Microchip issued a press release today:
MICROCHIP TECHNOLOGY ANNOUNCES PRELIMINARY NET SALES FOR SECOND QUARTER FISCAL 2015
It is not pretty, but I believe the market over-reacted.
First, second quarter fiscal 2015 for Microchip ended September 30, so it is Q3 2014 for the rest of us.
Second, it was a bad quarter only in respect to prior guidance. Microchip has been on a tear this year, and guided to $560.0 million to $575.9 million for revenue.
The preliminary revenue estimate $546.2 million, which is well below the low end of guidance. But it is up from $492.7 million year-earlier. That is a nearly 11% y/y increase. Part of that increase is from the ISSC acquisition, but even excluding ISSC revenue is $529.3 million, which is up over 7% y/y.
What does it mean? Does this bode ill for the future?
Of course it is hard to say. Microsoft sells microcontrollers and analog chips to a very large number of customers. On a regional basis the demand was worst, compared to expectations, in China. Is there a problem in the Chinese domestic market, or a problem with end demand in Europe or the United States? Or are manufacturers just being cautious? For now, I am leaning to the just being cautious camp, because I believe Europe and China will rebound sooner rather than later. But I could be wrong.
I may even be more optimistic than Steve Sanhi, Microchip's CEO, who stated "We
believe that another industry correction has begun and that this correction will be seen more broadly across the industry in the near future.”
Rather, my guess is any problems are device specific. End markets for microcontrollers include automobiles, medical and industrial equipment. Maybe the sanctions against Russia a backfiring to hit U.S. investors.
After closing yesterday at $45.54, Microchip dropped as low as $39.02 today, but as I write it has recovered to $40.57. Microchip is a strong cash generator and pays a dividend that amounts to over 3.1% at the price I just quoted. It last paid the dividend on September 4.
Microchip has a trailing P/E ratio of 24.7, which is quite reasonable even taking into account the newly announced, slower annual growth rate.
I don't like it when a stock I own goes down, or misses guidance, but Microchip has a great long-term track record, so I see no point to selling my holdings. It will be interesting to see if the bulk of the semiconductor industry is seeing the same pain, or if it is specific to Microchip. It is very possible that demand in Q4 will make up for any slack in demand in Q3.
Showing posts with label semiconductors. Show all posts
Showing posts with label semiconductors. Show all posts
Friday, October 10, 2014
Thursday, July 18, 2013
Covering Altera (ALTR) again
Now that I have a larger audience through Seeking Alpha, I am going to cover a wider variety of technology and biotechnology stocks. I am starting with a company that I covered in the past, Altera Corporation (ALTR)
In my introductory article, Altera Worth Watching for Upside Surprises, I take an essentially neutral stance. In future articles I'll be digging more deeply into the Altera story and comparing it with rival Xilinx, as well as other semiconductor companies that make programmable logic devices (PLDs).
AMD reports later today. I will be in transit, but hopefully can get a report out tomorrow.
In my introductory article, Altera Worth Watching for Upside Surprises, I take an essentially neutral stance. In future articles I'll be digging more deeply into the Altera story and comparing it with rival Xilinx, as well as other semiconductor companies that make programmable logic devices (PLDs).
AMD reports later today. I will be in transit, but hopefully can get a report out tomorrow.
Monday, April 22, 2013
Applied Materials, Process Nodes, and Future Profits
Applied Materials (AMAT) makes capital equipment for semiconductor chip manufacturing. Demand in that sector has not been robust these last couple of years, although it has come off the bottom that lagged after the recession. This article will look at AMAT as a long-term investment, not a short term trade. Given that, the first thing to note is that it pays a dividend, which is currently $0.10 per quarter, or 3.1% per year at the current $13.06 stock price.
I believe the largest factor determining future AMAT revenue and profit will be the ongoing trend towards new, small process nodes (indicated by the size of the lines used to put transistors in chips. 32 nanometer is older than 28 nm.) But let's start with where we are now.
AMAT last reported on February 13 for the first fiscal fiscal quarter of 2013, which ended January 28, 2013. Against an overall global semiconductor capital equipment spending drop of 16% in 2012, AMAT reported revenues of $1.57 billion, down 5% sequentially from $1.65 billion and down 28% from $2.19 billion in the year-earlier quarter. That is discouraging, for certain.
Applied's core semiconductor equipment business saw a Q1 y/y decline to $969 million from $1.34 billion, a decline of 28%. Its display screen segment did better, but the solar segment did worse. Display revenue dropped 17% y/y to $87 million from $104 million, which was already low by historic standards. Solar revenue dropped 77% y/y to $47 million from $206 million. There is a glut of solar supply in the market, so no turn around is expected until at least 2015. Display may see some rebound in 2013 as screen sizes start to increase in developing markets and new screen technologies are adapted.
The bulk of Applied's revenue and profit comes from the semiconductor segment. It is well known that demand for PCs has been down, and it is hard to predict where the bottom may lay. Demand for tablets and smartphones has been increasing. Overall demand is dampened because smartphones simply contain far less silicon than PC's do. They have weaker processing chips and far less memory.
Does that mean Applied and other semiconductor equipment manufacturers should be written off as dinosaurs? I think not. I think overall computational demand will continue to increase rapidly for at least the next two decades. To cram more computation into portable devices (and the computers in the cloud that serve those devices) the industry will continue to move to smaller process nodes.
Right now demand is still high at the 28 nm node. Most chips, which work in legacy, non-mobile applications, are still made at much older nodes. For high-end graphics chips from AMD and NVIDIA, 28 nm is the cutting edge. Intel is already manufacturing its newest CPUs at 20 nm, and new memory-chip production at Samsung is just started at 10 nm. Memory process nodes typically can be smaller than computing process nodes. The most advanced ARM-based chips were recently taped out at 16 nm at TSMC.
Smaller (newer) process nodes mean that more capability can be built into mobile devices (and also non-mobile devices). Transitions to 14 nm and 20 nm are almost entirely ahead of the industry. To some extent moving to these nodes may open up capacity at 28 nm, but there is a lot of technology out there that has yet to migrate to 28 nm.
The other factor is overall demand, and that depends on the global economy and the frequency of consumer upgrades. There is a lot of old equipment out there, as seen by the high percentage of PCs still running Windows XP. With the exception on Intel, Samsung, IBM, and a few others, most chip makers are now really chip designers who send their designs to foundries like TSMC and Globalfoundries for actual production. These foundries don't want to have capital equipment sitting idle, but neither do they want to lose business because of insufficient capacity.
Generally capacity has been lean since the recession, which is one reason why there has been a shortage of 28 nm capacity. The other reason 28 nm has been tight is it was harder to get it working with good yields than had been expected There is quite a bit of impatience right now among the more cutting-edge designers because of a lack of sub-28 nm capacity.
Anything under 28 nm is far more expensive to make than 28 nm. Only Intel and Samsung have had the vast capital resources to simply move to the lower nodes without concern about how much demand would be there at startup. Even Intel announced it was cutting back capital equipment spending by $1 billion in 2013 due to lower demand projections.
But what is bad for foundries is good for AMAT and other equipment manufacturers: future nodes will require far more spending on capital equipment. One reason is that some 20 nm chips will have a 3-D structure. This means a move away from lithography defined shrinking to process-defined, where with precision engineering AMAT claims a considerable advantage.
In addition to reporting revenue, AMAT reports orders for each quarter. The good news for Q1 was that orders of $2.11 billion were well above revenue and up 31% from orders in Q4, as well as up 5% y/y.
Guidance is for Q2 fiscal 2013 revenue to be up 15 to 25% sequentially. Non-GAAP EPS is expected between $0.09 and $0.15.
While Applied Materials has substantial competition in each of the types of tools that are needed for semiconductor manufacturing, it is second in overall sales revenue only to ASML in an industry where scale matters. ASML is not much bigger: it had sales of $7.9 billion in 2011, AMAT had $7.4 billion. Another American competitor is KLA-Tencor, which had $3.1 billion in sales, placing it fourth globally.
On the whole, I think it is likely that 2013 will be a year of improvement for AMAT, and with major gearing up for 20 nm in 2014, that will be a very good year. How much improvement depends on the degree of strengthening global demand for semiconductor chips.
Disclaimer: I am a long-term investor in AMAT. I also am long AMD, but do not own any other company mentioned in this article. I will not buy or sell AMAT stock for one week following this article's publication date.
See also:
My main AMAT analyst conferences page.
My Q1 2013 AMAT analyst conference notes
www.appliedmaterials.com
I believe the largest factor determining future AMAT revenue and profit will be the ongoing trend towards new, small process nodes (indicated by the size of the lines used to put transistors in chips. 32 nanometer is older than 28 nm.) But let's start with where we are now.
AMAT last reported on February 13 for the first fiscal fiscal quarter of 2013, which ended January 28, 2013. Against an overall global semiconductor capital equipment spending drop of 16% in 2012, AMAT reported revenues of $1.57 billion, down 5% sequentially from $1.65 billion and down 28% from $2.19 billion in the year-earlier quarter. That is discouraging, for certain.
Applied's core semiconductor equipment business saw a Q1 y/y decline to $969 million from $1.34 billion, a decline of 28%. Its display screen segment did better, but the solar segment did worse. Display revenue dropped 17% y/y to $87 million from $104 million, which was already low by historic standards. Solar revenue dropped 77% y/y to $47 million from $206 million. There is a glut of solar supply in the market, so no turn around is expected until at least 2015. Display may see some rebound in 2013 as screen sizes start to increase in developing markets and new screen technologies are adapted.
The bulk of Applied's revenue and profit comes from the semiconductor segment. It is well known that demand for PCs has been down, and it is hard to predict where the bottom may lay. Demand for tablets and smartphones has been increasing. Overall demand is dampened because smartphones simply contain far less silicon than PC's do. They have weaker processing chips and far less memory.
Does that mean Applied and other semiconductor equipment manufacturers should be written off as dinosaurs? I think not. I think overall computational demand will continue to increase rapidly for at least the next two decades. To cram more computation into portable devices (and the computers in the cloud that serve those devices) the industry will continue to move to smaller process nodes.
Right now demand is still high at the 28 nm node. Most chips, which work in legacy, non-mobile applications, are still made at much older nodes. For high-end graphics chips from AMD and NVIDIA, 28 nm is the cutting edge. Intel is already manufacturing its newest CPUs at 20 nm, and new memory-chip production at Samsung is just started at 10 nm. Memory process nodes typically can be smaller than computing process nodes. The most advanced ARM-based chips were recently taped out at 16 nm at TSMC.
Smaller (newer) process nodes mean that more capability can be built into mobile devices (and also non-mobile devices). Transitions to 14 nm and 20 nm are almost entirely ahead of the industry. To some extent moving to these nodes may open up capacity at 28 nm, but there is a lot of technology out there that has yet to migrate to 28 nm.
