | — | — | (4,715 | ) | ||||||||
Proceeds from sale ofheld-to-maturity financial assets | 4,000 | — | — | |||||||||
Businessacquisition-net of cash, cash equivalents, and restricted cash acquired | — | (2,865 | ) | — | ||||||||
Purchase of property and equipment | (12,220 | ) | (11,683 | ) | (74,853 | ) | ||||||
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Net cash used in investing activities | (8,220 | ) | (14,548 | ) | (79,568 | ) | ||||||
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CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Proceeds from issuance of ordinary shares upon exercise of employee stock options | 93 | 380 | — | |||||||||
Proceeds from bank loan | 25,000 | 25,000 | — | |||||||||
Repayments of bank loan | — | (25,000 | ) | (25,000 | ) | |||||||
Dividends paid | (22,899 | ) | (32,120 | ) | (43,281 | ) | ||||||
Share repurchase | — | — | (33,539 | ) | ||||||||
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Net cash provided by (used in) financing activities | 2,194 | (31,740 | ) | (101,820 | ) | |||||||
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NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 119,542 | 57,593 | (73,146 | ) | ||||||||
EFFECT OF EXCHANGE RATE CHANGES | (521 | ) | 2,753 | (1,250 | ) | |||||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR | 202,156 | 321,177 | 381,523 | |||||||||
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CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF YEAR | 321,177 | 381,523 | 307,127 | |||||||||
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SUPPLEMENTAL INFORMATION | ||||||||||||
Interest paid | 105 | 367 | 376 | |||||||||
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Income taxes paid | 24,300 | 30,910 | 13,792 | |||||||||
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Acquisition of Bigtera (Note 3) | ||||||||||||
Fair value of assets acquired, net of cash, cash equivalents, and restricted cash acquired | — | 4,586 | — | |||||||||
Other current liabilities | — | (1,244 | ) | — | ||||||||
Other long-term liabilities | — | (477 | ) | — | ||||||||
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| |||||||
Cash paid for business acquisition, net of cash, cash equivalents, and restricted cash acquired | — | 2,865 | — | |||||||||
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Year Ended December 31 | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net income | 74,955 | 98,070 | 64,398 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 10,599 | 11,832 | 12,447 | |||||||||
Amortization of intangible assets | 2,534 | 2,964 | 766 | |||||||||
Gain from disposal of short-term investments | (103 | ) | (134 | ) | (48 | ) | ||||||
Gain from disposal of subsidiary | — | — | (12,409 | ) | ||||||||
Gain from disposal of long-term investments | — | — | (473 | ) | ||||||||
Loss on equity-method investment | — | 473 | — | |||||||||
Impairment of long-term investments | 120 | — | — | |||||||||
Stock-based compensation | 15,494 | 20,779 | 14,591 | |||||||||
Loss on disposal of property and equipment | 4 | 66 | 22 | |||||||||
Impairment of goodwill and intangible assets | 10,337 | 4,069 | 15,970 | |||||||||
Gain from disposal of noncurrent assets held for sale | (1,880 | ) | — | — | ||||||||
Deferred income taxes | 581 | (1,664 | ) | 1,118 | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Short-term investments | (3,208 | ) | 3,240 | 1,627 | ||||||||
Notes and accounts receivable | (5,156 | ) | (12,628 | ) | (18,755 | ) | ||||||
Inventories | (22,299 | ) | 12,668 | (10,155 | ) | |||||||
Prepaid expenses and other current assets | 1,585 | 2,689 | (1,932 | ) | ||||||||
Other assets | (138 | ) | 142 | (397 | ) | |||||||
Notes and accounts payable | 24,248 | (28,766 | ) | 4,426 | ||||||||
Refund liabilities | — | 2,093 | 167 | |||||||||
Accrued expenses and other current liabilities | 458 | (4,679 | ) | 10,607 | ||||||||
Income tax payable | (8,779 | ) | (7,329 | ) | (1,698 | ) | ||||||
Other liabilities | 4,529 | 4,357 | (2,577 | ) | ||||||||
Net cash provided by operating activities | 103,881 | 108,242 | 77,695 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Purchase of long-term investment | — | (4,715 | ) | — | ||||||||
Proceeds from sale of subsidiary | — | — | 43,968 | |||||||||
Proceeds from sale of long-term investment | — | — | 1,715 | |||||||||
Business acquisition-net of cash, cash equivalents, and restricted cash acquired | (2,865 | ) | — | — | ||||||||
Purchase of property and equipment | (11,683 | ) | (74,853 | ) | (11,015 | ) | ||||||
Net cash provided by (used in) investing activities | (14,548 | ) | (79,568 | ) | 34,668 | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Proceeds from issuance of ordinary shares upon exercise of employee stock options | 380 | — | — | |||||||||
Proceeds from bank loan | 25,000 | — | — | |||||||||
Repayments of bank loan | (25,000 | ) | (25,000 | ) | — | |||||||
Dividends paid | (32,120 | ) | (43,281 | ) | (44,029 | ) | ||||||
Share repurchase | — | (33,539 | ) | (26,231 | ) | |||||||
Net cash used in financing activities | (31,740 | ) | (101,820 | ) | (70,260 | ) | ||||||
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 57,593 | (73,146 | ) | 42,103 | ||||||||
EFFECT OF EXCHANGE RATE CHANGES | 2,753 | (1,250 | ) | (977 | ) | |||||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF YEAR | 321,177 | 381,523 | 307,127 | |||||||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF YEAR | 381,523 | 307,127 | 348,253 | |||||||||
SUPPLEMENTAL INFORMATION | ||||||||||||
Interest paid | 367 | 376 | — | |||||||||
Income taxes paid | 30,910 | 13,792 | 5,612 | |||||||||
Acquisition of Bigtera | ||||||||||||
Fair value of assets acquired, net of cash, cash equivalents, and restricted cash acquired | 4,586 | — | — | |||||||||
Other current liabilities | (1,244 | ) | — | — | ||||||||
Other long-term liabilities | (477 | ) | — | — | ||||||||
Cash paid for business acquisition, net of cash, cash equivalents, and restricted cash acquired | 2,865 | — | — | |||||||||
Disposal of FCI | ||||||||||||
Total consideration | — | — | 54,129 | |||||||||
Other current assets | — | — | (245 | ) | ||||||||
Cash and restricted cash disposed | — | — | (9,916 | ) | ||||||||
Proceeds from sale of subsidiary | — | — | 43,968 | |||||||||
ORGANIZATION AND OPERATIONS
These short-term investments consist mostly of bond funds and principal protected notes that are bought and held principally for the purpose of selling them in the near term and are classified as trading securities as well as senior notes classified as
Non-current
2019.
test measures the amount of the impairment loss, if any, by comparing the implied fair value of goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess. The implied fair value of goodwill is calculated in the same manner that goodwill is calculated in a business combination, whereby the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit, with the excess purchases price over the amounts assigned to assets and liabilities.
benefit.
application, the Company revised its revenue recognition policy. The Company now recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Under the new revenue recognition standard, the Company applies the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The effect of retrospectively applying ASC 606 is detailed below:
As previously Reported | New Revenue Standard Adjustment | As Adjusted | ||||||||||
Impact on Assets and liabilities | ||||||||||||
Refund liabilities | $ | — | $ | 2,093 | $ | 2,093 | ||||||
Allowance for sales returns and discounts* | 2,093 | (2,093 | ) | — | ||||||||
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| |||||||
Total effect on Assets and liabilities | $ | 2,093 | $ | — | $ | 2,093 | ||||||
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|
significantly enhancing existing products as well as expenditures incurred for the design and testing of product alternatives. All expenditures related to research and development activities of the Company are charged to operating expenses when incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved.
