Microchip (MCHP) yesterday reported December quarter (fiscal Q3 2013) results slightly above analysts' consensus and in line with the mid-range of its prior guidance. Normally the March quarter is seasonally down from the December quarter, but in its guidance Microchip predicted sequential revenue growth. As a result in Microchip, which closed at $33.94 before reporting results, has climbed to $36.60 so far today. Microchip's current 52 week low is $28.92, and its 52 week high is $37.50.
Part of the strong revenue results resulted from the acquisition of SMSC. The same acquisition led to charges that hit GAAP profits pretty hard, but excluding those items non-GAAP profits and free cash flow were strong.
Microchip's model involves a focus on microcontrollers and related analog functions (touch screen control, wireless, and power management), with a wide variety of parts available to meet specific customer needs. Record revenue in quarter reflected a broad-based uptick in demand across industries and geographies. Revenues were $416.0 million, up 9% sequentially from $382.3 million and up 26% from $329.2 million in the year-earlier quarter.
Guidance to March quarter revenue of between $420.2 and $432.7 million, despite the usual hit from Chinese Lunar New Year, is based both on a continuation of the underlying trend and on design wins. Quite a number of design wins were announced in 2012; these are now resulting in orders that should ramp through 2013.
Microsoft has been a reliable dividend payer. At today's price the dividend yield is 4.15%.
Normally I use GAAP profits as a baseline, but non-GAAP numbers can be more informative for the long run when GAAP is affected by acquisition charges, as was the case in calendar Q4.
GAAP net income was $10.2 million, up sequentially from negative $21.2 million and down 87% from $77.5 million year-earlier. GAAP EPS (earnings per share) were $0.05, up sequentially from negative $0.11, but down 87% from $0.38 year-earlier.
In contrast non-GAAP net income was $84.5 million, EPS was $0.41, which is an improvement on, but consistent with, prior quarters. Free cash flow was $123.2 million, of which Microchip paid $68.7 million in dividends.
Microchip is still recovering from the cautious buying and weak end demand earlier this year. Inventories were reduced in Q4 and will continue to be reduced through June. On the customer side inventories are believed to be extremely lean, which could also result in increased buying if final demand shows signs of improving with the global economy.
I first invested in Microchip in 2006, based largely on my familiarity with their microcontroller products. It has been a reliable source of dividends and appears to have a first-class management team. I would recommend the stock to almost any class of investor.
Disclaimer: I own Microchip stock. I will not trade MCHP for at least 1 week after this story is published.
See also:
www.microchip.com
My main Microchip analyst conferences page.
My Microchip February 2013 analyst call notes
Showing posts with label analog. Show all posts
Showing posts with label analog. Show all posts
Friday, February 8, 2013
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
Tuesday, March 10, 2009
Marvell Technology In Recession Mode
Marvell Technology Group (MRVL) reported revenue of $513 million for their quarter that ended January 31, 2009 (4th quarter fiscal 2009). That was not a good number for Marvell; it was down 35% from the October 2008 quarter, and down 39% from the year-earlier quarter.
I own Marvell stock. I had hoped for better, but not expected it. Since a lot of Marvell's revenue comes from the data storage sector, I hoped people's need to store ever-increasing amounts of data might partially offset the recession. As we have seen, for instance, at Dot Hill. On the other hand, I have a backup drive that once seemed capacious and now is getting pretty full, but I am delaying buying a bigger capacity drive right now; I have more pressing needs for cash. Multiply by 100 million.
Marvell is a relatively new company that grew big quickly and seems to aim at dominating the entire mixed digital analog sector. In addition to making chips for Western Digital drives, it makes processors that RIM uses in some of its Blackberry products, chips for printers, chips that combine Bluetooth and WiFi, and video processing chips. It seems to be able to move its engineering expertise from one technology arena to another, taking on the likes of TI, Motorola, Intel and Broadcom. Sometimes it takes Marvell a while to get traction in a new area, but when Sehat Sutardja says "In a year or two, " it is a good idea to take him seriously.
In a year or two, Sehat believes there will be architectural convergence for many devices, including netbook computers, smartphones, and next generation data and communication appliances. He believes Marvell has all the expertise necessary to get there with the best products at prices that enable the magic of mass consumption with good profit margins for Marvell. That looks right to me. Marvell has shown it can do ARM processors as good as anyone, and it is unrivaled at putting analog circuitry on chips.
But I would not discount, quite yet, the ability of rivals to out market, and perhaps even out engineer, Marvell. Motorolla, TI and Intel all have deep pockets and large research establishments.
Of its $513 million in revenue in the quarter, Marvell spent $208 million for research and development. Obviously they could have sent a lot of engineers home in 2008 and pleased short term investors. That is not the Marvell way.
Whether Marvell was profitable in the quarter depends on how you want to do your accounting. On a GAAP basis they lost $65 million. They claim non-GAAP net income of $32 million. On a cash basis, they had free cash flow of $95 million. They ended with $952 million in cash and equivalents, so they are well positioned to keep up their drive for industry dominance.
They have cut costs, and are reducing the work force by 15%. If I know Marvell's corporate culture, that means those lucky enough to be employed are going to work even harder and smarter, if that is possible.
For more details, see my Marvell analyst conference summary for March 5, 2009.
The current economic and stock market troubles provide for a unique opportunity to buy into Marvell, but there is risk in investing in the highly competitive semiconductor industry, so ...
Keep diversified.
