Microchip (MCHP) yesterday reported December quarter (fiscal Q3 2013) results slightly above analysts' consensus and in line with the mid-range of its prior guidance. Normally the March quarter is seasonally down from the December quarter, but in its guidance Microchip predicted sequential revenue growth. As a result in Microchip, which closed at $33.94 before reporting results, has climbed to $36.60 so far today. Microchip's current 52 week low is $28.92, and its 52 week high is $37.50.
Part of the strong revenue results resulted from the acquisition of SMSC. The same acquisition led to charges that hit GAAP profits pretty hard, but excluding those items non-GAAP profits and free cash flow were strong.
Microchip's model involves a focus on microcontrollers and related analog functions (touch screen control, wireless, and power management), with a wide variety of parts available to meet specific customer needs. Record revenue in quarter reflected a broad-based uptick in demand across industries and geographies. Revenues were $416.0 million, up 9% sequentially from $382.3 million and up 26% from $329.2 million in the year-earlier quarter.
Guidance to March quarter revenue of between $420.2 and $432.7 million, despite the usual hit from Chinese Lunar New Year, is based both on a continuation of the underlying trend and on design wins. Quite a number of design wins were announced in 2012; these are now resulting in orders that should ramp through 2013.
Microsoft has been a reliable dividend payer. At today's price the dividend yield is 4.15%.
Normally I use GAAP profits as a baseline, but non-GAAP numbers can be more informative for the long run when GAAP is affected by acquisition charges, as was the case in calendar Q4.
GAAP net income was $10.2 million, up sequentially from negative $21.2 million and down 87% from $77.5 million year-earlier. GAAP EPS (earnings per share) were $0.05, up sequentially from negative $0.11, but down 87% from $0.38 year-earlier.
In contrast non-GAAP net income was $84.5 million, EPS was $0.41, which is an improvement on, but consistent with, prior quarters. Free cash flow was $123.2 million, of which Microchip paid $68.7 million in dividends.
Microchip is still recovering from the cautious buying and weak end demand earlier this year. Inventories were reduced in Q4 and will continue to be reduced through June. On the customer side inventories are believed to be extremely lean, which could also result in increased buying if final demand shows signs of improving with the global economy.
I first invested in Microchip in 2006, based largely on my familiarity with their microcontroller products. It has been a reliable source of dividends and appears to have a first-class management team. I would recommend the stock to almost any class of investor.
Disclaimer: I own Microchip stock. I will not trade MCHP for at least 1 week after this story is published.
See also:
www.microchip.com
My main Microchip analyst conferences page.
My Microchip February 2013 analyst call notes
Showing posts with label EPS. Show all posts
Showing posts with label EPS. Show all posts
Friday, February 8, 2013
Monday, September 10, 2012
Microchip (MCHP) Pays Dividends
Microchip (MCHP) is one of the largest global manufacturers of microcontrollers, which are semiconductor chips incorporating computers and capabilities to receive data from sensors and send control signals to motors or other external parts. For investors the company is noted for its relatively high dividend and its ability to generate profits even during down cycles.
Today Microchip stock closed at $34.14, against a 52 week high of $38.87 and low of $30.07. At that price MCHP market capitalization is $6.6 billion, and the dividend yield is 4.05%.
Last week Steve Sanghi, the CEO, reported that after a sequentially up calendar Q1 and Q2, the business environment weakened towards the end of Q2, with Europe particularly slow. The situation has not improved, so Microchip is now guiding revenues to be about flat in Q3 compared to Q2, excluding the increased revenue from the recent SMSC acquisition. [Note calendar Q2 was fiscal Q1]
The SMSC acquisition closed August 2, at a value of $946 million. For fiscal 2012 SMSC had sales of $412 million and a non-GAAP operating margin of 12%. It will fit well with Microchip's product line, as SMSC is a specialist in smart mixed signal connectivity. Its revenues are 43% from microcontrollers and 57% analog products. These are used for automotive entertainment, wireless audio, and USB and Ethernet. Sanghi believes Microchip will be able to increase gross and operating margins of the acquisition closer to its own, high-marin model.
Microchip sells to a very diverse set of customers, including manufacturers of automobiles, household appliances, and medical and industrial equipment. Microchip also has an advanced touch screen set of solutions.
SMSC will provide a boost about 3 cents per share in the first partial quarter, then 6 to 7 cents in the first full quarter, fiscal Q3.
Steve pointed out that when Microchip bought SST it had not made a profit in five years, but has had good margins once integrated. He sees SMSC as a much less difficult business to integrate and profit from.
There is plenty of competition for microcontroller chips, but Microchip now has over 7% of the market, compared to under 2% in 1994, with the market share climb being pretty steady. In 2011 Microchip was the 4th largest player in the market after Renesas, Freescale, and TI. It is second in the 8-bit segment to Renesas, which moved ahead only when it absorbed NEC.
For fiscal Q2 2013, ending September 30, 2012, revenues are now expected between $12 and $430 million and non-GAAP EPS is expected between $0.50 and $0.52.
Given the high dividend, relatively low volatility of the stock price, and further opportunity for growth, Microchip remains a good core technology investment for long term investors. The main risk I see is macroeconomic.
Disclaimer: I have been long MCHP since 2006. I will not trade in the stock for at least one week from today.
See also: Microchip.com investors page; my Microchip fiscal Q1 call notes
Today Microchip stock closed at $34.14, against a 52 week high of $38.87 and low of $30.07. At that price MCHP market capitalization is $6.6 billion, and the dividend yield is 4.05%.
Last week Steve Sanghi, the CEO, reported that after a sequentially up calendar Q1 and Q2, the business environment weakened towards the end of Q2, with Europe particularly slow. The situation has not improved, so Microchip is now guiding revenues to be about flat in Q3 compared to Q2, excluding the increased revenue from the recent SMSC acquisition. [Note calendar Q2 was fiscal Q1]
The SMSC acquisition closed August 2, at a value of $946 million. For fiscal 2012 SMSC had sales of $412 million and a non-GAAP operating margin of 12%. It will fit well with Microchip's product line, as SMSC is a specialist in smart mixed signal connectivity. Its revenues are 43% from microcontrollers and 57% analog products. These are used for automotive entertainment, wireless audio, and USB and Ethernet. Sanghi believes Microchip will be able to increase gross and operating margins of the acquisition closer to its own, high-marin model.
Microchip sells to a very diverse set of customers, including manufacturers of automobiles, household appliances, and medical and industrial equipment. Microchip also has an advanced touch screen set of solutions.
SMSC will provide a boost about 3 cents per share in the first partial quarter, then 6 to 7 cents in the first full quarter, fiscal Q3.
Steve pointed out that when Microchip bought SST it had not made a profit in five years, but has had good margins once integrated. He sees SMSC as a much less difficult business to integrate and profit from.
There is plenty of competition for microcontroller chips, but Microchip now has over 7% of the market, compared to under 2% in 1994, with the market share climb being pretty steady. In 2011 Microchip was the 4th largest player in the market after Renesas, Freescale, and TI. It is second in the 8-bit segment to Renesas, which moved ahead only when it absorbed NEC.
For fiscal Q2 2013, ending September 30, 2012, revenues are now expected between $12 and $430 million and non-GAAP EPS is expected between $0.50 and $0.52.
Given the high dividend, relatively low volatility of the stock price, and further opportunity for growth, Microchip remains a good core technology investment for long term investors. The main risk I see is macroeconomic.
Disclaimer: I have been long MCHP since 2006. I will not trade in the stock for at least one week from today.
See also: Microchip.com investors page; my Microchip fiscal Q1 call notes
Tuesday, September 4, 2012
Hansen Medical Runs Aground in Q2
Hansen Medical Inc. (HNSN) manufactures catheter based medical robots. Its stock price is in a major slump right now, opening today at $1.48, versus a fifty-two week high of $4.46 on September 20, 2011 and near its 52 week low of $1.42. Is this a buying opportunity, or a stock to be avoided even at this price?
For several years Hansen has marketed its Sensei robot for electrophysiology procedures, which measures electrical activity inside the heart. Meanwhile it has developed its robotic catheter technology for use in vascular (blood vessel) surgery. Last year its Magellan vascular robotic catheter system was approved in Europe. Late in Q2 this year the FDA granted approval for commercial sales in the U.S. Given that Magellan is believed to have an addressable market roughly ten times the size of Sensei, you might think the bulls would be running with the anticipation of future profits.
Financial results for Q2 2011, reported on August 8, are the reason for the slump. I don't think anyone expected HNSN to get to profitability, since there was no time to sell Magellan robots in the U.S. in the quarter. But sales were the worst in company history. Only one Robotic Catheter System was shipped, a Sensei, but two had recognized revenue, including the one that was shipped and one shipped in a prior quarter. Revenue was $3.5 million, down 26% sequentially from $4.7 million and down 34% from $5.3 million in the year-earlier quarter.
Net income was negative $11.5 million, up sequentially from negative $11.8 million, but down from negative $8.8 million year-earlier. EPS (earnings per share) were negative $0.19, up sequentially from negative $0.20, but down from negative $0.16 year-earlier.
Management claimed that talks are underway with hospitals in the U.S. and Europe, with multiple quotes out. While understanding that these are expensive robots that have to go through a lengthy review process before hospitals buy them, you have to ask what happened in the past that the old Sensei system sales dropped to just one in the quarter.
The Sensei systems that are already installed are being used, as indicated by 637 known EP procedures performed with them in the quarter. To try to compensate for the dismal sales results, Hansen brought into the analyst conference call Professor Cheshire of St. Mary's in London, the first hospital to treat patients with the Magellan Robotic System. He spoke on his team's collective experience in peripheral vascular, aortic, and other vascular cases. They discovered a number of useful robotic catheter techniques as they progressed from simple to more complex cases. They can now treat difficult cases. The had prior experience with the De Vinci surgical robot made by Intuitive Surgical. Cheshire believes robotics differentiates St. Mary's from competitors. Studies there showed the advantages of the Magellan system and other minimally invasive techniques. The robot is bringing patients in already.
So you are making a bet buying the stock even at this price. Are the negotiations for sales of Sensei and Magellan going to come through, and are they going to grow long-term? If your crystal ball says yes, you should scoop up all the Hansen Medical stock you can afford.
I don't have a crystal ball and I already own Hansen stock. I believe the technology developed by the company would have a great deal of value for other medical device players. So there is some low point of market capitalization that should trigger that kind of event. Market capitalization today is just $90 million. If I had that kind of money, and could buy all the stock without bidding up the price, I would do it. Then I would assess the sales pipeline. Ff I did not like it I would try to sell the business or the intellectual property to St. Jude (STJ), Intuitive Surgical, or a similar player.
Given that stocks are priced by auction, we may not be at the bottom, but I don't see a scenario where the stock is worth less than it is today if management is willing to break up or sell the company. If there really is a sales pipeline and we start seeing substantial increases in revenue in Q3 and Q4, then Q2 will seem like just a glitch and I'll be using Hansen in the future as an example of how short-sighted investors can be. And kicking myself for not buying more.
Hansen had a cash balance of $29.4 million at the end of Q2. If they don't ramp sales quickly they are either going to have to dilute the stock or borrow more money, neither of which is a pretty scenario.
Hansen Medical is not a stock for conservative investors. It has astonishing potential, long term, but it is also a long way from financing itself through profits. It should only be bought by investors who know how to manage risk.
Disclaimer: I am long HNSN. I will not trade in the stock for 1 week following this post. I have no position in ISRG or STJ.
Keep diversified!
See also:
Q2 2011 Hansen Medical Analyst Call Summary
Hansen Medical main page
my other Hansen Medical articles and conference summaries
For several years Hansen has marketed its Sensei robot for electrophysiology procedures, which measures electrical activity inside the heart. Meanwhile it has developed its robotic catheter technology for use in vascular (blood vessel) surgery. Last year its Magellan vascular robotic catheter system was approved in Europe. Late in Q2 this year the FDA granted approval for commercial sales in the U.S. Given that Magellan is believed to have an addressable market roughly ten times the size of Sensei, you might think the bulls would be running with the anticipation of future profits.
Financial results for Q2 2011, reported on August 8, are the reason for the slump. I don't think anyone expected HNSN to get to profitability, since there was no time to sell Magellan robots in the U.S. in the quarter. But sales were the worst in company history. Only one Robotic Catheter System was shipped, a Sensei, but two had recognized revenue, including the one that was shipped and one shipped in a prior quarter. Revenue was $3.5 million, down 26% sequentially from $4.7 million and down 34% from $5.3 million in the year-earlier quarter.