Year Ended December 31, 2016 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | ||||||||||||||||||||||||||||||||||
US$ | US$ | US$ | ||||||||||||||||||||||||||||||||||
Foreign currency items | Defined benefit pension plans | Accumulated other comprehensive income (loss) | Foreign currency items | Defined benefit pension plans | Accumulated other comprehensive income (loss) | Foreign currency items | Defined benefit pension plans | Accumulated other comprehensive income (loss) | ||||||||||||||||||||||||||||
Beginning balance | 1,486 | (853 | ) | 633 | (69 | ) | (963 | ) | (1,032 | ) | 3,321 | (678 | ) | 2,643 | ||||||||||||||||||||||
Current-period change | (1,555 | ) | (110 | ) | (1,665 | ) | 3,390 | 285 | 3,675 | (2,148 | ) | — | (2,148 | ) | ||||||||||||||||||||||
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Ending balance | (69 | ) | (963 | ) | (1,032 | ) | 3,321 | (678 | ) | 2,643 | 1,173 | (678 | ) | 495 | ||||||||||||||||||||||
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2019
Year Ended December 31, 201 7 | Year Ended December 31, 201 8 | Year Ended December 31, 201 9 | ||||||||||||||||||||||||||||||||||
US$ | US$ | US$ | ||||||||||||||||||||||||||||||||||
Foreign currency items | Defined benefit pension plans | Accumulated other comprehensive income (loss) | Foreign currency items | Defined benefit pension plans | Accumulated other comprehensive income (loss) | Foreign currency items | Defined benefit pension plans | Accumulated other comprehensive income (loss) | ||||||||||||||||||||||||||||
Beginning balance | (69 | ) | (963 | ) | (1,032 | ) | 3,321 | (678 | ) | 2,643 | 1,173 | (678 | ) | 495 | ||||||||||||||||||||||
Current-period change | 3,390 | 285 | 3,675 | (2,148 | ) | — | (2,148 | ) | (1,265 | ) | (15 | ) | (1,280 | ) | ||||||||||||||||||||||
Ending balance | 3,321 | (678 | ) | 2,643 | 1,173 | (678 | ) | 495 | (92 | ) | (693 | ) | (785 | ) | ||||||||||||||||||||||
Dividends
The board of directors declared payment of our first quarterly dividend on our common stock in January 2013 and the first dividend payment was made on March 4, 2013. The board of directors has subsequently declared and paid dividends in each successive quarter. Beginning on November 2, 2015, the board of directors, instead of declaring a quarterly dividend, declared an annual dividend payable in four quarterly installments. The payment of future cash dividends are subject to the Board’s continuing determination that the payment of dividends are in the best interests of the Company’s shareholders and are in compliance with all laws and agreements of the Company applicable to the declaration and payment of cash dividends.
In May 2014, the FASB issued a new standard related to revenue recognition. Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued an amendment to defer the effective date. The new standard is effective for fiscal years beginning after December 15, 2017 and early adoption is permitted for annual reporting periods beginning after December 15, 2016. In March and April 2016, the FASB issued two accounting updates to clarify the implementation guidance on principal versus agent considerations, performance obligations and licensing. In addition, the FASB issued another accounting update in May 2016 to address narrow-scope improvements to the guidance on collectability, noncash consideration, and completed contracts at transition and provides a practical expedient for contract modifications at transition. The new guidance is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company adopted this new standard using the modified retrospective method with the cumulative effect of initially applying it recognized at the date of initial application. The adoption of this new standard did not have a material impact on the Company’s financial position, results of operations, cash flow and financial statement disclosures.
In January 2016, the FASB issued an accounting update regarding the subsequent measurement of equity investment. The amendment requires all equity investment to be measured at fair value with changes in the fair value recognized through net income other than those accounted for under equity method of accounting or those that result in consolidation of the investee. The amendment also simplifies the impairment assessment of equity investments without readily determinable fair value by requiring assessment for impairment qualitatively and eliminating the complexity of the other-than-temporary impairment guidance. For financial reporting, the amendment requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendment eliminates the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. In February 2018, the FASB issued an accounting update to further clarify certain aspects of the guidance in the recognition and the measurement of financial assets and financial liabilities. The amendments are effective for fiscal years beginning after December 15, 2017 and early application is prohibited. The adoption of this amendment did not have a material impact on the Company’s financial position, results of operations, cash flow and financial statement disclosures.
In February 2016, the FASB issued a new standard regarding leases (Topic 842). The new standard requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases other than
that the entity elects the short-term lease recognition and measurement exemption. Qualitative and quantitative disclosures will be enhanced to better understand the amount, timing and uncertainty of cash flows arising from leases. In January 2018, the FASB issued an amendment permits an entity to elect an optional transition practical expedient to not evaluate under Topic 842 land easements that exist or expired before the entity’s adoption of Topic 842 and that were not previously accounted for as leases under Topic 840, the current standard regarding leases. In July 2018, the FASB issued two amendments to (1) clarify how to apply certain aspects of the new leases standard addressing the rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, among other issues; (2) provide an optional transition method that allows the entity to initially apply the new lease requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restating prior periods; and (3) provide an practical expedients that lease and associatednon-lease components are not required to be separated within lessor arrangements if certain criteria are met. In addition, in December 2018, the FASB issued another accounting update regarding lease to clarify guidance for lessors on sales taxes and other similar taxes collected from lessees, certain lessor costs and recognition of variable payments for contracts with lease andnon-lease components. The standard is effective for the Company beginning on January 1, 2019. The Company is adopting the new lease accounting standard using a modified retrospective method and will not restate comparative periods. The Company expects that the adoption of the new leasing standard will result in recognition of US$7,886 thousand in lease relatedright-of-use assets and liabilities on the Company’s consolidated balance sheet, primarily related to office buildings.
In August 2016, the FASB issued an accounting update to clarify the following eight cash flow classification issues: (1) debt prepayment or debt extinguishment costs, (2) settlement ofzero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after the acquisition date of a business combination, (4) proceeds received from the settlement of insurance claims, (5) proceeds received from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows and application of the predominance principle. The amendment is an improvement to reduce the current and potential future diversity in practice. The amendment is effective for fiscal years beginning after December 15, 2017, and earlier adoption is permitted. In addition, the amendment should be applied using a retrospective transition method to each period presented. The adoption of the amendments did not have a material impact on the Company’s statement of cash flows.
In October 2016, the FASB issued an accounting update to simplify the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The amendment removes the prohibition against the recognition of current and deferred income tax effects of intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The amendment is effective for fiscal years beginning after December 15, 2017, and earlier adoption is permitted. The adoption of this amendment did not have a
material impact on the Company’s financial position, results of operations, cash flow and financial statement disclosures.
In November 2016, the FASB issued an accounting update related to the classification and presentation of changes in restricted cash on the statement of cash flows. The amendment requires restricted cash or restricted cash equivalents should be included with cash and cash equivalent when reconciling thebeginning-of-period andend-of-period total amounts shown on the statement of cash flows. The amendment is effective for fiscal years beginning after December 15, 2017, and early adoption is permitted. The Company has elected to adopt the amendment as of December 31, 2016, and the retrospective transition approach is applied to prior reporting periods presented.
In January 2017, the FASB issued an accounting update to clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendment provides a screen to determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the amendment requires that to be considered a business, a set must include an input and a substantive process that together significantly contribute to the ability to create output. The amendment is effective for fiscal years beginning after December 15, 2017. The adoption of this amendment did not have a material impact on the Company’s financial position, results of operations, cash flow and financial statement disclosures.