I own Marvell stock. I had hoped for better, but not expected it. Since a lot of Marvell's revenue comes from the data storage sector, I hoped people's need to store ever-increasing amounts of data might partially offset the recession. As we have seen, for instance, at Dot Hill. On the other hand, I have a backup drive that once seemed capacious and now is getting pretty full, but I am delaying buying a bigger capacity drive right now; I have more pressing needs for cash. Multiply by 100 million.
Marvell is a relatively new company that grew big quickly and seems to aim at dominating the entire mixed digital analog sector. In addition to making chips for Western Digital drives, it makes processors that RIM uses in some of its Blackberry products, chips for printers, chips that combine Bluetooth and WiFi, and video processing chips. It seems to be able to move its engineering expertise from one technology arena to another, taking on the likes of TI, Motorola, Intel and Broadcom. Sometimes it takes Marvell a while to get traction in a new area, but when Sehat Sutardja says "In a year or two, " it is a good idea to take him seriously.
In a year or two, Sehat believes there will be architectural convergence for many devices, including netbook computers, smartphones, and next generation data and communication appliances. He believes Marvell has all the expertise necessary to get there with the best products at prices that enable the magic of mass consumption with good profit margins for Marvell. That looks right to me. Marvell has shown it can do ARM processors as good as anyone, and it is unrivaled at putting analog circuitry on chips.
But I would not discount, quite yet, the ability of rivals to out market, and perhaps even out engineer, Marvell. Motorolla, TI and Intel all have deep pockets and large research establishments.
Of its $513 million in revenue in the quarter, Marvell spent $208 million for research and development. Obviously they could have sent a lot of engineers home in 2008 and pleased short term investors. That is not the Marvell way.
Whether Marvell was profitable in the quarter depends on how you want to do your accounting. On a GAAP basis they lost $65 million. They claim non-GAAP net income of $32 million. On a cash basis, they had free cash flow of $95 million. They ended with $952 million in cash and equivalents, so they are well positioned to keep up their drive for industry dominance.
They have cut costs, and are reducing the work force by 15%. If I know Marvell's corporate culture, that means those lucky enough to be employed are going to work even harder and smarter, if that is possible.
For more details, see my Marvell analyst conference summary for March 5, 2009.
The current economic and stock market troubles provide for a unique opportunity to buy into Marvell, but there is risk in investing in the highly competitive semiconductor industry, so ...
Keep diversified.
Friday, January 30, 2009
Maxim and Microchip Report Fourth Quarter 2008
Maxim Integrated Products (MXIM) and Microchip (MCHP) both reported on their fourth quarters yesterday. Both are makers of digital and analog semiconductor chips, and to a certain extent are rivals. However, they serve different markets with different styles, so comparing them may give a good view of how the semiconductor market is evolving.
Microchip is known for its microcontrollers, which are microprocessors combined on a single chip with inputs and outputs designed to control external devices. A typical use might be controlling a consumer appliance or coordinating the systems in an automobile. It makes a wide variety of microcontrollers that are usually sold as standard parts. It also makes some analog devices (capable of creating radio wave forms, for instance) and other special parts.
Maxim makes standard parts that can be incorporated into circuit designs, but more of its business is in making special parts for particular products. These parts may or may not include a microcontroller; they often include both digital and analog circuits on the same chip.
Both companies saw demand dry up in Q4 as manufacturers who use their chips cut back on orders, both because of weak demand from their own customers and because they could save cash by depleting inventories.
Both companies cut back on their own production in order to save cash and to cut their own inventories, but both still believe their own inventories are too high if the economy remains down.
Microchip revenues were $192 million, down 29% sequentially from $270 million and down 24% from $253 million year-earlier.
Maxim revenues were $410.7 million, down 18% sequentially from $501.2 million and down 24% from $540.0 million year-earlier.
One reason that Maxim's revenues were not down as much sequentially as Microchip, but were down the same from year-earlier, had to do with notebook computers. Maxim makes parts for notebook computers, and had made a part for a particular Intel standard design. They lost that part in the latest transition. However, they have new design wins that they believe will enable them to regain some traction in notebooks in 2009, if notebook end demand does not crash even futher.
Both companies had a variety of one time charges and benefits in the quarter. Stripping those out, especially if you look only at cash flows, both were positive. Both sit on large accumulations of cash kept from more prosperous times. Both give investors generous dividends and see no need to cut the dividend at the current level of recession. At this moment's prices, Maxim pays a dividend of 6.22% at $12.45, and Microchip pays a 7.37% at 18.98. You can't get that from a Treasury or CD.
What about the future? Neither firm has good visibility, although it is fair for us to assume that when (or if, for pessimists) the economy revives the demand for their chips will also increase. Both plan on even lower revenues in the March quarter. Maxim believes that it will do well in its communications segment (which does not include parts for cell phones, but for infrastructure) because they are supplying parts for base stations in China, which is committed to continuing its 3G rollouts. They think their computer segment will do poorly as there is a lot of notebook inventory in the distribution channels. They believe cell phone inventories have been depleted (their parts are in high-end phones), so unless consumer demand drops off further, they expect their customers to start restocking soon.
Microchip has more customers, typically using smaller numbers of chips for a particular product. This makes it harder to know what their customers' plans are. Their book to bill ratio was a horrendous 0.7 at year's end, but they have seen a slight uptick in January orders over December. They believe they can return to growth even in a downturn by introducing new products, but their best trick is the flexibility of their expense side. They can cut expenses rapidly, already having done so in 2008. They believe they can remain profitable at almost any level of economic activity.