Net income was negative $11.5 million, up sequentially from negative $11.8 million, but down from negative $8.8 million year-earlier. EPS (earnings per share) were negative $0.19, up sequentially from negative $0.20, but down from negative $0.16 year-earlier.
Management claimed that talks are underway with hospitals in the U.S. and Europe, with multiple quotes out. While understanding that these are expensive robots that have to go through a lengthy review process before hospitals buy them, you have to ask what happened in the past that the old Sensei system sales dropped to just one in the quarter.
The Sensei systems that are already installed are being used, as indicated by 637 known EP procedures performed with them in the quarter. To try to compensate for the dismal sales results, Hansen brought into the analyst conference call Professor Cheshire of St. Mary's in London, the first hospital to treat patients with the Magellan Robotic System. He spoke on his team's collective experience in peripheral vascular, aortic, and other vascular cases. They discovered a number of useful robotic catheter techniques as they progressed from simple to more complex cases. They can now treat difficult cases. The had prior experience with the De Vinci surgical robot made by Intuitive Surgical. Cheshire believes robotics differentiates St. Mary's from competitors. Studies there showed the advantages of the Magellan system and other minimally invasive techniques. The robot is bringing patients in already.
So you are making a bet buying the stock even at this price. Are the negotiations for sales of Sensei and Magellan going to come through, and are they going to grow long-term? If your crystal ball says yes, you should scoop up all the Hansen Medical stock you can afford.
I don't have a crystal ball and I already own Hansen stock. I believe the technology developed by the company would have a great deal of value for other medical device players. So there is some low point of market capitalization that should trigger that kind of event. Market capitalization today is just $90 million. If I had that kind of money, and could buy all the stock without bidding up the price, I would do it. Then I would assess the sales pipeline. Ff I did not like it I would try to sell the business or the intellectual property to St. Jude (STJ), Intuitive Surgical, or a similar player.
Given that stocks are priced by auction, we may not be at the bottom, but I don't see a scenario where the stock is worth less than it is today if management is willing to break up or sell the company. If there really is a sales pipeline and we start seeing substantial increases in revenue in Q3 and Q4, then Q2 will seem like just a glitch and I'll be using Hansen in the future as an example of how short-sighted investors can be. And kicking myself for not buying more.
Hansen had a cash balance of $29.4 million at the end of Q2. If they don't ramp sales quickly they are either going to have to dilute the stock or borrow more money, neither of which is a pretty scenario.
Hansen Medical is not a stock for conservative investors. It has astonishing potential, long term, but it is also a long way from financing itself through profits. It should only be bought by investors who know how to manage risk.
Disclaimer: I am long HNSN. I will not trade in the stock for 1 week following this post. I have no position in ISRG or STJ.
Keep diversified!
See also:
Q2 2011 Hansen Medical Analyst Call Summary
Hansen Medical main page
my other Hansen Medical articles and conference summaries
Tuesday, August 28, 2012
Applied Materials Q3: Trend or Dip?
Applied Materials (AMAT), the semiconductor capital equipment maker, reported worse than expected revenue and earnings for fiscal Q3 when it reported on August 15, 2012. Contrast my story about Applied's Q1, where I said results came in better than expected because "a couple of large foundries placed unexpected orders and took delivery faster than expected on Q4 orders. Most of this unexpected bonus was to fabricate mobile application processors, which are the hearts of tablet computers and smartphones."
What are investors to make of such quarterly fluctuations? Is AMAT in trouble, or is was Q3 just a small bump in the road?
Capital equipment of any kind can be very cyclical and sensitive to changes in ultimate product demand. If end-market demand is not increasing factories (in this case foundries) don't need to add more equipment to keep up with demand. In semiconductors this is somewhat mitigated by the constant shrinking of transistor sizes, but that also comes in cycles, with Intel typically doing the first shrink and everyone else catching up later depending on their specific product needs, usually new product introductions.
The numbers tell the overall story of Q3 (which ended July 29). Revenues were $2.34 billion, down 8% sequentially from $2.54 billion and down 17% from $2.79 billion in the year-earlier quarter. GAAP Net income was $218 million, down 25% sequentially from $289 million and down 54% from $476 million year-earlier. GAAP EPS (earnings per share) were $0.17, down 23% sequentially from $0.22 and down 53% from $0.36 year-earlier.
Note that profits were substantial even at this level of revenue. This may not be the very bottom of the current cycle, but it is probably pretty close.
Foundries were cautious ordering in the quarter, prefering to risk not being able to produce enough chips in Q4 if demand is greater than expected. The same seems to be true throughout the semiconductor industry lately, with everyone trying to keep inventories low in case demand in Europe or China sinks further.
Management reported that much of the equipment is being sold to manufacture chips for mobile devices, but as device sales are seasonal, semiconductor fab equipment sales are starting to show more annual seasonality than in the past. The industry is moving to 28 nm based mobile devices, so even without global demand expansion 28 nm capacity has to be added (at 28 nm smartphone makers can get more computing capacity while extending battery life).
Applied Materials is also suffering from its display equipment segment, as display factories have plenty of capacity. However, new technologies will likely be introduced in 2013. Similarly its solar equipment sales were minimal as factories in China are able to meet short term demand for solar cells. Prices have dropped enough that demand should gradually pick up the slack caused by overproduction, despite new U.S. punitive tariffs. In addition, there has been talk of Applied selling its solar division. That makes no sense to me, it would make more sense to at least hold onto it until demand returns, when it would fetch a considerably better price.
One strong point for Applied during demand dips is its services division. Old equipment needs maintenance. Services revenue was $579 million, up 5% in the quarter.
Of course if the global economy melts down even bonds and gold will be worthless, but the most likely scenario for Applied Materials is for stronger growth in late 2012 and into 2013. This will be driven by returning demand for display and solar manufacturing equipment, as well as the more complicated (and expensive) equipment lines needed to manufacturer semiconductor chips and 28 nm and below.
AMAT has a number of competitors, but loss of market share has not been an issue. Applied spent $209 million on research and development in the quarter and has a healthy pipeline of new and future products.
For more details about Q3 results, including questions by analysts, see my Applied Materials Q3 2012 Analyst Call notes.
If you are a long-term investor in Applied Materials you can still do what I do, taking advantage of the mistakes of short-termers. We know revenue of from sales of expensive pieces of capital equipment will be cyclic. In the long run the cycles don't matter to much, only the long-term trend and dividends. On down legs the stock tends to be underpriced, and at least in bull markets on the upward portion of cycles the stock may get overpriced. Buy low, sell high. There are always people doing the opposite who will be happy to trade with you.
AMAT stock ended yesterday at , giving it a market capitalization near $14.3 billion. Its 52 week low was $9.70 on October 4, 2011, and its 52 week high was $13.94 on February 17. It pays $0.09 per quarter in dividends, making its yield today 3.1%.
Disclaimer: I have a long position in Applied Materials (AMAT), with a long term view. I will not trade in AMAT for at least 7 days after this article is published.
See also the Applied Materials web site.
And keep diversified!
What are investors to make of such quarterly fluctuations? Is AMAT in trouble, or is was Q3 just a small bump in the road?
Capital equipment of any kind can be very cyclical and sensitive to changes in ultimate product demand. If end-market demand is not increasing factories (in this case foundries) don't need to add more equipment to keep up with demand. In semiconductors this is somewhat mitigated by the constant shrinking of transistor sizes, but that also comes in cycles, with Intel typically doing the first shrink and everyone else catching up later depending on their specific product needs, usually new product introductions.
The numbers tell the overall story of Q3 (which ended July 29). Revenues were $2.34 billion, down 8% sequentially from $2.54 billion and down 17% from $2.79 billion in the year-earlier quarter. GAAP Net income was $218 million, down 25% sequentially from $289 million and down 54% from $476 million year-earlier. GAAP EPS (earnings per share) were $0.17, down 23% sequentially from $0.22 and down 53% from $0.36 year-earlier.
Note that profits were substantial even at this level of revenue. This may not be the very bottom of the current cycle, but it is probably pretty close.
Foundries were cautious ordering in the quarter, prefering to risk not being able to produce enough chips in Q4 if demand is greater than expected. The same seems to be true throughout the semiconductor industry lately, with everyone trying to keep inventories low in case demand in Europe or China sinks further.
Management reported that much of the equipment is being sold to manufacture chips for mobile devices, but as device sales are seasonal, semiconductor fab equipment sales are starting to show more annual seasonality than in the past. The industry is moving to 28 nm based mobile devices, so even without global demand expansion 28 nm capacity has to be added (at 28 nm smartphone makers can get more computing capacity while extending battery life).
Applied Materials is also suffering from its display equipment segment, as display factories have plenty of capacity. However, new technologies will likely be introduced in 2013. Similarly its solar equipment sales were minimal as factories in China are able to meet short term demand for solar cells. Prices have dropped enough that demand should gradually pick up the slack caused by overproduction, despite new U.S. punitive tariffs. In addition, there has been talk of Applied selling its solar division. That makes no sense to me, it would make more sense to at least hold onto it until demand returns, when it would fetch a considerably better price.
One strong point for Applied during demand dips is its services division. Old equipment needs maintenance. Services revenue was $579 million, up 5% in the quarter.
Of course if the global economy melts down even bonds and gold will be worthless, but the most likely scenario for Applied Materials is for stronger growth in late 2012 and into 2013. This will be driven by returning demand for display and solar manufacturing equipment, as well as the more complicated (and expensive) equipment lines needed to manufacturer semiconductor chips and 28 nm and below.
AMAT has a number of competitors, but loss of market share has not been an issue. Applied spent $209 million on research and development in the quarter and has a healthy pipeline of new and future products.
For more details about Q3 results, including questions by analysts, see my Applied Materials Q3 2012 Analyst Call notes.
If you are a long-term investor in Applied Materials you can still do what I do, taking advantage of the mistakes of short-termers. We know revenue of from sales of expensive pieces of capital equipment will be cyclic. In the long run the cycles don't matter to much, only the long-term trend and dividends. On down legs the stock tends to be underpriced, and at least in bull markets on the upward portion of cycles the stock may get overpriced. Buy low, sell high. There are always people doing the opposite who will be happy to trade with you.
AMAT stock ended yesterday at , giving it a market capitalization near $14.3 billion. Its 52 week low was $9.70 on October 4, 2011, and its 52 week high was $13.94 on February 17. It pays $0.09 per quarter in dividends, making its yield today 3.1%.
Disclaimer: I have a long position in Applied Materials (AMAT), with a long term view. I will not trade in AMAT for at least 7 days after this article is published.
See also the Applied Materials web site.
And keep diversified!
Saturday, August 25, 2012
Akamai Price Justified?
Akamai (AKAM) has made and lost investors and speculators vast sums of money over the years, going back to the original Internet bubble of the late 1990s. Yesterday the stock closed at $37.10, giving it a market capitalization near $6.58 billion. It had a trailing Price to Earnings (P/E) ratio just over 35 (per NASDAQ), considerably higher than most technology stocks currently. That indicates either that investors expect substantial profit growth in the future, or that speculators have bought into momentum and are ready to get out quickly if the momentum turns. Or both.
Akamai's core technology accelerates the delivery of Web pages and media. This is critical to e-commerce sites, where people may go elsewhere or fail to make a purchase if a page downloads slowly. It is also crucial to video and audio playing without stuttering. Building on that, Akamai offers its enterprise partners other key Internet cloud technologies, notably security.
Look at the quarter results and analyst conference of July 25 and you will see that Revenue was $331.3 million, up 4% sequentially from $319.4 million and up 20% from $277.0 million year-earlier. But GAAP net income was $44.2 million, down 8% from $47.9 million year-earlier. GAAP EPS (earnings per share) were $0.24, were down 4% from $0.25 year-earlier.
So GAAP profits did not climb y/y the way you would expect a company with a P/E of 35. Akamai reported non-GAAP "normalized net income" of $78 million or $0.43 per share, up 3% sequentially and 23% y/y. EBITDA was $143 million, flat sequentially and up 13% from year-earlier. Cash flow from operations was $150 million. $67 million was spent in the quarter to repurchase stock. Capital expenditures were $56 million.
