MoSys: The Next NetLogic?

| About: MoSys, Inc. (MOSY)

In my search to bring you some of the best investments out there, I believe that I've stumbled across one of the best CEOs in tech whose company is attempting to solve a decade old problem.

The CEO is Len Perham and his company is MoSys Inc (NASDAQ:MOSY). MOSY is a fabless semiconductor company, which together with its subsidiaries, focuses on the development and sale of integrated circuits (ICS) and intellectual property (IP) for the high-speed networking communications, storage and computing markets.

MOSY has spent the last 5 years entrenched in finding a solution to the relationship between the processor and the DRAM memory on a motherboard. The problem we have is that the processor doubles in speed every 18 months (Moore's Law), think Pentium 1, 2, 3 etc., while the DRAM memory doubles in speed every 10 years (approximately). The DRAM can't handle all the data being sent to it from the processor. This creates a bottleneck in a network, computing architecture and has been a brain drain for thousands of engineers over the past decade.

What makes me think that MOSY is the company to solve this problem? Len Perham. I personally call him the Steve Jobs of the semiconductor world. I don't throw around the Steve Jobs comparison lightly, but the facts are the facts. How many people do you know associated with four companies that went to being valued at over $2 billion after starting from scratch with the potential for a fifth on the horizon. He has that rare combination of technological vision and the skills to run a company. Let's take a look at Len Perham's track record and I'm sure you'll find that it's second to none.

Len Perham was CEO and Chairman of Integrated Device Technologies (NASDAQ:IDTI) from 1992 - January, 2000. His vision and technology know how drove the stock from $3 to $100 per share. Along with his lead engineer Mike Miller they incubated another four technologies within IDTI that they spun off into separate companies: Galileo Technology Ltd, Quantum Effect Devices, NetLogic Microsystems, and MoSys Inc.

In July 2000, Quantum Effect Devices was acquired by PMC Sierra (NASDAQ:PMCS) for $2.3 billion.

In October 2000, Galileo Technology Ltd was acquired by Marvel Technologies (NASDAQ:MRVL) for $2.7 billion.

In September, 2011 NetLogic Microsystems (NASDAQ:NETL) was acquired by Broadcom (BRCM) for $3.7 billion. Len Perham became Chairman of NetLogic after retiring from IDTI and stayed on for 11 years and oversaw this recent sale.

Last, but not least, MOSY. In 2001, MOSY went public via IPO and reached $20 per share ($600 million market cap) as the company provided IP and chips to the likes of Nintendo. This market dried up and MOSY stock fell to a low of $4.90 in 2007 when Len Perham stepped in and retook control of the company. He refocused the company on solving the processor - DRAM bottleneck problem. More importantly he brought his lead engineer, Mike Miller, out of retirement to examine this relationship on more of a systems level than on a commoditized level.

The past five years has seen two generations of its Bandwidth Engine system on a chip being developed which incredibly fixes the bottleneck and turns the path from the processor to the DRAM from a single lane highway to a 10-12 lane super highway (video of Bandwidth Engine). This will change the way networks run as the next generation of routers design in this revolutionary chip. I have spoken to numerous engineers and they have told me that this chip is badly needed and that it would be revolutionary. MOSY isn't going it alone as they have partnered up with three well known and respected semiconductor companies Xilinx Inc (NASDAQ:XLNX), Altera Corp (NASDAQ:ALTR) and Avago Technologies Ltd (NASDAQ:AVGO). Together they have formed a consortium to push this chip to become an industry standard. Clearly Len isn't cavalier in his approach as he's bringing in the big guns to support his approach.

Over the next three months I see the stock trading to $8.00 as we hear announcements of new design wins. MOSY currently has 10 design wins mostly from Japan and in the last conference call, Len Perham spoke of being very disappointed if he did not deliver another two design wins by year end. A man of Len's stature wouldn't confess of delivering two wins without being super confident he has them. In my opinion, he's too seasoned to make a goof like this. I believe he will deliver one win in the next 2 months because a guy like this will not wait until the last day of the year otherwise he would have held off this past conference call. However there is always a chance that a customer could push out the product creating a time delay which happened once in April. That is why I'm confident Len wouldn't have said something unless he had it in hand, but its always good to stay balanced on an idea.

NetLogic had 35 analysts following them prior to the Broadcom acquisition at all time highs of $52 per share. Not one of those analysts that had a buy rating lost a dime for their clients. These analysts have great respect for Len Perham and when MOSY lands its first customers for its new chip, I would expect to see a series of new analysts initiate coverage.

One recent move over the past two months that struck me as very odd, telling and bullish was that the portfolio manager (NYSE:PM) of MOSY's largest institutional holder, Ingalls & Snyder personally acquired a passive 5.2% stake in the company by buying shares in the open market. I do not think I have ever witnessed such an action by a PM, owning the shares in the fund and taking a position for his personal account. A PM's job is to stay on top of his client's funds which presumably you would think his funds were inside of too. To me this is the most bullish indicator that MOSY is going to be in the spotlight either with big design wins, or over the longer term by being bought out by a Broadcom or a Cavium Networks (NASDAQ:CAVM).

The logical question here is: Will this be Len Perham's last kick of the can, as armed with this new exciting revolutionary technology will he look to sell the company for north of $2 billion in the next 12-24 months? As I showed you earlier he sold all three of the other companies spun off from IDTI for north of $2 billion, so I think the odds are in our favor for a number of reasons.

  • Len Perham is now 70 years old, even legends retire.
  • Len personally owns roughly two million shares (options and stock). He has made 3 insider purchases on the open market totaling 668,000 shares: May, 2012 he bought 146,000 shares at $3 per share. May, 2011 he bought 272,000 shares at $4.38 per share. In 2009, he purchased 250,000 shares at $2.50 per share when the overall market was blanketed in crisis mode. Len is putting his money where his mouth is and this more often than not delivers gains.

· Len showed that he still knows how to do a deal. In December, 2011 Len sold 73 MOSY patents for $35 million to Tessera Technologies Inc (NASDAQ:TSRA) subsidiary Invensas. According to a prepared statement, it is retaining a royalty-free license to the patents to cover its branded Bandwidth Engine product line and technology partners, along with related rights to offer sublicenses to current and future partners.

The great part of this investment is that you are putting your money alongside a Silicon Valley legend who has took one company from $3 to $100, then sold another 3 companies for $2.3 billion, $2.7 billion and $3.7 billion respectively. I believe that he has solved the bandwidth - DRAM bottleneck problem with the Bandwidth Engine chip and as it is designed into the next generation of routers. This technology will start at the carrier level (routers), but future generations will bring it to enterprise routers, servers, personal computers, and ultimately your smart phone and tablet devices. All combined at a total of $15 a chip the total available market would equal $30 billion in the years to come. This is why I'm so excited about Len's vision, his insider buys and his track record and why I believe that he will be planning his final exit with a sale of MOSY for $2 billion ($40 per share). There's an old saying in business: don't fight the tape, in this case it's don't fight Len. I missed out on Apple (NASDAQ:AAPL). I'm not missing out on MOSY.

Disclosure: I am long MOSY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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