In January 2017, the FASB issued an accounting update to simplify the accounting treatment for the impairment of goodwill. The amendment eliminates Step 2 from the goodwill impairment test, which measures a goodwill impairment loss by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Instead, under this amendment, the entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value and the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendment is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted. The Company adopted this amendment beginning in fiscal 2017 and performed the annual goodwill impairment test in accordance with the amended guidance. Refer to Note 11 for discussion of the annual goodwill impairment test.
In February 2017, the FASB issued an accounting update to clarify the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets. The amendment defines the term “in substance nonfinancial asset” as a financial asset promised to counterparty in a contract if substantially all of the fair value of assets (recognized and unrecognized) that are promised to the counterparty in the contract is concentrated in nonfinancial assets and clarifies that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. The amendment also clarifies that an entity should allocate consideration to each distinct asset by applying the guidance in Topic 606 on allocating the transaction price to performance obligations. Under this amendment, an entity is required to derecognize a distinct nonfinancial asset or distinct in substance nonfinancial asset in a partial sale transaction when it (1) does not have (or ceases to have) a controlling financial interest in the legal entity that holds the asset in accordance with Topic 810 and (2) transfers control of the asset in accordance with Topic 606. Once an entity transfers control of a distinct nonfinancial asset or distinct in substance nonfinancial asset, it is required to measure any noncontrolling interest it receives (or retains) at fair value. The amendment is effective for fiscal years beginning after December 15, 2017 and early adoption is permitted. The amendment should be applied on a full or modified retrospective basis. The adoption of this amendment did not have a material impact on the Company’s financial position, results of operations, cash flow and financial statement disclosures.
In March 2017, the FASB issued an accounting update to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendment requires that an entity disaggregates the service
cost component from the other components of net benefit cost and present the service cost component with other current compensation costs for related employees in the income statement. The amendment also requires an entity presents the other components elsewhere in the income statement and outside of income from operation if such subtotal is presented and allow only the service cost component of net benefit cost to be eligible for capitalization. The amendment is effective for fiscal years beginning after December 15, 2017 and early adoption is permitted. The amendment should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The amendment allows for a practical expedient that permits an entity to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The Company intends not to apply the practical expedient for retrospective presentation requirements. The adoption of this amendment did not have a material impact on the Company’s financial position, results of operations, cash flow and financial statement disclosures.
In May 2017, the FASB issued an accounting update to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation — Stock Compensation, to a change in the terms or conditions of a share-based payment award. Under the amendment, modification accounting is required to be applied unless all of the following are the same immediately before and after the change: (1) the award’s fair value (or calculated value or intrinsic value, if those measurement methods are used); (2) the award’s vesting conditions; and (3) the award’s classification as an equity or liability instrument. The amendment is effective for fiscal years beginning after December 15, 2017 and early adoption is permitted. The amendment should be applied prospectively to an award modified on or after the adoption date. The adoption of this amendment did not have a material impact on the Company’s financial position, results of operations, cash flow and financial statement disclosures.
presented. The adoption of this amendment is not expected to have a material impact on the Company’s financial position, results of operations, cash flow and financial statement disclosures.
3. BUSINESS ACQUISITION
Bigtera
On July 3, 2017,
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
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As of December 31, 2018, approximately US$1,099 thousand has not been paid to the former shareholders of Bigtera and is included in other current liabilities on the consolidated balance sheets as of December 31, 2018.
The excess of the purchase price over the fair value of the net tangible assets acquired has been reflected as identifiable intangible assets. The identifiable intangible assets and respective useful lives are as follows:
US$ | Useful Life | |||||||
Know-how | 3,753 | 5.5 | ||||||
Current technology | 983 | 5.5 | ||||||
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Total identifiable intangible assets | 4,736 | |||||||
|
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Know-how represents software defined storage technology that has value through its continued use or reuse across all version of Bigtera’s software products. Suchknow-how derives independent value from not being generally known and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Current technology represents the part of technology that is unique in current version of software products.
Goodwill represents the excess of the purchase price over the estimated fair values of the net tangible and intangible assets. The factors that contributed to the recognition of goodwill primarily relate to expansion into new product areas and potential synergies created from combined capabilities, and goodwillthis amendment is not expected to be deductible for tax purposes.
The results of Bigtera since the acquisition date includedhave a material impact on the consolidated statement of income for the year ended December 31, 2017 were as follows:
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The operating results of Bigtera have been included in the Company’s operations beginning July 3, 2017. The following unaudited pro forma information represents a summary of thefinancial position, results of operations, as if the acquisition occurred on January 1, 2016cash flow and 2017 and includes certain pro forma adjustments, including amortizationfinancial statement disclosures.
December 31 | ||||||||
2017 | 2018 | |||||||
US$ | US$ | |||||||
Cash and deposits in bank | 59,751 | 54,918 | ||||||
Time deposits | 269,392 | 220,047 | ||||||
Bonds acquired under repurchase agreements | 30,310 | 10,024 | ||||||
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Total cash and cash equivalents | 359,453 | 284,989 | ||||||
Restricted cash | 22,070 | 22,138 | ||||||
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381,523 | 307,127 | |||||||
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5.
December 31 | ||||||||
2018 | 2019 | |||||||
US$ | US$ | |||||||
Cash and deposits in bank | 54,918 | 61,184 | ||||||
Time deposits | 220,047 | 229,419 | ||||||
Bonds acquired under repurchase agreements | 10,024 | 32,563 | ||||||
Total cash and cash equivalents | 284,989 | 323,166 | ||||||
Restricted cash | 22,138 | 25,087 | ||||||
307,127 | 348,253 | |||||||
December 31 | ||||||||
2017 | 2018 | |||||||
US$ | US$ | |||||||
Trading securities | 6,941 | 3,609 |
December 31 | ||||||||
2018 | 2019 | |||||||
US$ | US$ | |||||||
Trading securities | 3,609 | 2,010 |
6.
December 31 | ||||||||
2017 | 2018 | |||||||
US$ | US$ | |||||||
Trade accounts receivable | 81,165 | 92,408 | ||||||
Allowance for doubtful accounts | (598 | ) | (645 | ) | ||||
Allowance for sales returns and discounts (Note 13)* | (1,432 | ) | — | |||||
|
|
|
| |||||
79,135 | 91,763 | |||||||
|
|
|
|
December 31 | ||||||||
2018 | 2019 | |||||||
US$ | US$ | |||||||
Trade accounts receivable | 92,408 | 110,351 | ||||||
Allowance for doubtful accounts | (645 | ) | (1,617 | ) | ||||
91,763 | 108,734 | |||||||
Year Ended December 31 | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
Allowances for doubtful accounts | ||||||||||||
Balance, beginning of year | 723 | 598 | 645 | |||||||||
Additions (reversals) charged to expense, net | (125 | ) | 47 | 1,164 | ||||||||
Write-offs | — | — | (192 | ) | ||||||||
Balance, end of year | 598 | 645 | 1,617 | |||||||||
Year Ended December 31 | ||||
2017 | ||||
US$ | ||||
Allowances for sales returns and discounts * | ||||
Balance, beginning of year | 1,624 | |||
Additions charged to expense, net | 3,093 | |||
Actual sales return and discount | (3,285 | ) | ||
Balance, end of year | 1,432 | |||
* | As of January 1, 2018, the Company has adopted the new revenue recognition standard (ASC 606). Allowance for sales returns and discounts forthe year ended December 31, 2018 has been adjusted to reflect these changes in accounting policies, see Note 2 summary of significant accounting policies. |
The changes in the allowances are summarized as follows:
Year Ended December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
Allowances for doubtful accounts | ||||||||||||
Balance, beginning of year | 775 | 723 | 598 | |||||||||
Additions (reversals) charged to expense, net | (12 | ) | (125 | ) | 47 | |||||||
Write-offs | (40 | ) | — | — | ||||||||
|
|
|
|
|
| |||||||
Balance, end of year | 723 | 598 | 645 | |||||||||
|
|
|
|
|
|
Year Ended December 31 | ||||||||
2016 | 2017 | |||||||
US$ | US$ | |||||||
Allowances for sales returns and discounts | ||||||||
Balance, beginning of year | 1,555 | 1,624 | ||||||
Additions charged to expense, net | 3,285 | 3,093 | ||||||
Actual sales return and discount | (3,216 | ) | (3,285 | ) | ||||
|
|
|
| |||||
Balance, end of year | 1,624 | 1,432 | ||||||
|
|
|
|
7.