Clearly Akamai bulls are looking at revenue growth and cash flow growth, rather than GAAP numbers. Akamai has a rather high non-cash stock-based compensation expense, $25.6 million in the quarter, and depreciation and amortization, $50.1 million in the quarter. That accounts for most of the difference between the grim GAAP profit lack of growth and the outstanding non-GAAP growth rates.
Revenues and profits depend primarily on the dynamics between Internet data growth and drops in pricing. According the Akamai, pricing drops are not primarily due to competition, although Akamai has competitors who are forced to compete on price. Rather Akamai drops prices on a regular basis to encourage data growth. In the long run this helps its customers and yet grows Akamai profits. There is no sign that the amount of data sent over the Internet will stall anytime soon as the use of mobile devices and video expand. There is also an ongoing expansion of the customer base to lower-income users around the world.
Guidance for Q3 is for increased income and a slight contraction in non-GAAP EPS. Internet traffic is seasonal, with lows during summers, but a lot of people used the Internet to watch the Olympics. The better guide to Akamai performance is growth over periods of a year or longer.
For most investors AKAM has probably reached the point where the high P/E is getting hard to justify, given the other choices in the market. I originally bought AKAM during a slump when it was clearly undervalued, and because of its volatility I have traded in and out more than I like (I am a buy and hold guy). Given Internet trends, and Akamai's move into security and other cloud services, I think over the longer run Akamai will become considerably more profitable, but there is some P/E height at which I would dump the stock. Then again, if the P/E dropped below 25, I would be a buyer again.
Since I've made a deal out of P/E ratios as buy and sell signals, I should note that you can get different P/Es by looking at GAAP vs. non-GAAP and different time spans. As a check, note the non-GAAP EPS for Q2 was $0.43. A year's EPS at that rate would be $1.72. Divide into $37.10 and you get a P/E of 21.6. Which is a much safer sounding number than NASDAQ's trailing P/E calculation of 35. On the other hand the GAAP current P/E would be $37.10 / 4 x $0.24, or 38.6, which sounds much more pricey. You might want to think deeply about Akamai's reasons for reporting non-GAAP numbers before you trade this stock.
Disclaimer: I am long AKAM and won't trade in it for 5 days after this article is originally published.
Akamai's core technology accelerates the delivery of Web pages and media. This is critical to e-commerce sites, where people may go elsewhere or fail to make a purchase if a page downloads slowly. It is also crucial to video and audio playing without stuttering. Building on that, Akamai offers its enterprise partners other key Internet cloud technologies, notably security.
Look at the quarter results and analyst conference of July 25 and you will see that Revenue was $331.3 million, up 4% sequentially from $319.4 million and up 20% from $277.0 million year-earlier. But GAAP net income was $44.2 million, down 8% from $47.9 million year-earlier. GAAP EPS (earnings per share) were $0.24, were down 4% from $0.25 year-earlier.
So GAAP profits did not climb y/y the way you would expect a company with a P/E of 35. Akamai reported non-GAAP "normalized net income" of $78 million or $0.43 per share, up 3% sequentially and 23% y/y. EBITDA was $143 million, flat sequentially and up 13% from year-earlier. Cash flow from operations was $150 million. $67 million was spent in the quarter to repurchase stock. Capital expenditures were $56 million.
Clearly Akamai bulls are looking at revenue growth and cash flow growth, rather than GAAP numbers. Akamai has a rather high non-cash stock-based compensation expense, $25.6 million in the quarter, and depreciation and amortization, $50.1 million in the quarter. That accounts for most of the difference between the grim GAAP profit lack of growth and the outstanding non-GAAP growth rates.
Revenues and profits depend primarily on the dynamics between Internet data growth and drops in pricing. According the Akamai, pricing drops are not primarily due to competition, although Akamai has competitors who are forced to compete on price. Rather Akamai drops prices on a regular basis to encourage data growth. In the long run this helps its customers and yet grows Akamai profits. There is no sign that the amount of data sent over the Internet will stall anytime soon as the use of mobile devices and video expand. There is also an ongoing expansion of the customer base to lower-income users around the world.
Guidance for Q3 is for increased income and a slight contraction in non-GAAP EPS. Internet traffic is seasonal, with lows during summers, but a lot of people used the Internet to watch the Olympics. The better guide to Akamai performance is growth over periods of a year or longer.
For most investors AKAM has probably reached the point where the high P/E is getting hard to justify, given the other choices in the market. I originally bought AKAM during a slump when it was clearly undervalued, and because of its volatility I have traded in and out more than I like (I am a buy and hold guy). Given Internet trends, and Akamai's move into security and other cloud services, I think over the longer run Akamai will become considerably more profitable, but there is some P/E height at which I would dump the stock. Then again, if the P/E dropped below 25, I would be a buyer again.
Since I've made a deal out of P/E ratios as buy and sell signals, I should note that you can get different P/Es by looking at GAAP vs. non-GAAP and different time spans. As a check, note the non-GAAP EPS for Q2 was $0.43. A year's EPS at that rate would be $1.72. Divide into $37.10 and you get a P/E of 21.6. Which is a much safer sounding number than NASDAQ's trailing P/E calculation of 35. On the other hand the GAAP current P/E would be $37.10 / 4 x $0.24, or 38.6, which sounds much more pricey. You might want to think deeply about Akamai's reasons for reporting non-GAAP numbers before you trade this stock.
Disclaimer: I am long AKAM and won't trade in it for 5 days after this article is originally published.
Wednesday, February 8, 2012
SGI Challenged by Analysts
Today Silicon Graphics International (SGI) stock plunged over 20% following yesterday's release of December 2011 (fiscal Q2 2012) numbers. A group of analysts on the investor conference call challenged statements by SGI management and tried to pin down details on why profits were lower on higher revenues.
SGI manufactures what are still sometimes called supercomputers: high capability computer systems for datacenters, scientific research, and high performance business uses. Amazon.com is the largest single client by revenue. The U.S. government, in aggregate, is an over 10% customer.
Revenues for fiscal Q2 were $195.2 million, up 9% sequentially from $178.9 million and up 10% from $177.5 million in the year-earlier quarter. Bookings were even stronger in the quarter, partly due to the newest marvel, the ICE X HPC platform, which booked $90 million.
Costs, however, were up enough to reduce GAAP EPS to negative $0.07 per share. Non-GAAP EPS was positive $0.04, but that represents non-GAAP net income of just $2.3 million on $195 million of revenue, or about 1%.
What analysts wanted to understand was exactly why SGI has gone back to the old SGI way of making great products and generating revenues while losing investors' money. Also, if it can be fixed, exactly how that fix would take place. If you have followed SGI you know the current version was created when Rackable bought the old, bankrupt SGI. Rackable itself had been consistently losing money, but had a lot of cash and bought SGI for essentially nothing.
Even before the analyst question segment began the new temporary CEO, Ron Verdoorn, gave a number of reasons for the earnings shortfall. The three main ones were fixed costs in Europe that are too high, forex exchange rates issues, and the transition to new product lines. Success in selling the rackable line of server systems, which have lower margins than other lines, also led to lower overall margins.
The Europe problem would appear to be fixable by either cutting costs in Europe or selling more product while keeping costs level. SGI has lost money in Europe for over 2 years, hoping the sell more option would work out. Now restructuring is planned, but as usual that will create short term costs before generating long term savings.
I was surprised that management did not try to divert analysts in another direction. Research and development expense was up almost $3 million from the December quarter of 2010. I consider that a form of reinvestment. If ICE X alone generated $90 million in orders, that would certainly rationalize the $5 million increase in sales and marketing expense.
An even bigger bite out of revenue came from cost of revenue, which would be cost of goods sold for the hardware, but includes cost of providing services, too. That was up almost $18 million from the year-earlier quarter. Maybe SGI is pricing its products and services too low, but there could be a time lag effect as new systems are developed, manufactured, and sold before revenue is recognized.
Inventories were listed as worth $117.6 million, which is an astonishing increase of $36.6 million from $81.0 million year-earlier. I doubt those inventories consist of unsold or unsellable supercomputers. They should represent orders in hand and a reasonable estimate of pipeline demand.
If that is true, maybe management's statement that things will look a lot better in the second half of calendar 2012 is believable. Of course such estimates always assume no Japanese earthquakes, Thai floods, or Euro collapse issues, which were bad assumptions in 2011. Despite all of the problems of 2011, SGI made a big impression on the computer world with its new products, generating record revenue.
Analysts are right to challenge management's statements and assumptions. Most investors would like to see a lot more of that on investor conference calls. It is tough on management, but I feel I knew a lot more about SGI's real situation by the time the call was over.
I remain optimistic about SGI, but consider it one of my risky investments, with a limited place in my portfolio until it can demonstrate consistent higher profit margins.
Disclaimer: I am long SGI. I will not initiate any changes in my position for the next 2 weeks.
Keep diversified!
SGI manufactures what are still sometimes called supercomputers: high capability computer systems for datacenters, scientific research, and high performance business uses. Amazon.com is the largest single client by revenue. The U.S. government, in aggregate, is an over 10% customer.
Revenues for fiscal Q2 were $195.2 million, up 9% sequentially from $178.9 million and up 10% from $177.5 million in the year-earlier quarter. Bookings were even stronger in the quarter, partly due to the newest marvel, the ICE X HPC platform, which booked $90 million.
Costs, however, were up enough to reduce GAAP EPS to negative $0.07 per share. Non-GAAP EPS was positive $0.04, but that represents non-GAAP net income of just $2.3 million on $195 million of revenue, or about 1%.
What analysts wanted to understand was exactly why SGI has gone back to the old SGI way of making great products and generating revenues while losing investors' money. Also, if it can be fixed, exactly how that fix would take place. If you have followed SGI you know the current version was created when Rackable bought the old, bankrupt SGI. Rackable itself had been consistently losing money, but had a lot of cash and bought SGI for essentially nothing.
Even before the analyst question segment began the new temporary CEO, Ron Verdoorn, gave a number of reasons for the earnings shortfall. The three main ones were fixed costs in Europe that are too high, forex exchange rates issues, and the transition to new product lines. Success in selling the rackable line of server systems, which have lower margins than other lines, also led to lower overall margins.
The Europe problem would appear to be fixable by either cutting costs in Europe or selling more product while keeping costs level. SGI has lost money in Europe for over 2 years, hoping the sell more option would work out. Now restructuring is planned, but as usual that will create short term costs before generating long term savings.
I was surprised that management did not try to divert analysts in another direction. Research and development expense was up almost $3 million from the December quarter of 2010. I consider that a form of reinvestment. If ICE X alone generated $90 million in orders, that would certainly rationalize the $5 million increase in sales and marketing expense.
An even bigger bite out of revenue came from cost of revenue, which would be cost of goods sold for the hardware, but includes cost of providing services, too. That was up almost $18 million from the year-earlier quarter. Maybe SGI is pricing its products and services too low, but there could be a time lag effect as new systems are developed, manufactured, and sold before revenue is recognized.
Inventories were listed as worth $117.6 million, which is an astonishing increase of $36.6 million from $81.0 million year-earlier. I doubt those inventories consist of unsold or unsellable supercomputers. They should represent orders in hand and a reasonable estimate of pipeline demand.
If that is true, maybe management's statement that things will look a lot better in the second half of calendar 2012 is believable. Of course such estimates always assume no Japanese earthquakes, Thai floods, or Euro collapse issues, which were bad assumptions in 2011. Despite all of the problems of 2011, SGI made a big impression on the computer world with its new products, generating record revenue.
Analysts are right to challenge management's statements and assumptions. Most investors would like to see a lot more of that on investor conference calls. It is tough on management, but I feel I knew a lot more about SGI's real situation by the time the call was over.
I remain optimistic about SGI, but consider it one of my risky investments, with a limited place in my portfolio until it can demonstrate consistent higher profit margins.
Disclaimer: I am long SGI. I will not initiate any changes in my position for the next 2 weeks.
Keep diversified!
Tuesday, November 29, 2011
SGI Supercomputer Revenue Growth Continues
Looking for the technology company that reported calendar Q3 2011 revenue that was 58% higher than its Q3 of 2010? That would be Silicon Graphics International (SGI), manufacturer of high-performance technical computers (supercomputers) and high-efficiency server systems for datacenters and cloud computing.