The other factor is overall demand, and that depends on the global economy and the frequency of consumer upgrades. There is a lot of old equipment out there, as seen by the high percentage of PCs still running Windows XP. With the exception on Intel, Samsung, IBM, and a few others, most chip makers are now really chip designers who send their designs to foundries like TSMC and Globalfoundries for actual production. These foundries don't want to have capital equipment sitting idle, but neither do they want to lose business because of insufficient capacity.
Generally capacity has been lean since the recession, which is one reason why there has been a shortage of 28 nm capacity. The other reason 28 nm has been tight is it was harder to get it working with good yields than had been expected There is quite a bit of impatience right now among the more cutting-edge designers because of a lack of sub-28 nm capacity.
Anything under 28 nm is far more expensive to make than 28 nm. Only Intel and Samsung have had the vast capital resources to simply move to the lower nodes without concern about how much demand would be there at startup. Even Intel announced it was cutting back capital equipment spending by $1 billion in 2013 due to lower demand projections.
But what is bad for foundries is good for AMAT and other equipment manufacturers: future nodes will require far more spending on capital equipment. One reason is that some 20 nm chips will have a 3-D structure. This means a move away from lithography defined shrinking to process-defined, where with precision engineering AMAT claims a considerable advantage.
In addition to reporting revenue, AMAT reports orders for each quarter. The good news for Q1 was that orders of $2.11 billion were well above revenue and up 31% from orders in Q4, as well as up 5% y/y.
Guidance is for Q2 fiscal 2013 revenue to be up 15 to 25% sequentially. Non-GAAP EPS is expected between $0.09 and $0.15.
While Applied Materials has substantial competition in each of the types of tools that are needed for semiconductor manufacturing, it is second in overall sales revenue only to ASML in an industry where scale matters. ASML is not much bigger: it had sales of $7.9 billion in 2011, AMAT had $7.4 billion. Another American competitor is KLA-Tencor, which had $3.1 billion in sales, placing it fourth globally.
On the whole, I think it is likely that 2013 will be a year of improvement for AMAT, and with major gearing up for 20 nm in 2014, that will be a very good year. How much improvement depends on the degree of strengthening global demand for semiconductor chips.
Disclaimer: I am a long-term investor in AMAT. I also am long AMD, but do not own any other company mentioned in this article. I will not buy or sell AMAT stock for one week following this article's publication date.
See also:
My main AMAT analyst conferences page.
My Q1 2013 AMAT analyst conference notes
www.appliedmaterials.com
Friday, February 8, 2013
Microchip Record Revenue should be Topped in March Quarter
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
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
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!
Tuesday, May 22, 2012
Marvell Technology (MRVL) Elbows Out
Marvell Technology Group (MRVL) reported results above expectations for the quarter ending April 28 (Q1 fiscal 2013) last Thursday. I was delighted that CEO Sehat Sutardja strayed from his usual dry, careful observations to take on some negative Street views of his company.
Revenue was $795.4 million, up 7% sequentially from $742.7 million, but down 1% from $802.4 million year-earlier. That may not seem stellar, but some rival semiconductor companies and some analysts had been predicting considerably worse. Essentially the rumors were that a competitor was finally besting Marvell in the hard drive controller market and that Marvell was also failing in the Chinese smartphone market.
Marvell stock ended Thursday, before results were released, at $13.3. Today it closed at $12.99, for a market capitalization of $7.4 billion. Clearly the news that Marvell is back on the success track has not yet sunk in, with overall market turmoil probably not helping.
For investors the last few year with Marvell have been tough. After splitting in 2004 and again in 2006, the stock price entered 2007 at well over $20 per share. At the 2008 bottom it hit a low around $4.48. More recently Marvell's 52-week high was $16.86, low was $11.23.
The real long-term value in any technology company is as much in what is going on in its R&D department today as what last-quarter's results were. R&D spend in the latest quarter was a healthy $256 million. Marvell does not give a breakdown of R&D spend, but a lot of it had to go to two crucial areas where Marvell leads competitors: TD smartphones for the Chinese market and next generation storage devices, including both HDD (hard disk) and SDD (flash memory based).
The main good news for Q1 was the continued rapid ramping of sales of Marvell-processor based TD-SCDMA smartphones in China. Marvell's chips not only include the processor, but most of the functions needed to run a smartphone (graphics, cellular modem, wi-fi, bluetooth). The middle-class masses are buying Android based smartphones that run on a this new 3G high-speed, invented-in-China protocol. Revenue from these chips was up 25% from Q4. Usually, for its mobile sector, Marvell sees a seasonal decline from Q4 to Q1, and indeed overall the sector was down 1% sequentially. Even then Marvell's mobile segment revenue was up 14% from year-earlier Q1.
Marvell has not competed very successfully for silicon in smartphones in the U.S. or Europe. It has space in some RIM Blackberry phones. When RIM tanked analysts predicted Marvell would have to abandon the space. Instead Marvell is turning its clear victory in China to its advantage in the global competition for the next generation of smartphones. Qualcomm's control of CDMA patents may be history as LTE becomes the new standard. I don't see Marvell beating out Qualcomm in the U.S. or Europe in the next few years, but its design philosophy is enabling it to turn the flank in China, much of Asia, and Africa.
In the hard drive space Sutardja specifically took on the claims of its chief competitor (LSI) about capturing market share, claims that have been echoed by several Wall Street analysts without fact checking. Marvell's storage sector revenue was up over 20% sequentially, in what is usually a seasonally sequentially down quarter. This sequential growth was only partly due to industry recovery from the Thailand floods.
After the floods Marvell's market share did drop to 56%, according to Sutardja. But that was based on which HDD makers were hurt worst by the flooding, not by the competitiveness of Marvell's controller chip rival. In Q2 quarter Marvell's market share should return to about 60%. The disruption of the industry in 2011 meant people produced whatever capacity drives they could. This quarter will see return to normalcy, which means favoring higher-capacity drives for any units that can be produced. Marvell leads in controller chips for high-capacity drives, including the new 500 GB/platter mobile drive solution, which is expected to ramp revenue another 50% in the current quarter. Sutardja also pledged to gain unit and revenue share going forward based on next-generation designs.
There are a lot of other pieces to the Marvell enterprise, but a good summary would be the guidance issued for fiscal Q2 2013 end July, 2012: 6 to 12% sequential revenue increase, or $840 to $890 million. A bit above the upper end of the range would put Marvell flat y/y.
While revenue has flattened since 2010, profit generation has been very healthy at these levels. As a result Marvell initiated a $0.06 per share per quarter dividend. $500 million was added to the share repurchase program. The cash balance was $2.2 billion.
Marvell would be able to buy back a substantial portion of its shares at its current share price.
The usual risks apply. Marvell faces competition in every market it serves, in particular chips for smartphones. My best guess, however, is that over the long run Marvell will continue to do what it did after its founding: take market share from rivals. It will also continue its expansion into new sectors.
Disclaimer: I am long Marvell. I seldom trade the stock and won't for a week after this article is published.
Revenue was $795.4 million, up 7% sequentially from $742.7 million, but down 1% from $802.4 million year-earlier. That may not seem stellar, but some rival semiconductor companies and some analysts had been predicting considerably worse. Essentially the rumors were that a competitor was finally besting Marvell in the hard drive controller market and that Marvell was also failing in the Chinese smartphone market.
Marvell stock ended Thursday, before results were released, at $13.3. Today it closed at $12.99, for a market capitalization of $7.4 billion. Clearly the news that Marvell is back on the success track has not yet sunk in, with overall market turmoil probably not helping.
For investors the last few year with Marvell have been tough. After splitting in 2004 and again in 2006, the stock price entered 2007 at well over $20 per share. At the 2008 bottom it hit a low around $4.48. More recently Marvell's 52-week high was $16.86, low was $11.23.
The real long-term value in any technology company is as much in what is going on in its R&D department today as what last-quarter's results were. R&D spend in the latest quarter was a healthy $256 million. Marvell does not give a breakdown of R&D spend, but a lot of it had to go to two crucial areas where Marvell leads competitors: TD smartphones for the Chinese market and next generation storage devices, including both HDD (hard disk) and SDD (flash memory based).
The main good news for Q1 was the continued rapid ramping of sales of Marvell-processor based TD-SCDMA smartphones in China. Marvell's chips not only include the processor, but most of the functions needed to run a smartphone (graphics, cellular modem, wi-fi, bluetooth). The middle-class masses are buying Android based smartphones that run on a this new 3G high-speed, invented-in-China protocol. Revenue from these chips was up 25% from Q4. Usually, for its mobile sector, Marvell sees a seasonal decline from Q4 to Q1, and indeed overall the sector was down 1% sequentially. Even then Marvell's mobile segment revenue was up 14% from year-earlier Q1.
Marvell has not competed very successfully for silicon in smartphones in the U.S. or Europe. It has space in some RIM Blackberry phones. When RIM tanked analysts predicted Marvell would have to abandon the space. Instead Marvell is turning its clear victory in China to its advantage in the global competition for the next generation of smartphones. Qualcomm's control of CDMA patents may be history as LTE becomes the new standard. I don't see Marvell beating out Qualcomm in the U.S. or Europe in the next few years, but its design philosophy is enabling it to turn the flank in China, much of Asia, and Africa.
In the hard drive space Sutardja specifically took on the claims of its chief competitor (LSI) about capturing market share, claims that have been echoed by several Wall Street analysts without fact checking. Marvell's storage sector revenue was up over 20% sequentially, in what is usually a seasonally sequentially down quarter. This sequential growth was only partly due to industry recovery from the Thailand floods.
After the floods Marvell's market share did drop to 56%, according to Sutardja. But that was based on which HDD makers were hurt worst by the flooding, not by the competitiveness of Marvell's controller chip rival. In Q2 quarter Marvell's market share should return to about 60%. The disruption of the industry in 2011 meant people produced whatever capacity drives they could. This quarter will see return to normalcy, which means favoring higher-capacity drives for any units that can be produced. Marvell leads in controller chips for high-capacity drives, including the new 500 GB/platter mobile drive solution, which is expected to ramp revenue another 50% in the current quarter. Sutardja also pledged to gain unit and revenue share going forward based on next-generation designs.
There are a lot of other pieces to the Marvell enterprise, but a good summary would be the guidance issued for fiscal Q2 2013 end July, 2012: 6 to 12% sequential revenue increase, or $840 to $890 million. A bit above the upper end of the range would put Marvell flat y/y.
While revenue has flattened since 2010, profit generation has been very healthy at these levels. As a result Marvell initiated a $0.06 per share per quarter dividend. $500 million was added to the share repurchase program. The cash balance was $2.2 billion.
Marvell would be able to buy back a substantial portion of its shares at its current share price.
The usual risks apply. Marvell faces competition in every market it serves, in particular chips for smartphones. My best guess, however, is that over the long run Marvell will continue to do what it did after its founding: take market share from rivals. It will also continue its expansion into new sectors.
Disclaimer: I am long Marvell. I seldom trade the stock and won't for a week after this article is published.
Saturday, February 18, 2012
Applied Materials Q1 Boosted by Mobile Demand
Applied Materials (AMAT), the semiconductor capital equipment maker, reported better than expected revenue and earnings Thursday for its first quarter fiscal 2012 ending January 30, 2012. Although the stock traded up after-hours on Thursday, by the end of day Friday it closed at $12.99, down $0.22 or 1.7% from the Thursday close.