Microchip is known for its microcontrollers, which are microprocessors combined on a single chip with inputs and outputs designed to control external devices. A typical use might be controlling a consumer appliance or coordinating the systems in an automobile. It makes a wide variety of microcontrollers that are usually sold as standard parts. It also makes some analog devices (capable of creating radio wave forms, for instance) and other special parts.
Maxim makes standard parts that can be incorporated into circuit designs, but more of its business is in making special parts for particular products. These parts may or may not include a microcontroller; they often include both digital and analog circuits on the same chip.
Both companies saw demand dry up in Q4 as manufacturers who use their chips cut back on orders, both because of weak demand from their own customers and because they could save cash by depleting inventories.
Both companies cut back on their own production in order to save cash and to cut their own inventories, but both still believe their own inventories are too high if the economy remains down.
Microchip revenues were $192 million, down 29% sequentially from $270 million and down 24% from $253 million year-earlier.
Maxim revenues were $410.7 million, down 18% sequentially from $501.2 million and down 24% from $540.0 million year-earlier.
One reason that Maxim's revenues were not down as much sequentially as Microchip, but were down the same from year-earlier, had to do with notebook computers. Maxim makes parts for notebook computers, and had made a part for a particular Intel standard design. They lost that part in the latest transition. However, they have new design wins that they believe will enable them to regain some traction in notebooks in 2009, if notebook end demand does not crash even futher.
Both companies had a variety of one time charges and benefits in the quarter. Stripping those out, especially if you look only at cash flows, both were positive. Both sit on large accumulations of cash kept from more prosperous times. Both give investors generous dividends and see no need to cut the dividend at the current level of recession. At this moment's prices, Maxim pays a dividend of 6.22% at $12.45, and Microchip pays a 7.37% at 18.98. You can't get that from a Treasury or CD.
What about the future? Neither firm has good visibility, although it is fair for us to assume that when (or if, for pessimists) the economy revives the demand for their chips will also increase. Both plan on even lower revenues in the March quarter. Maxim believes that it will do well in its communications segment (which does not include parts for cell phones, but for infrastructure) because they are supplying parts for base stations in China, which is committed to continuing its 3G rollouts. They think their computer segment will do poorly as there is a lot of notebook inventory in the distribution channels. They believe cell phone inventories have been depleted (their parts are in high-end phones), so unless consumer demand drops off further, they expect their customers to start restocking soon.
Microchip has more customers, typically using smaller numbers of chips for a particular product. This makes it harder to know what their customers' plans are. Their book to bill ratio was a horrendous 0.7 at year's end, but they have seen a slight uptick in January orders over December. They believe they can return to growth even in a downturn by introducing new products, but their best trick is the flexibility of their expense side. They can cut expenses rapidly, already having done so in 2008. They believe they can remain profitable at almost any level of economic activity.
I own Microchip stock, but not Maxim. I also own competitor Marvell (MRVL). Maxim is on my list to buy at some point, but I have a pretty lengthy list of companies to choose from given their valuations and compared to my ability to generate cash to buy them.
For more detailed coverage of their December quarters, see my Microchip analyst conference summary for Q4 2008, and my Maxim analyst conference summary for Q4 2008.
See also their company sites:
Keep diversified!
Friday, November 7, 2008
Maxim (MXIM) Sees Weak Q4
Maxim Integrated Products (MXIM) had some accounting issues these last couple of years that have now been cleaned up, so it is a good time to take a close look at this leading analog semiconductor chip maker.
Revenues held steady in Q3. At $501.2 million, they were flat sequentially from $501.3 million and down 4% from $524.1 million year-earlier.
Guidance for Q4, based on what management saw in October, is to revenues of $410 to $440 million, which would be quite a slump.
Fortunately Maxim has good profit margins, which should leave it profitable even if revenue erosion is that bad. In Q3 GAAP net income was $67.6 million, or $0.21 per share. Non-GAAP EPS was $0.35. Cash flow from operations was an astonishing $157.1 million.
How can Maxim be so profitable in the highly competitive semiconductor market? They keep on top of markets where they have a competitive advantage and abandon markets where they don't. They are in diverse end markets: by percent of full revenues: 28% computer, 28% consumer, 24% industrial, and 20% communications. Within these markets they focus on areas like power management and integration of multiple functions on a single chip.
Also in contrast to many chip technology companies, Maxim pays a hefty dividend, $0.80 per year per share at present. This allows you to have some of your profits without having to sell stock, which is nice in this undervalued, illiquid market.
For a fuller report on Maxim's results, see my Summary of Maxim (MXIM) Q3 Analyst Conference.
Keep in mind that while Maxim is pretty solid, all investments involve risks, so ...
Keep diversified.
More data:
http://www.maxim-ic.com/
Revenues held steady in Q3. At $501.2 million, they were flat sequentially from $501.3 million and down 4% from $524.1 million year-earlier.
Guidance for Q4, based on what management saw in October, is to revenues of $410 to $440 million, which would be quite a slump.
Fortunately Maxim has good profit margins, which should leave it profitable even if revenue erosion is that bad. In Q3 GAAP net income was $67.6 million, or $0.21 per share. Non-GAAP EPS was $0.35. Cash flow from operations was an astonishing $157.1 million.
How can Maxim be so profitable in the highly competitive semiconductor market? They keep on top of markets where they have a competitive advantage and abandon markets where they don't. They are in diverse end markets: by percent of full revenues: 28% computer, 28% consumer, 24% industrial, and 20% communications. Within these markets they focus on areas like power management and integration of multiple functions on a single chip.