GAAP revenues for fiscal Q1 2012 ending September 30, 2011 were $178.9 million, down 8% sequentially from $195.5 million, but up 58% from $112.9 million in the year-earlier quarter. GAAP net income was negative $2.7 million, improved sequentially from negative $12.1 million and improved from negative $11.2 million year-earlier. EPS (earnings per share) were negative $0.08, improved sequentially from negative $0.39, and also improved from negative $0.37 year-earlier.
While in the red on a GAAP basis, on a non-GAAP basis (mostly eliminating non-cash expenses like stock-based compensation) SGI managed a profit of $2.2 million, or $0.07 per share. SGI has gone through a period of investing to introduce new products, and also expanding its sales force. Profit margins could improve as further ramps in revenue should not require similar ramps in operating expenses.
While not giving guidance by quarter, for fiscal year 2012 (running to June 2012) revenue is expected between $740 and $780 million, up to 24% over fiscal 2011.GAAP EPS is estimated between $0.15 and $0.30. Non-GAAP EPS expected between $0.60 and $0.80.
How are they achieving such stellar growth while other computer makers are lagging? SGI specializes in expensive computers used for scientific research, as well as large systems for cloud computing and Web farms. These are all areas that continue to grow quickly. While there is competition from the likes of IBM, HP, Dell, and Cray, the newest systems introduced by SGI, notably Altix UV, are better at addressing the needs of their markets.
Nor is SGI resting on their laurels. They are introducing computers that run large scale systems running Windows SQL Server. They have improved their compatibility with Hadoop and Red Hat Enterprise Linux. They continue to be a major supplier for Amazon's cloud system. They also have started acquiring small companies that specialize in supercomputer application software. SGI expects that the ability to sell software as well as hardware will be a major advantage for verticals they service, with higher profit margins.
Finally, they ended the latest quarter with $115 million in cash with no debt. They did use $30 million of cash to build inventory in the quarter, but the systems built had been pre-ordered and should be shipping this quarter.
Because of the size of the systems involved, some quarter-to-quarter lumpiness is to be expected.
If you read what scientists are saying about Altix UV, you will realize why management has become very confident in SGI's future. On the analyst call they stated the next big SGI milestone will be $1 billion in annual revenue, which should bring between $1.75 and $2.00 non-GAAP EPS per share.
The recent growth has been in the face of a lot of uncertainty and a poor macroeconomy. Even so, if the doomsayers are right about global slowdown or meltdown scenarios in 2012, that could impact sales. I am more concerned about competition, but it does seem that for now SGI has found a niche where it can outcompete far larger companies.
For more details on calendar Q3 results, see my SGI Q1 fiscal 2012 analyst call summary.
Disclaimer: I am long SGI. I won't change my position for at least one week from today.
The usual risks apply, so keep diversified!
See also: www.sgi.com
GAAP revenues for fiscal Q1 2012 ending September 30, 2011 were $178.9 million, down 8% sequentially from $195.5 million, but up 58% from $112.9 million in the year-earlier quarter. GAAP net income was negative $2.7 million, improved sequentially from negative $12.1 million and improved from negative $11.2 million year-earlier. EPS (earnings per share) were negative $0.08, improved sequentially from negative $0.39, and also improved from negative $0.37 year-earlier.
While in the red on a GAAP basis, on a non-GAAP basis (mostly eliminating non-cash expenses like stock-based compensation) SGI managed a profit of $2.2 million, or $0.07 per share. SGI has gone through a period of investing to introduce new products, and also expanding its sales force. Profit margins could improve as further ramps in revenue should not require similar ramps in operating expenses.
While not giving guidance by quarter, for fiscal year 2012 (running to June 2012) revenue is expected between $740 and $780 million, up to 24% over fiscal 2011.GAAP EPS is estimated between $0.15 and $0.30. Non-GAAP EPS expected between $0.60 and $0.80.
How are they achieving such stellar growth while other computer makers are lagging? SGI specializes in expensive computers used for scientific research, as well as large systems for cloud computing and Web farms. These are all areas that continue to grow quickly. While there is competition from the likes of IBM, HP, Dell, and Cray, the newest systems introduced by SGI, notably Altix UV, are better at addressing the needs of their markets.
Nor is SGI resting on their laurels. They are introducing computers that run large scale systems running Windows SQL Server. They have improved their compatibility with Hadoop and Red Hat Enterprise Linux. They continue to be a major supplier for Amazon's cloud system. They also have started acquiring small companies that specialize in supercomputer application software. SGI expects that the ability to sell software as well as hardware will be a major advantage for verticals they service, with higher profit margins.
Finally, they ended the latest quarter with $115 million in cash with no debt. They did use $30 million of cash to build inventory in the quarter, but the systems built had been pre-ordered and should be shipping this quarter.
Because of the size of the systems involved, some quarter-to-quarter lumpiness is to be expected.
If you read what scientists are saying about Altix UV, you will realize why management has become very confident in SGI's future. On the analyst call they stated the next big SGI milestone will be $1 billion in annual revenue, which should bring between $1.75 and $2.00 non-GAAP EPS per share.
The recent growth has been in the face of a lot of uncertainty and a poor macroeconomy. Even so, if the doomsayers are right about global slowdown or meltdown scenarios in 2012, that could impact sales. I am more concerned about competition, but it does seem that for now SGI has found a niche where it can outcompete far larger companies.
For more details on calendar Q3 results, see my SGI Q1 fiscal 2012 analyst call summary.
Disclaimer: I am long SGI. I won't change my position for at least one week from today.
The usual risks apply, so keep diversified!
See also: www.sgi.com
Monday, November 28, 2011
Microchip (MCHP) Inventory Correction End May Be Near
There is no way to describe Q3 2011 as a good quarter for Microchip (MCHP). The maker of microcontroller and analog chips reported revenues of $340.6 million, down 9% sequentially from $374.5 million in Q2 and down 11% from $382.3 million in the year-earlier quarter.
GAAP net income was $79.3 million, down 20% sequentially from $99.3 million and down 24% from $104.7 million year-earlier. GAAP EPS were $0.40, down 18% sequentially from $0.49 and down 26% from $0.54 year-earlier.
Given that and the general stock-market and macroeconomic malaise, the main thing propping up Microchip's stock price (closing today at $33.07) is the dividend, now running at $1.392 per share per year, or 4.3% at today's price.
As to the outlook, Q4 guidance was week, with revenue in the range of flat to down 7% from Q3.
I don't think that Microchip is failing to compete in its market segments. It continues to be the world's leading microcontroller provider. Economic uncertainty caused weakend demand, which in turn caused OEMs to tighten up their inventories.
Then again, the picture could be brighter for Q1 2012. The first quarter is typically seasonally slow for semiconductor chip makers, but within that seasonality Microchip's management, as early as the analyst call on November 3, foresaw an uptick, predicting that "shipment rates in December will be below the consumption rates of our customers."
Here it is important for analysts to note that, unlike most chip manufacturers, Microchip does not recognize revenue when it makes shipments to distributors. Because of the nature of Microchip's business (selling a large number of parts to a large number of OEMs), a lot of sales are through distributors. Microchips recognizes the revenue when the distributors have shipped the chips to end customers.
This means that Microchip tends to see results (reported revenue) of general semiconductor trends, both up and down, a quarter earlier than its peers. While there can be differences in results because of focus and competition for market share, a Microchip revenue downturn is a fair predictor of a sector downturn one quarter later, and the same for upturns.
If this December shapes up to be a good one for electronics sales in the U.S., and if Europe holds together, January may look very different than most investors would have expected until recently. If end sales cause inventory shortages at OEMs, the pace chip sales in Q1 could be strong, compared to the usual range from seasonality.
So keep an eye on Microchip's Q4 results and Q1 2011 results. In the meantime, if you are holding MCHP, enjoy the dividends.
Keep in mind that the semiconductor industry, including its microcontroller and analog segments, is very competitive.
Disclaimer: I am long MCHP and have no plans to change my position this year.
See also:
www.microchip.com
GAAP net income was $79.3 million, down 20% sequentially from $99.3 million and down 24% from $104.7 million year-earlier. GAAP EPS were $0.40, down 18% sequentially from $0.49 and down 26% from $0.54 year-earlier.
Given that and the general stock-market and macroeconomic malaise, the main thing propping up Microchip's stock price (closing today at $33.07) is the dividend, now running at $1.392 per share per year, or 4.3% at today's price.
As to the outlook, Q4 guidance was week, with revenue in the range of flat to down 7% from Q3.
I don't think that Microchip is failing to compete in its market segments. It continues to be the world's leading microcontroller provider. Economic uncertainty caused weakend demand, which in turn caused OEMs to tighten up their inventories.
Then again, the picture could be brighter for Q1 2012. The first quarter is typically seasonally slow for semiconductor chip makers, but within that seasonality Microchip's management, as early as the analyst call on November 3, foresaw an uptick, predicting that "shipment rates in December will be below the consumption rates of our customers."
Here it is important for analysts to note that, unlike most chip manufacturers, Microchip does not recognize revenue when it makes shipments to distributors. Because of the nature of Microchip's business (selling a large number of parts to a large number of OEMs), a lot of sales are through distributors. Microchips recognizes the revenue when the distributors have shipped the chips to end customers.
This means that Microchip tends to see results (reported revenue) of general semiconductor trends, both up and down, a quarter earlier than its peers. While there can be differences in results because of focus and competition for market share, a Microchip revenue downturn is a fair predictor of a sector downturn one quarter later, and the same for upturns.
If this December shapes up to be a good one for electronics sales in the U.S., and if Europe holds together, January may look very different than most investors would have expected until recently. If end sales cause inventory shortages at OEMs, the pace chip sales in Q1 could be strong, compared to the usual range from seasonality.
So keep an eye on Microchip's Q4 results and Q1 2011 results. In the meantime, if you are holding MCHP, enjoy the dividends.
Keep in mind that the semiconductor industry, including its microcontroller and analog segments, is very competitive.
Disclaimer: I am long MCHP and have no plans to change my position this year.
See also:
www.microchip.com
Wednesday, April 20, 2011
Intuitive Surgical Sees International Expansion
My key take from yesterday's Intuitive Surgical (ISRG) Q1 2011 results release and analyst conference call was that the U.S. market for da Vinci surgical robots is no longer the main growth arena. While use of the robots in the U.S. will continue to expand as the FDA approves new types of surgeries to be conducted, and that will drive accessory sales, there are only so many hospitals in the U.S., and many already have at least one robot; a few have as many as six.
That is not true internationally. There is a vast space available for growth as foreign medical regulatory agencies approve the robots and national health services (other insurers) allow for reimbursements.
Q1 is typically a seasonally down quarter as hospitals finish up their capital spending budgets in Q4. The pattern held for Q1 2011. Revenues were $388.1 million, down slightly sequentially from $389.3 million, but up 18% from $328.6 million in the year-earlier quarter.
Net income was $104.1 million, down 14% sequentially from $121.2 million, but up 22% from $85.3 million year-earlier. EPS (earnings per share) were $2.59.
System sales, including upgrades to newer versions of da Vinci, were 120, with 31 sold outside the U.S. and 89 in the U.S.
Research and development continues. The FDA approved a fuorescent imaging system addition to the system. A proposal for vessel sealing surgery has been submitted to the FDA. A surgical stapler remains in late-stage development, as does Single-Site surgery.
For a complete summary, see my notes on the Intuitive Surgical Q1 2011 analyst call.
See also the Intuitive Surgical web site.
That is not true internationally. There is a vast space available for growth as foreign medical regulatory agencies approve the robots and national health services (other insurers) allow for reimbursements.
Q1 is typically a seasonally down quarter as hospitals finish up their capital spending budgets in Q4. The pattern held for Q1 2011. Revenues were $388.1 million, down slightly sequentially from $389.3 million, but up 18% from $328.6 million in the year-earlier quarter.
Net income was $104.1 million, down 14% sequentially from $121.2 million, but up 22% from $85.3 million year-earlier. EPS (earnings per share) were $2.59.
System sales, including upgrades to newer versions of da Vinci, were 120, with 31 sold outside the U.S. and 89 in the U.S.
Research and development continues. The FDA approved a fuorescent imaging system addition to the system. A proposal for vessel sealing surgery has been submitted to the FDA. A surgical stapler remains in late-stage development, as does Single-Site surgery.
For a complete summary, see my notes on the Intuitive Surgical Q1 2011 analyst call.
See also the Intuitive Surgical web site.