Last quarter Applied management stated they believed they were past the bottom of the order cycle, but that revenues were not likely to start increasing until the second half of 2012. The lag is because semiconductor equipment is not made until after it is ordered, and customers sometimes place orders well in advance of their required delivery times.
Prior guidance was that Q1 revenue would be down 5% to 15% sequentially. Q1 Revenue were $2.19 billion, up 0.5% sequentially from $2.18 billion. Despite that revenue was down 18.5% from $2.69 billion in the year-earlier quarter.
The difference between guidance and results was mostly because a couple of large foundries (plants where semiconductor chips are manufactured) 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. These processors are becoming more complicated, often adding computer cores as well as peripheral functions. This means die sizes become larger, so more dies must be processed, and more equipment lines installed. The number of units of smartphones and tablets sold globally is also expanding rapidly.
Two other Applied Materials segments, display technology and solar, did poorly as expected and are not believed likely to recover much in 2012.
Which brings us back to the question of where we are in the cycle. To some extent that depends on the global economy. It is also sector-specific, as capacity utilization and end demand growth differ for sectors like RAM, Flash memory, application-specific chips and display technology. Growth comes in two forms: more equipment to pump out more units, and new equipment for chips that work with smaller transistors.
In addition to continued strong demand for mobile-specific devices, PC demand is expected to rebound in 2012 as the hard-drive shortage bottleneck disappears. In addition, Windows 8 could be a driver if it releases as expected this Fall.
While we are probably now past the bottom of the order cycle for semiconductor production equipment, the exact nature and extent of the ramp remains to be seen. Guidance for Q2 is for revenues to be up sequentially between 5% and 15%. We are far enough into Q2, and enough shipments were ordered back in Q1 or even Q4, that investors can probably count on that.
Since (at Friday's closing price) Applied pays a dividend of 2.42% ($0.08 per quarter), I see Applied Materials as one of the safest technology stocks to invest in. Earnings in Q1 were $0.09 GAAP, $0.19 non-GAAP, so even in a slow quarter there was plenty of cash generated to cover the dividend. Despite using $4.2 billion to acquire Varian in the quarter, Applied's cash balance ended near $3 billion.
Despite unevenness, we are still in a global economic ramp with billions of consumers set to acquire smartphones in the next 3 years (600 million in China alone). Everyone wants devices that do more with less power, and the only way to get that is with new semiconductor manufacturing capabilities. It does not matter who wins the smartphone race; everyone needs the kind of semiconductor manufacturing solutions Applied Materials (and its competitors) provide.
I am also excited about Applied's acquisition of Varian, but I'll save that for a different article.
For more details about Q1 results, including questions by analysts, see my Applied Materials Q1 2012 Analyst Call summary.
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.
And keep diversified!
Last quarter Applied management stated they believed they were past the bottom of the order cycle, but that revenues were not likely to start increasing until the second half of 2012. The lag is because semiconductor equipment is not made until after it is ordered, and customers sometimes place orders well in advance of their required delivery times.
Prior guidance was that Q1 revenue would be down 5% to 15% sequentially. Q1 Revenue were $2.19 billion, up 0.5% sequentially from $2.18 billion. Despite that revenue was down 18.5% from $2.69 billion in the year-earlier quarter.
The difference between guidance and results was mostly because a couple of large foundries (plants where semiconductor chips are manufactured) 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. These processors are becoming more complicated, often adding computer cores as well as peripheral functions. This means die sizes become larger, so more dies must be processed, and more equipment lines installed. The number of units of smartphones and tablets sold globally is also expanding rapidly.
Two other Applied Materials segments, display technology and solar, did poorly as expected and are not believed likely to recover much in 2012.
Which brings us back to the question of where we are in the cycle. To some extent that depends on the global economy. It is also sector-specific, as capacity utilization and end demand growth differ for sectors like RAM, Flash memory, application-specific chips and display technology. Growth comes in two forms: more equipment to pump out more units, and new equipment for chips that work with smaller transistors.
In addition to continued strong demand for mobile-specific devices, PC demand is expected to rebound in 2012 as the hard-drive shortage bottleneck disappears. In addition, Windows 8 could be a driver if it releases as expected this Fall.
While we are probably now past the bottom of the order cycle for semiconductor production equipment, the exact nature and extent of the ramp remains to be seen. Guidance for Q2 is for revenues to be up sequentially between 5% and 15%. We are far enough into Q2, and enough shipments were ordered back in Q1 or even Q4, that investors can probably count on that.
Since (at Friday's closing price) Applied pays a dividend of 2.42% ($0.08 per quarter), I see Applied Materials as one of the safest technology stocks to invest in. Earnings in Q1 were $0.09 GAAP, $0.19 non-GAAP, so even in a slow quarter there was plenty of cash generated to cover the dividend. Despite using $4.2 billion to acquire Varian in the quarter, Applied's cash balance ended near $3 billion.
Despite unevenness, we are still in a global economic ramp with billions of consumers set to acquire smartphones in the next 3 years (600 million in China alone). Everyone wants devices that do more with less power, and the only way to get that is with new semiconductor manufacturing capabilities. It does not matter who wins the smartphone race; everyone needs the kind of semiconductor manufacturing solutions Applied Materials (and its competitors) provide.
I am also excited about Applied's acquisition of Varian, but I'll save that for a different article.
For more details about Q1 results, including questions by analysts, see my Applied Materials Q1 2012 Analyst Call summary.
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.
And keep diversified!
Friday, December 9, 2011
Applied Materials See Cycle Bottom
Applied Materials (AMAT), the semiconductor capital equipment maker, had a very difficult fourth quarter of fiscal 2011 ending October 30th. The stock is trading trading today around $11.20 per share, less than 8 times earnings and not that much above its 52 week low of $9.70 touched on October 4.
Yet revenue for the fiscal year set a record. Applied Materials and other semiconductor equipment makers tend to be very cyclical because demand for new equipment is only strong when semiconductor end use is ramping. It looked like calendar 2011 would continue to be part of a strong up cycle that started in 2010, but global economic turmoil and weak consumer electronics end demand has made chip makers and the foundries that serve fabless chip makers reluctant to increase capacity.
Sales continue because even during slow periods there are advantages to moving to new process technologies that put more transistors on any given area of chip surface. Applied Materials also derives considerable revenue from related services. Its services division contributed $629 million in revenue in the quarter.
Total Q4 revenue was $2.18 billion, down 22% sequentially from $2.79 billion and down 25% from $2.89 billion in the year-earlier quarter. GAAP net income was $456 million, down 4% sequentially from $476 million and down 3% from $468 million year-earlier. GAP EPS (earnings per share) were $0.34, down 6% sequentially from $0.36 and down 3% from $0.35 year-earlier.
Non-GAAP net income was $271 million, down sequentially from $467 million and also down from $476 million year-earlier. EPS $0.21. The vastly lower non-GAAP than GAAP earnings were mostly due to a $203 adjustment to the prior-year's income tax filings.
Despite the poor quarter, cash flow from operations was near $700, or about $425 million excluding the income tax refund. Cash and equivalents were over $7 billion.
The stock pays a dividend of $8 per quarter per share. Management reiterated that they are committed to increasing the dividend, but stock buy backs are the preferred method of returning profits to shareholders. The acquisition of Varian Semiconductor will put a temporary crimp in cash, but is a good long-term move.
Which brings us back to the question of where we are in the cycle. To some extent that depends on the global economy. It is also sector-specific, as capacity utilization and end demand growth differ for sectors like RAM, Flash memory, application-specific chips and display technology.
Applied Materials management has had decades of experience with these cycles. They expect the first half of their fiscal year 2012 to be difficult. In particular Q1 fiscal 2012 (ending January 30th) guidance was for revenues down sequentially another 5% to 15%. However, they believe they are already past the bottom of the order cycle. Because we are talking about capital equipment, when the order cycle starts trending upward it can be six months before actual revenues start trending back up.
Flash and mobile processor capacity utilization are already high, so any further increase in demand should generate equipment orders. However, RAM capacity is plentiful, so we probably won't see a big uptick in revenues until demand catches up to capacity in that segment, probably later in 2012.
Despite unevenness, we are still in a global economic ramp with billions of consumers set to acquire smartphones in the next 3 years (600 million in China alone). Everyone wants devices that do more with less power, and the only way to get that is with new semiconductor manufacturing capabilities. It does not matter who wins the smartphone race; everyone needs the kind of semiconductor manufacturing solutions Applied Materials provides.
For more details about Q4 results, including questions by analysts, see my Applied Materials Q4 2011 Analyst Call summary.
Disclaimer: I have a long position in Applied Materials (AMAT), with a long term view. I have no plans to change my position anytime soon.
See also: www.appliedmaterials.com
And keep diversified!
Yet revenue for the fiscal year set a record. Applied Materials and other semiconductor equipment makers tend to be very cyclical because demand for new equipment is only strong when semiconductor end use is ramping. It looked like calendar 2011 would continue to be part of a strong up cycle that started in 2010, but global economic turmoil and weak consumer electronics end demand has made chip makers and the foundries that serve fabless chip makers reluctant to increase capacity.
Sales continue because even during slow periods there are advantages to moving to new process technologies that put more transistors on any given area of chip surface. Applied Materials also derives considerable revenue from related services. Its services division contributed $629 million in revenue in the quarter.
Total Q4 revenue was $2.18 billion, down 22% sequentially from $2.79 billion and down 25% from $2.89 billion in the year-earlier quarter. GAAP net income was $456 million, down 4% sequentially from $476 million and down 3% from $468 million year-earlier. GAP EPS (earnings per share) were $0.34, down 6% sequentially from $0.36 and down 3% from $0.35 year-earlier.
Non-GAAP net income was $271 million, down sequentially from $467 million and also down from $476 million year-earlier. EPS $0.21. The vastly lower non-GAAP than GAAP earnings were mostly due to a $203 adjustment to the prior-year's income tax filings.
Despite the poor quarter, cash flow from operations was near $700, or about $425 million excluding the income tax refund. Cash and equivalents were over $7 billion.
The stock pays a dividend of $8 per quarter per share. Management reiterated that they are committed to increasing the dividend, but stock buy backs are the preferred method of returning profits to shareholders. The acquisition of Varian Semiconductor will put a temporary crimp in cash, but is a good long-term move.
Which brings us back to the question of where we are in the cycle. To some extent that depends on the global economy. It is also sector-specific, as capacity utilization and end demand growth differ for sectors like RAM, Flash memory, application-specific chips and display technology.
Applied Materials management has had decades of experience with these cycles. They expect the first half of their fiscal year 2012 to be difficult. In particular Q1 fiscal 2012 (ending January 30th) guidance was for revenues down sequentially another 5% to 15%. However, they believe they are already past the bottom of the order cycle. Because we are talking about capital equipment, when the order cycle starts trending upward it can be six months before actual revenues start trending back up.
