The microchip market is notoriously cyclical, as waves of demand lead to build-outs of manufacturing capacity, followed by price wars and a thinning of the herd, says Paul Goodwin, editor of Cabot China & Emerging Markets Report.

Silicon Motion Technology (SIMO) avoids the worst of the industry’s cyclicality by avoiding manufacturing altogether, preferring to concentrate in designing, developing, and marketing its high-performance, low-power chips. It leaves the manufacturing part to contractors.

Its product line includes integrated circuits for NAND flash storage devices and specialty radio frequency ICs for mobile devices—two of the hottest end markets around.

The company is also an industry leader in controllers for smartphones and tablets and is a dedicated supplier of 4G LTE transceivers for Samsung phones (like the Galaxy SIII) and tablets. Its customer list includes LG, Netcom, Micron, PantechSK Hynix, Samsung, Sony, and Transcend.

Silicon Motion was founded in 1995 in San Jose, California, and has its headquarters in Taiwan, with design and sales offices in Taiwan, Korea, China, Japan, and the US.

Silicon Motion is a relatively small company (market cap is just $780 million and annual sales are $221 million) and the vagaries of the chip cycle are reflected in its earnings history.

In March, Silicon Motion announced that it had won a major contract for LTE-Advanced transceivers with a leading Korean handset manufacturer (most observers think it’s Samsung). As a result, investors are anticipating much improved results in the quarters ahead.

Many chip stocks are in correction mode, but not Silicon Motion! It hasn’t even closed below its 25-day line during the market’s recent wiggles.

Following the quarterly report a couple of weeks ago, analysts have bumped up their estimates, with the Street now looking for 42% earnings growth this year and 26% in 2015. We’ll stay on buy, but try to get in on dips.

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