Friday, October 29, 2010
Akamai Q3 2010 Analyst Conference Call
Akamai (AKAM), which provides accelerated Internet services to enterprises, showed some of its promise in Q3. Akamai's trailing P/E is still pretty pricy by my standards, but then I bought AKAM back during the recession when its PE was much more reasonable.
GAAP Revenue was $253.6 million, up 3% sequentially from $245.3 million and up 21% from $206.5 million in the year-earlier quarter. GAAP Net income was $39.7 million, up 4% sequentially from $38.1 million and up 21% from $32.7 million year-earlier. GAAP EPS (earnings per share) were $0.21, up 5% sequentially from $0.20 and up 17% from $0.18 year-earlier.
Using GAAP numbers, Akamai's PE as I write (stock price $51.60) is 63, using annualized Q3 earnings. NASDAQ is listing non-GAAP PE as 35 trailing (last 4 quarters) or 32 forward looking (predicted next 4 quarters). That is pricey compared to semiconductor growth stocks like Marvell (MRVL - trailing PE 13) and Microchip (MCHP - trailing PE 20), which I also own.
I like GAAP numbers for conservative investing, but it is true that for Akamai you might want to look at Q3 cash from operations of $118 million or EBITDA at $114 million.
Why the excitement over Akamai? In theory it could ramp profits faster than revenues, and with Internet usage continuing to vastly outpace economic growth, profits could grow rapidly. However, the promise of rapid profit growth eluded Akamai in 2009 and in 2010 until Q3.
Negative opinions of Akamai mainly come from over regard for competitors. For as long as I can remember, competitors were going to take significant business from Akamai in the next couple of years. A couple of years pass, and if anything Akamai has gained market share. Akamai seems to know how to maintain its market advantage without blowing too much money on R&D.
I would not buy Akamai at this price, but then I already own a reasonable amount. There is certainly an argument that this price will look cheap in a couple of years, maybe even by mid 2011. For a much more detailed look, see my Akamai Analyst Call Q3 2010 summary.
See also www.akamai.com
GAAP Revenue was $253.6 million, up 3% sequentially from $245.3 million and up 21% from $206.5 million in the year-earlier quarter. GAAP Net income was $39.7 million, up 4% sequentially from $38.1 million and up 21% from $32.7 million year-earlier. GAAP EPS (earnings per share) were $0.21, up 5% sequentially from $0.20 and up 17% from $0.18 year-earlier.
Using GAAP numbers, Akamai's PE as I write (stock price $51.60) is 63, using annualized Q3 earnings. NASDAQ is listing non-GAAP PE as 35 trailing (last 4 quarters) or 32 forward looking (predicted next 4 quarters). That is pricey compared to semiconductor growth stocks like Marvell (MRVL - trailing PE 13) and Microchip (MCHP - trailing PE 20), which I also own.
I like GAAP numbers for conservative investing, but it is true that for Akamai you might want to look at Q3 cash from operations of $118 million or EBITDA at $114 million.
Why the excitement over Akamai? In theory it could ramp profits faster than revenues, and with Internet usage continuing to vastly outpace economic growth, profits could grow rapidly. However, the promise of rapid profit growth eluded Akamai in 2009 and in 2010 until Q3.
Negative opinions of Akamai mainly come from over regard for competitors. For as long as I can remember, competitors were going to take significant business from Akamai in the next couple of years. A couple of years pass, and if anything Akamai has gained market share. Akamai seems to know how to maintain its market advantage without blowing too much money on R&D.
I would not buy Akamai at this price, but then I already own a reasonable amount. There is certainly an argument that this price will look cheap in a couple of years, maybe even by mid 2011. For a much more detailed look, see my Akamai Analyst Call Q3 2010 summary.
See also www.akamai.com
Monday, May 10, 2010
TTM Technologies (TTMI) Sees PCB Demand
A sequential (and annual) revenue decrease at TTM Technologies (TTMI) for the first quarter of 2010 masks some very positive trends for the company. Despite the revenue decrease, profits were up. In addition TTM has combined with Meadville Holdings to create a formidable world-class PCB (printed circuit board) operation.
For detailed results and discussion from the May 6 conference, see my TTM Technologies Q1 2010 analyst conference summary.
The PCB industry in the U.S. has been contracting, so why should investors be there at all? The key here is that in many cases today's PCB is not your father's PCB. As the size of semiconductor chips has shrunk, PCB technology has changed. More interconnections between components need to be crammed into shrinking surface areas. This means high-end PCBs have multiple layers. The myriad tiny connections on a board must be rock-solid reliable or the finished product won't work. Holes must be drilled precisely by laser.
So PCB work that used to be done in the U.S. has gone in two directions. One direction is overseas, where volume work can be done more cheaply. Much of the work that remains in the U.S. involves high technology, which in turn requires capital investments that mom & pop PCB makers can't afford anymore. Most of the shakeout in 2008 and 2009 has been among the smaller players.
Even so, TTM management decided they needed to run a tighter operation. Between Q1 2009 and Q1 2010 revenues decreased 7%. But net income increased 221% (of course, the high percentage is partly a reflection of the minimal profits in Q1 2009). Even the $0.10 a share of GAAP EPS of Q1 2010 reflects the costs of closing plants in the U.S. Non-GAAP EPS was a healthier $0.19.
When TTM closed some plants, it tried to keep the profitable customers and drop the low-margin customers, with some evident success.
Demand is now expanding. The March book-to-bill ratio jumped to 1.12. So the plants that remain in operation in the U.S. should run closer to capacity, which means better profit margins ahead.
By revenue, the acquired Meadville is actually the larger company. Based in Hong Kong with plants in China, it has benefitted from the booming Chinese economy in 2009. But the important thing is how the two parts fit together.
U.S. companies, during the design stage, like to have their PCBs made near at hand, in the U.S. They like to have engineering support from PCB specialists. But if they are making a high volume product, in particular consumer product, they want to do their production for sale in a lower cost facility, typically in Asia. So a company might do its prototypes and low volume production (which happens with many defense and industrial products) with TTM, but then need to transition to an Asian supplier.
Now TTM can assist customers from start to finish. From the first prototype to the last board created for sale before a new model changeover, companies can work with the trusted team at TTM. According to management, most suitable customers are ready to make this transition. Of course the Asian plants should retain the customers they already have as well. TTM will also be able to bring high level engineering skills and production processes to the plants in China.
The transition will take some time, partly because it must wait for customers to bring in new designs, and partly because the Asian plants need more capacity. Plans are underway to fit more production machinery into the current plants, so we could see capacity begin to expand in Q3, and more fully in the beginning of 2011.
In addition to the usual risks, I would see the main risk for investors as the level of debt in the new TTM. Meadville brought debt with it. It was at a level that Meadville was paying down out of profits, so it should not be a problem to continue to pay down. However, if there were to be a second macroeconomic dip too soon, it is possible the debt could become a problem.
I am a long term investor in TTMI, so do further research before making your investment decision.
And keep diversified!
See also the TTM Technologies site
For detailed results and discussion from the May 6 conference, see my TTM Technologies Q1 2010 analyst conference summary.
The PCB industry in the U.S. has been contracting, so why should investors be there at all? The key here is that in many cases today's PCB is not your father's PCB. As the size of semiconductor chips has shrunk, PCB technology has changed. More interconnections between components need to be crammed into shrinking surface areas. This means high-end PCBs have multiple layers. The myriad tiny connections on a board must be rock-solid reliable or the finished product won't work. Holes must be drilled precisely by laser.
So PCB work that used to be done in the U.S. has gone in two directions. One direction is overseas, where volume work can be done more cheaply. Much of the work that remains in the U.S. involves high technology, which in turn requires capital investments that mom & pop PCB makers can't afford anymore. Most of the shakeout in 2008 and 2009 has been among the smaller players.
Even so, TTM management decided they needed to run a tighter operation. Between Q1 2009 and Q1 2010 revenues decreased 7%. But net income increased 221% (of course, the high percentage is partly a reflection of the minimal profits in Q1 2009). Even the $0.10 a share of GAAP EPS of Q1 2010 reflects the costs of closing plants in the U.S. Non-GAAP EPS was a healthier $0.19.
When TTM closed some plants, it tried to keep the profitable customers and drop the low-margin customers, with some evident success.
Demand is now expanding. The March book-to-bill ratio jumped to 1.12. So the plants that remain in operation in the U.S. should run closer to capacity, which means better profit margins ahead.
By revenue, the acquired Meadville is actually the larger company. Based in Hong Kong with plants in China, it has benefitted from the booming Chinese economy in 2009. But the important thing is how the two parts fit together.
U.S. companies, during the design stage, like to have their PCBs made near at hand, in the U.S. They like to have engineering support from PCB specialists. But if they are making a high volume product, in particular consumer product, they want to do their production for sale in a lower cost facility, typically in Asia. So a company might do its prototypes and low volume production (which happens with many defense and industrial products) with TTM, but then need to transition to an Asian supplier.
Now TTM can assist customers from start to finish. From the first prototype to the last board created for sale before a new model changeover, companies can work with the trusted team at TTM. According to management, most suitable customers are ready to make this transition. Of course the Asian plants should retain the customers they already have as well. TTM will also be able to bring high level engineering skills and production processes to the plants in China.
The transition will take some time, partly because it must wait for customers to bring in new designs, and partly because the Asian plants need more capacity. Plans are underway to fit more production machinery into the current plants, so we could see capacity begin to expand in Q3, and more fully in the beginning of 2011.
In addition to the usual risks, I would see the main risk for investors as the level of debt in the new TTM. Meadville brought debt with it. It was at a level that Meadville was paying down out of profits, so it should not be a problem to continue to pay down. However, if there were to be a second macroeconomic dip too soon, it is possible the debt could become a problem.
I am a long term investor in TTMI, so do further research before making your investment decision.
And keep diversified!
See also the TTM Technologies site
Sunday, May 9, 2010
Dot Hill Scrambles for Profits
Dot Hill (symbol: HILL) disappointed me with their Q1, 2010 results, but the analyst conference on May 6, 2010 reminded me that the data storage manufacturing company is about investing for future profits. So it still fits with my core strategy.
It was not that horrible of a quarter, it is just that, unlike my chip companies MCHP and AMD, revenues did not show a big sequential ramp. They were down 4% from Q4, which is still better than the usual seasonal downturn.
Revenues were $60.0 million, down 4% sequentially from $62.6, but up 11% from $53.9 million in Q1 2009.
GAAP net income was negative $6.4 million, a sequential drop from negative $5.0 million, and also worse than negative $3.3 million year-earlier. GAAP EPS was negative $0.12, down sequentially from negative $0.11, and down from negative $0.07 year-earlier.
The question investors, current and potential, have is: how is Dot Hill going to make a profit?
To understand how that might happen, you need to understand why HILL is not making a profit now. It makes data storage systems for businesses. These are typically standalone arrays of hard disks that attach to a network. This is a low margin business; it is fairly well-understood, there is plenty of competition, and it is hard to differentiate your products without raising your costs and cutting into your already slim margins. HILL acts as a supplier to OEMs, the main ones being HP and NetApp. It used to supply Sun, but even before Sun was absorbed by Oracle (the Blob of technology companies), Sun bought its own storage supply company and discontinued HILL.
If gross margins [revenues less the actual costs of making the goods] are low, a company can become profitable by keeping its operating (administrative and R&D) costs low while ramping up the volume of sales.
The other strategy is to increase gross margins by changing the nature of your product. Dot Hill management is determined to do both. Cost cutting is well-understood, so I will focus on how they plan to increase margins.
Data storage systems need to be managed, and while some management capabilities need to be built into the hardware, the management software can be sold separately. Software has much higher gross margins than hardware (but beware that software development costs go into the operating costs).
Since Dot Hill is already selling hardware, if it can get the end customers to buy its software packages as well, its hardware prices remain competitive, but it generates some high-margin revenues. In addition to its internal development efforts, HILL bought Cloverleaf Communications in January. The software is now for sale. It even works with non-Dot Hill products.
So when the report on the June quarter, the most important indicator will be attach rates. How much software revenue have they been able to attach to the hardware revenue? Of course it takes time to get this sort of program going, but management should be able to give an indicator of the trend for the June quarter.
Dot Hill is also introducing its 3000 series, which they say brings many features that in the past were only available on much more expensive storage systems. Customers have the choise of implementing the features or not; they pay to implement them. Hopefully the HP and NetApp salespeople will be pushing the customers to choose to pay to implement a full feature set.
