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Mr Spacely

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  • Micron And Intel: Non-Volatile Memory Is Exploding [View article]
    I also spoke to Rob Cooke. In terms of who can sell what, my impression is that Intel created this product to help improve compute. Not Intel and MU collaborated to design a new memory - Intel developed it to help compute. And therefore they will sell this everywhere there is an Intel CPU. Micron will be able to sell to the rest. I'll let you guess the size of that market

    He also made it sound like MU was INTC b!tch and they were only invited along because Intel couldnt do it all on their own. Its kind of like saying that Intel built the sweetest car you ever saw and MU built its transmission. Its a great transmission and MU can make money selling it to others, but people don't want the transmission, they want the car.
    Aug 19, 2015. 04:47 PM | 5 Likes Like |Link to Comment
  • Samsung Adds To Micron Bulls' Worries [View article]
    AS said above, old news. DRAM is doubling on new phone. Mobile DRAM is in short supply so no one vendor can supply all. Micron still supplies 1gb equivalent and Samsung the incremental new. Not necessarily a positive for MU, but not a negative especially if the 6s takes share from Samsung and remains the only growing part of market. MU will be supplying the growing part and avoid the declining ie Samsung
    Aug 11, 2015. 07:15 PM | Likes Like |Link to Comment
  • ACI Worldwide: Acquisitions Driven Growth At Risk [View article]
    While I agree with your premise, ie the stock could be overvalued, I think you draw the wrong conclusions. Here's why
    1. Book value is irrelevant for this firm. It is a software company and has no assets
    2. If EBITDA is $300m and net debt is $750m, then net leverage is 2.5x. That is perfectly acceptable for a BB credit and a company whose EV multiple is 16x.
    3. There is no relevancy in looking at “net” FCF after acquisitions or EPS as a measure of their purchasing power. I get your point that if they need to acquire they might want to be able to fund those acquisition out of cash flow but they don’t need to. The relevant metric is FCF (Cash from ops – capex). From your table, that number is ~$120m or 15% of their gross debt. Said differently, they could pay off their entire debt balance in 6.75 years using this FCF if they wanted. Again, perfectly acceptable for a BB credit which guarantees them access to relatively cheap funding. What is important is the amount of EBITDA and FCF that comes with an acquisition because since it will presumably be debt financed, the acquired EBITDA should be able to pay the interest on the new debt. Even if they buy technology with no revenue, they have a lot of cushion in that $120m to absorb incremental debt. The concern here is that they buy too many non-revenue generating companies with the hopes of attaining revenue soon but turns out to take much longer than expected.
    4. You ask where is the op leverage? You show that cost of license has cut in half. R&D has cut 6 points, S&M 3 points and G&A 7 points. I’d say that is a ton of leverage. Yes, cost of maintenance, services and hosting has increased but this isn’t a bad thing because hosting revs have been increasing much faster. You point out that GM is stable around 40%. This is the crux of the story. As they move to a cloud/SaaS/on-demand model, hosting revs and the costs to support those revs, like data centers, will increase. But once that infrastructure is in place, they will get leverage. They are simply going through a growth phase.
    5. Your bridge to next year’s EBITDA is wrong because it doesn’t factor in seasonality. The majority of sales and profits occur in 2H and mostly in Q4. Q1 and Q2 are significantly less than Q3 and Q4. Last year, Q2 EBITDA was $60m and Q4 was 110. This has some noise because of the ReD acq but the trend is still valid. You can’t annualize Q2
    Aug 7, 2015. 12:24 PM | 1 Like Like |Link to Comment
  • AMD Is In Serious Trouble, But There's Still Hope [View article]
    There is no "bank credit". It is an asset based revolver backed by accts receivable. As long as they have eligible AR to put in the facility, they can borrow against it so there is no "bank" to restrict borrowings.

    They did increase their ABL to pay off the maturing cvts.
    Jul 17, 2015. 12:57 PM | 1 Like Like |Link to Comment
  • AMD Is In Serious Trouble, But There's Still Hope [View article]
    I'd like to think I am a smart Finance guy and Im not sure what you are talking about. As far as I know, there is nothing in the bond or ABL indentures mandating a minimum cash level.

    Perhaps you are referring to the cash dominion language in the ABL? If so, the recent amendment lowered the trigger amount from $500m to $250m. But even still, this language is not a mechanism to force a bankruptcy, it simply determines how AMD can access their cash. With any ABL, there are dominion accounts and operating accounts. The dominion account, where the ABL agent has "dominion" over the cash, ensures that the cash coming in the door is used to offset the receivables held in the ABL facility. In some instances, the company has no choice and all cash that comes in goes into a dominion account. In others, the lenders allow the company to bypass the dominion acct and store cash in an operating account but put a trigger in place that automatically switches to a dominion account at a certain level.

