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   Technology StocksSilicon Motion Inc. (SIMO)


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To: Rarebird who wrote (2574)7/20/2022 4:24:59 PM
From: Elroy
   of 2614
 
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 2614
 
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 2614
 
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 2614
 
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 2614
 
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: Elroy7/27/2022 12:08:50 AM
   of 2614
 
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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From: Elroy7/27/2022 6:57:38 PM
   of 2614
 
Listened to the Q2 MXL call. Here are some of their comments about the upcoming SIMO deal.....

Update on Acquisition of Silicon Motion

Acquisition is progressing well with projected close by mid - 2023

Announced that the waiting period under the HartScott-- Rodino Antitrust Improvements Act of 1976 expired on June 27, 2022

Filed with China's State Administration for Market Regulation (SAMR) on July 6

Registration statement on Form S Debt 4 declared effective by SEC on July 13

financing is secured, subject to customary closing conditions, with focus on optimizing structure
------

Q&A

There was a question about SIMO's weak revenues (but strong gross margins) and a request the the MXL CFO give some guidance for SIMO's business. CFO declined to give guidance for SIMO, and said the deal is a long term thing, not quarter to quarter thing.

Not much commentary on SIMO really, other than they are moving forward with the deal as far as we/they know.

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From: Elroy8/19/2022 1:21:02 PM
   of 2614
 
US, Taiwan to start formal trade talks in autumn

dw.com

This is sort of interesting. I wonder if US MXL's effort to buy Taiwanese SIMO will become part of an international "trade issue"....?

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From: Elroy8/21/2022 1:29:47 PM
   of 2614
 
Lets call the "deal gap" the amount that SIMO would appreciate from today's closing price to deal closure value if the MXL acquisition went through today.

Currently, the deal gap is 36.5%. It's the highest I can recall since I have been tracking the number.

In plain English, SIMO today is $79.75. If today SIMO received $93.54 cash + 0.388 shares of MXL for each share of SIMO, that "deal value" would be $108.88.

I think the deal is going to go through, but the market appears to disagree.

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From: Elroy8/29/2022 1:50:10 PM
   of 2614
 
Man, business sounds awful. SIMO hasn't given 2022 revenue guidance since January. They were expecting sales to grow 20%-30%, and perhaps more if they can get more allocation from TSMC. They can likely get more allocation, but doubtful that they need it.

Meanwhile, the MXL - SIMO acquisition SIMO shareholder vote is this Wednesday. It will surely get a Yes, and then we just gotta wait for Chinese regulatory approval. Who knows if that will be granted. My hunch is "Yes", but it's just a hunch.

--

Q3 NAND Flash Product Price Drop Deteriorates to 13~18% on Sustained Weak Demand, Says TrendForce

As rising inflationary pressure continues to weaken the global economy, demand for various consumer applications has been downgraded since the second quarter and is expected not improve until the end of the year. Although server demand is stable, a period of inventory adjustment has been ushered in, which exacerbates oversupply in the NAND Flash market. According to TrendForce investigations, since sellers are no longer locked into fixed pricing, NAND Flash price declines in the third quarter expanded from the original forecast of 8~13% to 13~18% QoQ. If manufacturers' production capacity planning is not curtailed, this decline is likely to continue into the fourth quarter.

In terms of client SSDs, previously prepared inventory resulting from the raw material contamination issue has become a heavy burden due to further downgrades in the shipment outlook of educational Chromebooks and NBs. Therefore, PC brands must continue to digest SSD inventory in 1H22, resulting in another revision of third quarter purchase orders. A background cause of price declines has been a gradual expansion of the supply of 176-layer client SSD products and the optimized cost structure of 176-layer QLC SSD. At the same time, YMTC's low-cost client SSD is striving to be adopted by more notebook customers in 2H22, so TrendForce estimates that price declines will expand to 10-15% QoQ.

In terms of enterprise SSDs, demand for enterprise orders is trending conservative as the global economy slows down. The purchasing momentum of enterprise SSDs in the third quarter showed signs of decline, while orders from Chinese cloud service providers did not improve. Shipments of next-generation server platforms expected by suppliers has been repeatedly delayed and has lost its demand backstop, resulting in a bleaker 2H22 enterprise SSD market compared to the first half of the year. As the average price of NAND Flash in consumer products is relatively low and the demand outlook poor, the supply side hopes to support revenue growth by increasing shipments in the enterprise SSD category. Looking at buyers’ attitudes, with the expectation that prices will fall at least until 2Q23, eager seller promotions have not stimulated purchasing and sellers have had to increase the scope of price concessions. Third quarter declines in contract prices is estimated to expanded further to 10-15% QoQ.

In terms of eMMC, Chromebook demand is poor and TV shipments have been further downgraded throughout the year. While networking product shipments are relatively good, it is still difficult for this one product category to bridge the gap in demand created by other eMMC applications. As inventory risk remains high, buyers have set destocking as their primary goal in the third quarter. Most buyers are in no hurry to procure goods, so eMMC pricing continues to fall. Due to the stable supply of 2D eMMC products, oversupply in 3D high-capacity products, and a negative purchasing attitude among end customers, the target price range has been lower than sellers’ psychological bottom line for this quarter, forcing sellers to reconsider and accept buyer price proposals. Therefore, the decline in eMMC contract pricing in the third quarter was adjusted to 13-18% QoQ.

In terms of UFS, its primary product application, the smartphone market, remains poor. In the third quarter, Samsung and Chinese brands focused on destocking and the shipment target of new phones was conservative. Therefore, the UFS market in 2H22 remains pessimistic. Due to the poor progress of terminal inventory digestion, buyers are strictly enforcing inventory control. In order to facilitate transactions, sellers are furiously persuading major first-tier customers to commit to certain quantities in advance and offering large discounts to attract orders. Sellers are, similarly, conceding to pricing proposals from second- and third-tier customers. Therefore, TrendForce expects declines in UFS contract pricing in the third quarter to expand to 13-18% QoQ.

In terms of NAND Flash wafers, significant support for wafer demand has not appeared due to a sluggish terminal demand outlook and module manufacturers retaining a strategy of purchasing small amounts of items. Factory wafers are still being sold at reduced prices and, until the demand outlook improves, wafer quotations will continue to drop quarter by quarter in 2H22. Since manufacturers continue to expand the supply of wafers, YMTC’s new manufacturing facility has also begun to contribute to its production capacity. Various production capacity plans and technological advancements from SK Hynix, Samsung, and Micron will not change despite poor market conditions. With increasing inventory pressure, manufacturers has been psychologically prepared to shoulder the drop in average NAND Flash pricing and eroded profits. The forecast decline in the contract price of wafers in the third quarter will remain at 15-20% QoQ.

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