HILL is working hard to be less dependent on HP and NetApp. By the end of Q1 they had doubled the number of small resellers they work with to 118. In Q4 the total HP + NetApp share of revenues was 84%, but in Q1 it declined to 80%. Because of the nature of the business, profit margins are better when HILL sells through smaller resellers. That is an encouraging trend.
Other major OEMs are negotiating with Dot Hill to become resellers of the 3000 system. This is a mixed blessing. It should be good in the long run if a third major OEM joins the team. But in the short run it means another ramp in R&D spending to ensure compatibility and the specific feature set the OEM will mandate. Which would mean more delays in getting to profitability.
Dot Hill is a risky stock because demand could soften, or OEMs could drop out or demand even lower margins. That would be ugly for a company that is already bleeding money.
On the other hand the up side potential is pretty good, and the stock is dirt cheap (it closed Friday at $1.38, giving it a market capitalization of $75 million). Dot Hill has a relatively clean balance sheet with about $50 million in cash on hand.
I own Dot Hill stock. For more detailed Q1 data see my Dot Hill Q1 2010 analyst conference summary.
See also Dot Hill www.dothill.com
And Keep Diversified!
It was not that horrible of a quarter, it is just that, unlike my chip companies MCHP and AMD, revenues did not show a big sequential ramp. They were down 4% from Q4, which is still better than the usual seasonal downturn.
Revenues were $60.0 million, down 4% sequentially from $62.6, but up 11% from $53.9 million in Q1 2009.
GAAP net income was negative $6.4 million, a sequential drop from negative $5.0 million, and also worse than negative $3.3 million year-earlier. GAAP EPS was negative $0.12, down sequentially from negative $0.11, and down from negative $0.07 year-earlier.
The question investors, current and potential, have is: how is Dot Hill going to make a profit?
To understand how that might happen, you need to understand why HILL is not making a profit now. It makes data storage systems for businesses. These are typically standalone arrays of hard disks that attach to a network. This is a low margin business; it is fairly well-understood, there is plenty of competition, and it is hard to differentiate your products without raising your costs and cutting into your already slim margins. HILL acts as a supplier to OEMs, the main ones being HP and NetApp. It used to supply Sun, but even before Sun was absorbed by Oracle (the Blob of technology companies), Sun bought its own storage supply company and discontinued HILL.
If gross margins [revenues less the actual costs of making the goods] are low, a company can become profitable by keeping its operating (administrative and R&D) costs low while ramping up the volume of sales.
The other strategy is to increase gross margins by changing the nature of your product. Dot Hill management is determined to do both. Cost cutting is well-understood, so I will focus on how they plan to increase margins.
Data storage systems need to be managed, and while some management capabilities need to be built into the hardware, the management software can be sold separately. Software has much higher gross margins than hardware (but beware that software development costs go into the operating costs).
Since Dot Hill is already selling hardware, if it can get the end customers to buy its software packages as well, its hardware prices remain competitive, but it generates some high-margin revenues. In addition to its internal development efforts, HILL bought Cloverleaf Communications in January. The software is now for sale. It even works with non-Dot Hill products.
So when the report on the June quarter, the most important indicator will be attach rates. How much software revenue have they been able to attach to the hardware revenue? Of course it takes time to get this sort of program going, but management should be able to give an indicator of the trend for the June quarter.
Dot Hill is also introducing its 3000 series, which they say brings many features that in the past were only available on much more expensive storage systems. Customers have the choise of implementing the features or not; they pay to implement them. Hopefully the HP and NetApp salespeople will be pushing the customers to choose to pay to implement a full feature set.
HILL is working hard to be less dependent on HP and NetApp. By the end of Q1 they had doubled the number of small resellers they work with to 118. In Q4 the total HP + NetApp share of revenues was 84%, but in Q1 it declined to 80%. Because of the nature of the business, profit margins are better when HILL sells through smaller resellers. That is an encouraging trend.
Other major OEMs are negotiating with Dot Hill to become resellers of the 3000 system. This is a mixed blessing. It should be good in the long run if a third major OEM joins the team. But in the short run it means another ramp in R&D spending to ensure compatibility and the specific feature set the OEM will mandate. Which would mean more delays in getting to profitability.
Dot Hill is a risky stock because demand could soften, or OEMs could drop out or demand even lower margins. That would be ugly for a company that is already bleeding money.
On the other hand the up side potential is pretty good, and the stock is dirt cheap (it closed Friday at $1.38, giving it a market capitalization of $75 million). Dot Hill has a relatively clean balance sheet with about $50 million in cash on hand.
I own Dot Hill stock. For more detailed Q1 data see my Dot Hill Q1 2010 analyst conference summary.
See also Dot Hill www.dothill.com
And Keep Diversified!
Wednesday, May 5, 2010
Celgene Advances on Revlimid, Vidaza Sales
Celgene's Q1 2010 was one to celebrate, with revenue of $791.3 million, up 4% sequentially from $761.0 million, and up 37% from $576.2 million in the year-earlier quarter. Net income was $234.4 million, down 11% sequentially from $254.2 million, but up 44% from $162.9 million. EPS (earnings per share) were $0.50, down 7% sequentially from $0.54, but up 43% from $0.35 year-earlier.
Results were better than expected, so guidance for the full year 2010 was increased to revenues of $3.3 to $3.4 billion with non-GAAP EPS between $2.60 and $2.65.
Revlimid revenues were $530 million, up 46% from year-earlier. The drug is well accepted as a multiple myeloma therapy. As patients live longer as a result of therapy, duration of therapy is increasing.
Vidaza, which is a newer drug, is still ramping its international sales. At $120 million in revenue, sales were up 60% from year-earlier. A fly in the ointment is the British public health system's contention that Vidaza's price is too high. Probably either the decision will be reversed, or Celgene will lower the price, and British patients can get the same care that is available in the U.S and most of Europe.
The Celgene research and development effort is a rather substantial, with enough drug candidates in the pipeline to assure revenue growth for years to come. With so many therapies in trials, there are bound to be some winners and some losers.
For a more detailed report, see my Celgene Q1 2010 analyst conference summary.
I own some Celgene stock. On the whole Celgene looks undervalued to me, especially for long-term investors. Celgene is subject to the usual risks from competition, failed drug trials, and unforseen adverse reactions.
So keep diversified!
Results were better than expected, so guidance for the full year 2010 was increased to revenues of $3.3 to $3.4 billion with non-GAAP EPS between $2.60 and $2.65.
Revlimid revenues were $530 million, up 46% from year-earlier. The drug is well accepted as a multiple myeloma therapy. As patients live longer as a result of therapy, duration of therapy is increasing.
Vidaza, which is a newer drug, is still ramping its international sales. At $120 million in revenue, sales were up 60% from year-earlier. A fly in the ointment is the British public health system's contention that Vidaza's price is too high. Probably either the decision will be reversed, or Celgene will lower the price, and British patients can get the same care that is available in the U.S and most of Europe.
The Celgene research and development effort is a rather substantial, with enough drug candidates in the pipeline to assure revenue growth for years to come. With so many therapies in trials, there are bound to be some winners and some losers.
For a more detailed report, see my Celgene Q1 2010 analyst conference summary.
I own some Celgene stock. On the whole Celgene looks undervalued to me, especially for long-term investors. Celgene is subject to the usual risks from competition, failed drug trials, and unforseen adverse reactions.
So keep diversified!
Thursday, March 25, 2010
Red Hat (RHT) Virtualization Signal
Red Hat (RHT) continues to be not only a fascinating technology company, but a fascinating experiment in investor psychology. It has always been a good company for its customers, who benefit from its enterprise quality, low cost operating system, virtualization, and middleware. Yet the stock began highly overvalued during the first internet stock boom, became vastly undervalued in the crash that followed, and only in 2009 became somewhat overvalued again.
Yesterday's release of results for the quarter ending February 28, 2010, were quite good compared to realistic expectations, but investor's expectations were not reasonable. With Red Hat stock trading today with a Non-GAAP PE (price/earnings) trailing ratio of 41.4 and 40 times future earnings (per NASDAQ.com), meeting investor expectations was an unlikely scenario. You need faster sequential and annual growth rates to justify that kind of PE in this market.
On a GAAP basis, revenue was $195.9 million, up 1% sequentially from $194.3 million and up 18% from $166.2 million in the year-earlier quarter. Net income was $23.4 million, up 43% sequentially from $16.4 million and up 46% from $16.0 million year-earlier. EPS (diluted earnings per share were) were $0.12, up 50% sequentially from $0.08 and also up 50% from $0.08 year-earlier.
If the stock were at a reasonable price, those would be good numbers. But emotional investors who do not understand the technology market perpetually convince themselves that Red Hat is the next Microsoft. There is a big difference between being a great company in a niche and being the next Microsoft.
For the details you need to make your own analysis of the value of Red Hat stock, see my Red Hat Q4 2010 analyst conference summary and past summaries.
I have owned Red Hat stock at times; I currently do not own any. If sentiment shifts again and Red Hat becomes undervalued again, I might become a buyer. This in-and-out goes against my main line of investment thinking, buying undervalued stocks and holding them for the long term. But most of the stocks I invest in are not as volatile as Red Hat has been.
Compare Red Hat to Marvell Technology (MRVL). Marvell revenues in the quarter ending January 30, 2010 were up 65% y/y and 5% sequentially. Even taking into account the different business models (Red Hat income is subscription based, so steadier), it is reasonable to expect Marvell revenues and profits to grow faster than Red Hat in 2010 and 2011. Yet Marvell is trading at only 21.4 times past earnings and 13.9 times future earnings. Note that I own Marvell stock. But look at the PEs of other Nasdaq 100 technology stocks and you will see what I mean. Even Apple, which I frequently diss as overpriced, has a trailing PE of just 28 today; certainly no bargain, but not unreasonable.
There are a lot of technology stocks that offer better value than Red Hat right now. That is not because they are necessarily better companies (though some might be); it is just because of their relative stock prices.
More data:
http://www.redhat.com/
http://www.marvell.com/
Yesterday's release of results for the quarter ending February 28, 2010, were quite good compared to realistic expectations, but investor's expectations were not reasonable. With Red Hat stock trading today with a Non-GAAP PE (price/earnings) trailing ratio of 41.4 and 40 times future earnings (per NASDAQ.com), meeting investor expectations was an unlikely scenario. You need faster sequential and annual growth rates to justify that kind of PE in this market.
On a GAAP basis, revenue was $195.9 million, up 1% sequentially from $194.3 million and up 18% from $166.2 million in the year-earlier quarter. Net income was $23.4 million, up 43% sequentially from $16.4 million and up 46% from $16.0 million year-earlier. EPS (diluted earnings per share were) were $0.12, up 50% sequentially from $0.08 and also up 50% from $0.08 year-earlier.
If the stock were at a reasonable price, those would be good numbers. But emotional investors who do not understand the technology market perpetually convince themselves that Red Hat is the next Microsoft. There is a big difference between being a great company in a niche and being the next Microsoft.
For the details you need to make your own analysis of the value of Red Hat stock, see my Red Hat Q4 2010 analyst conference summary and past summaries.
I have owned Red Hat stock at times; I currently do not own any. If sentiment shifts again and Red Hat becomes undervalued again, I might become a buyer. This in-and-out goes against my main line of investment thinking, buying undervalued stocks and holding them for the long term. But most of the stocks I invest in are not as volatile as Red Hat has been.
Compare Red Hat to Marvell Technology (MRVL). Marvell revenues in the quarter ending January 30, 2010 were up 65% y/y and 5% sequentially. Even taking into account the different business models (Red Hat income is subscription based, so steadier), it is reasonable to expect Marvell revenues and profits to grow faster than Red Hat in 2010 and 2011. Yet Marvell is trading at only 21.4 times past earnings and 13.9 times future earnings. Note that I own Marvell stock. But look at the PEs of other Nasdaq 100 technology stocks and you will see what I mean. Even Apple, which I frequently diss as overpriced, has a trailing PE of just 28 today; certainly no bargain, but not unreasonable.
There are a lot of technology stocks that offer better value than Red Hat right now. That is not because they are necessarily better companies (though some might be); it is just because of their relative stock prices.