December 31 | ||||||||
2017 | 2018 | |||||||
US$ | US$ | |||||||
Finished goods | 41,365 | 26,059 | ||||||
Work in process | 25,090 | 30,830 | ||||||
Raw materials | 27,731 | 24,629 | ||||||
|
|
|
| |||||
94,186 | 81,518 | |||||||
|
|
|
|
December 31 | ||||||||
2018 | 2019 | |||||||
US$ | US$ | |||||||
Finished goods | 26,059 | 26,305 | ||||||
Work in process | 30,830 | 37,342 | ||||||
Raw materials | 24,629 | 24,792 | ||||||
81,518 | 88,439 | |||||||
8.
Percentage of Ownership | December 31 | |||||||||||||||
2017 | 2018 | 2017 | 2018 | |||||||||||||
US$ | US$ | |||||||||||||||
Cost method in 2017 and cost less impairment method in 2018: | ||||||||||||||||
Cashido Corp. (Cashido) | 2.1 | % | 1.8 | % | — | — | ||||||||||
Vastview Technology, Corp. (Vastview) | 2.9 | % | 2.9 | % | — | — | ||||||||||
Deep Vision, Inc (Deep Vision) | — | 14.8 | % | — | 3,000 | |||||||||||
Equity method: | ||||||||||||||||
ProGrade Digital, Inc. (ProGrade) | — | 49.0 | % | — | 1,242 | |||||||||||
|
|
|
| |||||||||||||
— | 4,242 | |||||||||||||||
|
|
|
|
Percentage of Ownership | D ecember 31 | |||||||||||||||
2018 | 2019 | 2018 | 2019 | |||||||||||||
US$ | US$ | |||||||||||||||
Cost less impairment method: | ||||||||||||||||
Cashido Corp. (Cashido) | 1.8 | % | 0.6 | % | — | — | ||||||||||
Vastview Technology, Corp. (Vastview) | 2.9 | % | 2.9 | % | — | — | ||||||||||
Deep Vision, Inc (Deep Vision) | 14.8 | % | 14.8 | % | 3,000 | 3,000 | ||||||||||
Equity method: | ||||||||||||||||
ProGrade Digital, Inc. (ProGrade) | 49.0 | % | — | 1,242 | — | |||||||||||
4,242 | 3,000 | |||||||||||||||
In May 2019, the Company sold US$1,715 thousand in the preferred stock of ProGrade and recognized
9.
December 31 | ||||||||
2017 | 2018 | |||||||
US$ | US$ | |||||||
Assets held for sale | — | 10,576 | ||||||
|
|
|
| |||||
— | 10,576 | |||||||
|
|
|
|
December 31 | ||||||||
2018 | 2019 | |||||||
US$ | US$ | |||||||
Assets held for sale | 10,576 | 10,405 | ||||||
10,576 | 10,405 | |||||||
10.
December 31 | ||||||||
2017 | 2018 | |||||||
US$ | US$ | |||||||
Cost: | ||||||||
Land | 9,309 | 68,243 | ||||||
Buildings | 30,288 | 18,130 | ||||||
Machinery and equipment | 21,665 | 26,902 | ||||||
Furniture and fixtures | 7,746 | 8,538 | ||||||
Leasehold and buildings improvement | 5,497 | 7,661 | ||||||
Software | 24,864 | 23,971 | ||||||
|
|
|
| |||||
Total | 99,369 | 153,445 | ||||||
|
|
|
| |||||
Accumulated depreciation: | ||||||||
Buildings | 3,472 | 3,231 | ||||||
Machinery and equipment | 15,665 | 19,005 | ||||||
Furniture and fixtures | 5,212 | 5,808 | ||||||
Leasehold and buildings improvement | 4,213 | 4,921 | ||||||
Software | 19,874 | 19,269 | ||||||
|
|
|
| |||||
48,436 | 52,234 | |||||||
Prepayment and construction in progress | 437 | 199 | ||||||
|
|
|
| |||||
51,370 | 101,410 | |||||||
|
|
|
|
December 31 | ||||||||
2018 | 2019 | |||||||
US$ | US$ | |||||||
Cost: | ||||||||
Land | 68,243 | 68,243 | ||||||
Buildings | 18,130 | 18,130 | ||||||
Machinery and equipment | 26,902 | 26,426 | ||||||
Furniture and fixtures | 8,538 | 6,919 | ||||||
Leasehold and buildings improvement | 7,661 | 7,964 | ||||||
Software | 23,971 | 25,938 | ||||||
Total | 153,445 | 153,620 | ||||||
Accumulated depreciation: | ||||||||
Buildings | 3,231 | 3,632 | ||||||
Machinery and equipment | 19,005 | 18,828 | ||||||
Furniture and fixtures | 5,808 | 5,196 | ||||||
Leasehold and buildings improvement | 4,921 | 5,350 | ||||||
Software | 19,269 | 22,312 | ||||||
52,234 | 55,318 | |||||||
Prepayment and construction in progress | 199 | 186 | ||||||
101,410 | 98,488 | |||||||
11.
