Seeking Alpha
  • Sunday, March 29, 2015

  • 7:39 PM
    • Optical component industry consolidation "was a common topic of discussion among investors and companies" at the industry's recent OFC conference, reports Piper's Troy Jensen. "The reasons for consolidation are well known and center on operational expense savings, a more rational pricing environment, and more complete product lines."
    • One deal that's viewed as especially likely: A Finisar (NASDAQ:FNSR) purchase of JDS Uniphase's (NASDAQ:JDSU) optical component/laser unit (CCOP), currently set to be spun off as Lumentum Holdings in Q3. Activist Sandell Asset Management has been urging JDS to sell CCOP, which had FY14 (ended June '14) revenue of $794M (+7% Y/Y). Jefferies' James Kisner thinks a deal could happen, but not before the spinoff occurs.
    • Jensen on industry consolidation in general: "The question isn't really an if, but more of the urgency of potential sellers and buyers and also at what price a deal would take place. In general, our feeling is that investors were slightly more anxious for a deal, while companies we spoke with sensed the need for consolidation, but were less anxious."
    • The industry has already seen a decent amount of M&A. In addition to CCOP, smaller component vendors Oclaro (OCLR - $213M market cap), Alliance Fiber (AFOP - $308M market cap), Applied Optoelectronics (AAOI - $196M market cap), and NeoPhotonics (NPTN - $217M market cap) could be targeted. NeoPhotonics has soared since delivering a big Q4 beat (fueled by strong 100G component demand) on March 3.
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  • 5:29 PM
    • Angie's List (NASDAQ:ANGI) has halted a major expansion of its Indianapolis HQ, citing the recent passage of Indiana's Religious Freedom Restoration Act (viewed by critics as providing legal cover for discriminating against gays and lesbians).
    • CEO Bill Oesterle: "We are putting the 'Ford Building Project' on hold until we fully understand the implications of the freedom restoration act on our employees, both current and future ... Angie's List is open to all and discriminates against none and we are hugely disappointed in what this bill represents." Angie's "will begin reviewing alternatives for the expansion of its headquarters immediately."
    • Last October, Angie's said it planned to spend $40M by 2019 (and more than $10M in 2015) on an HQ expansion that includes the purchase of a former Ford manufacturing plant. The local services marketplace added it expects to have 2,800 workers by 2019; it had 1,852 as of the end of 2014, up 13% Y/Y.
  • 4:29 PM
    • "We were a little bit surprised [by the criticism] because we had raised a significant amount of venture capital. Clearly that was being spent on growing the business pretty rapidly," says BOX CEO Aaron Levie in a talk with TechCrunch, defending his company's huge pre-IPO spending against its many critics. "We were coming off a year of over 100 percent growth, so the investments were working."
    • For many quarters prior to Box's IPO, the company's sales/marketing spend was single-handedly bigger than its revenue. In the January quarter, it was still 88% of revenue on a GAAP basis; Box has guided for its FY16 (ends Jan. '16) non-GAAP op. loss to be equal to 50%-52% of revenue.
    • Regarding future spending plans, Levie names content management, collaboration, and security as areas Box plans to focus R&D investments on. The company recently launched an enterprise key management (EKM) service that lets clients control the encryption of data stored on Box's cloud storage/file-sharing platform.
    • Levie asserts the service (in addition to providing a new revenue stream) allows Box to meet the security needs of companies in healthcare, financial services, and other heavily-regulated industries that were previously nervous about putting their data on Box's servers. That might also hold for international companies worried about U.S. government requests.
    • Box closed on Friday 31% above its $14 IPO price, but 9% below an opening price of $20.20. Shares trade for 9x trailing billings, and perhaps (given recent growth rates) 6-7x forward billings.
    • Previously: Levie makes long-term case for Box following IPO
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  • 3:38 PM
    • With shares of "mature" networking hardware vendors such as Cisco having performed better in 2014, Guggenheim Securities' Ryan Hutchinson thinks investors "should revisit growth companies, around which sentiment has been negative."
