Why more confidence in SWKS than AMBA?

My biggest position, SWKS, was also my biggest position last month … It now is at a position size of 21.3%, a price of $82, and a PE of 15.5, and a rate of growth of earnings of 63%. Note the huge disconnect between the PE and the rate of growth! There has been NO company specific bad news. I’m trying to keep my position size under 22%… snip…

AMBA, my next stock, is the exception. AMBA was fifth last month at 7.6%. and is now ninth at 5.5% … I wrote last month that I’m not tech savvy enough to be able to judge AMBA’s growth prospects going forward, in spite of all the recs and re-recs from various MF services, and it was because of this that I somewhat reduced the size of my position. If it does well from here, I have enough to profit nicely.

Hi Saul,
I always appreciate your posts. Just curious about your comment on AMBA and not being tech savvy enough to judge it’s growth prospects as it might relate to your SWKS position. Could you talk a little bit about what it is that allows you to be so confident with SWKS whereas with AMBA you’re a little less sure? Thanks! Appreciate your insights.
Michael

This is a good question, and I was tempted at first to say that it was just the emotional way I felt about the stocks, but I realized that there was more to it than that, lots more.

AMBA was growing very fast but was reliant for 30% of its business on GoPro, a company already exhibiting weakness, and perhaps in a business (sports cameras) about to go into a total nosedive.

SWKS had Apple for a major customer, but Apple is very successful, smart phones aren’t going to go away, and SWKS is in every other smart phone manufacturer as well.

Some of AMBA’s other businesses are a bit unsure: television sets only benefit up to a certain amount of discrimination, after which the eye doesn’t see it, meaning “good enough” cheaper competitors could provide competition. Drones: what kinds of restrictions will be on them? Policemen: How many policemen are there in the country? and how many will end up wearing cameras. This causes a certain amount of uncertainty. On the other hand I haven’t sold any of my remaining AMBA, and my current belief is that AMBA will come out the other side of this valley that they are going through, growing well again.

SWKS provides a money-saving, and time-saving, and expense-saving, solution for every smart phone manufacturer, but also for internet of things manufacturers, so they seem to me to have a lot more security, which is why my position is four times as big in SWKS than in AMBA.

Hope this helps, and please remember that I have been wrong before, and I may be wrong about all of this, but it’s my current opinion.

Saul

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“Policemen: How many policemen are there in the country? and how many will end up wearing cameras.”

Saul - at the annual meeting in June Fermi told us that the security camera opportunity around police was much much bigger in China than the United States.

Something else to throw into the mix.

Frank - long AMBA, see profile for all holdings

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“Policemen: How many policemen are there in the country? and how many will end up wearing cameras.”

Saul - at the annual meeting in June Fermi told us that the security camera opportunity around police was much much bigger in China than the United States.

Something else to throw into the mix.

Frank - long AMBA, see profile for all holdings

I think that the police cameras by definition are commodity. The Chinese will use their own vendor HuaWei or whatever. The big money is in storing and managing all these videos. This is certainly . not AMBA business. My feeling is that AMBA is less safe than SWKS but Saul already said it…

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“Policemen: How many policemen are there in the country? and how many will end up wearing cameras.”

I had occasion to look this up recently and the figure is something like 900K, depending on how you count them (F/T vs. P/T, paid vs. volunteer, etc.) If you factor in other security-related jobs (e.g., night watchman), that number might skyrocket.

AMBA was growing very fast but was reliant for 30% of its business on GoPro, a company already exhibiting weakness, and perhaps in a business (sports cameras) about to go into a total nosedive.

SWKS had Apple for a major customer, but Apple is very successful, smart phones aren’t going to go away, and SWKS is in every other smart phone manufacturer as well.

Some of AMBA’s other businesses are a bit unsure: television sets only benefit up to a certain amount of discrimination, after which the eye doesn’t see it, meaning “good enough” cheaper competitors could provide competition. Drones: what kinds of restrictions will be on them? Policemen: How many policemen are there in the country? and how many will end up wearing cameras. This causes a certain amount of uncertainty. On the other hand I haven’t sold any of my remaining AMBA, and my current belief is that AMBA will come out the other side of this valley that they are going through, growing well again.

SWKS provides a money-saving, and time-saving, and expense-saving, solution for every smart phone manufacturer, but also for internet of things manufacturers, so they seem to me to have a lot more security, which is why my position is four times as big in SWKS than in AMBA.

The more I think about what I wrote here, about the large insider selling that concerned people a few months ago, and about the thoughts in Matt’s recent post entitled My Doubts About GoPro…and AMBA Too, the more I am concerned that AMBA’s future is behind it. I’ve been reluctant to post that concern because some people got so angry at me when I expressed my worries about BOFI some weeks ago, when I think BOFI was about $100-$110 pre-split (it’s now at $76 pre-split).

I will not belabor my concerns about AMBA or continue to post about it, but I feel people should be careful about AMBA.

Best to all of you,

Saul

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Hi Saul,

Regarding the BOFI short articles… I was asking some questions and challenging a few things when you expressed concern regarding BOFI. I am sorry if it came off as being angry if I am one of the ones you referred to. Sometimes my posts tend to come off sounding a little angry when in reality it is more passion then anything. I tend to get really passionate about my investing. I do have a lot of respect for your opinions on here and because of your concern I dived into my research quite a bit deeper. After diving in more I still couldn’t find anything that concerned me enough to want to sell my shares. Maybe I will be right maybe I will be wrong, but either way I can live with it because it was ultimately my decision to stay invested. Now if the company growth starts hurting and is more then just a short term blip it might be time to rethink it. I would hate it if you stopped posting your thoughts just because of a passionate discussion. Sometimes those discussions are the ones that make us think the most. The hard part is to not let it get personal. We have all done it I am sure including myself. :slight_smile: There will always be two sides to any trade. That is what makes the market. Though the best thing about these forums is we can help each other make the best decisions on which side is the right side.

Regarding Ambarella I also share a similar concern and have for a while. I am still in the evaluation mode determining what to do with my shares. So far I think the gopro effect is just a temporary blip due to problems with gopro not ambarella. This will most likely last a couple quarters as gopro works through their inventory and then things will likely normalize. Though when it does normalize it will likely be at a lower run rate then previously due to market saturation. I think for the time being I am going to hold and wait this out. I think they still have a significant technology advantage over their competitors for the time being. Though it is good to keep in mind these advantages are only lasting if they continue to innovate faster then their competitors. This is why I am also looking to diversify out of the stock over time. Some of the advantages aside from resolution includes battery life (huge advantage for wearable cameras and drones), image stabilization, sunny/dark algorithms and compression efficiency to name a few. I think battery life and compression efficiency are the big ones. At a September conference Ambarella execs discussed some of their technology advantages among many other things. They said the Qualcom chip currently uses 4.5 watts where as the Ambarella chip only uses 1.5 watts. Now that is quite a significant power advantage at least for the time being. Then again on the latest earnings call they mentioned Qualcom chip again and didn’t seem all that impressed by their offering. Now these advantages will not last forever, but will give us some time to wait for the right price if we want to diversify a bit or plan an exit. They also said on their recent earnings call they will be releasing their first computer vision and video analytic chips in second half 2016. This may give them a new technology moat for their security camera and drone products. It will also begin their entry into autonomous cars. I also feel Ambarella has a decent amount of buyout potential. Not something I would hope for, but rather something to keep in mind.

Best,
soth

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