Xilinx Spikes On A Rumored AMD Bid

Maybe one of the surest signs that things are starting to get back to normal is the M&A cycle firing up again in the semiconductor space. It had been quiet for a while, but then there was the July bid from Analog (ADI) for Maxim (MXIM) and then September’s Nvidia (NVDA) bid for Arm Holdings. Now the Wall Street Journal reports that there may be another significant M&A deal in the works, with Advanced Micro Devices (AMD) reportedly in “advanced talks” to acquire Xilinx (XLNX) for something north of $30 billion.

I’ve liked Xilinx’s business for a while, and I see some significant growth opportunities for the company in areas like data center and 5G, with specific drivers like server acceleration, SmartNICs, antennae, and O-RAN. The immediate overlap with AMD is a little sketchy at first glance, and the businesses are very different (different product cycles, different customer bases, different development processes, et al), but Xilinx would definitely fit in with AMD’s desire to grow the data center business, and FPGA companies are scarce assets.

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Xilinx Spikes On A Rumored AMD Bid

Increased Focus On Better Margins Driving More Value At Lattice Semiconductor

Lattice Semiconductor (LSCC) has been doing alright. Up about 20% since my last update and up close to 40% over the last year, Lattice has not only outperformed the SOX by a good margin but also a number of high-quality chip names like Silicon Labs (SLAB) and FPGA competitor Xilinx (XLNX). Some of this outperformance is due, I believe, to management simply stabilizing the business in the wake of the collapse of the Canyon Bridge deal, the deterioration of the Silicon Image business, and challenges in the mobile/consumer business. More recently, though, management has taken more definitive steps toward enhancing the margin profile of this business, and as margins are a prime (if not principal) driver of semiconductor stock valuation, this enhanced margin focus has upgraded the value proposition at Lattice.

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Increased Focus On Better Margins Driving More Value At Lattice Semiconductor

Integrated Device Technology Managing To Stay Ahead Of Expectations

Since my first write-up on the company for Seeking Alpha in September of 2017, Integrated Device Technology (IDTI) (or "Integrated Device") has done alright. The shares are up about 30% since then, outdoing the SOX by about 10%, more or less matching ON Semiconductor (ON), beating Silicon Labs (SLAB) by a bit, and handily outperforming Broadcom (AVGO) over that time. Better still, management has delivered performance that suggests that major drivers like server memory interfaces, wireless charging, and sensors, can, in fact, lead to significantly higher revenue and margins in the year to come.

Not surprisingly given the performance, the valuation argument is more of a stretch today. Trading at around 5x forward revenue, I'd argue the price today is a pretty reasonable reflection of the growth and margin potential at IDTI, but I also happily acknowledge that IDTI offers more near-term year-over-year growth potential than many other chip names and investors will flock to (and pay for) exceptional growth opportunities.

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Integrated Device Technology Managing To Stay Ahead Of Expectations

Investopedia: The AMD Story Sounds Very Familiar

There is a group of tech companies out there whose greatest accomplishment is simply staying in business over the span of decades. Advanced Micro Devices (NYSE:AMD) is a good example, as this company has a horrible record when it comes to generating cash flow or building/maintaining market share, but still seems to get investors re-excited about its prospects every so often. With no reason to believe that AMD will regain share in PCs, build share in tablets or microservers, or achieve any meaningful sustained cash flow from consoles, I see no reason to own AMD shares at this point.

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Investopedia: Concerns About Near-Term Results Only The Appetizer For Intel

Wall Street is infamously myopic with companies and stocks, and that obsession about the next quarter seems even sillier in the case of a stock like Intel (Nasdaq: INTC). The real question investors need to ask themselves is not whether Intel can beat third quarter estimates, but rather if the company can really gain meaningful share in the mobile market and/or whether the company's manufacturing and technological capabilities will translate into meaningful market share and cash flow. I do expect Intel to “stay in the game” as it were, but I don't see a particularly compelling case for owning the stock.

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Investopedia: Nvidia Still Too Cheap And Still Very Controversial

At the risk of sounding like a Dos Equis commercial, I don't always write about Nvidia (Nasdaq:NVDA), but when I do, I'm usually pretty bullish on the company's long-term prospects. At the same time, though, I realize that Wall Street is firmly in the “show me” camp on this company and does not believe that it will succeed with its ventures into mobile devices and mobile gaming. This skepticism is why I've held off buying in so far (owning a stock that Wall Street wants to hate is fruitless and frustrating), but it's getting more and more tempting.

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Investopedia: Nvidia Appears To Have A Lot To Prove

Wall Street can be a little funny in how it rewards "proven" stories with unsustainable multiples, but tends to seriously underestimate the future of companies that aren't on the list of darlings. Nvidia (Nasdaq:NVDA) is trying to recreate itself as a more diversified semiconductor company, but the Street seems to see relatively little chance of the company breaking free of its graphics processor legacy. By no means is success in fields like mobile processing a guarantee, but risk-tolerant investors may find the long-term risk-reward trade-off here to be interesting.

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Investopedia: Can Intel Manufacture An Edge?

Companies have been lining up to tell investors how tough the PC market is these days, so there was a little bit of relief when Intel's (Nasdaq:INTC) second quarter numbers were basically on target. The issue for investors, though, is that near-term pressures in the PC market and a relatively unimpressive valuation could well weigh on shares even as the company has an improving long-term outlook.

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Investopedia: ARM'ed And Dangerous

Was there a company that came out of the recent CES with more public buzz than chip designer ARM Holdings (Nasdaq:ARMH)? Wall Street and tech CEOs have known this company for a long time, but it was not quite such a widely known name among the general public. Perhaps it was due to the relative absence of Apple (Nasdaq:AAPL) allowing some air into the room, but ARM is definitely no longer one of those "below the radar" tech companies anymore. 