Flash and mobile processor capacity utilization are already high, so any further increase in demand should generate equipment orders. However, RAM capacity is plentiful, so we probably won't see a big uptick in revenues until demand catches up to capacity in that segment, probably later in 2012.
Despite unevenness, we are still in a global economic ramp with billions of consumers set to acquire smartphones in the next 3 years (600 million in China alone). Everyone wants devices that do more with less power, and the only way to get that is with new semiconductor manufacturing capabilities. It does not matter who wins the smartphone race; everyone needs the kind of semiconductor manufacturing solutions Applied Materials provides.
For more details about Q4 results, including questions by analysts, see my Applied Materials Q4 2011 Analyst Call summary.
Disclaimer: I have a long position in Applied Materials (AMAT), with a long term view. I have no plans to change my position anytime soon.
See also: www.appliedmaterials.com
And keep diversified!
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
Sunday, August 28, 2011
Marvell Ramping TD Smartphone Revenue
Marvell Technology (MRVL) makes semiconductor chips for hard disk drives, cell phones, networking and other devices. They have long dominated the HDD market, but have struggled in the smartphone market. In their second quarter of fiscal 2011 (Q2), ending July 30th, we probably saw an inflection point for smartphones based on Marvell chips. This space should be closely watched in Q3 and Q4.
Marvell's stock price is still at bargain levels, at about 10x non-GAAP trailing earnings. Partly this is due to macroeconomic fears affecting the entire market, but more particularly Marvell fell off a recent 52-week high of $21.89 on January 18 due to poor results in Q4 of 2010 and Q1 of 2011, when revenues fell to $802 million, which was down 6% y/y. A few weeks ago it hit $11.94; Friday it closed at $12.89.
That period of weakness was partly due to slower than expected sales of chips for hard drives (HDD) and networking, but most visibly was due to slow sales of chips for RIM's Blackberries. Given that Marvell execs have talked for years about conquering the smartphone market as they once conquered the HDD market, this led many analysts to conclude that Marvell was simply out of the race to provide CPUs for smartphones.
The smartphone chip market is certainly extremely competitive, perhaps the most competitive semiconductor segment today. Marvell has been competing in the U.S. against the likes of Qualcomm (leader in CDMA technology), nVIDIA, Texas Instruments, Samsung, and Apple, which makes its own ARM-based phone CPUs. They have spent years and vast sums of money on R&D, essentially subsiding smartphone chip development with profits from their HDD chips. In the U.S. smartphone market, except for being in a couple of BlackBerry designs and sometimes supplying non-CPU chips for phones (for Bluetooth and Wi-Fi), they have been an also-ran.
Meanwhile, Marvell produced the only one-chip solution for the Chinese communication standard called TD-SCDMA. China Mobile, the largest Chinese wireless company (600 million customers), invested vast sums to develop a TD-SCDMA network, now in place in most Chinese cities. Marvell has worked closely with Chinese companies on this project, bringing about 1000 engineers to the table. Also called OPhones, these smartphones run software on top of Android. Marvell is now referring to them as TD phones. The first generation of TD phones, released in 2010, were expensive and did not sell in large numbers. Essentially they tested the system.
Q2 2011 was when TD smartphones first shipped in sufficient numbers to be meaningful for Marvell investors. Over 20 models are available from manufacturers like ZTE, Motorola, Huawei, and Samsung. TD smartphone revenue roughly doubled in Q2, causing Marvell's wireless segment revenues to increase 18% in the quarter. For Q3 double digit revenue growth for TD smartphone chips is the expectation. Marvell is also sampling solutions for the LTE smartphone market in China. Again, expect fierce competition, but Marvell should win a share of Chinese LTE slots in 2012.
Meanwhile HDD revenue may be sluggish due to the slow PC growth rate, but it generates a lot of cash. Cash flow from operations in Q2 was $263 million. Free cash flow was $235 million. Cash and equivalents balance ended at $2.40 billion, up sequentially from $2.27 billion. Marvell repurchased $136 million, or 9 million shares, in the quarter and has authorized $1.5 billion for further repurchases.
The best cure for the low stock price, to my ears, was hearing that one use for cash could be starting to pay dividends. Compare Marvell's PE ratio to a semiconductor company like Microchip (MCHP) that does pay dividends, and you can see that semiconductor investors are more interested in dividends than they were a few years ago. However, it would be a big change for Marvell, so don't count on it.
Disclaimer: I am a long-term investor in Marvell stock
See also:
http://www.marvell.com/
My August 18, 2011 Marvell (MRVL) analyst call summary
My May 26, 2011 Marvell (MRVL) analyst call summary
My March 2011 Marvell (MRVL) analyst call summary
Keep diversified!
Marvell's stock price is still at bargain levels, at about 10x non-GAAP trailing earnings. Partly this is due to macroeconomic fears affecting the entire market, but more particularly Marvell fell off a recent 52-week high of $21.89 on January 18 due to poor results in Q4 of 2010 and Q1 of 2011, when revenues fell to $802 million, which was down 6% y/y. A few weeks ago it hit $11.94; Friday it closed at $12.89.
That period of weakness was partly due to slower than expected sales of chips for hard drives (HDD) and networking, but most visibly was due to slow sales of chips for RIM's Blackberries. Given that Marvell execs have talked for years about conquering the smartphone market as they once conquered the HDD market, this led many analysts to conclude that Marvell was simply out of the race to provide CPUs for smartphones.
The smartphone chip market is certainly extremely competitive, perhaps the most competitive semiconductor segment today. Marvell has been competing in the U.S. against the likes of Qualcomm (leader in CDMA technology), nVIDIA, Texas Instruments, Samsung, and Apple, which makes its own ARM-based phone CPUs. They have spent years and vast sums of money on R&D, essentially subsiding smartphone chip development with profits from their HDD chips. In the U.S. smartphone market, except for being in a couple of BlackBerry designs and sometimes supplying non-CPU chips for phones (for Bluetooth and Wi-Fi), they have been an also-ran.
Meanwhile, Marvell produced the only one-chip solution for the Chinese communication standard called TD-SCDMA. China Mobile, the largest Chinese wireless company (600 million customers), invested vast sums to develop a TD-SCDMA network, now in place in most Chinese cities. Marvell has worked closely with Chinese companies on this project, bringing about 1000 engineers to the table. Also called OPhones, these smartphones run software on top of Android. Marvell is now referring to them as TD phones. The first generation of TD phones, released in 2010, were expensive and did not sell in large numbers. Essentially they tested the system.
Q2 2011 was when TD smartphones first shipped in sufficient numbers to be meaningful for Marvell investors. Over 20 models are available from manufacturers like ZTE, Motorola, Huawei, and Samsung. TD smartphone revenue roughly doubled in Q2, causing Marvell's wireless segment revenues to increase 18% in the quarter. For Q3 double digit revenue growth for TD smartphone chips is the expectation. Marvell is also sampling solutions for the LTE smartphone market in China. Again, expect fierce competition, but Marvell should win a share of Chinese LTE slots in 2012.
Meanwhile HDD revenue may be sluggish due to the slow PC growth rate, but it generates a lot of cash. Cash flow from operations in Q2 was $263 million. Free cash flow was $235 million. Cash and equivalents balance ended at $2.40 billion, up sequentially from $2.27 billion. Marvell repurchased $136 million, or 9 million shares, in the quarter and has authorized $1.5 billion for further repurchases.
The best cure for the low stock price, to my ears, was hearing that one use for cash could be starting to pay dividends. Compare Marvell's PE ratio to a semiconductor company like Microchip (MCHP) that does pay dividends, and you can see that semiconductor investors are more interested in dividends than they were a few years ago. However, it would be a big change for Marvell, so don't count on it.
Disclaimer: I am a long-term investor in Marvell stock
See also:
http://www.marvell.com/
My August 18, 2011 Marvell (MRVL) analyst call summary
My May 26, 2011 Marvell (MRVL) analyst call summary
My March 2011 Marvell (MRVL) analyst call summary
Keep diversified!
Monday, May 30, 2011
Marvell Technology Sees Higher Q2
Marvell Technology (MRVL) makes semiconductor chips for hard disk drives, cell phones, networking and telecommunications. Recently the going has been rough for Marvell stockholders, as reflected in its stock price. After a high of $22.87 in April 2010, the stock hit a 52-week low at $13.87. After the Marvell analyst conference call, on Friday the stock jumped 11%, from the Thursday May 26 close of $14.56 to the Friday close of $16.17. So is that it for Marvell, or are we starting a new ramp?
Marvell's management described the results for Q1 fiscal 2012 ending April 30, 2011 as a low point in their cycle. Partly this was the usual seasonality as consumer end products build in Q2s and Q3s. But it also reflected poor sales to RIM for Blackberry models, a slow growth rate in the hard disk drive market, and slow new product ramps. In each case Marvell makes one or more mixed digital and analog chips for the end products.
Revenue for Q1 was $802.4 million, down 11% sequentially from $900.5 million and also down 6% from $855.6 million in the year-earlier quarter. Revenue was at the very low end of guidance. I think the stock had been shorted on the theory they would actually miss guidance, and they did miss Street estimates.
However, Marvell reported that things are already picking up in Q2 and the long-promised Marvell Inflection Point may finally make an appearance in Q3. Q2 revenues are now expected between $870 to $910 million, with non-GAAP EPS of about $0.37, which would support a stock price far higher than Friday's close.
The change in fortunes has several factors. Marvell is leading (or certainly one of the top 2 leaders) in the Solid State Drive market, which is ramping pretty nicely as prices drop and people see the advantages of SSDs. It is also a leader in chips for high-end networks. In the smartphone market we know the competition is intense, but Marvell providing the core chips for the Chinese TD-SCDMA standard based OPhone market. While OPhones started to be available in 2010, they are expected to ramp quickly as 2011 progresses. We are talking potentially 600 million OPhone customers, which makes the fight over American market share seem like a global side show.
Marvell is also sampling solutions for the LTE smartphone market. Again, expect fierce competition, but Marvell should win a share of slots in 2012.
I own Marvell stock and understand the risk of competing against the talented people at other semiconductor companies.
See also:
http://www.marvell.com/
My May 26, 2011 Marvell (MRVL) analyst call summary
My March 2011 Marvell (MRVL) analyst call summary
Saturday, May 28, 2011
Applied Materials Rocks Q2
Applied Materials, the semiconductor capital equipment maker, reported stronger than expected revenues and earnings for its second quarter of fiscal 2011 ending May1. The stock traded down on Friday based on management's cautious guidance for the remainder of 2011.
Prior guidance had been for Q2 sequentially flat to up 5% from Q1 revenues of $2.69 billion, with non-GAAP EPS of $0.34 to $0.38. Instead revenues came in at $2.86 billion, up 7% sequentially from $2.69 billion, and up 25% from $2.30 billion in the year-earlier quarter. Non-GAAP EPS was at the high end of guidance, $0.38.
Prior guidance on full fiscal 2011 revenues was over $11 billion and non-GAAP EPS was over $1.50. Management now said that is the high end of a range that depends on demand in Q3 and Q4.
