SWKS (PMCS) and INFN: competitors now?

I listened to the Insight Infinera 2015 webcast today. I’ve also been following the SWKS acquisition news of PMCS. I finally listened to the SWKS call that discussed the acquisition.

For those of you who have been following INFN closely, you know that INFN’s business is about moving data quickly, accurately, efficiently, intelligently, cheaply, and without decay (latency) with low power requirements. They have been a major player in the long haul market. Last year they enter the Data Center Interconnect market and recently they acquired Transmode and are now going after the Metro market with full force. Today they launched several new products that address the Metro market. They also launched products to target smaller branches of the network that don’t need as much bandwidth as major cities. The point here is that INFN looks to be very successful going forward. I think the outlook is very bright.

Now, today I learned that PMCS has some business in data transport. I’m not familiar with their technology or their capabilities in this area but I heard Dave Aldrich (SWKS CEO) utter the words optical, long haul, 100G, metro, data transport, etc when referring to PMCS’s business. So I have to wonder to what extent PMCS (now SWKS) will compete with INFN. My guess is that INFN would win most head-to-head competition for business if there is any direct competition. Therefore, I have to wonder whether SWKS bought a piece of PMCS’s business that will be inferior. So here are some questions that we need answered:

  1. What is the PMCS offering in the markets where INFN is strong?

  2. What percentage of PMCS’s business is geared toward moving data?

  3. What is PMCS’s competitive advantage (disadvantage) in this area? Are they focusing on this business or is it one of the legacy businesses that they are winding down?

Chris

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PMCS was always a competitor, so with the acquisition will they be a stronger competitor. Certainly none of the recently installed INFN chassis will be thrown out, the customer will keep populating with cards as needed. So who will win the new installs? I can’t imagine the PMCS products will suddenly become significantly better or cheaper. Sure, SWKS is supposed to help them clean up their act and the bigger company can get their foot in more doors, but will it affect the next 6 months, or year?

Separately, doesn’t this make INFN a better take over target. Maybe Avago will want to one-up SWKS. Maybe another company needs to get bigger. My gut says this dip is a buying opportunity.

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I had those same thoughts Chris!

and I note that INFN is down quite a bit this morning, we are not the only ones thinking about it.

Long SKWS and INFN, but wondering if that is wise longer term.

Separately, doesn’t this make INFN a better take over target. Maybe Avago will want to one-up SWKS. Maybe another company needs to get bigger. My gut says this dip is a buying opportunity.

I did today what Saul shared yesterday that he did with the dip in SWKS. I bought in 5% more of my portfolio at 18.1 and it ended the day at 19.7 (9% increase in 4 hours). In the past I wouldn’t have touched this and would have just rode the swing out. Now since I feel confidence in the stocks I own based on earnings and 1YPEG, I find I have less fear in market dips and see them as buying opportunities.

Who knows if it is right in the longer term, but at least I feel I am applying the knowledge from Saul and that alone is making me sleep much better these days!

Thanks again Saul-sensei (meaning teacher,a Japanese term that is used to show respect to someone who has achieved a certain level of mastery in an art form or some other skill)

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I did today (with INFN) what Saul shared yesterday that he did with the dip in SWKS. I bought in 5% more of my portfolio at 18.1 and it ended the day at 19.7 (9% increase in 4 hours). In the past I wouldn’t have touched this and would have just rode the swing out. Now since I feel confidence in the stocks I own based on earnings and 1YPEG, I find I have less fear in market dips and see them as buying opportunities.

Hi BigDaddy, You did better than me today. I just saw the INFN when it was at 18.6 and bought some there. With the close at 19.7, I was only up 6% on the day, rather than 9% like you, but not bad nevertheless. Glad my comments helped you. Now we have to wait and see how it all plays out.

Saul

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Long SKWS and INFN, but wondering if that is wise longer term.
Why not it is a massive growth market and enough for 2 operators to do very well and I don’t think they are fully head on competitors. Rather be in these 2 than Cisco and Avago say.
Ant

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Good job guys. The dips in INFN and SWKS were the 2 most high conviction buying opportunities there have been out there. I haven’t had spare cash and haven’t been prepared to trade out of BOFI to make the swap. I would have traded out of ABMD if it had still been above 100 but I missed that peak.

On a separate note - NHTC soaked up my play money in this dip/rally. Fortunately it has done well (up 75% from its lows). I am seeing first hand what the Vitamins, Minerals and Supplements businesses are doing in Asia with Chinese demand via online and HK purchases. Companies are literally losing track of their businesses in Asia from HK to Australia due to the online Chinese demand. I’m happy to play this one.

Ant

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Chris,

You’ve probably already seen TMFDatabaseBob’s posting after digging deeply into PMCS’s 10-K. His findings are excellent.

http://discussion.fool.com/1069/as-was-pointed-out-previously-op…

I won’t copy exactly what TMFDatabaseBob said, but perhaps a few highlights might be worth pointing out.

First, optical is only 18% of PMCS’s business and what they do in that space is to manufacture low level components to be used in optical hardware.

Second, PMCS is a supplier to the big transport companies, like Ciena, Huawei and Alcatel-Lucent. It says from their 10K that they supply parts to 8 of the top 9 manufacturers. This is very much like Skyworks supplying parts for mobile devices to Apple, Samsung and others.

Third, Infinera designs their own components and manufacture them in their US-based foundry. What is truly unique about Infinera is that all of the low-level components needed by their solution are manufactured directly onto the PIC, rather than assembled from separate components. The result of which is their claim to fame on power savings, efficiency, speeds, etc.

So, while Infinera and PMCS themselves are not direct competitors, it is likely PMCS does supply parts the parts needed by all of Infinera’s competitors to create their products (with Infinera being the one manufacturer out of 9 that does not need to purchase components from PMCS).

With all that said, I’m not sure Skyworks is making the purchase for 18% of PMCS’s business. This part of the business is really a commodity business and is more likely just coming along for the ride (IMO). Rather than looking here for a reason, perhaps we should take a closer look at the other 82% to see what Skyworks may be doing with this purchase.

Best,
–Kevin

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So I’m just going through the conference call posted with the acquisition news.

They just preannounced this quarters earnings at 1.52 right?

That’s growth of 35% yoy and now they have a p/e of 16.

I’m just surprised they preannounced and I didn’t know it until I waded through the transcript.

Keith

After looking into PMCS, and following INFN for years, I have come to the conclusion that the reason none of us have heard of PMCS is because they do not directly compete with INFN. They supply silicon chips to companies that do compete with INFN. In PMCS’s most recent 10K they wrote that they supplied these chips to Alcatel-Lucent, Ciena, Huaweii, Coriant, Cisco, Juniper, Fiberhome, ZTE, Sumitomo, and Mitsubishi. You can find this information on page 6.

http://www.sec.gov/Archives/edgar/data/767920/00007679201500…

So after reading this what does it tell us? Nothing has changed. Infn is still competing with the same people they always have and those customer are arming themselves with a Silicon chip based product, not a pic based product. So if you understand Infinera’s product it is still the superior product of any of the equipment suppliers.

One thing I found interesting about PMCS is that they have a line side chip that now does 400 gig. Infinera’s biggest line side chip is 500 gig. They have also already tested a terabit chip. This is the most important part of Infinera’s pic based technology. They can produce a better product, that will have higher bandwidth, in a shorter amount of time because of their photonic integrated circuits (PICS). We are seeing it now as Infinera pulls away from the competition.

So in one sense Infn has always competed with PMCS’s product, only because they supplied their chips to the competitors. But now that INFN is going into the metro market they will continue to take market share.

Andy

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