So to those more knowledgeable than me, what do you have to say in response to Putnid’s arguments? PCMS appears to be rather stagnant. What are we missing?
Could the acquisition be less about what PCMS will add to earnings from a revenue growth standpoint and more about SWKS bringing in-house a capability it needs to grow its business that it would otherwise have had to continue to outsource?
Fletch
Long SWKS, but admittedly still getting up to speed on the business itself
Could the acquisition be less about what PCMS will add to earnings from a revenue growth standpoint and more about SWKS bringing in-house a capability it needs to grow its business that it would otherwise have had to continue to outsource?
It certainly could be just that. I think Putnid would ask the following: What does PCMS have to offer that competitors in the same space can’t?
That is the curiosity for me. There are plenty of other companies in the data center biz. Other than consistent earnings of which PCMS seems to have, where is the growth?
Thanks,
A.J.
Could the acquisition be less about what PCMS will add to earnings from a revenue growth standpoint and more about SWKS bringing in-house a capability it needs to grow its business that it would otherwise have had to continue to outsource?
Here is my take on why the management team thought this acquisition was important.
First, we need to recognize that there are several technology “trends” that will benefit from a new emerging marketplace around IoT.
These trends include Mobile, Cloud Services & Data Centers, Semiconductors & Sensors, Cyber Security, Big Data, High-speed Networks and IoT itself (for now).
But why are these trends here and why are they so important? A little bit of background.
Taking a look at the number of mobile devices we had in 2010 there were around 5B “activated” mobile phones taking up some amount of bandwidth on various networks. By the year end that number is expected to close in around 7.5B activated phones. By 2017 that figure is projected to grow to around 8.2B. A nice near-linear trajectory of growth. Certainly not a bad market for mobile device manufacturers.
However, taking a look at the IoT side of the house things don’t look so linear. In fact, they are exponential. In 2010 there were a paltry 2B worth of IoT devices consuming bandwidth and utilizing services. By year’s end there will be 18B of those devices. Mind you, not all of those devices are truly connected in a M2M style fashion, but they are out there consuming some degree of bandwidth and they will only consume more as the devices get more “intelligent” as companies pack more information and capabilities onto the chips for these devices. By 2017 the number of IoT devices in the world expected to reach 28B.
All those devices will drive the need for sensors and semiconductors, high speed optical networks and data centers. Then you need software to deliver the experience, data analytics to make sense of it all and cloud services to process and store it.
Each of these trends are driving, reinforcing and magnifying one another, and if you can see that coming, then if you’re in that space selling solutions you want to be ahead of it and begin to think about some form of horizontal scaling across these “trends” to become more efficient.
So, that is what I’m seeing at this acquisition looking from macro to micro. Skyworks is reaching out to another market vertical so they can become more “horizontal” in the years to come. I expect it won’t stop here either.
Just my 2c observations.
Best,
–Kevin
First of all, thank you, A.J., for all the kind words. Much appreciated.
Now, let me offer a comment regarding this (something I consider quite important):
There are plenty of other companies in the data center biz. Other than consistent earnings of which PCMS seems to have, where is the growth?
I mentioned in my OP that I’m accumulating shares of Micron (MU). I did that for a reason.
Most folks think of MU as a DRAM and NAND producer. It certainly has been that. But, heck, that’s a commodity business. It’s been a lucrative business, to be sure, generating lots of free cash flow, but that’s not why MU (and Intel) have captured my attention. No, my interest is focused on the MU/INTC joint development of 3D XPoint and 3D NAND technologies which represent the potential to completely disrupt the data center biz.
Seriously, peoples, these technologies might very well be truly disruptive. There have been lots of articles on this subject. All are worth reading (the opinions regarding their potential vary significantly). Be that as it may, I believe MU/INTC might be on the cusp of profoundly disrupting/upending data center data storage dynamics. If so, companies such as PMCS and other data storage chip technology vendors would suffer…let’s just say…heartburn.
Seriously, peoples, these technologies might very well be truly disruptive. There have been lots of articles on this subject. All are worth reading (the opinions regarding their potential vary significantly). Be that as it may, I believe MU/INTC might be on the cusp of profoundly disrupting/upending data center data storage dynamics.
Putnid,
Can you provide the articles you mention worth reading? Also, why do you believe MU/INTC is on the cusp?
I’m sure others want to hear this, but feel free to email me personally.
Thanks,
A.J.
http://money.cnn.com/news/newsfeeds/articles/prnewswire/DA22…
Lawyers jumped on this one pretty quick. They must own shares and feel the 33% price increase they got yesterday wasn’t enough.
Americans (of the US variety) will litigate about anything and everything. Yawn.