The dividend is now 8 cents per quarter, 32 cents per year. There is a lot of room for growth given EPS, but acquiring Varian Semiconductor will eat up much of Applied's $4.6 billion cash and investment balance. Once Varian is digested the dividend could start growing again. At Friday's closing stock price the current dividend is a healthy 2.35%.
Within the semiconductor equipment and servicing industry Applied Materials serves a variety of segments. Variations in the demand cycles in segments and sub-segments account both for the stellar quarter and for the cautious guidance. The solar power division set a record, but revenues exceeded new orders as there are questions about end demand in Europe. Orders exceeded sales in the largest segment, silicon semiconductor manufacturing equipment, but the orders are mostly in new process modes (40 nm and under), driven by mobile end market demand. Large panel display capacity is plentiful, so most orders are to make small panels for smartphones and tablets.
My own view is that there is mainly upside. The Varian Semiconductor acquisition will make Applied very close to a full service provider for foundries. Despite uneveness, we are still in a global economic ramp with billions of consumers set to acquire smartphones in the next 3 years (600 million in China alone). Everyone wants devices that do more with less power, and the only way to get that is with new semiconductor manufacturing capabilities. It does not matter who wins the smartphone race; everyone needs the kind of semiconductor solutions Applied Materials provides.
For more details about Q2 results, including questions by analysts, see my Applied Materials Q2 2011 Analyst Call summary.
I own Applied Materials (AMAT) stock. See also the Applied Materials web site.
See also: http://www.appliedmaterials.com/
Wednesday, March 2, 2011
Applied Materials: Value, Growth, and Tablets
Applied Materials (AMAT), the semiconductor capital equipment maker, reported stronger than expected revenues and earnings for its first quarter of fiscal 2011 ending January 31, 2011. Revenue growth was up 45% year over year. Yet its PE (price/earnings) ratio is far lower than most technology stocks with similar growth records.
Trying to place a bet on tablet computers or smart phones? You can bet on the brands like Apple, Motorola, and Samsung. Or you can bet on the companies that supply the chips to make the tablets work, for instance, Qualcomm, TI, NVIDIA, Marvell and others. These are all pretty well known companies, but who really knows who consumers will be in love with in 2 years? Who knows whose chips two years from now will be winning the majority of slots in the new machines?
One thing you can pretty much count on: the constituent parts for tablet computers will be manufactured by someone. When it comes to actually making the silicon, Applied Materials is the dominant supplier of the necessary equipment.
In 2008 and 2009 Applied Materials had a rough time. No new capacity was needed; even shrinks (to smaller transistor sizes) were put off as long as possible. But because the company was well managed and had plenty of cash, it navigated successfully through the recession.
In 2010 Applied came roaring back as fabrication companies started making up for lost time.
Are people going to be satisfied with the computational or memory powers of 2010 style tablets and smart phones? No. The ARM processors are (so far) no match for the silicon from AMD or Intel that is available in a desktop or notebook computer. People may want portability, but they still want highly capable, fast machines. That means cramming more transistors onto chips, and using new technologies that keep voltage and power requirements down. In turn, to achieve that, the fabs need new machines capable of imprinting silicon with ever smaller patterns.
As reported in the Applied Materials February 24, 2011 analyst conference call, different aspects of the industry are at different points in their supply demand cycle. Fortunately overall the cycle is heading up. Display equipment sales will likely be weak in 2011, in part because tablet and smart phone displays are so much smaller than monitor and TV displays. But demand for most major types of silicon chips is headed up, as is demand for the equipment used to make crystalline silicon solar cells.
With $0.38 per share GAAP earnings in Q1 and about the same expected in Q2, it is fair to guess that fiscal 2011 earning will indeed hit at least $1.50 per share, which is AMAT's guidance.
While growth in 2011 won't be as strong as in 2010, I still see Applied's PE rising eventually to about 20. That would put it at $30 per share and still give it a 5% earnings return. As I write this you can buy the stock for just $16.36 per share. Note too that Applied has plenty of cash and pays a $0.28 annual dividend. I'd like to see that dividend raised to something more like a third of earnings, but other than that I think Applied Materials is a great company for stock holders.
See also: www.appliedmaterials.com
Trying to place a bet on tablet computers or smart phones? You can bet on the brands like Apple, Motorola, and Samsung. Or you can bet on the companies that supply the chips to make the tablets work, for instance, Qualcomm, TI, NVIDIA, Marvell and others. These are all pretty well known companies, but who really knows who consumers will be in love with in 2 years? Who knows whose chips two years from now will be winning the majority of slots in the new machines?
One thing you can pretty much count on: the constituent parts for tablet computers will be manufactured by someone. When it comes to actually making the silicon, Applied Materials is the dominant supplier of the necessary equipment.
In 2008 and 2009 Applied Materials had a rough time. No new capacity was needed; even shrinks (to smaller transistor sizes) were put off as long as possible. But because the company was well managed and had plenty of cash, it navigated successfully through the recession.
In 2010 Applied came roaring back as fabrication companies started making up for lost time.
Are people going to be satisfied with the computational or memory powers of 2010 style tablets and smart phones? No. The ARM processors are (so far) no match for the silicon from AMD or Intel that is available in a desktop or notebook computer. People may want portability, but they still want highly capable, fast machines. That means cramming more transistors onto chips, and using new technologies that keep voltage and power requirements down. In turn, to achieve that, the fabs need new machines capable of imprinting silicon with ever smaller patterns.
As reported in the Applied Materials February 24, 2011 analyst conference call, different aspects of the industry are at different points in their supply demand cycle. Fortunately overall the cycle is heading up. Display equipment sales will likely be weak in 2011, in part because tablet and smart phone displays are so much smaller than monitor and TV displays. But demand for most major types of silicon chips is headed up, as is demand for the equipment used to make crystalline silicon solar cells.
With $0.38 per share GAAP earnings in Q1 and about the same expected in Q2, it is fair to guess that fiscal 2011 earning will indeed hit at least $1.50 per share, which is AMAT's guidance.
While growth in 2011 won't be as strong as in 2010, I still see Applied's PE rising eventually to about 20. That would put it at $30 per share and still give it a 5% earnings return. As I write this you can buy the stock for just $16.36 per share. Note too that Applied has plenty of cash and pays a $0.28 annual dividend. I'd like to see that dividend raised to something more like a third of earnings, but other than that I think Applied Materials is a great company for stock holders.
See also: www.appliedmaterials.com
Monday, August 23, 2010
Applied Materials Q3 2010 Guidance
On August 18th Applied Materials (AMAT) released Q2 results and held the analyst conference call for the quarter. For those trying to see where the electronics industry is heading, it was an important call.
Consumers choosing new computers, smartphones, and big screen displays recognize a limited number of brand name device makers like Apple, HP, Sony, Dell, Nokia, etc. Each of their devices is engineered from a number of components including the casings, displays, and electronic parts. A wide variety of semiconductor parts makers like Intel, AMD, Broadcom, Qualcomm, Marvell, TI, etc., compete to be chosen by the device maker; those are the design wins that point to whether a semiconductor company will grow or fade.
The semiconductor chips themselves are made with specialty capital equipment that must lay down the microscopic circuits that make the magic happen. Every few years the size of the circuit elements decreases, so fabs (after fabrication factories) must buy new capital equipment to provide for cutting edge chip production. A number of steps and hence machines are involved in the process for creating silicon wafers, cleaning, making masks, infusing them with dopants, adding insulators, etching, etc., and testing. As you may have heard lately from, for instance, NVIDIA, when new machines start to come online it often takes time to get them working well enough that the number of defects decreases to the point that most of the chips work when tested.
Applied Materials makes equipment to make semiconductor chips, solar panels, and LCD display panels. 2009 was a dry year. With end consumer (including industrial consumers) demand down for electronic devices, the fabs had plenty of capacity. Orders to AMAT consisted mainly of a few forward-looking fabs that knew that they had to keep shrinking transistors to serve their clients with the most advanced technological needs.
2010, on the other hand, has seen enough return of demand to restart the cycle for Applied. A lot of older production technology was taken off line in 2009. Now most fabs need not just new technology but capacity expansion as well.
Applied Materials has competition in each of its lines, some more so than others. With revenues of $2.52 billion in Q2 2010, up 10% sequentially from $2.30 billion and up 123% from $1.13 billion in Q2 2009, you can see the difference a year makes.
However, management is predicting that Q3 revenue will be flattish to up 5% over Q2. The main semiconductor equipment business is expected to be about flat. Services revenue looks up 10%. LCD display equipment revenue could be up 20%. But there will likely be a 10% to 20% drop in crystalline solar revenues. In addition the thin-film solar (SunFab) business is being reorganized because few governments, banks and companies wanted to take the risk of creating the very-large scale plants required for efficient thin-film operations.
Because fabs are scrambling to deal with current demand levels, a mild softening in the world economy would not cause them to put off plans to buy new equipment. In fact, it could take another year just to catch up. If, like me, you believe a gradual re-acceleration in the global economy is the most likely scenario, then this up cycle for Applied and other semiconductor equipment manufacturers is still in its opening phase.
If non-GAAP comes in at the middle of the guidance range, $0.30 per share, that would annualize to $1.20. At today's closing price of $10.99 per share, investors will be getting earnings of 10.9% per share. That sure beats the returns on bonds and CDs.
See also my notes on Applied Materials Q2 2010 analyst call;
Applied Materials site
Consumers choosing new computers, smartphones, and big screen displays recognize a limited number of brand name device makers like Apple, HP, Sony, Dell, Nokia, etc. Each of their devices is engineered from a number of components including the casings, displays, and electronic parts. A wide variety of semiconductor parts makers like Intel, AMD, Broadcom, Qualcomm, Marvell, TI, etc., compete to be chosen by the device maker; those are the design wins that point to whether a semiconductor company will grow or fade.
The semiconductor chips themselves are made with specialty capital equipment that must lay down the microscopic circuits that make the magic happen. Every few years the size of the circuit elements decreases, so fabs (after fabrication factories) must buy new capital equipment to provide for cutting edge chip production. A number of steps and hence machines are involved in the process for creating silicon wafers, cleaning, making masks, infusing them with dopants, adding insulators, etching, etc., and testing. As you may have heard lately from, for instance, NVIDIA, when new machines start to come online it often takes time to get them working well enough that the number of defects decreases to the point that most of the chips work when tested.
Applied Materials makes equipment to make semiconductor chips, solar panels, and LCD display panels. 2009 was a dry year. With end consumer (including industrial consumers) demand down for electronic devices, the fabs had plenty of capacity. Orders to AMAT consisted mainly of a few forward-looking fabs that knew that they had to keep shrinking transistors to serve their clients with the most advanced technological needs.
2010, on the other hand, has seen enough return of demand to restart the cycle for Applied. A lot of older production technology was taken off line in 2009. Now most fabs need not just new technology but capacity expansion as well.
Applied Materials has competition in each of its lines, some more so than others. With revenues of $2.52 billion in Q2 2010, up 10% sequentially from $2.30 billion and up 123% from $1.13 billion in Q2 2009, you can see the difference a year makes.