    • Hutchinson, who just launched coverage on the industry, argues tech trends favor smaller, faster-growing, firms with differentiated products, and thinks the recent acquisitions of Riverbed and Aruba Networks kickstarted a new wave of M&A. "New technologies, architectures, and delivery models are disrupting traditional business models ... These include cloud computing, software-defined architectures, network function virtualization, white-box hardware, and open-source software ... We are neutral on the data networking and communications space ... but there are hidden gems to be found; we recommend secular share gainers."
    • His top picks are application delivery controller leader/security upstart F5 (FFIV - $130 target), carrier/enterprise Wi-Fi vendor Ruckus (RKUS - $15 target), and DNS/IP address management hardware vendor Infoblox (BLOX - $30 target).
    • Hutchinson argues F5's "stable core ADC growth and strong cash flow generation, combined with expansion into adjacent service provider and security verticals should drive the stock price higher." He adds there's more room for F5 to gain ADC share due to Cisco's exit, and considers shares inexpensive at 11x forward free cash flow.
    • He notes Ruckus is the #2 U.S service provider Wi-Fi vendor behind Cisco, and will be #3 in enterprise Wi-Fi once the HP/Aruba deal closes. [W]e believe RKUS is well positioned for organic growth and total addressable market (TAM) expansion with new product additions; becoming an increasingly attractive takeover target."
    • Infoblox is expected to benefit from new management, a rebuilt DDI appliance pipeline, and growing security attach rates. "[W]e believe BLOX is successfully executing on its transformation from a 'nice to have' to a line item in IT budgets; we believe the company can generate growth at or above 20%."
    • Previously: F5 bulls eye security, mobile growth after sales miss
    • Previously: Deutsche upgrades Infoblox, sees a cloud play
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  • Friday, March 27, 2015

  • 8:58 PM
    • Glenn Lurie, CEO of AT&T Mobility (NYSE:T), says he's not worried about the outcome if Sprint (NYSE:S) and T-Mobile (NYSE:TMUS) -- third and fourth in the U.S. wireless market behind AT&T and Verizon (NYSE:VZ) -- decide to merge.
    • "We are a very, very different company than the other three," he tells FierceWireless. "So whatever happens with them, I'm not really that concerned. I'm concerned about how we execute and how we operate."
    • His No. 1 goal, Lurie says, is to reduce churn and preserve the company's current subscribers in order to upsell other services.
    • Chatter continues to suggest that Sprint and T-Mobile may have to think about combining to achieve competitive scale, and in the meantime they're firing salvos in a price war that Lurie says AT&T won't join: "This industry is not commoditized at all."
    • Previously: Goldman upgrades T-Mobile; DT reiterates merger wish (Jan. 20 2015)
  • 8:16 PM
    • More from the increasingly contentious battle over Vivendi's (OTCPK:VIVHY) future: The company has written to hedge fund P. Schoenfeld Asset Management saying that if PSAM joins forces with other shareholders, it could violate French law by coordinating with other investors in excess of a 20% limit for foreign nationals outside the EU.
    • Schoenfeld just responded with a statement noting its disappointment and saying "We have received a letter whose purpose seems to be to intimidate us. We consider this behavior totally unacceptable."
    • PSAM requested in its newest letter that Vivendi publicly disclose its information relating to its monitoring of the 20% threshold.
    • Earlier, PSAM agitated for Vivendi to sell Universal Music and to issue nearly $10B in special dividends. The fund will clash with management at the April 17 annual meeting.
    • Vivendi Chairman Vincent Bolloré this week poured €632M in to boost his stake in the company to 10.2%. PSAM owns less than 1% but plans to gather support for a proxy fight.
    • Vivendi finished -1.2% in Euronext Paris; ADRs down 0.2% in the U.S.
    • Previously: Vivendi downgraded; Bolloré adds to stake amid activist threat (Mar. 27 2015)
    • Previously: Hedge fund calls for $10B in special dividends from Vivendi (Mar. 23 2015)
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  • 7:34 PM
    • Companies made key bets on India's wireless phone industry this week -- and Idea Cellular made the biggest of all -- in a spectrum auction that drew $17.6B overall.
    • Idea -- India's No. 3 wireless carrier -- spent the most among carriers, with 300B rupees ($4.8B) in bids across three different bands (900 MHz, 1800 MHz and 2.1 GHz).