    Currently, AMD is the latter. They can use their cash freely. If a trigger event occurs, which now happens when domestic cash is $250 or below, they would be forced to sweep all of their cash into a dominion account. To access that cash, AMD would then have to request to borrow it.

    In reality, this could make things very sticky for them given all the restrictions that go into effect during the dominion period and eventually lead to a liquidity crunch and ultimately bankruptcy. But this is more so a way for ABL lenders to protect their recovery value. If AMDs cash gets to $250, there will be way bigger problems than switching to a dominion account.
    Jul 17, 2015. 12:51 PM | 6 Likes Like |Link to Comment
  • AMD: Could Bad News Be Good News? [View article]
    Re the debt spin you speak of, all 4 of AMDs bonds have change of control language and asset sale language which essentially ties the debt to the assets.

    If they were sold, the company would have to buy back debt at par or better. The bonds trade well below par today (10-20 points) so it would be expensive. Thats not to say there isnt some highly intelligent, highly paid lawyer out there that could get around this, but in the end, this company is going to need debt financing to survive, ie mkt cap is $1.6bln, debt is $2+bln. They probably dont want to piss off debt holders
    Jul 8, 2015. 09:57 AM | 1 Like Like |Link to Comment
  • AMD: Could Bad News Be Good News? [View article]
    I simply don’t buy the buyout/split up story. It’s nice to hope and dream if you are a current holder or speculating, but when you peel back the onion, it doesn’t make sense. My view is that AMD has just enough rope (liquidity) to hang themselves although even that is in question. The press release said cash was $830. It didn’t say if they needed to draw on the revolver to get to $830. They could have sold their channel inventory and brought in some cash or they drew on the revolver. Every incremental revolver draws weakens them.

    In the end, everything is riding on Zen. If Zen works, AMD probably survives. If it doesn’t, they don’t. If you were a buyer, why not wait until either 1) Zen is fully developed and proved out or 2) they use all of their liquidity and need a desperation bailout which means you can buy on the cheap.

    Here are my thoughts on pros/cons of a buyout. This list is not complete

    Arguments for buyout
    1. Intel wants to collapse the cross license agreement and gain GPU IP – but would then have to battle FTC opposition
    2. Qualcomm needs to move into servers
    3. MSFT wants to protect their Xbox franchise (but then what does Sony do?)
    4. Mediatek wants access to broader markets
    5. China wants access to x86
    6. Samsung has a ton of cash and is speculated to be buying everything that is for sale

    Arguments against buyout
    1. Who wants to buy the headache?
    2. Company is actually 3 businesses and there doesn’t seem to be a clear buyer of all three and splitting up would be difficult
    3. Cross license agreement with Intel. I haven’t seen any clear indication (just massive amounts of speculation) as to whether or not Intel has the ability to block a sale.
    4. Abu Dhabi owns ~20%
    a. They bought at a much higher price and probably would push for the highest price possible which is good for existing shareholders but at odds with a buyer
    b. Or they could ultimately buy out the public equity but would obviously want the lowest price possible which is not good for existing shareholders
    5. Buyer would get inferior products and then have to spend a ton of money to get competitive with behemoths Intel and nVidia. Who wants to buy that market position? See #1
    6. Depending on your view of PCs, x86 is becoming marginalized and only has use in servers and high end workstations (still a big market, but a shrinking one). Mobile is the future. Any of the "number of large chip companies that could easily acquire AMD" would a difficult time explaining to their investor why buying AMD is good for long term shareholder value
    7. Because of its use in servers, US Govt probably won’t approve a sale to China because of natl security concerns
    Jul 8, 2015. 09:48 AM | 2 Likes Like |Link to Comment
  • Do Not Buy Annaly Capital, Yet [View article]
    There will always be opps to make money regardless of the level of rates. The issue is perception and equilibrium. People don’t stop buying houses because rates go up or because they are at a higher level today than they were yesterday. Rates are just one factor in the decision making. But as with all forward looking markets, it’s about perception. If you think rates will go up, you will probably buy today. If you think rates will be flat or down, you will probably hold off. If rates are at 3% and at equilibrium, people will buy and NLY can make money. If rates are at 6% and at equilibrium, people will buy and NLY can make money. It’s the transitions between equilibriums that create the heartburn and this is the point the OP was trying to make.