December 31 | ||||||||||||||||||||||||||||||||
2017 | 2018 | |||||||||||||||||||||||||||||||
US$ | US$ | |||||||||||||||||||||||||||||||
Cost | Accumulated Impairment | Accumulated Amortization | Net Carrying Amount | Cost | Accumulated Impairment | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||
Acquisition-related intangible assets | 13,117 | — | (5,688 | ) | 7,429 | 13,117 | (3,444 | ) | (8,652 | ) | 1,021 |
December 31 | ||||||||||||||||||||||||||||||||
2018 | 2019 | |||||||||||||||||||||||||||||||
US$ | US$ | |||||||||||||||||||||||||||||||
Cost | Accumulated Impairment | Accumulated Amortization | Net Carrying Amount | Cost | Accumulated Impairment | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||
Acquisition-related intangible assets | 13,117 | (3,444 | ) | (8,652 | ) | 1,021 | 13,117 | (3,699 | ) | (9,418 | ) | — |
Secured loans Wages and bonus Dividends Research and development payable License fees and royalties Professional fees Equipment Others orand whenever events or circumstances occur which indicate that goodwill might be impaired. The goodwill that resulted from the Company’s acquisition of FCI and Centronix in 2007 and purchase of BTL’s assets in 2011 was US$66,300 thousand. As a result of the acquisition of Shannon Systems in 2015 and Bigtera in 2017, the Company recorded additional goodwill of US$33,204 thousand and US$625 thousand, respectively. Impairment of goodwill is tested at the Company’s reporting unit level by comparing the carrying amount, including goodwill, to the fair value. In performing the analysis, the Company uses the best information available, including reasonable and supportable assumptions and projections. Goodwill is tested for impairment annually on November 30. Total goodwill was US$58,96458,331 thousand and US$58,33117,489 thousand as of December 31, 20172018 and 2018,2019, respectively. The Company recognizes an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its implied fair value. The Company’s strategic plans, estimates of perpetual growth rate taking into account the annual goodwill impairment analysis of the current economic environment and the timing and degree of any economic recovery and market participant assumptions. Key assumptions within the five-year discounted cash flow analysis prepared for the annual goodwill impairment analysis included revenue growth rates, projected gross margins, perpetual growth rate and risk-adjusted discount rate that the Company determinedbe appropriate. The inputsdetermine fair value used are classified as Level 3 within the fair value hierarchy due to the significancesignificant use of unobservable inputs using company-specific information. As a result of the goodwill impairment tests conducted as of November 30, 20172018, June 30, 2019 and 2018,November 30, 2019, the Company determined that the carrying amounts for mobile communicationsBigtera unit and BigteraShannon unit exceeded the fair value and recorded goodwill impairment charges10,337625 20172018 and 2018,in the third quarter of 2019, respectively. The company used an income approach (discounteddiscounted cash flow model)method to determine the fair value of the mobile communicationsBigtera unit and the BigteraShannon unit. Mobile communications unit impairment charge in 2017 was mainly attributable to a project cancellation by a customer and delayed commercialization
Impairment
Currency
Adjustment
Carrying
Amount
Impairment
Currency
Adjustment
Carrying
Amount ) ) ) ) ) December 31 2017 2018 US$ US$ 25,000 — 25,000 — Interest2016, 2017, 2018 and 20182019 were US$105 thousand, US$387 thousand, and US$355 thousand andThe Company obtained US dollar revolver credit facilities from banks and drew down US$25,000 thousand in 2017. 2018. 1.51% 2.95% outstanding loans.balance. In 2017 and 2018, loans no0 longer required pledged deposits.13.December 31,2018US$Refund liabilities (Note 6)2,093 is Year EndedDecember 31,2018US$Refund liabilitiesBalance, beginning of year1,432Additions charged to expense, net4,908Actual sales return and discount(4,247) Balance, end of year2,09314. ) ) December 31 2017 2018 US$ US$ 29,629 25,169 32,451 32,871 5,638 3,108 3,729 6,739 2,286 1,867 1,844 1,264 8,186 8,401 83,763 79,419 15.
the Company divested FCI.
December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
Change in benefit obligation | ||||||||||||
Projected benefit obligation at beginning of year | 3,632 | 4,242 | 5,131 | |||||||||
Service cost | 487 | 1,572 | 568 | |||||||||
Interest cost | 104 | 336 | 126 | |||||||||
Actuarial loss (gain) | 151 | (665 | ) | 146 | ||||||||
Benefits paid | (132 | ) | (354 | ) | (133 | ) | ||||||
|
|
|
|
|
| |||||||
Projected benefit obligation at end of year | 4,242 | 5,131 | 5,838 | |||||||||
|
|
|
|
|
| |||||||
Change in plan assets | ||||||||||||
Fair value of plan assets at beginning of year | 2,800 | 3,902 | 5,114 | |||||||||
Actual return on plan assets | 33 | 81 | 63 | |||||||||
Employer contributions | 1,203 | 1,358 | 331 | |||||||||
Benefits paid | (134 | ) | (227 | ) | (98 | ) | ||||||
|
|
|
|
|
| |||||||
Fair value of plan assets at end of year | 3,902 | 5,114 | 5,410 | |||||||||
|
|
|
|
|
| |||||||
Funded status recognized as an other liabilities | (340 | ) | (17 | ) | (428 | ) | ||||||
|
|
|
|
|
|
December 31 | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
Change in benefit obligation | ||||||||||||
Projected benefit obligation at beginning of year | 4,242 | 5,131 | 5,838 | |||||||||
Service cost | 1,572 | 568 | 275 | |||||||||
Interest cost | 336 | 126 | 91 | |||||||||
Actuarial loss (gain) | (665 | ) | 146 | 72 | ||||||||
Benefits paid | (354 | ) | (133 | ) | (450 | ) | ||||||
Disposal of subsidiary | — | — | (4,072 | ) | ||||||||
Projected benefit obligation at end of year | 5,131 | 5,838 | 1,754 | |||||||||
Change in plan assets | ||||||||||||
Fair value of plan assets at beginning of year | 3,902 | 5,114 | 5,410 | |||||||||
Actual return on plan assets | 81 | 63 | 98 | |||||||||
Employer contributions | 1,358 | 331 | 85 | |||||||||
Benefits paid | (227 | ) | (98 | ) | (448 | ) | ||||||
Disposal of subsidiary | — | — | (3,658 | ) | ||||||||
Fair value of plan assets at end of year | 5,114 | 5,410 | 1,487 | |||||||||
Funded status recognized as an other liabilities | (17 | ) | (428 | ) | (267 | ) | ||||||
Year Ended December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
Net loss | 963 | 678 | 678 | |||||||||
|
|
|
|
|
| |||||||
Total recognized in accumulated other comprehensive income | 963 | 678 | 678 | |||||||||
|
|
|
|
|
|
Year Ended December 31 | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
Net loss | 678 | 678 | 693 | |||||||||
Total recognized in accumulated other comprehensive income | 678 | 678 | 693 | |||||||||
Year Ended December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
Service cost | 487 | 1,572 | 568 | |||||||||
Interest cost | 104 | 336 | 126 | |||||||||
Projected return on plan assets | (28 | ) | (58 | ) | (78 | ) | ||||||
Amortization of unrecognized net transition obligation and unrecognized net actuarial gain | 11 | 37 | 41 | |||||||||
|
|
|
|
|
| |||||||
Net periodic benefit cost | 574 | 1,887 | 657 | |||||||||
|
|
|
|
|
|
Year Ended December 31 | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
Service cost | 1,572 | 568 | 275 | |||||||||
Interest cost | 336 | 126 | 91 | |||||||||
Projected return on plan assets | (58 | ) | (78 | ) | (77 | ) | ||||||
Amortization of unrecognized net transition obligation and unrecognized net actuarial gain | 37 | 41 | 48 | |||||||||
Net periodic benefit cost | 1,887 | 657 | 337 | |||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
Recognize the decrease in net gain (loss) | 111 | (285 | ) | — | ||||||||
Amortization of net loss | (1 | ) | — | — | ||||||||
|
|
|
|
|
| |||||||
Total recognized in other comprehensive loss (income) | 110 | (285 | ) | — | ||||||||
|
|
|
|
|
|
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
Recognize the decrease in net gain (loss) | (285 | ) | — | 15 | ||||||||
Amortization of net loss | — | — | — | |||||||||
Total recognized in other comprehensive loss (income) | (285 | ) | — | 15 | ||||||||
US$ | ||||
2019 | 14 | |||
2020 | 5 | |||
2021 | 74 | |||
2022 | 27 | |||
2023 | 19 | |||
2024 and thereafter | 356 |
The aforementioned expected benefit payments excluded FCI since the board of directors of the Company approved a sale of FCI in January 2019. Please refer to Note 23 Subsequent Events.
