Tuesday, April 19, 2011

Intel - No longer ideas, just wasted tweets

My friend Howard Lindzon's Twitter steam is genuinely his stream of consciousness.  He's usually funny and occasionally profane, and there are daily messages of wisdom.  One of todays tweets was:

Nice, a joke and some wisdom.

In an earlier post I made the case that Intel should buy ARM to maintain a dominant position in the microprocessor business. I have little doubt that we will unknowingly buy Intel processors buried in consumer electronics for decades to come and that they will maintain acceptable margins and moderate growth......but the story ends there.

Indeed....no longer ideas, just wasted Tweets.

Wednesday, April 13, 2011

Warning about warnings!

Given Japan's March 11th earthquake and tsunami's likely impact on the semiconductor and consumer electronics supply chain, I'm truly puzzled by how few revenue warnings have been released.  We just haven't heard much from the cell phone, PC and tablet companies........and their suppliers.

For component suppliers, this is NOT just a supply side issue.

Here is one of the Rumsfeldian "know unknowns" that haunts the consumer electronics supply chain.  Your semiconductor company may have escaped a disaster unharmed, but if there is supply disruption of ANY component (capacitors, resistors, inductors, specialty adhesives, packaging resins, flex connectors, LCD displays, etc.) for your customer's product (PC, cell phone, TV, etc.), production stops and your sales are slammed too!

In good times, semiconductor suppliers have horrible visibility into their sales channel. They typically ship into a logistics and distribution channel which provides supply to an ODM (Foxconn Compal, etc.), who in-turn supplies the name brand electronics company (Dell, HP, Nokia, etc.), who in-turn supplies retailers who sell to real consumers. When something goes horribly wrong, it can take weeks for inventories to back-up into the semiconductor supply lines and get then you get hit with order de-bookings.

It's not obvious if these risks are being priced into the market's recent retrenchment. As we move into the semiconductor industry quarterly earnings calls and forecasts...you have been warned!

Monday, April 4, 2011

Initial thoughts on Texas Instruments acquisition of National Semiconductor

While I cannot explain the 78% premium that Texas Instruments has agreed to pay for National Semiconductor, we can reasonably assume that they knew what it would take to get the deal done. As recently as January, dissident shareholder Ralph Whitworth and Relational Investors held 20.6M National shares (8.61% of outstanding) at basis of $16.29. The fundamental value in National Semiconductor is their position in Analog integrated circuits which are the highest margin (>60% GM) and longest lifetime (often > 20 years) products in the semiconductor industry. The market leaders are shown in a recent Analog Devices SEC 8K filing.

The hindsight is easy.  ADI, Maxim and Linear Technology closed today a P/E premium 30-300% compared to National.  Over the past eight years, National refocused on margins over top-line growth and shed many their less profitable endeavors.  TI and National have highly compatible business and technology cultures, where the second generation analog companies like Maxim and Linear could be very difficult to integrate.

I'm a bit of a broken record on the point, but the semiconductor industry is now 50 years old and consolidation will be a strategic play throughout the supply chain, from wafer fabrication all the way through distribution and logistics.  In the analog space, I own Intersil due to their technology, team and chosen markets and have long advocated that someone buy Micrel and tug that company out of the 1980's and into the new millennium.  I don't bet on M&A plays, but for the under appreciated analog companies wallowing at P/E's below 15, this news will be a welcomed boost!