The demand for digital multimedia products is growing, as consumers become increasingly fond of complex communications, entertainment and business devices. There is a firm in Taiwan with a solid reputation for the development of semiconductors that serve this market.

Silicon Motion Technology (NASDAQ: SIMO) designs, develops and markets semiconductors for the multimedia consumer electronics market. It offers mobile storage products, used in flash memory cards and USB flash drives. It also provides the multimedia system-on-chip devices used in MP3 players, personal computer cameras, personal computer notebooks and broadband multimedia phones. Mobile storage products account for about 85% of sales.

The firm surprised investors last week, when it reported Q3 EPS of 30 cents and revenues of $45.8 million. Analysts had been expecting 29 cents and $44.3 million. Management also guided FY07 EPS to $1.20-$1.30, versus consensus of $1.18. Deutsche Securities subsequently reiterated its "buy" rating on the issue and boosted its price target to $31. The share price popped on the news and then moved into a bullish "pennant" consolidation pattern. Stocks frequently exit pennants moving in the same direction they were traveling on entry. In this case, that would be to the upside.

The demand for digital multimedia products has grown enormously, as consumers become increasingly enamored of complex communications, entertainment and business devices. Semiconductors power it all and there is a firm in Taiwan that ranks among the leaders in innovative chip development.

Silicon Motion Technology Corp. (ADR) (NASDAQ:SIMO) designs, develops and markets semiconductors for the multimedia consumer electronics market. It offers mobile storage products, used in flash memory cards and USB flash drives. It also provides the multimedia system-on-chip devices used in MP3 players, personal computer cameras, personal computer notebooks and broadband multimedia phones. Mobile storage products account for about 85% of sales.

The firm surprised investors last week, when it reported Q4 EPS of 32 cents and revenues of $35.6 million. Analysts had been expecting 30 cents and $33.9 million. Management also guided Q1 revenues to $28.5-$30.2 million ($25.98 million consensus) and FY07 EPS to $1.20-$1.30 ($1.09 consensus). The CEO said the company set new records for sales and net income, largely on robust demand for its controllers. He made it plain that Silicon Motion plans to roll out several new controllers, to address specific opportunities in the flash memory market. The news popped the shares out of a late January "cup" into the early February "handle" of a Cup & Handle formation. The price is now showing signs of completing the pattern with a bullish rise from the right-hand side of the "handle".

Brokers recommend the issue with two "strong buys" and five "buys." Analysts see a 28% average annual growth rate, through the next five years. The SIMO PEG ratio (0.84), Sales Growth rate (51.49%), EPS Growth rate (33.33%), Operating Margin (25.51%), Net Profit Margin (27.38%), Return on Assets (19.70%), Return on Investment (23.61%) and Return on Equity (23.63%) compare favorably with industry, sector and S&P 500 averages.

Institutional investors hold about 50% of the outstanding shares. Over the past 52 weeks, SIMO has traded between $11.50 and $21.50. A stop-loss of $18.25 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.