Teaming with Microsoft
One of the bigger announcements from CES, at least in terms of headline volume if not actual news value, was Microsoft's (Nasdaq:MSFT) decision to develop the next version of Windows with chips using ARM-designed architecture in mind. This does not mean that Microsoft is abandoning Intel (Nasdaq:INTC) or ceasing to support those chips, but it does mean that Microsoft is casting its net a bit wider than before.

While this is perhaps a positive for ARM, it is not exactly a surprise. Microsoft desperately needs to get itself involved in tablets and smartphones if it wants to remain relevant in the market. Given that ARM-based chips constitute the majority of chips powering these next-gen devices, what other choice did Microsoft really have? Moreover, while it does not guarantee anything to Microsoft (Microsoft's future operating systems still may not be attractive or competitive), it at least gives the company options beyond Intel as it too struggles to migrate to the new world. (For more, see Tech Stocks To Watch In 2011.)

But Still Playing the Field
ARM has never been exclusive to any one chip partner, and this year's CES highlights that that is not about to change. ARM already counted companies like Qualcomm (Nasdaq: QCOM), Nokia (NYSE:NOK), and Texas Instruments (NYSE:TXN) among its licensees, and has recently added Nvidia (Nasdaq:NVDA) as well.


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2010 - The Year In Chips

While the semiconductor space has fragmented into many sub-sectors that have relatively less correlation with each other, the fact remains that 2010 was still a pretty strong year for chips. Worries about the strength and persistence of the economic recovery and the computer sector weighed on some stocks, but most companies benefited from customers replenishing their inventories throughout the first nine months of the year. 

As is often the case, investors traded these stocks on the basis of guidance and worries that the sector might have peaked in 2010. This is a battle that will be resolved in 2011. The question is whether 2010 was the high water mark in the chip recovery, or is the first half of 2011 just a pause in an overall upward trend and longer recovery cycle?

Smart? Very Smart
The torrid growth of smartphones, and the introduction of tablets, feels like one of the most significant factors for chip stocks in 2010 and going on into 2011. Companies like Broadcom (Nasdaq:BRCM), ARM Holdings (Nasdaq:ARMH) and Atmel (Nasdaq:ATML) saw their stocks do exceptionally well as investors paid up for their exposures to this consumer segment. Conversely, Qualcomm (Nasdaq:QCOM) and Maxim (Nasdaq:MXIM) failed to outperform even though both companies are highly leveraged to these markets. (For more, see The Chips Are Down.)

Networking Paid Off This Year
Within the overall positive performance of chips in 2010, companies leveraged to networking did exceptionally well. Broadcom double-dips here (with the smartphone space), while purer plays like Cavium (Nasdaq:CAVM) and Mellanox (Nasdaq:MLNX) had exceptional years. With ever-greater demands on networks and increasing functionality in chip sets, it looks as though this sub-sector could see another good year of demand from customers like Juniper (Nasdaq:JNPR), F5 (Nasdaq:FFIV) and the like.


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Black Christmas For PC Chips?

It is good practice for investors to cast their information nets as wide as possible to monitor their holdings and make better investment decisions. To that point, although Dell (Nasdaq: DELL) did not have a bad recent quarter, some semiconductor investors may not be so happy with some of the details. Reading tea leaves like this is hardly a perfect science, but there were a few scattered details that could become a problem. 

PC, Or Not PC?
In many respects, Dell had a solid quarter. Margins were particularly strong and the company produced solid operating leverage. Looking through to what drives chip demand, though, the picture gets a little bit murky. Overall, desktop sales rose 21% annually but fell 6% sequentially and notebook ("mobility") sales were up 16% and 3% for those same respective periods. Moreover, stripping ASP growth out of the equation makes the unit growth a little more concerning.

On top of all that, management's comment that the "refresh cycle is in full bloom" is a little odd, given that sequential guidance for the fourth quarter was not that great. Again, this is not about Dell's performance - the issue is whether or not there is still solid PC and notebook demand sufficient to power the chip stocks that supply the market. (For more, see 4 Cheap, High-Quality Stocks.) 

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http://stocks.investopedia.com/stock-analysis/2010/Whither-Or-Wither-For-PC-Chips-INTC-DELL-NVDA-MRVL-QCOM-ATML-ONNN1123.aspx

Intel - Stable Will Have To Do For Now

With all of Wall Street's eyes upon it, Intel (Nasdaq:INTC) did what it had to do - the world's largest chip company delivered a quarter that should be good enough to calm some of the near-term fears about the PC and consumer electronic markets. By the same token, though, there is nothing in the guidance or management's commentary to suggest that business will be booming again anytime soon. 

The Quarter That Was
Intel reported that third quarter revenue rose a little more than 3% sequentially (and more than 18% annually) to about $11.1 billion - a number that was slightly higher than the company's earlier disappointing guidance. Within the numbers, Intel reported that PC group microprocessor sales were up more than 2% sequentially, and made up about 57% of the company's revenue base.

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The Curious Case Of Intel

Tech giant Intel (Nasdaq:INTC) is a mess of contradictions. It is a tech bellwether, but one with unimpressive growth over the past decade. It is a pioneer in the microprocessor sector, but questions swirl about its ongoing relevance even as it posts an all-time best quarter. Worse still, it is a story that does not lend itself to sound bites and simplification. 

The Quarter That Was
By any reasonable standard, this was a great quarter for Intel. Revenue jumped 34% from last year and rose 5% sequentially to an all-time best of $10.8 billion. This growth was fueled by strong demand for PC and server chips, as PC-related revenue climbed 31% from the year-ago level.

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