US$ | ||||
2020 | 7 | |||
2021 | 43 | |||
2022 | 50 | |||
2023 | 18 | |||
2024 | 77 | |||
2025 and thereafter | 405 |
2016 | 2017 | 2018 | ||||||||||||||||||||||
Taiwan | Korea | Taiwan | Korea | Taiwan | Korea | |||||||||||||||||||
Weighted-average assumptions used to determine benefit obligations: | ||||||||||||||||||||||||
Discount rate | 1.50 | % | 3.80 | % | 1.63 | % | 4.10 | % | 1.38 | % | 3.60 | % | ||||||||||||
Rate of compensation increase | 4.25 | % | 3.50 | % | 4.25 | % | 3.50 | % | 4.25 | % | 3.00 | % | ||||||||||||
Weighted-average assumptions used to determine net projected benefit cost: | ||||||||||||||||||||||||
Discount rate | 1.50 | % | 3.80 | % | 1.63 | % | 4.10 | % | 1.38 | % | 3.60 | % | ||||||||||||
Expected long-term return on plan assets | 2.00 | % | 1.10 | % | 1.75 | % | 1.10 | % | 1.75 | % | 1.40 | % | ||||||||||||
Rate of compensation increase | 4.25 | % | 3.50 | % | 4.25 | % | 3.50 | % | 4.25 | % | 3.00 | % |
2017 | 2018 | 2019 | |||||||||||||||||||
Taiwan | Korea | Taiwan | Korea | Taiwan | |||||||||||||||||
Weighted-average assumptions used to determine benefit obligations: | |||||||||||||||||||||
Discount rate | 1.63 | % | 4.10 | % | 1.38 | % | 3.60 | % | 1.00 | % | |||||||||||
Rate of compensation increase | 4.25 | % | 3.50 | % | 4.25 | % | 3.00 | % | 4.00 | % | |||||||||||
Weighted-average assumptions used to determine net projected benefit cost: | |||||||||||||||||||||
Discount rate | 1.63 | % | 4.10 | % | 1.38 | % | 3.60 | % | 1.00 | % | |||||||||||
Expected long-term return on plan assets | 1.75 | % | 1.10 | % | 1.75 | % | 1.40 | % | 2.00 | % | |||||||||||
Rate of compensation increase | 4.25 | % | 3.50 | % | 4.25 | % | 3.00 | % | 4.00 | % |
December 31 | ||||||||
2017 | 2018 | |||||||
US$ | US$ | |||||||
Guaranteed interest contract | ||||||||
Kyobo Life Insurance Co. Ltd. | 1,599 | 1,605 | ||||||
Shinhan Investment Co. | 374 | 466 | ||||||
Fixed deposit | ||||||||
Industrial Bank of Korea | 1,892 | 2,014 | ||||||
|
|
|
| |||||
3,865 | 4,085 | |||||||
|
|
|
|
December 31 | ||||
2018 | ||||
US$ | ||||
Guaranteed interest contract | ||||
Kyobo Life Insurance Co. Ltd. | 1,605 | |||
Shinhan Investment Co. | 466 | |||
Fixed deposit | ||||
Industrial Bank of Korea | 2,014 | |||
4,085 | ||||
16.
Year Ended December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
Current | 31,063 | 23,465 | 13,455 | |||||||||
Deferred | (3,373 | ) | 581 | (1,664 | ) | |||||||
|
|
|
|
|
| |||||||
Income tax expense | 27,690 | 24,046 | 11,791 | |||||||||
|
|
|
|
|
|
Year Ended December 31 | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
Current | 23,465 | 13,455 | 6,558 | |||||||||
Deferred | 581 | (1,664 | ) | 1,118 | ||||||||
Income tax expense | 24,046 | 11,791 | 7,676 | |||||||||
Year Ended December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
Domestic | (20,663 | ) | (27,902 | ) | (23,750 | ) | ||||||
Foreign | 159,293 | 126,903 | 133,611 | |||||||||
|
|
|
|
|
| |||||||
138,630 | 99,001 | 109,861 | ||||||||||
|
|
|
|
|
|
Year Ended December 31 | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
Domestic | (27,902 | ) | (23,750 | ) | (3,911 | ) | ||||||
Foreign | 126,903 | 133,611 | 75,985 | |||||||||
99,001 | 109,861 | 72,074 | ||||||||||
Year Ended December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
Tax expense at statutory rate of Cayman | — | — | — | |||||||||
Differences between Cayman and foreign statutory tax rates | 34,415 | 24,255 | 12,509 | |||||||||
Tax-exempt income | (4,648 | ) | — | — | ||||||||
Permanent differences | (7,792 | ) | (4,249 | ) | (703 | ) | ||||||
Temporary differences | (1,533 | ) | (1,445 | ) | (159 | ) | ||||||
Alternative minimum tax | 594 | 4 | 9 | |||||||||
Income tax on undistributed earnings | 5,677 | 2,709 | 408 | |||||||||
Net changes in income tax credit | (495 | ) | 166 | 116 | ||||||||
Net changes in valuation allowance of deferred income tax assets | 1,724 | (2,401 | ) | 1,243 | ||||||||
Net operating loss carryforwards | (1,689 | ) | 1,492 | (1,431 | ) | |||||||
Liabilities related to unrealized tax benefits | 2,385 | 3,455 | (302 | ) | ||||||||
Adjustment of prior years’ taxes and others | (948 | ) | 60 | 101 | ||||||||
|
|
|
|
|
| |||||||
Income tax expense | 27,690 | 24,046 | 11,791 | |||||||||
|
|
|
|
|
|
) ) ) ) ) ) ) ) ) ) )
December 31 | ||||||||
2017 | 2018 | |||||||
US$ | US$ | |||||||
Notes and accounts receivable | 44 | 47 | ||||||
Stock-based compensation | 771 | 2,103 | ||||||
Allowance for sales return | 154 | 210 | ||||||
Inventory reserve | 1,311 | 1,283 | ||||||
Foreign currency translation | (5 | ) | (8 | ) | ||||
Property and equipment | 168 | (52 | ) | |||||
Investment tax credits | 9,078 | 8,684 | ||||||
Net operating loss carryforwards | 10,391 | 11,895 | ||||||
Others | 562 | 945 | ||||||
Valuation allowance | (19,072 | ) | (20,041 | ) | ||||
|
|
|
| |||||
3,402 | 5,066 | |||||||
|
|
|
|
December 31 | ||||||||
2018 | 2019 | |||||||
US$ | US$ | |||||||
Notes and accounts receivable | 47 | 3 | ||||||
Stock-based compensation | 2,103 | 1,104 | ||||||
Allowance for sales return | 210 | 541 | ||||||
Inventory reserve | 1,283 | 1,733 | ||||||
Foreign currency translation | (8 | ) | (20 | ) | ||||
Property and equipment | (52 | ) | (359 | ) | ||||
Investment tax credits | 8,684 | 4,532 | ||||||
Net operating loss carryforwards | 11,895 | 14,028 | ||||||
Others | 945 | 494 | ||||||
Valuation allowance | (20,041 | ) | (18,108 | ) | ||||
5,066 | 3,948 | |||||||
As of December 31, 2018,201
2039.
date
Benefit
Year Ended December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
Balance, beginning of year | 5,639 | 10,286 | 15,056 | |||||||||
Increases in tax positions taken in current year | 4,675 | 6,647 | 5,937 | |||||||||
Decrease in tax position taken in prior year primarily related to the resolution of tax audit | (28 | ) | (1,877 | ) | (2,286 | ) | ||||||
|
|
|
|
|
| |||||||
Balance, end of year | 10,286 | 15,056 | 18,707 | |||||||||
|
|
|
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Year Ended December 31 | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
Balance, beginning of year | 10,286 | 15,056 | 18,707 | |||||||||
Increases in tax positions taken in current year | 6,647 | 5,937 | 6,890 | |||||||||
Decrease in tax position taken in prior year primarily related to the resolution of tax audit | (1,877 | ) | (2,286 | ) | (4,942 | ) | ||||||
Balance, end of year | 15,056 | 18,707 | 20,655 | |||||||||
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Tax Jurisdiction | Tax Years | |||
China | 2016 and onward | |||
Hong Kong | 2016 and onward | |||
Taiwan | 2014 and onward | |||
United States | 2014 onward |
17.
