Seeking Alpha: With The Pullback, Silicon Labs' IoT Opportunity Looks More Interesting

There aren't many sectors doing especially well right now in the stock market, so the pullback in semiconductor stocks isn't exactly surprising, let alone unique. As about a quarter of the industry's revenue comes from industrial markets, and meaningful amounts come from computing, consumer devices, and phones, it is not so surprising that investors are worried about the outlook for 2016 even though multiple semiconductor CEOs have opined that the slowdown will be briefer and shallower than past downturns.

This brings me to Silicon Labs (NASDAQ:SLAB). The shares of this microcontroller, sensor, and RF chip company have fallen around 15% since my last update, more or less matching the decline in Microchip Technology (NASDAQ:MCHP) and outperforming NXP Semiconductors (NASDAQ:NXPI) over that period. While the company has definitely had some challenges with more commoditized competition in segments like TV tuners, the company's Internet of Things (IoT) business continues to grow nicely.

Valuation is still mixed, though the shares are now below both my cash flow and margin/revenue-based fair values. IoT is still a somewhat sexy topic in the chip space, and the company's combination of MCU/sensor/RF capabilities and relatively high operating expenses (fueled by aggressive R&D spending) could generate some potential M&A interest. Although there are other chip companies I like better (including Microchip and Microsemi (NASDAQ:MSCC)), I won't pretend that Silicon Labs is trading at a more attractive level if you believe in the long-term potential of IoT applications.

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With The Pullback, Silicon Labs' IoT Opportunity Looks More Interesting

Seeking Alpha: Microchip Technology And Atmel The Right Match

It's been a while since I've written on Microchip Technology (NASDAQ:MCHP), mostly because I have thought this well-run MCU and analog chip company was pretty fairly priced in the market and didn't offer all that much opportunity. While some in the peanut gallery didn't like it when I last wrote in May of 2014 that I preferred Atmel (NASDAQ:ATML) (a smaller, less well-run MCU player), Microchip is down about 14% over that period while Atmel has fallen less than 4%.

Now these two players are looking to tie themselves together permanently. Although I've thought for a while that Atmel could be a M&A target, I was surprised to see Dialog (OTC:DLGNF) step up given the questionable synergies. Dialog shareholders weren't too pleased either, and the erosion in value of Dialog shares kept a window of opportunity open for Microchip. Together, Microchip and Atmel will be the #3 MCU company in the world (trailing Renesas (OTCPK:RNECY) and NXP Semicondcutors (NASDAQ:NXPI) after its deal for Freescale), and Microchip will have a very fertile opportunity to drive margin synergies.

While the merger is not a done deal (so there is risk to deal closure), I believe Microchip's fair value climbs into the low $50's with Atmel in hand. Buying any stock feels like a bold move right now, but I believe Microchip has a strong record of driving cost savings from acquired properties (a primary driver of value in this deal) and a strong record of overall operating execution.

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Microchip Technology And Atmel The Right Match

Seeking Alpha: Softer Markets And Weak Execution Are An Ugly Mix For Atmel

I wasn't overly fond of Atmel's (NASDAQ:ATML) valuation back in March, but I did think there was a chance that this chip company would see itself swept up in the M&A boomlet across the chip industry. The market thought so too, taking the shares up almost 20% at the peak after my last article. Then harsh reality started to set in, as markets like computing, handsets, and general industrial started looking weaker and weaker. All told, the shares sit about 6% lower than where they were at the time of that last writing, but now sentiment is definitely more sour - on chips in general and Atmel's execution/guidance issues in particular.

I still think that a sale of the company is a distinct possibility. The company's microcontroller business represents a relatively scarce asset that could appeal to companies ranging from Analog Devices (NASDAQ:ADI) to Microchip (NASDAQ:MCHP) to Texas Instruments (NASDAQ:TXN), with Avago (NASDAQ:AVGO) and Qualcomm (NASDAQ:QCOM) as potential long-shot bidders as well. If the company doesn't sell, better execution is an absolute must and likely to be the first priority for the new (and as of yet unannounced) CEO. Atmel does have a legitimate opportunity in front of it with increasing chip content in autos and the growth of Internet of Things (or IoT) applications, but past foibles make it an entirely legitimate question as to if the company can actually deliver on the potential.