    • Bharti Airtel (291B rupees, or $4.65B) and Vodafone (VOD; 259.6B rupees, or $4.15B) spent nearly as much. The three dominated the auction bidding due to license renewals they had to accomplish before a December expiration. Overall, bidders focused on 4G bandwidth in order to grow more high-speed services.
    • The size of the auction raised eyebrows, and Idea said it would take advantage of a government-offered deferred payment.
    • In a reflection of the recent U.S. wireless auction, Bharti Airtel complained about the auction format: "We hope that in future auctions, the government will make available adequate spectrum by securing it from agencies and operators who are underutilizing this vital resource," said the company's regional CEO Gopal Vittal.
    • Profitability is on the rise among Indian carriers, with 120M smartphone users in country and sliding handset prices expected to fuel further subscriber growth.
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  • 7:09 PM
    • Yahoo (NASDAQ:YHOO) "offers an attractive way to buy BABA at a 20% discount to current levels, or 21x [estimated 2016] EPS," writes Morgan Stanley's Brian Nowak (formerly with Susquehanna), who has launched coverage on Yahoo with a Buy rating and $55 target.
    • MS/Nowak sees Alibaba's earnings growth accelerating to 37% in 2016 after totaling just 9% in 2015 (due to near-term margin pressures caused by aggressive spending). On that basis, he backs Morgan Stanley's $102.30 Alibaba target (set by fellow analyst Robert Lin), and values Yahoo's Alibaba stake, due to be spun off tax-free this year, at $38/share. Based on today's close of $84.58, the stake would be valued at ~$31.40/share.
    • After factoring the Yahoo Japan stake, net cash, and core Yahoo, Nowak reaches a $55 sum-of-the-parts valuation. He expects core Yahoo to continue losing display and search ad share, but notes it's worth $5/share even if valued at just 4.5x estimated 2016 EBITDA.
    • Thanks to yesterday afternoon's buyback announcement, Yahoo rose 1.4% today to $45.10. After the close, Yahoo disclosed it has extended the deadline for renegotiating its Microsoft search deal by 30 days. The deal lasts until 2020, but gives Yahoo the right to terminate if (among other things) its trailing 12-month U.S. revenue per search (RPS) falls below a % of Google's estimated trailing 12-month U.S. RPS (excluding mobile).
  • 6:33 PM
    • Realty Income (NYSE:O) is up 3.3% in after-hours trade as it's set to join the S&P 500, replacing Windstream Holdings (NASDAQ:WIN), itself down 5.1% today and -0.5% after hours.
    • Windstream -- spinning off assets into a REIT -- will head to the S&P MidCap 400 to replace International Game Technology (NYSE:IGT), which is being acquired by GTECH. Meanwhile, Douglas Emmett (DEI, up 2.1% after hours) will replace Realty Income in the MidCap 400 after trading on April 6.
    • In other moves, Gentherm (THRM, +1.8% late) replaces buyout target Aviv REIT (NYSE:AVIV) in the S&P SmallCap 600 after trading on April 1; and Echo Global Logistics (ECHO, +1.9% late) will replace C&J Energy Services (NYSE:CJES) in the SmallCap 600 after trading April 1, as C&J is merging with part of Nabors.
  • 6:22 PM
    • Keith Rabois, an early PayPal exec (and member of the PayPal Mafia), the former COO of mobile payments giant Square, and currently a partner at VC firm Khosla Ventures, is resigning from XOOM's board following its May 28 annual meeting.
    • Joining the board today is Tom Killalea, a 16-year Amazon vet and currently an advisor to several private tech companies. Killalea's roles at Amazon included leading its infrastructure/distributed systems teams and its Kindle content product development/engineering teams.
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  • 6:13 PM
    • Digital Power (NYSEMKT:DPW): Q4 Non GAAP loss of $0.238M vs. $0.10M in 4Q13
    • Revenue of $2.11M (-6.6% Y/Y).
    • Press Release
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  • 6:08 PM
    • Two days after getting crushed on news the company lost a breach of contract and trade secret suit against Diablo Technologies, Netlist (NASDAQ:NLST) fell more moderately after posting a Q4 EPS miss (there was only one analyst estimate) to go with roughly in-line revenue.