2016 | 2017 | 2018 | ||||||||||||||||||||||
Dividends Per Share (US$) | Dividends Per Share (US$) | Dividends Per Share (US$) | Dividends Per Share (US$) | Dividends Per Share (US$) | Dividends Per Share (US$) | |||||||||||||||||||
First quarter | $ | 0.0375 | $ | 5,290 | $ | 0.050 | $ | 7,134 | $ | 0.075 | $ | 10,832 | ||||||||||||
Second quarter | $ | 0.0375 | 5,290 | $ | 0.050 | 7,148 | $ | 0.075 | 10,835 | |||||||||||||||
Third quarter | $ | 0.0375 | 5,297 | $ | 0.050 | 7,155 | $ | 0.075 | 10,843 | |||||||||||||||
Fourth quarter | $ | 0.0500 | 7,065 | $ | 0.075 | 10,737 | $ | 0.075 | 10,849 | |||||||||||||||
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$ | 22,942 | $ | 32,174 | $ | 43,359 | |||||||||||||||||||
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2017 | 2018 | 2019 | ||||||||||||||||||||||
Dividends Per Share (US$) | Amount (in US$ thousand) | Dividends Per Share (US$) | Amount (in US$ thousand) | Dividends Per Share (US$) | Amount (in US$ thousand) | |||||||||||||||||||
First quarter | $ | 0.050 | $ | 7,134 | $ | 0.075 | $ | 10,832 | $ | 0.075 | $ | 10,956 | ||||||||||||
Second quarter | $ | 0.050 | 7,148 | $ | 0.075 | 10,835 | $ | 0.075 | 10,957 | |||||||||||||||
Third quarter | $ | 0.050 | 7,155 | $ | 0.075 | 10,843 | $ | 0.075 | 10,029 | |||||||||||||||
Fourth quarter | $ | 0.075 | 10,737 | $ | 0.075 | 10,849 | $ | 0.0875 | 12,171 | |||||||||||||||
$ | 32,174 | $ | 43,359 | $ | 44,113 | |||||||||||||||||||
2018,25, 2019, respectively. Future dividends, if any, will be declared by and subject to the discretion of the Company’s board of directors. If the Company’s board of directors decides to distribute dividends, the form, frequency and amount of such dividends will depend upon the Company’s future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors the board of directors may deem relevant.
relevant
For non-cash financing activities, net increase in dividends payable arising from the declared dividend was US$11,069 thousand, US$420 thousand and US$4,048 thousand for the year ended December 31, 2017, 2018 and 2019, respectively.
18.34.54 and US$32.82 in 2018 and 2019, respectively.
Unit (in Thousands) | ||||
Available for grant at January 1, | 18,751 | |||
Restricted stock units granted | ( | ) | ||
Restricted stock units forfeited | 27 | |||
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Available for grant at December 31, 2017 | 17,387 | |||
Restricted stock units granted | (1,622 | ) | ||
Restricted stock units forfeited | 22 | |||
Available for grant at December 31, 2018 | 15,787 | |||
Restricted stock units granted | (1,584 | ) | ||
Restricted stock units forfeited | 57 | |||
Available for grant at December 31, 2019 | 14,260 | |||
Number of Options Shares (in Thousands) | Weighted Average Exercise Price (US$) | Weighted Average Remaining Contractual Life (Years) | ||||||||||
Outstanding at January 1, 2016 | 579 | 1.47 | ||||||||||
Options forfeited | (257 | ) | 1.47 | |||||||||
Options exercised | (64 | ) | 1.47 | |||||||||
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Outstanding at December 31, 2016 | 258 | 1.47 | 0.25 | |||||||||
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Options vested and expected to vest after December 31, 2016 | 258 | 1.47 | 0.25 | |||||||||
Options exercised | (258 | ) | 1.47 | |||||||||
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Outstanding at December 31, 2017 | — | — | — | |||||||||
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No
Number of Options Shares (in Thousands) | Weighted Average Exercise Price (US$) | Weighted Average Remaining Contractual Life (Years) | ||||||||||
Outstanding at January 1, 201 7 | 258 | 1.47 | 0.25 | |||||||||
Options exercised | (258 | ) | 1.47 | |||||||||
Outstanding at December 31, 2017 | — | — | — | |||||||||
The aggregate intrinsic value represents the total intrinsic value (the difference between the Company’s closing stock price on the last trading dayNaN.
in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2018. Intrinsic value will change in future periods based on the fair market value of the Company’s stock and the number of shares outstanding.
Number of Non-vested Stock Units (in Thousands) | Weighted Average Grant Date Fair Value (US$) | Weight Average Remaining Recognition Period (Years) | ||||||||||
Non-vested at January 1, 2016 | 2,125 | 6.65 | 0.73 | |||||||||
Restricted stock units granted | 1,446 | 12.67 | ||||||||||
Restricted stock units vested | (1,726 | ) | 6.46 | |||||||||
Restricted stock units forfeited | (78 | ) | 6.57 | |||||||||
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Non-vested at December 31, 2016 | 1,767 | 11.65 | 0.47 | |||||||||
Restricted stock units granted | 1,391 | 10.75 | ||||||||||
Restricted stock units vested | (1,593 | ) | 12.08 | |||||||||
Restricted stock units forfeited | (27 | ) | 10.69 | |||||||||
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Non-vested at December 31, 2017 | 1,538 | 10.36 | 0.33 | |||||||||
Restricted stock units granted | 1,622 | 13.86 | ||||||||||
Restricted stock units vested | (1,517 | ) | 9.79 | |||||||||
Restricted stock units forfeited | (22 | ) | 11.75 | |||||||||
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Non-vested at December 31, 2018 | 1,621 | 13.85 | 0.38 | |||||||||
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Number of Non-vested Stock Units (in Thousands) | Weighted Average Grant Date Fair Value (US$) | Weight Average Remaining Recognition Period (Years) | ||||||||||
Non-vested at January 1, 2017 | 1,767 | 11.65 | 0.47 | |||||||||
Restricted stock units granted | 1,391 | 10.75 | ||||||||||
Restricted stock units vested | (1,593 | ) | 12.08 | |||||||||
Restricted stock units forfeited | (27 | ) | 10.69 | |||||||||
Non-vested at December 31, 2017 | 1,538 | 10.36 | 0.33 | |||||||||
Restricted stock units granted | 1,622 | 13.86 | ||||||||||
Restricted stock units vested | (1,517 | ) | 9.79 | |||||||||
Restricted stock units forfeited | (22 | ) | 11.75 | |||||||||
Non-vested at December 31, 2018 | 1,621 | 13.85 | 0.38 | |||||||||
Restricted stock units granted | 1,584 | 8.01 | ||||||||||
Restricted stock units vested | (1,505 | ) | 14.12 | |||||||||
Restricted stock units forfeited | (57 | ) | 9.59 | |||||||||
Non-vested at December 31, 2019 | 1,643 | 8.08 | 0.29 | |||||||||
Year Ended December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
Cost of sales | 400 | 293 | 390 | |||||||||
Research and development | 10,529 | 9,255 | 13,278 | |||||||||
Sales and marketing | 3,122 | 3,167 | 3,407 | |||||||||
General and administrative | 3,313 | 2,779 | 3,704 | |||||||||
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17,364 | 15,494 | 20,779 | ||||||||||
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Year Ended December 31 | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
Cost of sales | 293 | 390 | 305 | |||||||||
Research and development | 9,255 | 13,278 | 9,927 | |||||||||
Sales and marketing | 3,167 | 3,407 | 1,789 | |||||||||
General and administrative | 2,779 | 3,704 | 2,570 | |||||||||
15,494 | 20,779 | 14,591 | ||||||||||
Operating Lease Obligations | ||||
Fiscal Year: | ||||
2020 | $ | 3,321 | ||
2021 | 2,652 | |||
2022 | 1,458 | |||
2023 | 1,087 | |||
2024 | 732 | |||
2025 and thereafter | 51 | |||
Total | 9,301 | |||
Less imputed interest | 634 | |||
Present value of net future minimum lease payments | 8,667 | |||
Less operating lease liabilities-current | 3,046 | |||
Long-term operating lease liabilities | $ | 5,621 | ||
Operating Leases
The Company entered into various operating lease agreements for office space that expire on various dates through March 2022. The Company recognized rent expense for the years ended December 31, 2016, 2017 and 2018 of US$2,595 thousand, US$3,131 thousand and US$3,933 thousand, respectively. The minimum operating lease payments expected under these leases as of December 31, 2018 were US$2,802 thousand, US$1,757 thousand, US$1,263 thousand, US$65 thousand, and nil for the years ending December 31, 2019, 2020, 2021, 2022 and 2023, respectively.
