Michael Church

MoSys: Pure Play on Nintendo Popularity

Steve, could not agree more. And what u say is the foundation for my thesis here. Just a random note, i woke up at the crack of dawn to get a Nintendo and at first glance i think this system has a huge opportunity to expand. I am by no means a "hardcore" gamer, and it think this system has the potential to appeal to both. The Wii-mote really is impresssive and works surprising well. 3rd Party game makers woke up to Nintendo back in february at the E3 conference. They have been scrambling since. But, if they commit significant resources to this system (which they may be forced to do given its early popularity) there is potential to develop some really innovative games with this controller. I could see some seriously revolutionary and blockbuster titles arising from this system.

A pullback is always possible. And MOSY trades pretty thinly. So any near term volatility to the downside would make a good entry point. Its a good story that has the potential to grow into something more than just Nintendo. But if the Wii is a success there is always the potential for the Wii 2. MOsy and NIntendo (its actually through NEC) have had a long relationship dating back to the Gamecube, and that is where my speculation of the Fujitsu contract being a portable gaming device originates from.

Thanks for the questions!! Have a great holiday yourself. Go buy a Nintendo!!

MoSys: Pure Play on Nintendo Popularity

my apologies. 15m is this years estimate. sorry about that, was writing quickly.

My thoughts regarding the cash would be a buy-back. However, a current executive has a sell plan in place. so i beleive that would not be possible until that ended, which i believe is next month. I cant see a aquisition in the cards here, so that could be a possibility.

As for pricing it in. I think the recent run up has caught some of that, however i do think that there is more left in the tank. In my opinion the Wii is going to continue to outstrip expectations. 4m million worldwide by year end will be easily attainable if rumors of the 1m sold at the north america launch are true. Also keep in mind that nintendo has a much stronger hold in japan and should be more dominant in that market (dec 2 is japan launch). Their strength in the US market right now is a serious plus. Sony continues to fumble and production issues there will only further benefit Nintendo.

They have signed a couple new contracts recently. Fujitsu was recently announced, however, the actual product with which Mosy's IP is going into has yet to be disclosed. Management indicated it was a high volume consumer electronic product. Speculation suggests this may be a portable gaming device. But that would be just guessing from the language in the press release. And on its recent quarter call management indicated another contract was signed similar to the fujitsu deal, however, did not disclose further details.

Also of note is a collaboration with Verisilicon, a chinese foundry focusing on SOC's. which is Mosy's sweetspot.

Also they recently settled a litigation with uniram that was sapping 500k a quarter.

And there is still a decent short interest that has been increasing into its bottom this summer, although that may likely have dropped recently.

It was already a takeover target from Synopsus a few years back. That deal however fell apart. I spoke to management a few months back and asked what was up with the insider sales. The reply was that he had founding shares that he had never monetized and his wife was pressuring him for a higher quality lifestyle. whatever that means. I would be concerned here except that the other co-founder (Dr. Hsu and now a director) who left and is now with TSMC has about 2.5m shares still and hasnt sold since 2004. So i have taken managements word there. Keep in mind current management (Chet Sylvestri and Jim Pekarsky) came in shortly after the Synopsus blow up. I would just be guessing but there may be some internal dynamics involved with the "new" guys vs. the founder.

My personal target is 12. Probably on the optimistic side, but i feel that there is some potential upside remaining to the new contract announcements and the continued strength of the wii.

i hope that makes sense, lots of questions, just trying to address each. Let me know if this helps.

MoSys and Nintendo: A Match Made in Gaming Heaven

Correction. PS3 uses Toshiba chip.

Xbox is ATI

MoSys and Nintendo: A Match Made in Gaming Heaven

Xbox 360 uses a Toshiba chip. This could change over to TSMC, which would then license Mosys' 1t-SRAM tech, hence royalties. Mosy is attempting to get this business, so look out for a Toshiba business loss, that would signal revs coming MOSYS way. And could very well happen.

Also to answer some questions i have seen. Mosy recieves a flat royalty of 50 cents per chip, with no volume discounts. The previous Gamecube system was a 50 cents royalty as well but had volume breaks that dropped it to 35 cents after certain volume shipped. I am not totally sure how many chips go into each console. i am still trying to determine that. I think it may be 2

Also of note. Contract with NEC and Nintendo runs through the next generation. So Wii 2 (or whatever it may be named) is also licensed. Something to keep in mind if Wii is a major success.

MoSys and Nintendo: A Match Made in Gaming Heaven

Largest Customer Revs 2005

NEC- 35%
Fujitsu- 17%

Largest Customer Revs 2004

NEC- 19%
Fujitsu- 17%
Marvell- 11%

Largest Customer Revs 2003

Sony- 17%
NEC-14%
UMC-11%

--Royalties from Gamecube--

2005- 14%
2004- 15%
2003- 11%

The last data set reflects the Royalty revs only and not any other fees that may have resulted from the Nintendo contract. A total Revenue history is available here from the company's June Investor conference, its about slide 10 or so:

media.corporate-ir.net.../
presentations/Investor...

A look at the chart will show revenues peaking in 2003 as Gamecube ramped. However, since Gamecube was an immediate flop, prices pulled back shortly after the launch of Gamecube in anticipation of mediocre royalty revs. Gamecube actually made a bit of a comeback in 2003 gaining significant market share, however, at that point gaming sales were well underway.

Total Console Sales

Sony PlayStation 2: 106.23 million (shipped NOT sold thus an accurate number of sales cannot be ascertained.), as of June 30, 2006
Microsoft Xbox: 24 million sold, as of June 30, 2006
Nintendo GameCube: 21 million sold, as of May 10, 2006
Sega Dreamcast: 10.6 million sold


As for valuation at 17x sales and 30x next year earnings, it is reasonably valued given its 35% growth rate. Not to mention estimates for ‘07 are very conservative and would see significant upward revision in light of a Nintendo success.