Also in contrast to many chip technology companies, Maxim pays a hefty dividend, $0.80 per year per share at present. This allows you to have some of your profits without having to sell stock, which is nice in this undervalued, illiquid market.
For a fuller report on Maxim's results, see my Summary of Maxim (MXIM) Q3 Analyst Conference.
Keep in mind that while Maxim is pretty solid, all investments involve risks, so ...
Keep diversified.
More data:
http://www.maxim-ic.com/
Friday, March 7, 2008
Marvell (MRVL) Drops on Good Quarter Results
Marvell Technology Group (MRVL) reported its results for the quarter ending February 2, 2008 after the market closed Thursday. Results were far better than the guidance that Marvell management gave at the prior, November 27, 2007 analyst conference. They also beat the street estimates. But the stock price sank like a stone this morning. What is going on?
Only the people who dumped the stock this morning know for sure, but the explanation is not that Marvell's results were bad. I think one or more major players had a leveraged long position, based on guessing correctly that MRVL would report a great fiscal Q4 2008. In after-hours trading the stock bumped up nicely, at first. When the stock price then fell, still in after-hours trading, these longs dumped. When a stock is falling in today's illiquid market, no one wants to touch it, no matter what the fundamentals. Everyone is asking, do the sellers know something I don't know? (Which is always a good question to ask. Some times they do; usually they don't.) On the other hand there are some things that Wall Street does not like, which I'll come back to below.
Let's look at the actual results and the prospects for calendar 2008 (Marvell is now into their fiscal year 2009). For more data see my Summary of the March 6, 2008 Marvell Analyst Conference.
Revenues were $844 million, up 11% sequentially from $758 million and up 36% from $622 million year-earlier. That is a phenomenal growth rate. True, it is partly from acquiring Intel's Xscale division, but mostly it is organic growth from its key semiconductor chips that enable high capacity hard drives.
GAAP net income was $1.3 million, reversing a loss of $6.4 million in fiscal Q3, and a loss of $140.6 million year-earlier (fiscal Q4 2007).
I usually recommend using GAAP net income as a guide to the value of a company, rather than non-GAAP numbers, which in the late 1990's had become largely out of touch with reality. But Marvell's numbers are part of a bigger story. In 2007 it digested the Intel Xscale division (a money loser for Intel), resulting in poor numbers. That digestion is completed now, so the GAAP numbers are getting better rapidly, as you see in the $140 million GAAP net income improvement over the year-earlier quarter.
Non-GAAP net income of $123 million excludes stock-based compensation of $70 million, $8 million for restructuring and $44 million for amortization. Cash was up in the same ball bark, increasing by $100 million sequentially. With $631 million, cash is adequate but not a factor in the stock price, given that there is a $391 million debt from the Intel Xscale acquisition.
Marvell's analog and digital chip business is seasonal due to its consumer components, but I think it is safe to multiply by 4 to get a forward annual non-GAAP net income of about $500 million. As I write Marvell's market capitalization is $6.13 billion. That gives a price to earnings ratio of 12.26.
A well managed, rapidly growing company with a forward non-GAAP PE ratio of 12.26. What more could Wall Street want?
There is a legitimate, but probably overblown, concern that there will be a future macroeconomic impact on the hard-drive industry, Marvell's key customer. But that goes against the strong trends that helped Marvell's results in the latest quarter.
Judging from analyst's questions at the last few analyst conferences, Wall Street does not like Marvell's pursuit of long term growth. They want Marvell to cut its heavy R&D budget. They want stock-buy backs to reward short-term investors and screw long-term investors. They want more certainty, not Marvell taking its business of combining very high level digital and analog engineering skills into an ever wider arena of products.
In an oblique answer to a question about paying down the outstanding loan, management said there were better uses for the cash it has and is generating. I would read that tea leaf as saying they are still looking for appropriate acquisitions. Which means more spending of cash and accounting write downs. In a booming market Wall Street would urge you to buy this stock because of rapid growth, but right now the idiots at Pitigroup and Peril Flinch are hunkering down trying to bury their recent mortgage derivative mistakes. Using your money.
Which is why you should not let the guys on Wall Street manage your money and take exorbitant fees for that service. What seems nice as they steer their herds one way for a few years never seems to work out very well for the long run.
Marvell of course is a risky stock. Management has a history of taking risks, entering new fields of the semiconductor industry. There are the usual macroeconomic and competitive risks.
I own Marvell stock and would buy the whole company today, at this moment's stock price, if I had that kind of cash.
In the meantime, keep diversified.
More data:
www.marvell.com
My Marvell main page
Only the people who dumped the stock this morning know for sure, but the explanation is not that Marvell's results were bad. I think one or more major players had a leveraged long position, based on guessing correctly that MRVL would report a great fiscal Q4 2008. In after-hours trading the stock bumped up nicely, at first. When the stock price then fell, still in after-hours trading, these longs dumped. When a stock is falling in today's illiquid market, no one wants to touch it, no matter what the fundamentals. Everyone is asking, do the sellers know something I don't know? (Which is always a good question to ask. Some times they do; usually they don't.) On the other hand there are some things that Wall Street does not like, which I'll come back to below.
Let's look at the actual results and the prospects for calendar 2008 (Marvell is now into their fiscal year 2009). For more data see my Summary of the March 6, 2008 Marvell Analyst Conference.
Revenues were $844 million, up 11% sequentially from $758 million and up 36% from $622 million year-earlier. That is a phenomenal growth rate. True, it is partly from acquiring Intel's Xscale division, but mostly it is organic growth from its key semiconductor chips that enable high capacity hard drives.