However, management is predicting that Q3 revenue will be flattish to up 5% over Q2. The main semiconductor equipment business is expected to be about flat. Services revenue looks up 10%. LCD display equipment revenue could be up 20%. But there will likely be a 10% to 20% drop in crystalline solar revenues. In addition the thin-film solar (SunFab) business is being reorganized because few governments, banks and companies wanted to take the risk of creating the very-large scale plants required for efficient thin-film operations.
Because fabs are scrambling to deal with current demand levels, a mild softening in the world economy would not cause them to put off plans to buy new equipment. In fact, it could take another year just to catch up. If, like me, you believe a gradual re-acceleration in the global economy is the most likely scenario, then this up cycle for Applied and other semiconductor equipment manufacturers is still in its opening phase.
If non-GAAP comes in at the middle of the guidance range, $0.30 per share, that would annualize to $1.20. At today's closing price of $10.99 per share, investors will be getting earnings of 10.9% per share. That sure beats the returns on bonds and CDs.
See also my notes on Applied Materials Q2 2010 analyst call;
Applied Materials site
Sunday, August 22, 2010
Buying Stocks Low
According to people who aggregate such statistics, in 2010 investors small and large have been, on the whole, moving money out of stocks and into bonds and gold.
They are selling low and buying high. That is what I expect of them. If enough people do that, it allows some of us to buy low and sell high. Which is why I bother with stocks: if you can't generate a good return on an investment, you might as well let a bank or credit union give you almost nothing for your savings, while lending you money out at exorbitant interest rates.
There are really big, flashing neon signs saying that many if not most stocks have bargain basement prices right now. Take the semiconductor sector. Eliminate the loser companies. Look at, for example Microchip (MCHP) and Marvell (MRVL) which I own, or Intel (INTC), Analog Devices (ADI), Maxim (MXIM), etc. which I don't own. Almost all, at Friday's closing prices, have forward price to earnings ratios in the vicinity of 10. That means buying a share of stock is getting you 10% earnings per year. Even if the economy stays relatively flat. Many of these companies are growing profits so quickly you could get effectively 12 to 15% by 2012 if you invested Friday.
Need I say how that compares to investing in CD's, or bonds, or the housing market? Or gold, which earns nothing, and is in a bubble that will burst soon enough?
It is true that at any given time stocks are subject to auction marketing prices. What that means is that the price you get if you buy or sell may not recommend fundamental value. You may get a lot more or a lot less than fundamental value. There is no guarantee what an auction market will do any given day, month, year, or decade.
Which is why smart, long-term stock buyers pick stocks individually and try to do most of their buying when the stock market as a whole is low. When the stock market is high bond markets are (usually) low, meaning bonds carry high interest returns. So the classic cyclical smart thing to to is to sell your bonds (a portion of them, anyway) during recessions (that is selling high). Use the bond returns to buy stocks (buying low). When you get into an obvious bull market, you sell some of your stocks (selling high) and buy bonds again (with high interest rates, which means low cost).
But as simple as this is, and as easy as it is to do with portfolio balancing, most people can't do it. Institutional investors can't, individuals can't, rich can't, not so rich can't. We are human. We get excited by a rising stock market. We buy when we should be selling. We get frightened by a fallen market, and get sell when we should be buying. Brokers don't care, they take their commissions whether you sell or buy.
Keep in mind, for all of this, that individual companies vary greatly against the background of the overall stock market. A company that does well (growing revenues and profits) during a recession may not show off as an investment until the next bull market. But the real value is in the profits, not in the stock price.
Do your own research, including checking what other investors are saying. It is easy and free these days to look at the financial histories of companies, read SEC filings, find out what other investors thing, and even tune into analyst calls.
I like a low stock price when I am buying, and a high price when I am selling, same as anyone. But by focusing on value and keeping fundamental, well-known rules in mind, I keep out of trouble and get way better returns on stocks than I do on my CDs (which I keep, despite the low interest rates, to smooth out my personal finances, since my income varies greatly month to month, and they help with occasional large expenses).
Keep diversified!
They are selling low and buying high. That is what I expect of them. If enough people do that, it allows some of us to buy low and sell high. Which is why I bother with stocks: if you can't generate a good return on an investment, you might as well let a bank or credit union give you almost nothing for your savings, while lending you money out at exorbitant interest rates.
There are really big, flashing neon signs saying that many if not most stocks have bargain basement prices right now. Take the semiconductor sector. Eliminate the loser companies. Look at, for example Microchip (MCHP) and Marvell (MRVL) which I own, or Intel (INTC), Analog Devices (ADI), Maxim (MXIM), etc. which I don't own. Almost all, at Friday's closing prices, have forward price to earnings ratios in the vicinity of 10. That means buying a share of stock is getting you 10% earnings per year. Even if the economy stays relatively flat. Many of these companies are growing profits so quickly you could get effectively 12 to 15% by 2012 if you invested Friday.
Need I say how that compares to investing in CD's, or bonds, or the housing market? Or gold, which earns nothing, and is in a bubble that will burst soon enough?
It is true that at any given time stocks are subject to auction marketing prices. What that means is that the price you get if you buy or sell may not recommend fundamental value. You may get a lot more or a lot less than fundamental value. There is no guarantee what an auction market will do any given day, month, year, or decade.
Which is why smart, long-term stock buyers pick stocks individually and try to do most of their buying when the stock market as a whole is low. When the stock market is high bond markets are (usually) low, meaning bonds carry high interest returns. So the classic cyclical smart thing to to is to sell your bonds (a portion of them, anyway) during recessions (that is selling high). Use the bond returns to buy stocks (buying low). When you get into an obvious bull market, you sell some of your stocks (selling high) and buy bonds again (with high interest rates, which means low cost).
But as simple as this is, and as easy as it is to do with portfolio balancing, most people can't do it. Institutional investors can't, individuals can't, rich can't, not so rich can't. We are human. We get excited by a rising stock market. We buy when we should be selling. We get frightened by a fallen market, and get sell when we should be buying. Brokers don't care, they take their commissions whether you sell or buy.
Keep in mind, for all of this, that individual companies vary greatly against the background of the overall stock market. A company that does well (growing revenues and profits) during a recession may not show off as an investment until the next bull market. But the real value is in the profits, not in the stock price.
Do your own research, including checking what other investors are saying. It is easy and free these days to look at the financial histories of companies, read SEC filings, find out what other investors thing, and even tune into analyst calls.
I like a low stock price when I am buying, and a high price when I am selling, same as anyone. But by focusing on value and keeping fundamental, well-known rules in mind, I keep out of trouble and get way better returns on stocks than I do on my CDs (which I keep, despite the low interest rates, to smooth out my personal finances, since my income varies greatly month to month, and they help with occasional large expenses).
Keep diversified!
Thursday, August 19, 2010
Microchip Revenue Ramps On
On August 5, 2010, Microchip reported strong Q2 2010 results. Here I'll discuss forward looking trends. For details on the quarter results, see my Microchip (MCHP) Q2 2010 Analyst Call notes.
Microchip specializes in microcontrollers, which are semiconductor chips that have, at minimum, a computer and the ability to send and receive control signals integrated on a single chip. Microcontroller are a big, if largely invisible to consumers, part of the global semiconductor industry, and Microchip has become the industry leader over this last decade. If something needs to be controlled, whether it is the temperature of a home refrigerator or the intricate chemical manipulations of a gene sequencer, a microcontroller will be present. Modern automobiles typically contain over a dozen microcontrollers.
Basic microcontroller (MCU) technology is less complicated than the CPUs and GPUs of personal computers, but the chips are often specialized for the wide variety of tasks they are required to perform. The most basic division of microcontrollers is into 8-bit, 16-bit, and 32-bit, which reflects the size of the data chunks that are processed by the computer aspect of the chip. Microchip is the market share leader in the 8-bit segment, which is by far the largest segment. Microcontrollers are workhorses for engineers; there is a disadvantage to using a 16-bit controller when an 8-bit controller will get the job done. Once you have picked your data path size, usually the next consideration is memory size. Memory is increasingly on the microcontroller chip itself, but they also integrate easily with external memory. The controller part of the chip, at its simplest, has connections that either see if an input is on or off, or control an output that is either on or off. But increasingly the ability to measure a variable voltage, or convert to a specified output voltage, can be built onto chips when desired.
As a result Microchip has hundreds of standard models of microcontrollers to chose from, as well as being able to make specific configurations to order. In the industry as a whole thousands of types are available. Top competitors include Renesas, Freescale, Infineon, Fujitsu and TI. Architectures of the CPUs of microcontrollers tend to be proprietary, but several companies base them on ARM designs. Microchip's is called PICmicro.
Microchip navigated the economic downturn quite well. While revenues shrank, because it was in a strong cash position, it kept up its research and development efforts, as well as sales. In addition it used cash to make some acquisitions, most recently Silicon Storage Technology (SST). You can see the results in 66% y/y revenue growth, with GAAP net income more than doubling. Microchip has also ventured into areas like analog chips where it can help its microcontroller customers or integrate the analog components into microcontrollers.
The microcontroller industry is likely to continue to consolidate as some small players are unable to operate profitably. While microcontroller designs can linger far longer than PC CPU designs, a healthy R&D budget is necessary to keep up with new market needs. In particular cramming more functionality into a smaller form factor operating at lower voltages and power consumption is a trend that still has a ways to go.
Microchip's profit margins were healthy in Q2, it book 1.4 times the business that it billed out, and it is adding manufacturing capacity to keep up with demand. With no disruptive technology on the horizon, the best managed companies will continue to forge ahead in the microcontroller space. With Microchip's stellar management record, while it is always possible something could go wrong, the future seems reliably bright. In Microchip's case, it also comes with hefty dividend payments.
See also Microchip.com.
Still, all investments involve risk, so keep diversified!
Microchip specializes in microcontrollers, which are semiconductor chips that have, at minimum, a computer and the ability to send and receive control signals integrated on a single chip. Microcontroller are a big, if largely invisible to consumers, part of the global semiconductor industry, and Microchip has become the industry leader over this last decade. If something needs to be controlled, whether it is the temperature of a home refrigerator or the intricate chemical manipulations of a gene sequencer, a microcontroller will be present. Modern automobiles typically contain over a dozen microcontrollers.
Basic microcontroller (MCU) technology is less complicated than the CPUs and GPUs of personal computers, but the chips are often specialized for the wide variety of tasks they are required to perform. The most basic division of microcontrollers is into 8-bit, 16-bit, and 32-bit, which reflects the size of the data chunks that are processed by the computer aspect of the chip. Microchip is the market share leader in the 8-bit segment, which is by far the largest segment. Microcontrollers are workhorses for engineers; there is a disadvantage to using a 16-bit controller when an 8-bit controller will get the job done. Once you have picked your data path size, usually the next consideration is memory size. Memory is increasingly on the microcontroller chip itself, but they also integrate easily with external memory. The controller part of the chip, at its simplest, has connections that either see if an input is on or off, or control an output that is either on or off. But increasingly the ability to measure a variable voltage, or convert to a specified output voltage, can be built onto chips when desired.