Ant
Okay, some notes from the CC. Excuse the jumble.
Cost 1.8 billion, costing about 4.5% interest.
The CFO and CEO highlighted several times that with SWKS generous free cash flow, they expect to pay this all off in well under 2 years, whilst keeping up with their buyback and dividend scheme.
They also wouldn’t rule out further acquisitions in that time if there were any suitable ones. They were basically very relaxed at the cost PCM. Not breaking the bank.
They used high confidence numbers to come up with the 75 million synergy, which was purely from operating expenditures, not revenue. CEO pointed out that combined, the opportunities for the top line are substantial, but haven’t been modeled into the synergy numbers. They expect by December next year to have completed this synergy, with it starting to affect the bottom line from late summer onwards (i.e. 2nd-half of the year heavy). I guess this makes sense. Takes a little while to gel together.
Everything seems conservative as they’re just calculating the numbers as they see PMC + SWKS today. A lot of opportunities for the future which they haven’t calulated in.
Will probably take a few years to work through to the top line but what I like about SWKS and their confidence is that every conference call they basically highlight how they work well with top-brands several years in advance, so they know exactly what to make for them, and then deliver it to them. Close relationship crucial.
CEO also highlights that they’re in a 70% margin business and they want to get there, and adding PMC will help them. Improving margins!
Didn’t add yesterday, was busy away from the internet, but well done to all those who did! Contemplating today… And now INFN takes a dive…! BOFI marches on. CRTO creeps back up. AMBA does…whatever it does. Things a lot prettier than the end of September.
Putnid, I asked my techie husband about 3D NAND he says "Samsung did it first and MU and Intel are “Late to The Party” " for what that is worth.
He has worked in enterprise storage for 20 or so years.
On another note I listened to the July conference call for PMCS very interesting that they were going to close a RF base station project as cost cutting, I wonder if they shopped it to SKWS and that is what started this process. PMCS had what looked like good margins on products but not the revenue growth it needed.
SWKS was clear that they were going to bring operating efficiencies to the PMCS products and they are making strong statements about this being accretive right away. If it’s not accretive right away they’re going to be punished, INTC trades at a 13 multiple, ordinary chip companies trade a below market multiples. SWKS has a higher multiple because of superior growth currently at 22. If they disappoint they could fall to an ordinary chip multiple-- it would become a hope story rather than a cash machine.
Time will tell.
Long Swks but not married to it, if the facts change I will move on.
I asked my techie husband about 3D NAND he says "Samsung did it first and MU and Intel are “Late to The Party” " for what that is worth. - TMFFlygal
Hello, Flygal - I’ll refer you to my post (#12365) wherein I linked to several articles regarding the technical aspects of 3D XPoint. The second link in the post addressed the competition from Samsung…and SanDisk. The author believed the MU/INTC variant is qualitatively superior. Since we’re still on the cusp of widespread adoption, it’ll be some time before we’ll get real world performance data with which to judge winners and losers. That’s why I’m building a position in MU slowly (3% at this point). The holding has already proved profitable, but there’s a long road ahead. I’ll be watching developments closely.
I asked my techie husband about 3D NAND he says "Samsung did it first and MU and Intel are “Late to The Party” " for what that is worth.
Flygal, I know that putnid already responded, but I wanted to add that the new memory technology from Intel/Micron is not 3D NAND. It is a new class of storage/memory that claims to be 1000 times as fast as NAND and able to endure many more read/write cycles than NAND. I read that it is not transistor based, which allows for higher density.
Putnid, thanks for mentioning this here. I find it very interesting and can see a huge impact possible for all sorts of “computers” we use. While it will probably be only in high-end enterprise applications initially, hopefully supplies will be great enough and inexpensive enough to spread. Will we see smartphones with 1TB of directly addressable memory/storage in a few years? Wouldn’t that be interesting? Maybe voice recognition and translation built into a device without the need for network access?
I’m not rushing out to buy MU, but I can see a lot of potential in this new technology.
Steve
Flygal, I know that putnid already responded, but I wanted to add that the new memory technology from Intel/Micron is not 3D NAND. It is a new class of storage/memory that claims to be 1000 times as fast as NAND and able to endure many more read/write cycles than NAND. I read that it is not transistor based, which allows for higher density.
3D Nand is technology used to make cheaper NAND flash memory chips. Intel/Micron is involved with this stuff.
The more interesting technology from Intel/Micron, like you mentioned is the 3D XPoint Non-Volatile memory. It is suppose to be almost as fast as DRAM while being non-volatile. This creates some very interesting use cases with persistent memory (DRAM and secondary storage can be merged into just using 3D XPoint).
Sincerely,
Charlie