GAAP net income was $1.3 million, reversing a loss of $6.4 million in fiscal Q3, and a loss of $140.6 million year-earlier (fiscal Q4 2007).
I usually recommend using GAAP net income as a guide to the value of a company, rather than non-GAAP numbers, which in the late 1990's had become largely out of touch with reality. But Marvell's numbers are part of a bigger story. In 2007 it digested the Intel Xscale division (a money loser for Intel), resulting in poor numbers. That digestion is completed now, so the GAAP numbers are getting better rapidly, as you see in the $140 million GAAP net income improvement over the year-earlier quarter.
Non-GAAP net income of $123 million excludes stock-based compensation of $70 million, $8 million for restructuring and $44 million for amortization. Cash was up in the same ball bark, increasing by $100 million sequentially. With $631 million, cash is adequate but not a factor in the stock price, given that there is a $391 million debt from the Intel Xscale acquisition.
Marvell's analog and digital chip business is seasonal due to its consumer components, but I think it is safe to multiply by 4 to get a forward annual non-GAAP net income of about $500 million. As I write Marvell's market capitalization is $6.13 billion. That gives a price to earnings ratio of 12.26.
A well managed, rapidly growing company with a forward non-GAAP PE ratio of 12.26. What more could Wall Street want?
There is a legitimate, but probably overblown, concern that there will be a future macroeconomic impact on the hard-drive industry, Marvell's key customer. But that goes against the strong trends that helped Marvell's results in the latest quarter.
Judging from analyst's questions at the last few analyst conferences, Wall Street does not like Marvell's pursuit of long term growth. They want Marvell to cut its heavy R&D budget. They want stock-buy backs to reward short-term investors and screw long-term investors. They want more certainty, not Marvell taking its business of combining very high level digital and analog engineering skills into an ever wider arena of products.
In an oblique answer to a question about paying down the outstanding loan, management said there were better uses for the cash it has and is generating. I would read that tea leaf as saying they are still looking for appropriate acquisitions. Which means more spending of cash and accounting write downs. In a booming market Wall Street would urge you to buy this stock because of rapid growth, but right now the idiots at Pitigroup and Peril Flinch are hunkering down trying to bury their recent mortgage derivative mistakes. Using your money.
Which is why you should not let the guys on Wall Street manage your money and take exorbitant fees for that service. What seems nice as they steer their herds one way for a few years never seems to work out very well for the long run.
Marvell of course is a risky stock. Management has a history of taking risks, entering new fields of the semiconductor industry. There are the usual macroeconomic and competitive risks.
I own Marvell stock and would buy the whole company today, at this moment's stock price, if I had that kind of cash.
In the meantime, keep diversified.
More data:
www.marvell.com
My Marvell main page
Wednesday, July 25, 2007
Semiconductors Mixed, but Texas Instruments Rebounding
When Motorolla (MOT) warned of disappointing results, and then turned in revenues that were sequentially down 7.5% and down 19% from year earlier, it created some profound worries about the health of the semiconductor industry as a whole. [See my 7/19/2007 MOT summary] Now that more companies have reported, in particular Texas Instruments (TXN) on Monday, July 23rd, it seems that on the whole the industry is not in bad shape. The inventory correction from the second half of 2006 does seem to be over, although different companies are coming out of it with different timings.
A lot of detail about the industry can be gleaned from the TXN analyst conference held July 23. Texas Instruments revenues were also down, in this case 7%, from the year-earlier. But they bounced up 7% on a sequential basis and hit the midrange of management guidance. They said they turned away some unprofitable business at the low end of the cell phone market. Motorola, of course, makes cell phones; their failure to be able to market low end phones profitably really hurt them. Texas Instruments makes parts for the phones; that is working out better, at this moment. Orders were up 8% sequentially, inventories are in good shape, and 3G (high-end) mobile phone demand is growing. In order to meet the demands of the low-end market TI has brought out LoCosta (yep!) integrated cell phone chips that should start generating revenue in 2008.
Keep in mind that Microchip warned that it would only grow 2% sequentially, Xilinx was only up 1% sequentially, Altera was up 5%, AMD and Intel had mixed results. To me the overall picture is one of recovery with a real possibility of relative strength in Q3 due to the leanness of inventories. As individual companies win and lose contracts or consumer interest there will continue to be a lot of volatility against the general trend. This is particularly true of semiconductor chips used in the telecommunications sector. Right now analog chip design needs seem to be growing at a faster pace than digital; getting all these communications protocols right seems to be tougher than moving forward in digital processing.
In fact, it is time to start worrying about 2008. I believe that growth is going to be good due to continued rapid expansion in Asia and healthy expansion in Europe. The United States market is still a concern due to issues outside of semiconductors, notably housing, employment, and consumer willingness to spend.
More data:
Motorola investor relations page
Texas Instrument investor relations
A lot of detail about the industry can be gleaned from the TXN analyst conference held July 23. Texas Instruments revenues were also down, in this case 7%, from the year-earlier. But they bounced up 7% on a sequential basis and hit the midrange of management guidance. They said they turned away some unprofitable business at the low end of the cell phone market. Motorola, of course, makes cell phones; their failure to be able to market low end phones profitably really hurt them. Texas Instruments makes parts for the phones; that is working out better, at this moment. Orders were up 8% sequentially, inventories are in good shape, and 3G (high-end) mobile phone demand is growing. In order to meet the demands of the low-end market TI has brought out LoCosta (yep!) integrated cell phone chips that should start generating revenue in 2008.