As a result Microchip has hundreds of standard models of microcontrollers to chose from, as well as being able to make specific configurations to order. In the industry as a whole thousands of types are available. Top competitors include Renesas, Freescale, Infineon, Fujitsu and TI. Architectures of the CPUs of microcontrollers tend to be proprietary, but several companies base them on ARM designs. Microchip's is called PICmicro.
Microchip navigated the economic downturn quite well. While revenues shrank, because it was in a strong cash position, it kept up its research and development efforts, as well as sales. In addition it used cash to make some acquisitions, most recently Silicon Storage Technology (SST). You can see the results in 66% y/y revenue growth, with GAAP net income more than doubling. Microchip has also ventured into areas like analog chips where it can help its microcontroller customers or integrate the analog components into microcontrollers.
The microcontroller industry is likely to continue to consolidate as some small players are unable to operate profitably. While microcontroller designs can linger far longer than PC CPU designs, a healthy R&D budget is necessary to keep up with new market needs. In particular cramming more functionality into a smaller form factor operating at lower voltages and power consumption is a trend that still has a ways to go.
Microchip's profit margins were healthy in Q2, it book 1.4 times the business that it billed out, and it is adding manufacturing capacity to keep up with demand. With no disruptive technology on the horizon, the best managed companies will continue to forge ahead in the microcontroller space. With Microchip's stellar management record, while it is always possible something could go wrong, the future seems reliably bright. In Microchip's case, it also comes with hefty dividend payments.
See also Microchip.com.
Still, all investments involve risk, so keep diversified!
Monday, May 24, 2010
Marvell Profits from R&D
In most of the computer and electronics industry the 3rd and 4th quarters are hot. Then Q1, and Q2 are seasonally down. Not that much is selling; inventory is being built for back-to-school, then for the consumer holiday spree and and-of-year corporate buying. This year so far is trending a bit different for many electronic parts suppliers because of the rapid recovery from the 2009 business panic. Judging from its quarter ending May 1, 2010 (its first fiscal quarter of 2011), Marvell Technology Group (MRVL) is benefitting from more than just industry trends.
Marvell first came to dominate the hard drive semiconductor chip industry, and those chips still account for over half of Marvell's revenue. Marvell engineers lead in combining analog and digital chip functions, so we are seeing market penetration in areas where this is an advantage. So far this has been in wired and wireless networking chips and in cell phones, particularly in smartphones. Marvell makes chips for Wi-Fi and Bluetooth, for the wireless signal that connects to cell towers, and for application processors that give the phones their ability to act like computers. While its entry into this market is relatively recent, it is already a major player.
In Q1 Revenue was $856 million, up 2% sequentially from $842.5 million and up 64% from $521 million in the year-earlier quarter. The mobile and wireless end market accounted for about 22% of revenue, so about $188 million. The segment grew 18% sequentially, and that despite Wi-Fi chips "only" growing 6% sequentially.
What is most likely to happen in the next few quarters is that wired networking and storage chips will do their usual annual ramp based on demand, plus any market share gain. Smartphone revenue will continue its explosive growth as a larger number of phones using Marvell's chips are brought to market. And the ramp will include chips for oPhones in China, which by 2011 should, by themselves, be a major source of revenue for Marvell.
In a normal market, Marvell would have a high PE ratio because of its track record and future prospects. But this is no normal market. It is a fear-driven, better a 0% treasury than a 8% stock market. It's pretty weird. Who knows, maybe the world will end and we will sink into an economic depression. But I have news for you. In that case, U.S. treasuries will be as worthless as stocks, because there will be no way the government can raise enough in taxes to cover interest payments.
I own Marvell stock to my portfolio rules limit. I could be wrong, maybe a competitor or two will best Marvell in some segment of the market, but I believe the most probable outlook is that in a few years everyone will wish they had bought Marvell in 2009 or the spring of 2010.
That's my opinion. You can also get the facts, as management presents them, by reading my Marvell MRVL analyst conference summaries.
And of course see also www.marvell.com
Marvell first came to dominate the hard drive semiconductor chip industry, and those chips still account for over half of Marvell's revenue. Marvell engineers lead in combining analog and digital chip functions, so we are seeing market penetration in areas where this is an advantage. So far this has been in wired and wireless networking chips and in cell phones, particularly in smartphones. Marvell makes chips for Wi-Fi and Bluetooth, for the wireless signal that connects to cell towers, and for application processors that give the phones their ability to act like computers. While its entry into this market is relatively recent, it is already a major player.
In Q1 Revenue was $856 million, up 2% sequentially from $842.5 million and up 64% from $521 million in the year-earlier quarter. The mobile and wireless end market accounted for about 22% of revenue, so about $188 million. The segment grew 18% sequentially, and that despite Wi-Fi chips "only" growing 6% sequentially.
What is most likely to happen in the next few quarters is that wired networking and storage chips will do their usual annual ramp based on demand, plus any market share gain. Smartphone revenue will continue its explosive growth as a larger number of phones using Marvell's chips are brought to market. And the ramp will include chips for oPhones in China, which by 2011 should, by themselves, be a major source of revenue for Marvell.
In a normal market, Marvell would have a high PE ratio because of its track record and future prospects. But this is no normal market. It is a fear-driven, better a 0% treasury than a 8% stock market. It's pretty weird. Who knows, maybe the world will end and we will sink into an economic depression. But I have news for you. In that case, U.S. treasuries will be as worthless as stocks, because there will be no way the government can raise enough in taxes to cover interest payments.
I own Marvell stock to my portfolio rules limit. I could be wrong, maybe a competitor or two will best Marvell in some segment of the market, but I believe the most probable outlook is that in a few years everyone will wish they had bought Marvell in 2009 or the spring of 2010.
That's my opinion. You can also get the facts, as management presents them, by reading my Marvell MRVL analyst conference summaries.
And of course see also www.marvell.com
Sunday, May 23, 2010
Applied Materials (AMAT) Sees Fab Expansions
Applied Materials (AMAT) had a great 2nd fiscal quarter ending May 1, 2010 as reported in its press release and at its analyst conference on May 19, 2010. However, its new amorphous silicon solar sub-segment has run into troubles, which is what most analysts and news stories focussed on. For detail of what the Applied Materials executives said, see my Applied Materials Q2 2010 analyst conference summary.
Overall revenues were up 24% from fiscal Q1 and 125% from Q2 2009. Year earlier was a bad quarter for Applied. As a capital equipment manufacturer (for the semiconductor industry) new orders nearly dried up, and it lost $0.19 per share. But Q2 2010 showed GAAP EPS of $0.20. That sounds like a growth company that should have a high PE multiplier. Partly there were probably some market share gains, but mainly the quick, recent growth is a result of the macro economic cycle.
There is also a technology cycle, where electronic device makers want to squeeze more intelligence into smaller areas of silicon. In 2009 almost all orders were driven by the need for technology upgrades. Now fabs (as semiconductor factories are known) are needing to expand capacity as well. About 60% of sales in the latest quarter were for capacity expansion rather than replacing old technologies.
AMAT reports four sectors: silicon equipment; display equipment; services; and solar cell production equipment. Most of the growth in the quarter was from the silicon division, but display (panels for TVs and monitors) showed growth too. Services were not hit as hard by the recession, and so saw slower growth.
Solar has two basic parts: equipment for making crystaline cells and equipment for making amorphous, or thin-film, solar panels. The amorphous division is newer and looked promissing two years ago. The crystaline division is profitable and growing, but the thin-film division is in trouble. It is lumpier to begin with. It produced huge sheets of solar cells that are designed to be used by electical utility companies. The factories that make the thin films are capital intensive. One order for a plant was cancelled for lack of financing, while the owners of an existing plant went backrupt. As a result Applied took a $83 million inventory charge. Some investors are demanding that Applied kill this division. I think demand for low-cost solar power will ramp, and improvements in thin-film technology will make this a prized technology in a few years, unless the price of oil drops substantially. But only Applied management has the details available to it to make a good decision for stockholders. Of which I am one, by the way.
It is important to keep in mind that most of Applied's revenue and profits come from equipment for making semiconductor chips, and this segment looks to be in a strong growth cycle that should last through at least 2012. There is pent up demand. Many fabless companies like NVIDIA and Marvell are wishing more capacity were available. Demand is highly likely to ramp even more in calendar Q3 and Q4 this year. So AMAT is going to be making and shipping equipment as fast as they can until they catch up with the demand backlog.
Applied Materials has a lot of cash ($3.6 billion) a huge order backlog ($2.99 billion) and pays a dividend. While it is not without its risks, I consider it a safe, solid performer, but not a get-rich-quick stock. Right now, like many stocks, it is pretty obviously undervalued compared to investments like bonds and CDs. It closed Friday at $12.72 per share. Using Q2 GAAP earnings, that equates to a PE ratio of 15.9. Using non-GAAP EPS of $0.22, that makes the PE 14.5 per share. Which is to say earnings are around 6.7%, while dividends work out to 1.9% per year.
See also Applied Materials and its Fiscal Q2 2010 press release.
For my analyst conference summaries from earlier quarters, see Applied Materials analyst conference summaries.
Overall revenues were up 24% from fiscal Q1 and 125% from Q2 2009. Year earlier was a bad quarter for Applied. As a capital equipment manufacturer (for the semiconductor industry) new orders nearly dried up, and it lost $0.19 per share. But Q2 2010 showed GAAP EPS of $0.20. That sounds like a growth company that should have a high PE multiplier. Partly there were probably some market share gains, but mainly the quick, recent growth is a result of the macro economic cycle.
There is also a technology cycle, where electronic device makers want to squeeze more intelligence into smaller areas of silicon. In 2009 almost all orders were driven by the need for technology upgrades. Now fabs (as semiconductor factories are known) are needing to expand capacity as well. About 60% of sales in the latest quarter were for capacity expansion rather than replacing old technologies.
AMAT reports four sectors: silicon equipment; display equipment; services; and solar cell production equipment. Most of the growth in the quarter was from the silicon division, but display (panels for TVs and monitors) showed growth too. Services were not hit as hard by the recession, and so saw slower growth.
Solar has two basic parts: equipment for making crystaline cells and equipment for making amorphous, or thin-film, solar panels. The amorphous division is newer and looked promissing two years ago. The crystaline division is profitable and growing, but the thin-film division is in trouble. It is lumpier to begin with. It produced huge sheets of solar cells that are designed to be used by electical utility companies. The factories that make the thin films are capital intensive. One order for a plant was cancelled for lack of financing, while the owners of an existing plant went backrupt. As a result Applied took a $83 million inventory charge. Some investors are demanding that Applied kill this division. I think demand for low-cost solar power will ramp, and improvements in thin-film technology will make this a prized technology in a few years, unless the price of oil drops substantially. But only Applied management has the details available to it to make a good decision for stockholders. Of which I am one, by the way.
