MaxLinear (MXL) is proving its doubters wrong, myself included. Although I’m not throwing in the towel yet on my prediction that MaxLinear will struggle to achieve lasting traction in PAM-4 against competition from Marvell (MRVL) and Broadcom (AVGO), the company is executing very well in Connectivity and Broadband and has growth opportunities outside of PAM-4 in Infrastructure. Just as important, the company is doing exceptionally well on margins, which is an underappreciated driver of long-term semiconductor valuations.
Connectivity is looking like a stronger-for-longer growth driver now, helped in large part by strength in WiFi 6/6E, while the outlook for broadband is a little tougher to call – bill of material growth has been impressive, but there’s still a risk that the pandemic pulled demand forward. Then there’s the PAM-4 business – if MaxLinear can win substantial second-source business from Amazon (AMZN) and replicate that with other hyperscale customers, there is meaningful upside, to say nothing of the possibility of leveraging growing regulatory pressure on Broadcom.
My estimates were, and are, above the sell-side, but it’s still tough to make the valuation work. At best, the shares look fairly-valued today, but then there is still a case to be made of further beat-and-raise quarters that drive even higher revenue and margin expectations. From a practical viewpoint, though, there’s definitely positive momentum in this business that’s tough to ignore, and the shares have risen more than 30% since my last update, handily beating the SOX.
Read the full article here:
No comments:
Post a Comment