    • Margin pressures weighed on EPS: Gross margin was -4.5% vs. 24.6% a year ago. A 70% Y/Y increase in operating expenses to $5.3M also weighed - legal fees totaled $2.4M (up ~3x Y/Y), SG&A spend $1.6M, and R&D $1.3M.
    • Netlist ended Q4 with $11.7M in cash, $7.9M in working capital, and $5.8M in debt. The company has since raised $9M in net proceeds through a stock/warrant offering.
    • Since the Diablo verdict, Netlist has stated it plans to continue pursuing its (separate) infringement suit against Diablo and SanDisk, and that it "intends to request that the Court correct the verdict as to the breach of contract count, and to pursue all available appeals."
    • Shares fell to $0.64 today. They dropped as low as $0.52 following the Diablo verdict before bouncing a bit.
    • Q4 results, PR
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  • 6:03 PM
    • If America Movil (NYSE:AMX) doesn't sell off assets -- as it said it planned to, to address competitive concerns -- it may not necessarily face tougher regulation after all, Mexico's chief telecom regulator says.
    • The Federal Telecommunications Institute plans a March 2016 rule revision -- and after Mexico's congress passed telecom reform last summer to reduce the dominance of Carlos Slim's telecom giant, the company has planned asset sales to comply.
    • But "The problem of the market is not the size of the operator; this is a market with economies of scale, it's capital intensive; the problem is having that power and abusing it," says IFT President Gabriel Contreras.
    • AT&T and SoftBank were said to be looking at AMX's assets, which should draw more than $10B and maybe more than $15B in a sale.
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  • 5:49 PM
    • Taiwanese patterned sapphire substrate (PSS) maker Rigidtech Microelectronics is seeing strong demand in March and expects the momentum to continue in April, with 4" substrate demand particularly strong, president Hung Wen-ching tells Digitimes.
    • In addition, the site reports fellow PSS maker "has been running at nearly full capacity during the first quarter of 2015 and is aiming to strengthen its presence in China,"  and that peer Pheceda Technology is "preparing to expand production in China due to an expected surge in orders."
    • Taiwanese and Chinese PSS makers in general are said to be "shifting mainstream production from 2-inch PSS to 4-inch models and have focused capacity expansion on 4-inch." This has reportedly led Taiwanese LED wafer/chip makers to ask for lower quotes on 4" PSS' following an increase in supply.
    • The report could bode well for U.S. sapphire substrate/ingot maker Rubicon (NASDAQ:RBCN), which reported a 23% Y/Y sales drop and a $5.5M gross loss in Q4 amid ongoing industry oversupply and pricing issues. Rubicon's Q4-ending cash balance of $45M is equal to over 40% of its current $105.6M market cap.
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  • 5:19 PM
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  • 5:05 PM
    • Alpha & Omega Semi (NASDAQ:AOSL) CTO Hamza Yilmaz is resigning, effective March 31.
    • In tandem with the resignation, co-founder Sik Kwong Lui has been "named as Vice President of Silicon Technology and resumed his leadership role in technology development."
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  • 4:54 PM
    • After falling hard on Wednesday amid cautious remarks from TSMC (TSM -1.1%), and falling again (to a lesser extent) on Thursday in the wake of SanDisk's warning, chip stocks rallied during the final 30 minutes of trading (SOXX +2.8%) in response to a WSJ report stating Intel is in talks to buy FPGA vendor Altera. A deal would be among the biggest in the chip industry's non-stop consolidation wave, rivaled only by NXP/Freescale.
    • In addition to Altera rivals Xilinx and Lattice (previously covered), chipmakers catching a bid included Avago (AVGO +2.8%), InvenSense (INVN +2.6%), Cirrus Logic (CRUS +2.5%), Synaptics (SYNA +1.9%), Analog Devices (ADI +2.5%), QuickLogic (QUIK +3.8%) (a smaller FPGA maker), and Fairchild (FCS +3.2%).
    • InvenSense has occasionally been the subject of speculation Intel or Qualcomm could make a bid. Acquisition-hungry Avago, meanwhile, is reportedly on the hunt for new deals after bidding for Freescale.