It is important to keep in mind that most of Applied's revenue and profits come from equipment for making semiconductor chips, and this segment looks to be in a strong growth cycle that should last through at least 2012. There is pent up demand. Many fabless companies like NVIDIA and Marvell are wishing more capacity were available. Demand is highly likely to ramp even more in calendar Q3 and Q4 this year. So AMAT is going to be making and shipping equipment as fast as they can until they catch up with the demand backlog.
Applied Materials has a lot of cash ($3.6 billion) a huge order backlog ($2.99 billion) and pays a dividend. While it is not without its risks, I consider it a safe, solid performer, but not a get-rich-quick stock. Right now, like many stocks, it is pretty obviously undervalued compared to investments like bonds and CDs. It closed Friday at $12.72 per share. Using Q2 GAAP earnings, that equates to a PE ratio of 15.9. Using non-GAAP EPS of $0.22, that makes the PE 14.5 per share. Which is to say earnings are around 6.7%, while dividends work out to 1.9% per year.
See also Applied Materials and its Fiscal Q2 2010 press release.
For my analyst conference summaries from earlier quarters, see Applied Materials analyst conference summaries.
Wednesday, March 31, 2010
Applied Materials (AMAT) Predicts Boom
Applied Materials makes the high technology capital equipment that fabricators use to make semiconductor chips, flat-pannel displays, and solar cells. In early 2009 this business was in stall mode. Revenues dropped to $1 billion for the quarter ending April 26, 2009 (AMAT's 2nd fiscal quarter).
In the first calendar quarter electronics sales were down, and chip manufacturers (fabs) thought had too much capacity. The only reason to buy equipment from Applied Materials was to stay on the upgrade path to new technologies, in particular smaller feature sizes.
Lately all the talk in the computer and electronics industry is about supply constraints. The fabs don't have enough capacity for the newest technologies that are in demand. Just for instance, neither AMD nor NVIDIA has been able to get the new high-end graphics chips in quantities desired.
So fabricators in Taiwan and elsewhere are trying to catch up to the curve. So much so that by the time Applied reported its latest earnings (on February 17 for the quarter ending January 31) revenues for the quarter were $1.85 billion, and net income was $82.8 million.
Guidance given on February 17 was for fiscal 2010 revenues to be up 50% over fiscal 2009 revenues.
But it gets better. Semiconductor chip manufacturers are ordering even more broadly just in the last few weeks. So yesterday Applied Materials increased its guidance. It expects fiscal 2010 revenues to be up over 60% from fiscal 2009. Leading the charge is the silicon manufacturing equipment division, which is expected to be up 120%. Lagging is the solar division, which is expected to be flat to slightly up.
Predicting the future is a dangerous business, but they it is a business I am in. Silicon is coming in quantity to nations like India, China, and Brazil in never-before seen quantities. Applied Materials is one of the few companies with the capital and expertise to keep pushing the limits on shrinking the size of the components on the chips. After minimal upgrading in 2008 and 2009, now through at least 2012 should be a major upgrade and expansion cycle for fabs.
There are small electronics and software companies that will grow faster over this period, but Applied Materials right now is both a value and a growth stock. It pays a dividend, 1.78% at this moment's stock price of $13.71. You will probably get most of your returns, however, out of stock appreciation.
I am a long-term AMAT investor.
Keep diverified!
See also my fiscal Q1 2010 Applied Materials analyst conference summary
And of course www.appliedmaterials.com
In the first calendar quarter electronics sales were down, and chip manufacturers (fabs) thought had too much capacity. The only reason to buy equipment from Applied Materials was to stay on the upgrade path to new technologies, in particular smaller feature sizes.
Lately all the talk in the computer and electronics industry is about supply constraints. The fabs don't have enough capacity for the newest technologies that are in demand. Just for instance, neither AMD nor NVIDIA has been able to get the new high-end graphics chips in quantities desired.
So fabricators in Taiwan and elsewhere are trying to catch up to the curve. So much so that by the time Applied reported its latest earnings (on February 17 for the quarter ending January 31) revenues for the quarter were $1.85 billion, and net income was $82.8 million.
Guidance given on February 17 was for fiscal 2010 revenues to be up 50% over fiscal 2009 revenues.
But it gets better. Semiconductor chip manufacturers are ordering even more broadly just in the last few weeks. So yesterday Applied Materials increased its guidance. It expects fiscal 2010 revenues to be up over 60% from fiscal 2009. Leading the charge is the silicon manufacturing equipment division, which is expected to be up 120%. Lagging is the solar division, which is expected to be flat to slightly up.
Predicting the future is a dangerous business, but they it is a business I am in. Silicon is coming in quantity to nations like India, China, and Brazil in never-before seen quantities. Applied Materials is one of the few companies with the capital and expertise to keep pushing the limits on shrinking the size of the components on the chips. After minimal upgrading in 2008 and 2009, now through at least 2012 should be a major upgrade and expansion cycle for fabs.
There are small electronics and software companies that will grow faster over this period, but Applied Materials right now is both a value and a growth stock. It pays a dividend, 1.78% at this moment's stock price of $13.71. You will probably get most of your returns, however, out of stock appreciation.
I am a long-term AMAT investor.
Keep diverified!
See also my fiscal Q1 2010 Applied Materials analyst conference summary
And of course www.appliedmaterials.com
Monday, March 8, 2010
Marvell Sees Inflection Point
Marvell Technology Group, Ltd. (MRVL) is led by Sehat Sutardja, who built the company on his invention of a better chip to enable hard disk drives. Marvell has been the leading (by market share) supplier of hard drive controller chips for years, and this segment still represented 50% of revenue for the latest quarter. Marvell has also branched out to a variety of newer areas, based on its ability to combine analog functions and digital functions on a single chip (called SoC, for System on Chip).
Marvell was hit hard by the recession: in fiscal Q4 2009, ending January 30, 2009, it had $512 million in revenues, down from a peak of $843 million in the quarter ending August 2, 2008.
Last week Marvell reported for fiscal Q4 2010, ending January 30, 2010, revenues of $842 million. GAAP net income was an amazing $205 million; cash flow from operations was $281 million.
But the future, while speculative, could be even more amazing. Sehat referred to a coming inflection point. An inflection point on a curve can be from going down to up or vice versa, but in this case he is talking about a dramatic increase is Marvell's revenue growth rate.
As I have pointed out in the past, Marvell spent a lot of money on research and development in the earlier part of this decade, and only cut back a little during the recession. This year new products that were sampled in 2009 are ramping into volume production, and new products sampling this year are going to ramp in 2011. What are those new products?
Most notable are "communication processors" for smart phones, particularly the oPhone beginning to be sold in China. In order to get a price point low enough for mass marketing in China, more features than ever before had to be integrated into a single semiconductor chip. Marvell is unique in being able to offer general application and signal processing, Wi-Fi, Bluetooth, graphics, and cellular modem. Over 90% of oPhone models (there are several companies building them) use Marvell chips.
This alone could be sufficient to cause the inflection point. While the oPhones are far less expensive than models sold in the U.S., Marvell gets very good profit margins on the chips it makes for them. Start multiplying these per-chip margins by the 100s of millions of likely oPhone buyers in China, and you can see the potential.
But there is more. Marvell has become an increasingly prominent player in high-speed Internet switching chips. The competition there is intense, but intense competition has not impeded Marvell for very long in other fields it has chosen to enter.
Many of the newer products will be based on a microprocessor line called Armada. The thing about Marvell is that unlike Intel, they usually don't just make a microprocessor and sell it to customers who put it in a socket. Marvell works with manufacturers to integrate exactly what they need for their products on a single chip that incorporates the microprocessor. This gives faster execution and communication times and reduces costs, while leaving Marvell an ample profit margin.
Expect new products to be announced based on Marvell technology all though 2010 and 2011 (and likely well beyond).
While competition is intense and there are many pitfalls, it looks to me like Marvell is going to become the very center of the semiconductor chip industry during this decade. Of course others have already entered the SoC business, and stand-alone chips will continue to be manufactured for equipment with volumes insufficient to justify an SoC design. I'm not saying the engineers at Intel, AMD, NVIDIA, Broadcom, Microchip, etc. are not very good, and all these companies have plenty of financial ability to compete however they like. But Marvell seems to have found how to
I have owned Marvell stock since January 2005.
For detailed results from Marvell's latest reported quarter, see my
Marvell Technology (MRVL) Q4 2010 analyst conference summary
See also www.marvel.com
Marvell was hit hard by the recession: in fiscal Q4 2009, ending January 30, 2009, it had $512 million in revenues, down from a peak of $843 million in the quarter ending August 2, 2008.
Last week Marvell reported for fiscal Q4 2010, ending January 30, 2010, revenues of $842 million. GAAP net income was an amazing $205 million; cash flow from operations was $281 million.
But the future, while speculative, could be even more amazing. Sehat referred to a coming inflection point. An inflection point on a curve can be from going down to up or vice versa, but in this case he is talking about a dramatic increase is Marvell's revenue growth rate.
As I have pointed out in the past, Marvell spent a lot of money on research and development in the earlier part of this decade, and only cut back a little during the recession. This year new products that were sampled in 2009 are ramping into volume production, and new products sampling this year are going to ramp in 2011. What are those new products?
Most notable are "communication processors" for smart phones, particularly the oPhone beginning to be sold in China. In order to get a price point low enough for mass marketing in China, more features than ever before had to be integrated into a single semiconductor chip. Marvell is unique in being able to offer general application and signal processing, Wi-Fi, Bluetooth, graphics, and cellular modem. Over 90% of oPhone models (there are several companies building them) use Marvell chips.
This alone could be sufficient to cause the inflection point. While the oPhones are far less expensive than models sold in the U.S., Marvell gets very good profit margins on the chips it makes for them. Start multiplying these per-chip margins by the 100s of millions of likely oPhone buyers in China, and you can see the potential.
But there is more. Marvell has become an increasingly prominent player in high-speed Internet switching chips. The competition there is intense, but intense competition has not impeded Marvell for very long in other fields it has chosen to enter.
Many of the newer products will be based on a microprocessor line called Armada. The thing about Marvell is that unlike Intel, they usually don't just make a microprocessor and sell it to customers who put it in a socket. Marvell works with manufacturers to integrate exactly what they need for their products on a single chip that incorporates the microprocessor. This gives faster execution and communication times and reduces costs, while leaving Marvell an ample profit margin.
Expect new products to be announced based on Marvell technology all though 2010 and 2011 (and likely well beyond).
While competition is intense and there are many pitfalls, it looks to me like Marvell is going to become the very center of the semiconductor chip industry during this decade. Of course others have already entered the SoC business, and stand-alone chips will continue to be manufactured for equipment with volumes insufficient to justify an SoC design. I'm not saying the engineers at Intel, AMD, NVIDIA, Broadcom, Microchip, etc. are not very good, and all these companies have plenty of financial ability to compete however they like. But Marvell seems to have found how to
I have owned Marvell stock since January 2005.
For detailed results from Marvell's latest reported quarter, see my
Marvell Technology (MRVL) Q4 2010 analyst conference summary
See also www.marvel.com
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