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Technology Stocks Silicon Motion Inc. (SIMO)

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To: Elroy who wrote (2570)	7/18/2022 6:33:51 PM
From: Maurice H. Norcott	of 2795

I don't know if it makes any sense but maybe SIMO isn't yet big enough to be of interest to a major Semi company in the dollar sense. I recently learned that one of the cigarettes/cigar brands I used to indulge in was discontinued by the parent company, the reason was it only earned $500mil a year as a boutique brand so it was deemed too small a contributor to the bottom line.

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To: Maurice H. Norcott who wrote (2571)	7/19/2022 10:57:36 AM
From: Elroy	of 2795

Perhaps, but SIMO isn't that small. ADI is a huge semi company, it does $2.7b per Q in revenues. SIMO should be doing $400m per Q by 2024 (if not 2023). So SIMO is about 15% the size of ADI. It's not that small. Yeah, down the road MXL-SIMO may be large enough to attract more potential buyers. But I thought SIMO might be appealing due to its unique product line. MXL + SIMO looks to me to be sort of a random mess in terms of products segments (flash controllers, wifi, some mixed signal stuff, other stuff).

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From: Elroy	7/19/2022 9:09:54 PM
	of 2795

Supply Chain Overstocked, NAND Flash 3Q22 Price Drop to Broaden to 8~13%, Says TrendForce According to TrendForce, market oversupply intensified in 2Q22 due to lagging demand and continued NAND Flash output and process advancement. The market consensus is a disappointing 2H22 peak season for consumer electronics including notebooks, TVs, and smartphones. Material inventory levels continue to rise and has become a risk to the supply chain. Due to slow destocking among distributors and a conservative stocking approach among clients, inventory problems have bubbled over upstream onto the supply side and sellers are under increased pressure to sell. TrendForce estimates, due to the rapid deterioration of the balance between supply and demand, the drop in NAND Flash pricing will expand to 8~13% in 3Q22, and this decline may continue into 4Q22. In terms of Client SSD, due to weak consumer demand, various PC brands have significantly reduced their purchase order volume in 3Q22 in order to digest 1H22 SSD inventory. As suppliers shift focus to 176-layer client SSD, 176-layer QLC SSDs have begun to ship, and YMTC looks to expand shipment of notebook client SSDs in 2H22, price competition has become increasingly fierce, forcing manufacturers to increase price concessions to incentivize clients to up order volume. Thus, the decline in client SSD pricing is expected to expand to 8~13% in 3Q22. In terms of Enterprise SSD, purchasing momentum in 2H22 will be inferior to 1H22, mainly due to the impact of the overall economic recession on server brands’ shipments of whole devices. Corporate order volume continues to decline, simultaneously affecting the purchasing momentum of enterprise SSDs in 3Q22. Secondly, orders from cloud service providers in China were weak in 3Q22 and demand driven by shipments of next-generation server platforms failed to meet expectations. In order to boost the growth of enterprise SSD revenue, suppliers expect to stimulate sales through more generous price negotiations. However, buyers are currently unwilling to expand procurement, so enterprise SSD price declines are estimated to broaden to 5~10% in 3Q22. In terms of eMMC, weak demand for major applications such as chromebooks and TVs has induced buyers to carefully control inventory, so it is hard to see any signs of life in eMMC pricing. Although manufacturers’ long-term plans involve a continued reduction in the supply of 2D eMMC products to keep prices stable. End customers and module customers are focused on destocking due to the recent overall downward trend in demand. Eventually, oversupply in the eMMC market will become more serious than expected. Therefore, the price of eMMC in 3Q22 will drop by another 8-13%. In terms of UFS, since China’s 618 e-commerce promotions have not induced recovery in smartphone demand, destocking of whole devices has become a top priority for Chinese OEMs. Sluggish demand has not only impacted Chinese smartphone brands. Even Samsung, which is mainly focused on markets excluding China, has warned that the demand outlook is clouded, leading to a sustained weakening of the UFS market in 2H22. Originally, sellers held the view that price concessions would not stimulate demand and were unwilling to negotiate pricing. With rising inventory pressure, reducing prices to capture sales is inevitable. The decline in UFS pricing is estimated to expand to 8~13% in 3Q22. In terms of NAND Flash wafers, a rebound in demand during peak season and the lifting of lockdowns in China were originally forecast to refresh the market. However, demand continues to deteriorate and inventory at module factories and end customers remains high, resulting in a sustained decline in wafer quotations. At the same time, manufacturers continue to expand the supply of wafers and process optimization continued to improve, resulting in magnified inventory pressure at the factory end. The decline in NAND Flash wafer pricing is estimated to expand to 15~20% in 3Q22.

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To: Elroy who wrote (2572)	7/20/2022 3:38:18 PM
From: Rarebird	of 2795

I took a very hard look at SIMO today in my own way and discovered that the stock is a strong buy technically and fundamentally. This stock is cheap. Technically, the stock has bottomed intermediate term and is headed to the $120-$130 area short term in my estimation (3 months). Elroy, I know you are not a chart guy, but please take a look at this: schrts.co I am looking at a cup and handle on the daily, which is a very powerful bullish set up. I also love what I am seeing on the weekly: schrts.co Fundamentally speaking, I like SIMO's ROE very much. I try to pick stocks long whose ROE is at least double the PE. And SIMO more than qualifies here. Oh, yes, I took a long position in SIMO today. I have a history of doing very well with Hong Kong stocks. Last Hong Kong stock I held for a while was FUTU, which provided a five bagger in 3 months last year.