    • More than a few analysts have defended chip stocks following the TSMC remarks. Jefferies and Susquehanna have argued TSMC's issues are due to share loss to Samsung (partly for Apple/Qualcomm orders), and BMO notes Nvidia (a major TSMC client) recently disclosed adding Samsung as a foundry partner. It's a fan of Synaptics and Maxim (MXIM +2.2%) due to their Galaxy S6 exposure.
    • BofA/Merrill reports seeing pockets of excess chip inventory (for PCs and emerging markets smartphones) during a Taiwanese trip, but thinks Apple and Samsung phone-related orders are healthy, as are auto, industrial, and data center chip demand.
    • Credit Suisse: "Our cyclical and structural call on Semis remains unchanged – cycle-to-date has been well behaved, Semi rev to global GDP is poised to inflect higher and Semis relative valuation still attractive – growing top/bottom line faster than SPX, twice the margin profile, essentially same dividend yield trading at a two turn discount."
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  • 4:30 PM
    • Earlier than expected, Sony (NYSE:SNE) has added content from AMC Networks (NASDAQ:AMCX) to its PlayStation Vue streaming TV offering -- so the service's zombie fans (or fans of zombies) can get The Walking Dead's season five finale this coming Sunday.
    • Vue (which is currently only available in NYC, Chicago and Philadelphia) now has AMC and WEtv in all packages, and IFC and Sundance in its mid- and high-priced Core and Elite tiers.
    • Still absent (and still a dealbreaker for many): Disney's channels, including ABC TV and ESPN. Sony says it's in talks to make those happen.
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  • 3:47 PM
    • The WSJ reports Intel (INTC +5.9%) is in talks to buy FPGA vendor/foundry partner Altera (ALTR +22.7%). Shares of both companies have surged in response. With Altera currently sporting a $12.7B market cap, the deal would be the biggest in Intel's history, and one of the biggest in the chip industry's M&A/consolidation wave.
    • Intel struck a foundry deal with Altera in 2013, and is set to produce 14nm chips for the company. Altera's FPGAs are found in plenty of products containing Intel's Xeon server CPUs or network processors. The companies have also collaborated on a solution for Web data centers that pairs a Xeon CPU and an Altera FPGA in the same package, with the latter enabling on-the-fly programmability.
    • Altera archrival Xilinx (XLNX +5%) and smaller rival Lattice (LSCC +3.7%) have also spiked higher.
    • Update (4:00PM ET): The full story is now out. The WSJ states deal terms and timing are unknown.
    • Update 2 (4:08PM): Bloomberg has joined the WSJ in reporting of deal talks. Intel closed up 6.4%, and Altera closed up 28.4%.
  • 3:12 PM
    • Today's notable tech gainers include next-gen firewall leader Palo Alto Networks (PANW +3.5%), touchscreen tech developer UniPixel (UNXL +5.9%), solar microinverter leader Enphase (ENPH +5.8%), optical transport/switching hardware vendor Infinera (INFN +3.8%), telecom service/analytics provider Neustar (NSR +4.4%), and Chinese online classifieds leader (WUBA +4%). The Nasdaq is up 0.3%
    • There are relatively few major decliners today. The group includes Infinera rival Ciena (CIEN -4.5%), Chinese sports lottery site (WBAI -5.3%), and Chinese online video leader Youku (YOKU -3.4%).
    • Palo Alto is adding to Thursday gains seen amid a broader cybersecurity stock rally. Likewise, Enphase gained on Thursday following rival SolarEdge's IPO, Neustar gained after announcing a $150M buyback, and Infinera gained following a bullish MKM note.
    • Ciena is reversing the Tuesday gains seen after Stifel reported the company's share of a major Verizon 100G metro contract (has been officially announced) could be larger than expected. is giving back major Thursday gains; yesterday morning, SA Instablog author/former i-banker MNS Global reported hearing Chinese authorities are thinking of indefinitely extending recently-placed bans on online sports lottery sales, after uncovering corruption.
    • Previously covered: EMC, HP, Voxeljet, Skyworks, SuperCom, Stratasys, Qunar, Pandora, SanDisk
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