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Softer Markets And Weak Execution Are An Ugly Mix For Atmel

Seeking Alpha: Atmel Still Needs To Execute Better

Atmel (NASDAQ:ATML) still looks to me like a "couda, wouda, shouda" story. There are a lot of good and/or attractive things about this company - its leadership in MCU, its potential in the Internet of Things (or IoT) market, its margin self-improvement potential. Unfortunately, there are also legacy issues like strategic/execution missteps (xSense, for one), past failures to identify/execute good deals, disappointments relative to prior margin improvement goals, and ample competition.

I'm not sure why I want to like Atmel (maybe it's because Atmel was one of the first stocks I ever bought), but I still do. Certainly the NXP Semiconductors (NASDAQ:NXPI)-Freescale (NYSE:FSL) deal and the relative scarcity of good MCU assets helps the valuation proposition, but Atmel doesn't jump out to me as an obviously cheap opportunity. There is definitely self-improvement potential here (and the possibility for better revenue/margins to drive a higher value), but Atmel has frustrated investors with its unrealized potential in the past and I'm not sure management has earned the benefit of the doubt it takes to be really excited about the shares at this level.

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Atmel Still Needs To Execute Better

Seeking Alpha: Can More Be Squeezed From Microchip Technology In This Cycle?

I'll state off the top that I like Microchip Technology (MCHP) as a company. The company has established itself as a top five player in microcontrollers (or MCUs) and is poised to benefit from the growing Internet of Things (or IoT) opportunity, as the company offers strong complementary technologies in MCUs, analog, and connectivity. The downside is valuation, where I just don't see as much upside potential and would prefer Atmel (ATML) on a head-to-head basis.

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Can More Be Squeezed From Microchip Technology In This Cycle?

Seeking Alpha: Atmel Now An Execution Story

Opportunity is not the problem for Atmel (ATML). There are multiple growth avenues for the company's large microcontroller business, not the least of which is the Internet of Things (or IoT) opportunity. There is also still an opportunity for Atmel to make good on the potential of XSense, participate in auto market growth, and continue to wring cash from its memory business.

The problem is execution. The company's touch business, and XSense in particular, haven't developed as hoped and the company has more of a recent history of promising rather than delivering. The potential is there to take this stock to $10 (or higher), and management compensation appears aligned with investor interests, but Wall Street seems to be sliding into a "show me" skepticism with this company and this stock.

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Atmel Now An Execution Story

Seeking Alpha: Silicon Labs Still Looking For A Transition To Drive New Growth

There's virtually no such thing as a perpetual winner in the semiconductor space, as companies have to deal with cyclical end-markets and evolving competition. Silicon Labs (SLAB) is more proactive than most companies in "self-obsoleting" and identifying new revenue growth opportunities, but the company's transition toward the microcontroller-driven Internet of Things business is still in progress. I'm not sold on the company's ability to carve out a leading position in ultra low-power microcontrollers, but Silicon Labs does have a shot of being one of the better growth stories over the next 18 months, and forward expectations aren't too demanding.

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Silicon Labs Still Looking For A Transition To Drive New Growth

Seeking Alpha: Atmel Looks To Maintain Its Momentum Post-CES

Microcontroller and touch specialist Atmel (ATML) had a bumpy 2013, but rode a solid wave of enthusiasm into the recent Consumer Electronics Show that has the stock up more than 10% year-to-date. I see some solid reasons to be optimistic about the company's efforts in touch, as well as its underappreciated MCU business. The pace and magnitude of gross margin improvements are significant unknowns, though, and there is ample competition in the touch space.

Atmel is not the cheapest chip stock out there, but progress with touch control and sensor attach rates will likely be well-rewarded by the market. Double-digit free cash flow growth can support a fair value in the $9.50 to $10 range, and although I can't make as strong of a valuation-based call here as I might like, I think the set up for 2014 is attractive.