More data:
http://www.redhat.com/
http://www.marvell.com/
Monday, January 11, 2010
Celgene Q4 2009 Earnings and Revenue Estimates
Celgene released preliminary, estimated results for 2009 today [See Celgene Reviews 2009 Achievements]. Since we know the results for the first three quarters, we should now have an accurate estimate for Q4 numbers.
Non-GAAP Revenues for 2009 were stated at $2.67 billion. Non-GAAP revenues by quarter were $601 million in Q1, $626 million in Q2, and $292 million in Q3. That would make Q4 revenues $751 million. That is very strong growth, especially considering that Celgene did not have a recession-related slump in 2008.
Non-GAAP EPS (earnings per share) for 2009 were stated at $2.08. By quarter they had been $0.44 for Q1, $0.46 for Q2, and $0.56 for Q3. Leaving Q4 EPS around $0.62. Again, very strong growth.
The press release also estimates 2010 revenue of $3.2 to $3.3 billion. Estimated non-GAAP EPS for 2010 is $2.55 to $2.60.
There are the usual risks and uncertainties that apply to biotechnology companies, but Celgene as a company is certainly on a roll. At today's stock price it is not as cheap as some pharmaceutical companies, but today's price will look real cheap by 2011 if current trends continue.
Celgene's main product is Revlimid for multiple myeloma, but it has other major therapies and a rich pipeline of potential future earners.
Keep diversified!
More data:
Celgene
My analyst conference summaries for Celgene
Non-GAAP Revenues for 2009 were stated at $2.67 billion. Non-GAAP revenues by quarter were $601 million in Q1, $626 million in Q2, and $292 million in Q3. That would make Q4 revenues $751 million. That is very strong growth, especially considering that Celgene did not have a recession-related slump in 2008.
Non-GAAP EPS (earnings per share) for 2009 were stated at $2.08. By quarter they had been $0.44 for Q1, $0.46 for Q2, and $0.56 for Q3. Leaving Q4 EPS around $0.62. Again, very strong growth.
The press release also estimates 2010 revenue of $3.2 to $3.3 billion. Estimated non-GAAP EPS for 2010 is $2.55 to $2.60.
There are the usual risks and uncertainties that apply to biotechnology companies, but Celgene as a company is certainly on a roll. At today's stock price it is not as cheap as some pharmaceutical companies, but today's price will look real cheap by 2011 if current trends continue.
Celgene's main product is Revlimid for multiple myeloma, but it has other major therapies and a rich pipeline of potential future earners.
Keep diversified!
More data:
Celgene
My analyst conference summaries for Celgene
Friday, December 18, 2009
Oracle Analyst Conference report
Oracle (ORCL)
Note: I do not own any Oracle stock as of the date of this entry - William P. Meyers
Note: I do not own any Oracle stock as of the date of this entry - William P. Meyers
conference date: December 17, 2009 @ 2:00 PM Pacific Time
for quarter ending: November 30, 2009 (2nd quarter fiscal 2010)
Overview: Strong sequential revenue growth with strong earnings.
Basic data (GAAP) :
Revenues were $5.86 billion, 16% sequentially from $5.05 billion and up 4% from $5.61 billion year-earlier.
Net income was $1.46 billion, up 30% sequentially from $1.12 billion and up 12% from $1.30 billion year-earlier.
EPS (earnings per share) were $0.29, up 32% sequentially from were $0.22 and up 16% from $0.25 year-earlier.
Guidance:
Excludes Sun acquisition.
Pipelines are strong, but assuming conservative close rates, 3rd quarter fiscal 2010. Revenue up 4 to 7% y/y at current exchange rates. Non-GAAP EPS $0.36 to $0.38 at current exchange rates. GAAP $0.26 to $0.28. 28% non-GAAP tax rate assumed.
Conference Highlights:
Exceeded high end of prior guidance. Software new license revenue was up 2% y/y to $1.7 billion (but down 5% in constant currency). Software updates and support revenue was up 14% y/y to $3.3 billion. GAAP operating margin was 37%, up from 35% year-earlier. This was the highest operating margin in Oracle history.
Non-GAAP results: operating income was $2.9 billion, up 9% y/y. Net income was $2.0 billion up 12% y/y. EPS were $0.39, up 15% y/y. Operating margin was 49%, up from 46.2% year-earlier.
Expects the Sun acquisition to clear with the European Commission in January.
Took market share from SAP "in every region around the world."
Exadata continues to be a "red-hot product."
Suns machines run Oracle databases "faster than IBM's fastest computer. We expect Sun to rapidly improve both its market share and margins once this merger closes." Oracle plans to avoid using Sun for the low-margin, high volume market. Will deliver "private cloud" complete solutions.
Stock holders of January 19, 2010 will receive a $0.05 per share dividend on February 9, 2010.
Cash, equivalents, and marketable securities balance ended at $20.78 billion. Debt in notes payable was $13.75 billion. 11.6 million shares of stock were repurchased for $253 million.
Operating expenses were $3.68 billion, composed of: Sales and Marketing $1.13 billion; product support expense $264 million; cost of services $832 million; research and development $708 million; general and administrative $183 million; amortization $436 million; acquisition related $10 million, and restructuring $114 million. Leaving operating income of $2.18 billion. Interest expense was $188 million. Non-operating income $33 million. Income tax provision $565 million.
Q&A:
Database business growth drivers? People had been putting off decisions, now some of that is starting to come back. 11g work with ISVs is kicking in as well.
Linearity? Typical linearity, not back-end loaded. But current quarter started off in better shape. Europe is lagging by about two quarters.
Guidance looks better than anticipated, does this mean there is a meaningful recovery in spending? We are seeing customers back buying, broadly. But it may be due to our strong products and sales teams. We also see the environment improving.
Are close rates improving? We did better than the close rates we expected. The economy is uneven, so we are continuing to use a very low close rates for guidance. Pipeline is very good, especially with Exadata.
Vertical standouts? Communications had a good quarter. Financial services pipeline is improving. Retail is coming back.
How big could Exadata business be? We think it will be huge, billions of dollars a year. How long it takes to get there remains to be seen. We want to group our industry standard components into machines like Exadata for transaction processing and data warehousing. Customers then don't have to do system integration. We want to apply the same strategy to operating systems, middleware, etc. We think that is what the computer business is going to look like for large customers going forward.
When we have acquired Sun all of you are going to have to redo all of your models.
Fusion products are SOA, so they can be bought individually and integrated easily.
Thursday, May 21, 2009
Akamai Future Trends
Does Akamai have what it takes to make long term investors happy even after this recession ends and stock prices go to normal levels relative to fundamentals?
I am not sure. Akamai accelerates the Internet. They are good at it. They have a technological edge over all rivals. I would not be surprised if the size of Akamai, measured in terms of revenues or net income, is ten times today's ten years from now. On the other hand, we are going into uncharted terrain where you can't just draw a line on a graph and assume it will rise linearly or exponentially forever.
It does seem likely that Internet usage, measured in bits delivered, will continue to grow for the foreseeable future. But it might not. Much of the growth in the past ten years has been driven by the shift to bandwidth intensive applications. Sending a text email over the net involves shifting a few bits. Sending a small image as an attachment with the email can increase the number of bits by an order or more of magnitude. Audio and high quality still pictures require another order of magnitude or more of data transfer. The short videos made for tiny windows of a few years ago upped the stakes yet again.
The number of people using the Internet, however, no longer climbs at the dizzying rate of the 1990s. Most of the growth in new customers now comes in developing countries. In some nations, like the U.S., the failure to provide a comprehensive broadband infrastructure has also put a damper on Internet data transfer growth. You can't do much with video when you access the net with a dial-up modem connection. But to the extent people start expecting DVD quality or HD quality video over the Internet, we still have a long way to go in increased bandwidth.
Your guess is as good as the experts. My guess is that it will be at least five to ten years before Internet growth rates really flatten out.
So if Akamai maintains market share, we can look forward to a good decade. What are the chances Akamai will gain or lose market share?
It is easy to see Akamai gaining market share. They simply accelerate Internet delivery faster than any other company can. Right now. You don't want to run a major merchant web site right now without Akamai's help.
Akamai is also starting to have better penetration outside the U.S. That alone could be a major growth driver.
On the other hand, plenty of would-be competitors exist. Most are losing money, but some may reach the inflection point where they have enough customers to make money. The really big companies that are well-situated to compete with Akamai are Cisco and Oracle. Cisco, in particular, probably possesses the skills to do well in the Web acceleration business. But Cisco has a lot of other fires burning right now. Akamai is thriving on specialization.
So I would judge competition to be a threat, but not enough of a threat to bet against Akamai staying on top for at least the next few years.
How did Akamai do in the latest quarter?
Revenue was $210.4 million, down 1% sequentially from $212.6 million and up 12% from $187.0 million year-earlier.
Net income was $37.1 million, down 9% sequentially from $40.5 million, but up slightly from $36.9 million year-earlier.
EPS (earnings per share) were $0.20, down 9% sequentially from $0.22, and flat from $0.20 year-earlier.
Cash from operations was $90.5 million, up 3% y/y. The company held $848.5 million in cash and equivalents at the end of the quarter. There are $200 million in convertible notes outstanding. Capital expenditures were $25.0 million.
See my Akamai Analyst Conference Summary of April 29, 2009 for a higher level of detail.
Akamai Investor Relations page
My Akamai main page
I am not sure. Akamai accelerates the Internet. They are good at it. They have a technological edge over all rivals. I would not be surprised if the size of Akamai, measured in terms of revenues or net income, is ten times today's ten years from now. On the other hand, we are going into uncharted terrain where you can't just draw a line on a graph and assume it will rise linearly or exponentially forever.
It does seem likely that Internet usage, measured in bits delivered, will continue to grow for the foreseeable future. But it might not. Much of the growth in the past ten years has been driven by the shift to bandwidth intensive applications. Sending a text email over the net involves shifting a few bits. Sending a small image as an attachment with the email can increase the number of bits by an order or more of magnitude. Audio and high quality still pictures require another order of magnitude or more of data transfer. The short videos made for tiny windows of a few years ago upped the stakes yet again.
The number of people using the Internet, however, no longer climbs at the dizzying rate of the 1990s. Most of the growth in new customers now comes in developing countries. In some nations, like the U.S., the failure to provide a comprehensive broadband infrastructure has also put a damper on Internet data transfer growth. You can't do much with video when you access the net with a dial-up modem connection. But to the extent people start expecting DVD quality or HD quality video over the Internet, we still have a long way to go in increased bandwidth.
Your guess is as good as the experts. My guess is that it will be at least five to ten years before Internet growth rates really flatten out.
So if Akamai maintains market share, we can look forward to a good decade. What are the chances Akamai will gain or lose market share?
It is easy to see Akamai gaining market share. They simply accelerate Internet delivery faster than any other company can. Right now. You don't want to run a major merchant web site right now without Akamai's help.
Akamai is also starting to have better penetration outside the U.S. That alone could be a major growth driver.
On the other hand, plenty of would-be competitors exist. Most are losing money, but some may reach the inflection point where they have enough customers to make money. The really big companies that are well-situated to compete with Akamai are Cisco and Oracle. Cisco, in particular, probably possesses the skills to do well in the Web acceleration business. But Cisco has a lot of other fires burning right now. Akamai is thriving on specialization.
So I would judge competition to be a threat, but not enough of a threat to bet against Akamai staying on top for at least the next few years.
How did Akamai do in the latest quarter?
Revenue was $210.4 million, down 1% sequentially from $212.6 million and up 12% from $187.0 million year-earlier.
Net income was $37.1 million, down 9% sequentially from $40.5 million, but up slightly from $36.9 million year-earlier.
EPS (earnings per share) were $0.20, down 9% sequentially from $0.22, and flat from $0.20 year-earlier.
Cash from operations was $90.5 million, up 3% y/y. The company held $848.5 million in cash and equivalents at the end of the quarter. There are $200 million in convertible notes outstanding. Capital expenditures were $25.0 million.
See my Akamai Analyst Conference Summary of April 29, 2009 for a higher level of detail.
Akamai Investor Relations page
My Akamai main page
Friday, April 17, 2009
Dot Hill Data Storage Preliminary Q1 Results
Dot Hill's sales of data storage equipment fell in the March 2009 quarter more than expected. But sales did not fall off a cliff. I am still sticking with the theory that the one technology product that enterprise-sized corporations must buy this year is more storage capacity. It is the law.