Keep in mind that Microchip warned that it would only grow 2% sequentially, Xilinx was only up 1% sequentially, Altera was up 5%, AMD and Intel had mixed results. To me the overall picture is one of recovery with a real possibility of relative strength in Q3 due to the leanness of inventories. As individual companies win and lose contracts or consumer interest there will continue to be a lot of volatility against the general trend. This is particularly true of semiconductor chips used in the telecommunications sector. Right now analog chip design needs seem to be growing at a faster pace than digital; getting all these communications protocols right seems to be tougher than moving forward in digital processing.
In fact, it is time to start worrying about 2008. I believe that growth is going to be good due to continued rapid expansion in Asia and healthy expansion in Europe. The United States market is still a concern due to issues outside of semiconductors, notably housing, employment, and consumer willingness to spend.
More data:
Motorola investor relations page
Texas Instrument investor relations
Tuesday, July 10, 2007
Marvell Releases 10-Q with Fiscal Q1 2008 Results
Marvell released a 10-Q giving its results for the quarter ending April 28, 2007 (Fiscal Q1 2008) yesterday. In the press release of Q1 results, and at the analyst conference (See my summary), only the revenues had been reported due to the ongoing stock option accounting restatement. The filing of the 10-Q confirms that the process is complete and accounting issues have been resolved.
If you have been following the Marvell story the 10-Q confirms what has been broadly guessed. Revenues were $635 million, up 2% sequentially from $622 million in Q4 2007 and up 22% from $521.2 million for fiscal Q1 2007. This annual increase of revenues was largely due to two major acquisitions, Intel's XScale division and Avago, a specialist in chips for printers.
Also mainly due to the acquisitions earnings swung from a healthy profit of $77.6 million year-earlier to a substantial loss of $52.9 million. This was expected because the larger acquisition, XScale, was losing money when acquired and is not expected to become accretive to earnings until calendar 2008.
Cash from operations was $54 million, up from $47 million year-earlier. Contrasting this with the GAAP earnings shows that many of the charges against earnings were non-cash.
The real question is, what does the future look like? The XScale processors are meant to compete in the high-end cell phone market. They were not chosen by Apple for the iPhone, though at least one chip by Marvell was. However, even under Intel the revenues from XScale were growing at a good pace. By combining the XScale processor with other highly-regarded Marvell analog and digital components, it is possible (but not guaranteed) that traction will be good. By increasing XScale revenues and decreasing production costs through outsourcing, Marvell expects to make the XScale business profitable some time next year.
XScale is not the only trick Marvell has to pull off. It did so well in creating chips that go in disk drives that it seems unlikely that it can gain much more market share there, and that market itself is not growing quickly. So Marvell is pressed by the need to innovate, winning share in other markets and entering new markets. One area of optimism is chips to improve performance of high-definition displays.
The main danger for Marvell, other than a macroeconomic downturn, is failure to expand XScale revenue. For now Intel is producing the processors and Marvell is obligated to buy them even if it finds itself unable to sell them.
More data:
Marvell investor relations page
My Marvell (MRVL) page
If you have been following the Marvell story the 10-Q confirms what has been broadly guessed. Revenues were $635 million, up 2% sequentially from $622 million in Q4 2007 and up 22% from $521.2 million for fiscal Q1 2007. This annual increase of revenues was largely due to two major acquisitions, Intel's XScale division and Avago, a specialist in chips for printers.
Also mainly due to the acquisitions earnings swung from a healthy profit of $77.6 million year-earlier to a substantial loss of $52.9 million. This was expected because the larger acquisition, XScale, was losing money when acquired and is not expected to become accretive to earnings until calendar 2008.
Cash from operations was $54 million, up from $47 million year-earlier. Contrasting this with the GAAP earnings shows that many of the charges against earnings were non-cash.
The real question is, what does the future look like? The XScale processors are meant to compete in the high-end cell phone market. They were not chosen by Apple for the iPhone, though at least one chip by Marvell was. However, even under Intel the revenues from XScale were growing at a good pace. By combining the XScale processor with other highly-regarded Marvell analog and digital components, it is possible (but not guaranteed) that traction will be good. By increasing XScale revenues and decreasing production costs through outsourcing, Marvell expects to make the XScale business profitable some time next year.
XScale is not the only trick Marvell has to pull off. It did so well in creating chips that go in disk drives that it seems unlikely that it can gain much more market share there, and that market itself is not growing quickly. So Marvell is pressed by the need to innovate, winning share in other markets and entering new markets. One area of optimism is chips to improve performance of high-definition displays.
The main danger for Marvell, other than a macroeconomic downturn, is failure to expand XScale revenue. For now Intel is producing the processors and Marvell is obligated to buy them even if it finds itself unable to sell them.
More data:
Marvell investor relations page
My Marvell (MRVL) page
Tuesday, July 3, 2007
Marvell's New Clothes
Marvell (MRVL) is one of the many technology companies that has been under a cloud due to stock option dating issues. The cloud for investors, in most cases, has not been so much the risk of an SEC investigation or related train-wreck scenarios. Rather, while the companies do their accounting restatement investigations they do not release information that make informed investing possible. They do not release earnings; they don't file 10-Q's or 10-K's with the SEC.
On July 2nd Marvell made some of its tardy filings with the SEC. They had already announced the completion of their restatement investigation back in May. The filings included a 10-K covering fiscal 2007 through January 30, 2007. The most recent 10-Q was for fiscal Q3 2007. What we really want to see, of course, are the numbers for the quarter (Q1 2008) that ended April 28, 2007 (See my summary of the May 17 analyst conference for what we know so far).