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Atmel Looks To Maintain Its Momentum Post-CES

Seeking Alpha: Silicon Labs Waiting To Catch The Next Wave

"Innovate or die" is a pretty good mantra for most of the chip industry, and it's certainly true for Silicon Labs (SLAB). This diversified chipmaker's stock has spent most of the last four years oscillating between $30 and $50 as products like PC modems and FM tuners that once drove a large part of the company's growth have become commoditized or integrated into other products.

Now the question seems to be when (and perhaps "if") the company can latch on to the next big thing. At this point, Silicon Labs appears to be in good position to leverage the growth of the "internet of things", and could be positioning itself to be a much stronger player in lower-power microcontrollers and CMOS-based MEMS oscillators for timing applications. While the shares are, perhaps, undervalued on the basis of the PEG-based approaches that sell-side analysts favor, it takes a little more bullishness to get there with discounted cash flow.

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Silicon Labs Waiting To Catch The Next Wave

Investopedia: OmniVision Technologies - The Beat(ing) Goes On

I've followed OmniVision Technologies (Nasdaq:OVTI) for quite a while now, but I've never owned the shares. In a nutshell, OmniVision seems to fit into that “it's more trouble than it's worth” category of stocks where severe operational volatility (that I don't believe the company really can or could do much to control) leads to big swings in the price. That may be fine for investors/traders who like active names that produce multiple trading opportunities for buy/sell moves within a year, but it is much less attractive to those of us who pursue an investment path of “enlightened torpor”.

With that, OmniVision's fiscal first quarter (and guidance for the second quarter) was really just more of what I've learned to expect from this company. While I do believe OmniVision has good technology and a solid market position relative to the likes of Sony (NYSE:SNE) and Samsung, it's just such a difficult market to prosper in, particularly with the turbulence in the handset market right now.

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http://www.investopedia.com/stock-analysis/083013/omnivision-technologies-beating-goes-ovti-sne-atml-avgo-brcm-aapl.aspx

Seeking Alpha: Atmel Needs To Show That Touch Can Be A Growth Business Again

While Atmel (ATML) has looked for touch controllers/sensors in mobile devices to build on its core microcontroller business and reignite some growth, that plan hasn't exactly gone to plan. Atmel has done a good job of developing new technologies like maXTouch, but the company has not yet broken out of a cycle where the higher-end touch companies like Atmel, Synaptics (SYNA) and Cypress (CY) play leapfrog with each other on each new device iteration (gaining and losing sockets) before eventually seeing lower-ASP rivals catch up.

At the same time, the underlying recovery for non-touch microcontrollers has been a touch-and-go affair in end markets like industrial, wireless, consumer devices and so on. While Atmel continues to offer leverage to both a more general chip demand recovery as well as company-specific drivers like improved margins and acceptance of its new XSense technology, the slowdown in high-end handsets and the very slow adoption of touch-enabled laptops/notebook computers still make this a challenging investment thesis.

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Atmel Needs To Show That Touch Can Be A Growth Business Again

Investopedia: Texas Instruments Just Out Of The Starting Blocks

I'm not going to say that every part of the semiconductor space is back on track, but the earnings and guidance that coming suggests that things are getting better outside of consumer electronics and PCs. That's good news for Texas Instruments (NYSE:TXN), particularly as the company is seeing stronger conditions in industrial and auto markets and better margins in the wake of moving on from wireless. Although the stock does not look cheap on a cash flow basis, I do believe the company's margin leverage, and subsequent improvements in ROE, are likely to send the shares higher over the next 12 to 24 months.

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Investopedia: The Bar Is Rising For Atmel Again

Unless your name is Qualcomm (Nasdaq:QCOM), serving the wireless device market is a tricky proposition, as constant ASP erosion is a fact of life and the prospect of losing sockets always looms. Investors in Atmel (Nasdaq:ATML) have seen that firsthand, as this large microcontroller company has suffered from competitive socket losses and market shifts toward cheaper alternatives. With new product opportunities on the way and the prospect of improving operating leverage, though, these shares have started to recover. The question for investors is whether the company can deliver even more upside than these improving expectations incorporate.