Year Ended December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
Mobile Storage | 510,687 | 480,735 | 494,012 | |||||||||
Mobile Communications | 39,322 | 37,447 | 30,163 | |||||||||
Others | 6,137 | 5,222 | 6,173 | |||||||||
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556,146 | 523,404 | 530,348 | ||||||||||
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product category:
Year Ended December 31 | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
Mobile Storage | 480,735 | 494,012 | 441,700 | |||||||||
Mobile Communications | 37,447 | 30,163 | 10,356 | |||||||||
Others | 5,222 | 6,173 | 5,197 | |||||||||
523,404 | 530,348 | 457,253 | ||||||||||
Year Ended December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
Taiwan | 75,926 | 72,768 | 70,984 | |||||||||
United States | 59,390 | 40,344 | 53,476 | |||||||||
Japan | 17,070 | 18,797 | 21,171 | |||||||||
Korea | 183,249 | 176,813 | 135,845 | |||||||||
China | 151,112 | 126,048 | 142,948 | |||||||||
Others | 69,399 | 88,634 | 105,924 | |||||||||
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556,146 | 523,404 | 530,348 | ||||||||||
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Year Ended December 31 | ||||||||||||
2017 (1) | 2018 (1) | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
Taiwan | 72,768 | 70,984 | 77,117 | |||||||||
United States | 40,344 | 53,476 | 63,432 | |||||||||
Korea | 176,813 | 135,845 | 52,885 | |||||||||
China | 126,048 | 142,948 | 123,261 | |||||||||
Malaysia | 49,919 | 49,444 | 50,663 | |||||||||
Singapore | 25,057 | 35,387 | 45,032 | |||||||||
Others | 32,455 | 42,264 | 44,863 | |||||||||
523,404 | 530,348 | 457,253 | ||||||||||
(1) | The figure represents the revenue by geographic area based on the bill-to location. Commencing in 2019, revenue derived from Japan was reclassified to others. The above breakdown for 2017 and 2018 has been reclassified on the same basis. |
Year Ended December 31 | ||||||||||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||||||||||
US$ | % | US$ | % | US$ | % | |||||||||||||||||||
SK Hynix | 156,541 | 28 | 150,762 | 29 | 111,265 | 21 | ||||||||||||||||||
Intel | * | * | 50,205 | 10 | 67,791 | 13 |
Year Ended December 31 | ||||||||||||||||||||||||
2017 | 2018 | 2019 | ||||||||||||||||||||||
US$ | % | US$ | % | US$ | % | |||||||||||||||||||
Intel | 50,205 | 10 | 67,791 | 13 | 75,608 | 16 | ||||||||||||||||||
Micron | * | * | * | * | 67,682 | 15 | ||||||||||||||||||
SK Hynix | 150,762 | 29 | 111,265 | 21 | * | * |
* | Less than 10% |
Year Ended December 31 | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
US$ | US$ | US$ | ||||||||||
Taiwan | 34,011 | 36,369 | 96,920 | |||||||||
United States | 237 | 242 | 348 | |||||||||
Korea | 1,448 | 1,936 | 1,645 | |||||||||
China | 12,181 | 12,798 | 2,447 | |||||||||
Japan | 15 | 25 | 50 | |||||||||
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47,892 | 51,370 | 101,410 | ||||||||||
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Year Ended December 31 | ||||||||||||
2017 | 2018 | 2019 | ||||||||||
US$ | US$ | US$ | ||||||||||
Taiwan | 36,369 | 96,920 | 94,996 | |||||||||
United States | 242 | 348 | 315 | |||||||||
Korea | 1,936 | 1,645 | 23 | |||||||||
China | 12,798 | 2,447 | 3,117 | |||||||||
Japan | 25 | 50 | 37 | |||||||||
51,370 | 101,410 | 98,488 | ||||||||||
December 31, 2017
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
US$ | US$ | US$ | US$ | |||||||||||||
Assets | ||||||||||||||||
Short-term investments — trading securities | 755 | 6,186 | — | 6,941 |
2019:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
US$ | US$ | US$ | US$ | |||||||||||||
Assets | ||||||||||||||||
Short-term investments — trading securities | — | 3,609 | — | 3,609 |
arewere finished, the Company receivesreceived the deposited funds back in full. The deposited amount of these arrangements for such employees was US$1.61.5 million and US$1.5 millionNaN as of December 31, 20172018, and 2018,2019, respectively.23. SUBSEQUENT EVENTSa)Sale ofFCIIn Januaryboarddivestiture of directors of the Company approved the sale of FCI, our specialty RF IC product line for the Mobile Communications market. On March 7, 2019, the Company entered into a definitive agreement with Dialog Semiconductor Plc for the sale of FCI for US$45 million. The transaction is expected to close in the second quarter of 2019, subject to Korea government approvals.b)Sale of ProGrade investmentIn April 2019, the board of directors approved the sale of the Company’s 49.0% equity interest in ProGrade for $1.7 million. The sale is expected to close in the second quarter of 2019.c)Shannon Impairment RiskIn April 2019, key customers of our Shannon SSDs notified the Company that their revised full-year 2019 procurement forecasts will be significantly lower than what they had provided to us in January 2019. As a result,we reduced our Shannon SSD sales forecast to a level meaningfully below what we had planned in January as part of our annual operating plan. The primary reasons of the recently reduced sales forecast include: (i) increasingly risk-adverse customers have reduced procurement plans relating to SSD solutions based on new, less mature technologies such as ours, (ii) weakening economic conditions in China have caused Chinese data center operators to postpone expansion plans and reduce SSD procurement forecasts, including from us, and (iii) NAND prices have fallen more than we had expected and could fall further, and this will result in less revenue received for the same petabyte of Shannon SSDs that we sell.The reduced sales forecast represents a triggering event which will require the reevaluation of the reporting unit’s goodwill and intangible assets in the second quarter of 2019. Depending on further development of the situation and factors relevant to a revised financial forecast of the Shannon reporting unit, the impairment assessment may result in impairment of goodwill and of certain intangible assets; however, the Company cannot estimate the amount or a reasonable range of amounts of such impairments, if any, at this time. As of December 31, 2018, the carrying value of the reporting unit’s goodwill was $33.2 million and intangible assets were $1.0 million.F-39