Still, there is a lot of grist for analysis in the 10-K. For starters, for all practical purposes Marvell made no profit for its year. Out of annual revenues of $2.24 billion (well up from $1.67 billion in fiscal 2006), it lost $12 million, or $0.02 per share. In 2006 it had profits of $199 million, or $0.32 per share.
Time to flee the stock? Sorry, too late. The share price topped out at over $38 back at the beginning of 2006; it ended today at $18.32, and has been as low as $15.25 this year.
Let's try another reality check, since revenues have risen rapidly while earnings have fallen. What happened to cash?
In fiscal 2007 net cash provided by operating activities fell, but not as precipitously as earnings. It was $402 million in 2006, then $337 million in 2007. There was a serious cash outflow, but it was for acquisitions, not for operations.
Marvell made two big acquisitions in 2007: Avago (chips for printers) for $262 million in May and Intel's cell-phone (XScale) microprocessor division for $600 million in November. These acquisitions had serious one-time costs and the Intel division in particular had major ongoing net losses when it was transferred.
Marvell also acquired UTStarcom in February 2006 for about $40 million. According to a neat little chart on page 126 of the 10-K, the acquired businesses, if they had been bought at the beginning of fiscal 2007, would have created an overall loss of $475 million for the year, while bumping up overall revenue to $2.6 billion.
Are these guys stupid? Did the people who created Marvell out of some analog chip designs and built it to a $1 billion business in a few years lose their minds? I don't think so.
They did load up heavily on risk. A good way to get a sense of risk, which is mainly from the Intel purchase, is to use your find function on the 10-K with "Intel" as the search string.
To get back to being heroes for their stock holders Marvell employees have to turn the acquired companies to profitability while continuing to grow their more established business lines. The big bear here is the XScale application processor. Under Intel its revenues were growing, but R&D costs were high compared to revenues, resulting in division losses. Marvell intends to move production from Intel's fabs to its fabless (outsourced) model by mid-2008. That will allow some cost reductions. But mainly Marvell has to rapidly increase sales while keeping prices firm.
These XScale processors go mainly into high-end (3G) cell phones and combine well with Marvell's analog technologies. So Marvell has bought into the cell phone market in a major way. But many other firms, like Texas Instruments and Motorola, are also gunning for the high-margin, high end of that market. The market is expected to grow rapidly, spurred on by the introduction of the iPhone.
Do I know if Marvell can succeed in this market? No, I just don't know. They have a great track record. If they can ramp the XScale business and decrease costs, today's stock price may look way low a year from now. But if XScale tanks, which is a distinct but hard-to-quantify possibility, then today's stock price will seem to have been based on optimism, not solid value.
I own Marvell stock, but I acknowledge the future is hard to see. It would really help if management would break out revenues and costs by division at the next analyst conference.
More data:
Marvell investor relations page
my Marvell page
On July 2nd Marvell made some of its tardy filings with the SEC. They had already announced the completion of their restatement investigation back in May. The filings included a 10-K covering fiscal 2007 through January 30, 2007. The most recent 10-Q was for fiscal Q3 2007. What we really want to see, of course, are the numbers for the quarter (Q1 2008) that ended April 28, 2007 (See my summary of the May 17 analyst conference for what we know so far).
Still, there is a lot of grist for analysis in the 10-K. For starters, for all practical purposes Marvell made no profit for its year. Out of annual revenues of $2.24 billion (well up from $1.67 billion in fiscal 2006), it lost $12 million, or $0.02 per share. In 2006 it had profits of $199 million, or $0.32 per share.
Time to flee the stock? Sorry, too late. The share price topped out at over $38 back at the beginning of 2006; it ended today at $18.32, and has been as low as $15.25 this year.
Let's try another reality check, since revenues have risen rapidly while earnings have fallen. What happened to cash?
In fiscal 2007 net cash provided by operating activities fell, but not as precipitously as earnings. It was $402 million in 2006, then $337 million in 2007. There was a serious cash outflow, but it was for acquisitions, not for operations.
Marvell made two big acquisitions in 2007: Avago (chips for printers) for $262 million in May and Intel's cell-phone (XScale) microprocessor division for $600 million in November. These acquisitions had serious one-time costs and the Intel division in particular had major ongoing net losses when it was transferred.
Marvell also acquired UTStarcom in February 2006 for about $40 million. According to a neat little chart on page 126 of the 10-K, the acquired businesses, if they had been bought at the beginning of fiscal 2007, would have created an overall loss of $475 million for the year, while bumping up overall revenue to $2.6 billion.
Are these guys stupid? Did the people who created Marvell out of some analog chip designs and built it to a $1 billion business in a few years lose their minds? I don't think so.
They did load up heavily on risk. A good way to get a sense of risk, which is mainly from the Intel purchase, is to use your find function on the 10-K with "Intel" as the search string.
To get back to being heroes for their stock holders Marvell employees have to turn the acquired companies to profitability while continuing to grow their more established business lines. The big bear here is the XScale application processor. Under Intel its revenues were growing, but R&D costs were high compared to revenues, resulting in division losses. Marvell intends to move production from Intel's fabs to its fabless (outsourced) model by mid-2008. That will allow some cost reductions. But mainly Marvell has to rapidly increase sales while keeping prices firm.
These XScale processors go mainly into high-end (3G) cell phones and combine well with Marvell's analog technologies. So Marvell has bought into the cell phone market in a major way. But many other firms, like Texas Instruments and Motorola, are also gunning for the high-margin, high end of that market. The market is expected to grow rapidly, spurred on by the introduction of the iPhone.