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http://www.investopedia.com/stock-analysis/061013/bar-rising-atmel-again-atml-syna-fsl-msft.aspx

Investopedia: OmniVision Showing Much-Needed Signs Of Improvement

The “up again, down again” story at OmniVision Technologies (Nasdaq:OVTI) rolls on, with the latest installment showing a sharp upward turn as the company's revenue and margins continue to show meaningful improvement. While OmniVision remains one of the market share leaders in the CMOS image sensor industry, that leadership has never meant stability or predictability and it probably never will. That makes this a tricky stock to recommend at almost any level – although these shares too look cheap, and may well ride the momentum of this positive quarter for a while, it's hard to believe that the market will ever fully reward the potential of this company.

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Investopedia: A Step Back For Atmel, But The Potential Is Interesting

It's another one-step forward, one-step back quarter for Atmel (Nasdaq:ATML), as this mid-sized microcontroller specialist continues to struggle with increased commoditization in its touch controller market and a weak environment for chips in industrial and automotive markets. While these shares are likely to stay quite volatile on rumors of socket wins and losses, the company's technology is interesting and the valuation is not so demanding at present.

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http://www.investopedia.com/stock-analysis/2013/A-Step-Back-For-Atmel-But-The-Potential-Is-Interesting-ATML-SYNA-BRCM-MSFT0211.aspx

Investopedia: Can Atmel Touch Bottom?

Sometimes it pays listen to the voice in your head at the expense of what numbers and company managements may have to say. There have been plenty of calls out there in 2012 to buy semiconductors in the hopes of a recovery, and in particular to buy Atmel (Nasdaq:ATML) in the prospects for good growth in the touch controllers that help drive the user-interaction experience for smartphone and tablet users. And yet, worries about the ongoing commodization of this category have kept me on the sidelines and have cut the value of Atmel roughly in half this year.

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http://www.investopedia.com/stock-analysis/2012/Can-Atmel-Touch-Bottom-ATML-CY-BRCM-MSFT1105.aspx

Investopedia: OmniVision Looks Fueled Up For Another Run

CMOS sensor company Omnivistion Technologies (Nasdaq:OVTI) has a crazy stock. Pull up a long-term chart, and you're basically looking at a map of the Tetons or some such. That chart also says a lot about the business. While Omnivision has long been at the edge of technology in the space, the company has been unable to establish a steady revenue and profit growth trajectory. While I don't expect that basic pattern of volatility to change much, investors may want to consider this stock for the potential sales and profit growth that could be reported with the next major Apple (Nasdaq:AAPL) phone launch.

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Investopedia: TriQuint Has To Marry Execution To The Potential

Potential is a dangerous word in the investing world, and the approximate cause of many capital losses. Small RF semiconductor player TriQuint (Nasdaq:TQNT) has ample potential to grow, as nearly every device in our day to day lives outside of the toaster now carries wireless functionality. The key for TriQuint, though, is to diversify its customer base and actually execute on that potential - something that past history suggests may be difficult.


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Investopedia: Atmel Still Caught Between Good And Bad Touch

It seems like every quarter only serves to heighten the anxiety and uncertainty around Atmel (Nasdaq:ATML). Despite leading touch controller technology, the company seems caught up in a market where price rules and customers swap slots freely. Although this semiconductor stock could be a great rebound candidate if the revenue outlook firms up, it's now firmly a "show me" stock.

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Investopedia: Silicon Labs Still Searching For The Right Mix

Apparently Silicon Labs (Nasdaq:SLAB) still has work left to do in finding the right mix of products and addressable markets. Although this chip company's current results aren't all that bad, the uncertainty about growth and margins is likely to weigh on the shares. The stock does look cheap today, but it's difficult to feel confident about a company that always seems to be in transition.

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http://stocks.investopedia.com/stock-analysis/2012/Silicon-Labs-Still-Searching-For-The-Right-Mix-SLAB-ATML-CY-TXN-MXIM0426.aspx