Dot Hill's products are very well positioned to take advantage of enterprises needing more storage but wanting to cut back on capital expenditures. While serving only a tiny sliver of the market so far, it is clear tht Dot Hill has gained considerable market share during this last year. In the past three years it has transitioned from being highly dependent on sales to a single OEM, Sun, to having three solid large clients, Sun, HP, and NetApp, plus a host of smaller OEMs and channel distributors.
Preliminary estimates for Q1 were released on April 14, 2009 [See also Dot Hill Preliminary Q1 press release]. Revenue probably came in just below $54 million. Non-GAAP net loss should be $0.05 to $0.07. At the Dot Hill Q4 analyst conference on February 26, 2009 guidance was for Q1 2009, with admitted low visibility, was $56 to $63 million in revenue with non-GAAP EPS negative $0.06 to $0.11. So despite being somewhat below the bottom of guidance on revenue, they did well on EPS.
Management has done a great job reducing costs. Any sort of firming of the global economy should result in a revenue ramp-up that puts Dot Hill back in the black. They have a good cash reserve, about $54 million at the end of the quarter.
Market capitalization has shot up since the announcement, but it is still just $38 million as I write. If they can do a profitable quarter by the end of the year, with over $200 million a year in revenues, you can bet this stock will shoot up. I have; I own the stock (so weigh that against my obvious enthusiasm).
Aside from the possibility that this recession will last into 2010, the main potential risks for Dot Hill are price competition from competitors and the danger of being dependent on Sun, HP, and NetApp for most of their sales.
See also:
My Dot Hill main page
www.dothill.com
Dot Hill's products are very well positioned to take advantage of enterprises needing more storage but wanting to cut back on capital expenditures. While serving only a tiny sliver of the market so far, it is clear tht Dot Hill has gained considerable market share during this last year. In the past three years it has transitioned from being highly dependent on sales to a single OEM, Sun, to having three solid large clients, Sun, HP, and NetApp, plus a host of smaller OEMs and channel distributors.
Preliminary estimates for Q1 were released on April 14, 2009 [See also Dot Hill Preliminary Q1 press release]. Revenue probably came in just below $54 million. Non-GAAP net loss should be $0.05 to $0.07. At the Dot Hill Q4 analyst conference on February 26, 2009 guidance was for Q1 2009, with admitted low visibility, was $56 to $63 million in revenue with non-GAAP EPS negative $0.06 to $0.11. So despite being somewhat below the bottom of guidance on revenue, they did well on EPS.
Management has done a great job reducing costs. Any sort of firming of the global economy should result in a revenue ramp-up that puts Dot Hill back in the black. They have a good cash reserve, about $54 million at the end of the quarter.
Market capitalization has shot up since the announcement, but it is still just $38 million as I write. If they can do a profitable quarter by the end of the year, with over $200 million a year in revenues, you can bet this stock will shoot up. I have; I own the stock (so weigh that against my obvious enthusiasm).
Aside from the possibility that this recession will last into 2010, the main potential risks for Dot Hill are price competition from competitors and the danger of being dependent on Sun, HP, and NetApp for most of their sales.
See also:
My Dot Hill main page
www.dothill.com
Thursday, November 6, 2008
Akamai (AKAM) Grows Through Recession
Akamai accelerates content delivery over the Internet. This is particularly important to companies that sell merchandise, but it is also important for companies that generate revenue from advertisements. Akamai's revenue growth rate has slowed, but it is still growing despite the economic turmoil that has knocked down revenues at many technology companies.
Akamai reported revenue for the quarter ending September 30, 2008 (Q3) at $197.3 million, up 2% sequentially from $194.0 million and up 22% from $161.2 million year-earlier.
GAAP net income was $33.4 million, down 3% sequentially from $34.3 million but up 36% from $24.6 million year-earlier. GAAP EPS (earnings per share) were $0.18.
Those are great results (for more details see my Akamai (AKAM) analyst conference summary for Q3 2008). When it comes down to it, almost no one wants to save a little money in a downturn by making the response time of their Web site climb, which would lose customers and revenues.
For the fourth quarter, management guided to revenue of $202 to $210 million. This includes $4 to $5 million revenue from the Acerno acquisition. Q4 is usually a strong one for Akamai. They are expecting some impact from the economic softening, with advertisement dollars weak and Internet sales not climbing as fast as in the past few years.
83 new customers were signed in the quarter, and Akamai's newer value-added services contributed significantly to revenue and to the ability to get new customers.
Akamai is also getting more directly into the advertisement business with its Advertising Decisions Solutions segment. Acerno was bought to help with that. Once Acerno is integrated with Akamai, expect revenue from this segment to grow through 2009 and beyond.
Akamai still seems to be able to stay ahead of competitors in the Internet acceleration arena. Since Akamai is profitable and many of its competitors are not, it is possible there will be consolidation to Akamai's benefit if the recession lasts in 2009. Also Akamai's customers are mostly profitable at this point. Competitors have tended to pick up newer companies that are not yet making profits.
On the other hand, I don't think Akamai would be immune to a severe recession. At some point it would lose enough customers to impact net income substantially.
Fortunately, Akamai generates a lot of cash compared to revenues. Cash from operations in the quarter was an amazing $93 million, an amazing 47% of revenue.
Akamai also had plenty of cash on its balance sheets, $789 million at the end of the quarter.
A year ago if you wanted to buy Akamai stock you would have paid dearly for it. Today, like most stocks, it is a bargain. I own some Akamai stock, so consider that I may be biased.
There is risk everywhere, but there is opportunity in quite a few places too, so
Keep diversified.
More data:
http://www.akamai.com/
My main Akamai analyst conferences page
More Technology Stock Analyst Conference Summaries
Akamai reported revenue for the quarter ending September 30, 2008 (Q3) at $197.3 million, up 2% sequentially from $194.0 million and up 22% from $161.2 million year-earlier.
GAAP net income was $33.4 million, down 3% sequentially from $34.3 million but up 36% from $24.6 million year-earlier. GAAP EPS (earnings per share) were $0.18.
Those are great results (for more details see my Akamai (AKAM) analyst conference summary for Q3 2008). When it comes down to it, almost no one wants to save a little money in a downturn by making the response time of their Web site climb, which would lose customers and revenues.
For the fourth quarter, management guided to revenue of $202 to $210 million. This includes $4 to $5 million revenue from the Acerno acquisition. Q4 is usually a strong one for Akamai. They are expecting some impact from the economic softening, with advertisement dollars weak and Internet sales not climbing as fast as in the past few years.
83 new customers were signed in the quarter, and Akamai's newer value-added services contributed significantly to revenue and to the ability to get new customers.
Akamai is also getting more directly into the advertisement business with its Advertising Decisions Solutions segment. Acerno was bought to help with that. Once Acerno is integrated with Akamai, expect revenue from this segment to grow through 2009 and beyond.
Akamai still seems to be able to stay ahead of competitors in the Internet acceleration arena. Since Akamai is profitable and many of its competitors are not, it is possible there will be consolidation to Akamai's benefit if the recession lasts in 2009. Also Akamai's customers are mostly profitable at this point. Competitors have tended to pick up newer companies that are not yet making profits.
On the other hand, I don't think Akamai would be immune to a severe recession. At some point it would lose enough customers to impact net income substantially.
Fortunately, Akamai generates a lot of cash compared to revenues. Cash from operations in the quarter was an amazing $93 million, an amazing 47% of revenue.
Akamai also had plenty of cash on its balance sheets, $789 million at the end of the quarter.
A year ago if you wanted to buy Akamai stock you would have paid dearly for it. Today, like most stocks, it is a bargain. I own some Akamai stock, so consider that I may be biased.
There is risk everywhere, but there is opportunity in quite a few places too, so
Keep diversified.
More data:
http://www.akamai.com/
My main Akamai analyst conferences page
More Technology Stock Analyst Conference Summaries
Tuesday, November 4, 2008
TTM Technologies (TTMI) Okay Despite Economy
TTM Technologies (TTMI) reported $169.0 in revenues for the third quarter of 2008. It is interesting to see which companies are being impacted by the economic turmoil. Many technology company management teams, earlier in the year, took the line that they enabled their customers to save money, and so could grow even during a recession. Q3 earnings reports tests that theory, and in some cases it has turned out to be right, as with Akamai, and in others wrong, as with Rackable Systems.
TTM Technologies makes printed circuit boards (PCBs). These used to be pretty mundane, essentially pieces of plastic with holes drilled in it to receive component wires, with copper foil lines running between the electronics. But today's high-end components are so small and require so many connections that PCBs themselves have become high technology. Holes must be precision drilled with lasers, and the boards tend to many alternating conductive and non-conductive layers.
Usually truly mass production of PCBs is done in Taiwan, China, or some other low-cost Asian nation. TTM Technologies can do prototyping of boards before the mass production run, and runs of boards that are at the cutting edge of technology. Examples are networking equipment, electronic testing equipment, medical devices, and aerospace devices.
TTM's revenues were down 3% from Q2, but up 4% from Q3 2007. Probably they were impacted by the economy and would have shown sequential growth in a normal environment. GAAP net income was $9.5 million, just above flat compared to Q2 but up 15% from the year-earlier quarter.
TTM gets better profit margins on its high-end products than on lower-end and mass production products. During the quarter the mix of products shifted to the high-end, so they were able to do pretty well.
Despite that guidance for Q4 was down to $156 million to $164 million in revenues, with EPS between $0.14 and $0.19. If there is a drastic reduction in economic activity, TTM will feel it.
For a full report on TTMI's Q3 see my TTM analyst conference summary for Q3 2008.
On a cash basis results were even better, with EBITDA (earnings before interest, taxes, depreciation and amortization) of $22.2 million.
TTM Technologies ended the quarter with $135 million in cash, enough to get through a downturn. It also has been looking to acquire an Asian PCB manufacturer to do high-volume, low cost runs, so cash could go to that if the right match is found.
TTMI stock is trading today at around $6.80 per share, giving it a market capitalization of about $290 million. Using GAAP net income for the quarter, it has a current P/E ratio of under 8. In any stock market but today's that would be a tremendous buy.
I own TTMI stock, which I picked up earlier this year. You can find more information at my main TTMI page.
Like all stocks TTMI carries risks and uncertainties, so keep diversified!
More data:
TTM Technologies
PCBs (printed circuit boards) at Wikipedia
TTM Technologies makes printed circuit boards (PCBs). These used to be pretty mundane, essentially pieces of plastic with holes drilled in it to receive component wires, with copper foil lines running between the electronics. But today's high-end components are so small and require so many connections that PCBs themselves have become high technology. Holes must be precision drilled with lasers, and the boards tend to many alternating conductive and non-conductive layers.
Usually truly mass production of PCBs is done in Taiwan, China, or some other low-cost Asian nation. TTM Technologies can do prototyping of boards before the mass production run, and runs of boards that are at the cutting edge of technology. Examples are networking equipment, electronic testing equipment, medical devices, and aerospace devices.
TTM's revenues were down 3% from Q2, but up 4% from Q3 2007. Probably they were impacted by the economy and would have shown sequential growth in a normal environment. GAAP net income was $9.5 million, just above flat compared to Q2 but up 15% from the year-earlier quarter.
TTM gets better profit margins on its high-end products than on lower-end and mass production products. During the quarter the mix of products shifted to the high-end, so they were able to do pretty well.
Despite that guidance for Q4 was down to $156 million to $164 million in revenues, with EPS between $0.14 and $0.19. If there is a drastic reduction in economic activity, TTM will feel it.
For a full report on TTMI's Q3 see my TTM analyst conference summary for Q3 2008.
On a cash basis results were even better, with EBITDA (earnings before interest, taxes, depreciation and amortization) of $22.2 million.
TTM Technologies ended the quarter with $135 million in cash, enough to get through a downturn. It also has been looking to acquire an Asian PCB manufacturer to do high-volume, low cost runs, so cash could go to that if the right match is found.
TTMI stock is trading today at around $6.80 per share, giving it a market capitalization of about $290 million. Using GAAP net income for the quarter, it has a current P/E ratio of under 8. In any stock market but today's that would be a tremendous buy.
I own TTMI stock, which I picked up earlier this year. You can find more information at my main TTMI page.
Like all stocks TTMI carries risks and uncertainties, so keep diversified!
More data:
TTM Technologies
PCBs (printed circuit boards) at Wikipedia
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