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To: Rarebird who wrote (2574)	7/20/2022 4:24:59 PM
From: Elroy	of 2795

Are you aware SIMO is in the process of being acquired by MXL for $93.50 cash plus 0.388 shares of MXL? I would think that since most of SIMO's value (assuming that deal goes through) is cash, fixed cash ($93), that technical trading and profit valuation analysis goes out the window. All that really matter is deal or no deal? SIMO shareholder vote is on Aug 31st. If approved, then the obstacle is Chinese regulatory approval (expected about H1 2023, perhaps earlier, perhaps later). If SIMO gets the Yes vote and the approval, the deal will go through about 3 days later. The value of SIMO in the deal is about $109 today. Also, while SIMO's corporate headquarters is in Hong Kong, it is incorporated in Cayman Islands, and the vast majority (90% probably) of it's operations are in Taiwan. Welcome to the team!

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To: Elroy who wrote (2575)	7/20/2022 4:40:18 PM
From: Rarebird	of 2795

Based on the numbers for the take out of SIMO, the stock is trading at a very big discount to the MXL offer. In other words, the market does not expect this deal to go through. Do you expect SIMO shareholders to approve of the MXL take over? The big question is whether China would allow MXL to acquire SIMO. Again, the market is saying this deal won't get approved. Why would SIMO executives even consent to being acquired? Must be getting away from Chinese regulations and the synergies with MXL.

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To: Rarebird who wrote (2576)	7/20/2022 4:59:50 PM
From: Elroy	of 2795

I don't know the reason for the discount. Perhaps the market thinks China doesn't want a fairly large and sophisticated Taiwanese IT design company to fall into US control, so China will veto the deal? Perhaps. Flash controllers are ubiquitous, but hardly essential like ARM. Some other company could produce the same controller fairly easily I think, SIMO just has the benefit of first mover and large volumes, so SIMO makes lots of money in flash controllers while a new entrant fighting for share would lose money perhaps forever (unless SIMO died). I think the shareholders will approve the deal. I don't know why management sold, but the timing is pretty great. Without the deal, SIMO would likely be $60 and going who knows where. As it is we likely get ~$110 value whenever the deal closes. We may get some action between Q2 reporting for MXL and SIMO (June 27) and the shareholder vote Aug 31st. Maybe someone else will hostile bid? If so, it would probably happen in Aug before the vote, If not, I would expect the vote to approve, and then we wait for Chinese approval, which could come any day, and be a Yes or a No, I got no real idea which.

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To: Elroy who wrote (2575)	7/20/2022 6:02:59 PM
From: Rarebird	of 2795

I was aware of the deal with MXL and that's why I put SIMO in my IRA so I don't have to pay capital gains on the cash portion of the take over. In semi land, I bought TXN a few days ago. Message 33921931 I think most retail investors are selling SIMO because they are afraid of China nixing the deal. But I don't see a national security issue involved in the merger. The other issue is whether MXL will get the financing needed to acquire SIMO. Sure, they are going to use SIMO's cash to help finance the deal, but that won't be nearly enough. What I haven't heard is the interest rate that MXL got to acquire SIMO. That is important as the Fed is raising rates. Does MXL already have a rate locked in? MXL has a decent balance sheet and I don't think they will have a problem securing a loan. The only question in my mind is how committed is MXL to acquiring SIMO?

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To: Rarebird who wrote (2578)	7/20/2022 11:24:54 PM
From: Elroy	of 2795

I was aware of the deal with MXL and that's why I put SIMO in my IRA so I don't have to pay capital gains on the cash portion of the take over. That's not how it works. The entire transaction is taxable. It's in the prospectus. I think most retail investors are selling SIMO because they are afraid of China nixing the deal. But I don't see a national security issue involved in the merger. Well, your opinion is not important. The view of the Chinese regulators is important. If they believe Taiwan is part of China, I can understand that they might not want to sell Taiwanese SIMO to the USA, and then next election have Don Trump come to power, and perhaps prevent SIMO controllers from being sold to China. It's not hard to understand that concern at all. What I haven't heard is the interest rate that MXL got to acquire SIMO. That is important as the Fed is raising rates. Does MXL already have a rate locked in? MXL has issued a SEC filing which details the financing in great detail. I think the rate is not yet set, but the info is in the public domain. The only question in my mind is how committed is MXL to acquiring SIMO? They are at least $160m USD committed. That's their break up penalty if the deal is declined by Chinese regulators. If they just change their mind, I think they get tossed in jail or something. Maybe SIMO would sue MXL and take those bastards over?

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From: Elroy	7/27/2022 12:08:50 AM
	of 2795

We get both MXL and SIMO results after the close today. No idea what to expect out of MXL. For SIMO, there was a Seeking Alpha preview that forecast only $268m or so for Q2. I think it must be much higher than that, perhaps as high as $300m. SIMO guided 2022 to have sales up 20%-30% over 2021, with bias to the upside. With only $242m in Q1, the remaining quarters have to all be above $300m I think to deliver 25% growth. On the other hand, cell phone and PC sales seem to have slowed quite a bit in Q2. How that slowdown blends with SIMO's previous backlog which is could not deliver due to capacity constraints, I got no idea. We'll see. I'll bet both results (MXL and SIMO) are quite good, and perhaps it drives the share prices of both higher. Maybe I'll buy some Sep calls.....

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