Do I know if Marvell can succeed in this market? No, I just don't know. They have a great track record. If they can ramp the XScale business and decrease costs, today's stock price may look way low a year from now. But if XScale tanks, which is a distinct but hard-to-quantify possibility, then today's stock price will seem to have been based on optimism, not solid value.
I own Marvell stock, but I acknowledge the future is hard to see. It would really help if management would break out revenues and costs by division at the next analyst conference.
More data:
Marvell investor relations page
my Marvell page
Tuesday, April 24, 2007
Altera, Texas Instruments See End to Chip Slowdown
Texas Instruments (TXN) and Altera (ALTR) issued quarterly results and held analyst conferences yesterday. Both have reason to believe that general demand for semiconductor chips hit bottom in Q1 2007 and is rising Q2. Are they right?
You can see my full summaries of the conferences from these links: TXN; ALTR.
Texas Instruments (TXN) is the bigger player, with Q1 revenues of $3.2 billion, down 8% sequentially and down 4% from Q1 2006. They believe Q2 revenues will be $3.32 to $3.60 billion, which would be up 3 to 12%. Their main reason for the belief is that daily sales were up 20% in March and April compared to February. It takes time for a sale to be shipped and booked as revenue, but some of that 20% increase should start appearing in Q2.
Altera (ALTR) is more of a niche player, specializing in programmable logic devices like FPGAs and CPLDs. Their Q1 revenue was $305 million, down 4% from Q4 2006 but up 4% from Q1 2006. The guided revenues to 1% to 4% sequential growth for Q2. They were more cautious about the future, saying they are seeing a slow rebound, but some end markets are still weak.
Both companies and many other chip makers argued that the downturn that started roughly in Q3 2006 was more a result of inventory management changes than long-term demand weakness. It seems that in 2006 many finished goods makers decided to move to just-in-time acquisition of parts. In the transition to that they used up their own inventories and paused their buying. They only started ordering specific parts when they were ready to use them. This caused a slump in demand at the manufacturing end. Yet the chip makers could not cut their own inventories because the end users still wanted rapid shipments after orders were made. Another factor was macroeconomic fear for 2007. So far those fears have been wrong. Consumer demand has been steady in the U.S. and markets like China, India and Germany have been booming.
Nothing is certain in the world of economics, but there is a consistent story here: in order to meet demand late in 2007, end-product makers are going to need to seriously bump up their chip orders. They can no longer just reach into their own inventories, which are too lean to allow that.
Some end markets may be stronger than others. Texas Instruments complained (following Motorolla, which it supplies chips to) that the cell phone market has been increasingly difficult to make a profit in. Their solution is to continue to integrate more functionality on each chip to cut costs and restore the profit equation.
Altera is in a better position in some ways than TI. Their products are more specialized. But in Q1 that had a 35% sequential decrease in their Hardcopy chips for computer storage systems. They believe that is a one-quarter event, but added that since these chips are custom manufactured, it takes some time to go from an order to shipping and getting paid.
I have to wonder how wise it is to fight it out in the cell phone market. It is true that it is a huge market and 3G is just coming into play. But it seems that a lot of chip makers have their eyes on the same pie.
You can see my full summaries of the conferences from these links: TXN; ALTR.
Texas Instruments (TXN) is the bigger player, with Q1 revenues of $3.2 billion, down 8% sequentially and down 4% from Q1 2006. They believe Q2 revenues will be $3.32 to $3.60 billion, which would be up 3 to 12%. Their main reason for the belief is that daily sales were up 20% in March and April compared to February. It takes time for a sale to be shipped and booked as revenue, but some of that 20% increase should start appearing in Q2.
Altera (ALTR) is more of a niche player, specializing in programmable logic devices like FPGAs and CPLDs. Their Q1 revenue was $305 million, down 4% from Q4 2006 but up 4% from Q1 2006. The guided revenues to 1% to 4% sequential growth for Q2. They were more cautious about the future, saying they are seeing a slow rebound, but some end markets are still weak.
Both companies and many other chip makers argued that the downturn that started roughly in Q3 2006 was more a result of inventory management changes than long-term demand weakness. It seems that in 2006 many finished goods makers decided to move to just-in-time acquisition of parts. In the transition to that they used up their own inventories and paused their buying. They only started ordering specific parts when they were ready to use them. This caused a slump in demand at the manufacturing end. Yet the chip makers could not cut their own inventories because the end users still wanted rapid shipments after orders were made. Another factor was macroeconomic fear for 2007. So far those fears have been wrong. Consumer demand has been steady in the U.S. and markets like China, India and Germany have been booming.
Nothing is certain in the world of economics, but there is a consistent story here: in order to meet demand late in 2007, end-product makers are going to need to seriously bump up their chip orders. They can no longer just reach into their own inventories, which are too lean to allow that.
Some end markets may be stronger than others. Texas Instruments complained (following Motorolla, which it supplies chips to) that the cell phone market has been increasingly difficult to make a profit in. Their solution is to continue to integrate more functionality on each chip to cut costs and restore the profit equation.
Altera is in a better position in some ways than TI. Their products are more specialized. But in Q1 that had a 35% sequential decrease in their Hardcopy chips for computer storage systems. They believe that is a one-quarter event, but added that since these chips are custom manufactured, it takes some time to go from an order to shipping and getting paid.
I have to wonder how wise it is to fight it out in the cell phone market. It is true that it is a huge market and 3G is just coming into play. But it seems that a lot of chip makers have their eyes on the same pie.
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