    Steve Luzco, the CEO of STX described this phenomenon perfectly. He said he can make money at $3bln of rev per qtr and he can make money at $2bln of rev per qtr but he can’t make money if he thought it was going to be $3b and he only does $2b.
    Jul 2, 2015. 09:39 AM | 2 Likes Like |Link to Comment
  • Intel's 'Micron Problem' [View article]
    What caused the decline in MU’s stock was not PCs per se. PCs have been in decline for a few years so the trends are well known. What caused MU’s ~20% decline was their outlook for continued lower PC demand which forces a shift to more mobile and server which consume less bits and have lower margins. In addition they expect higher costs in the near term to ramp 20nm DRAM and 3D NAND.

    Lower rev at lower margins + higher production costs equals less future profits. The market was not expecting this (I would argue incorrectly) and so the stock sold off. Yes Intel will have problems, so will Nvidia and AMD, but Micron didn’t say anything to suggest that PCs are any worse off from what we already knew from all the existing data out there. What Micron said was that they will have problems unique to them that will lower future profits.
    Jun 29, 2015. 01:04 PM | 3 Likes Like |Link to Comment
  • Qualcomm May Acquire AMD: This Could Trigger Significant Upside For Both Stocks [View article]
    Its not clear whether or not AMD could sell the x86 license. My opinion is that the FTC would allow a sale of license because if not, it would give Intel monopoly power. This was somewhat addressed in their case a few years back. At worst, the FTC left the door open.
    Jun 24, 2015. 10:22 AM | Likes Like |Link to Comment
  • AMD's Financial Analyst Day: What Did We Learn? [View article]
    Exactly. I thought I said this in my first comment.

    They have 1.5% share right now in datacenters. Its not hard to see how a handful of wins could grow that share to 3.0% especially since AMD will target specific workflows and the not the entire datacenter. Apparently they already have customers asking them to re-enter the market so all they need is a competitive product which Zen appears to be. This small share shift would more than double their revenue since the market is growing.

    As for PCs, MY base case for AMD is that they continue to lose share as they exit the low end. Even the "new" Carrizo will be challenged. As they transition from low end with APUs to higher end/comml offerings with Zen FX, the growth from Zen will only modestly offset the declines from elsewhere.

    Said differently, in the datacenter the only place they can go is up but in PCs, they still have room to fall.
    May 8, 2015. 09:03 AM | 2 Likes Like |Link to Comment
  • AMD's Financial Analyst Day: What Did We Learn? [View article]
    @Ashari. You presume that PCs have stabilized but mgmt has said they dont know when they will, especially the low end where AMD has historically been concentrated. I view "flat to down" as somewhat positive since my base assumption was for further declines. To get to flat suggests they will backfill with new products. But to me, this is not a PC play. Intel will limit any AMD activity in PCs by buying its share. AMD realizes this and so wont spend their efforts or resources on trying to win back large chunks of PC share. They are going head on into the heart of Intel, the datacenter, and if Zen is what Papermaster says it is, they could make waves. Its not hard to go from 1.5% share to 3% which would be a huge win for AMD.
    May 7, 2015. 11:48 AM | 1 Like Like |Link to Comment
  • Analysis Of NCR's Lackluster Quarter And New Details Of Bad Capital Allocation Revealed [View article]
    You raise some valid points that investors should not overlook, but much of this analysis is grasping at straws and does not suggest the company is 70% overvalued. If I use the mosaic theory and look at the same information, I come up with a different conclusion. You make your money both selling short reports and shorting stocks. Enough said.

    Let me address some of your concerns.

    AR facility - You said in your prior report and again here that they report their AR facility in their cash from ops. The CFO said they report it in financing and you show in the slides above that they do indeed show it as financing. But yet your heading says its in cash from ops. It is not. What is included in the operations is the cost of the financing which is probably in the Other income line. I agree that they are not very clear by lumping it with their revolving facility but they do tell you about it. This may not be the best presentation but there are numerous companies that only show change in debt on the SOCF. NCR at least breaks out long term debt and short term. You were able to dig through the reports and find out all the numbers you needed. I too was able to do that and so too should everyone else. This is not a big deal

    Deferred rev – First and foremost, this is a balance sheet item so it’s a point in time not a rolling number. The absolute change from one point to another is not reflective of the underlying changes. Second, DI is the SaaS growth engine and despite the company saying it grew 20% yoy, DI was acquired in the middle of Q1 14. On a PF basis, DI grew ~$10m yoy. On a def rev balance of nearly $600m, that is a rounding error. Plus the company has so many revenue elements included in that def rev balance that you cant accurately make the conclusion you do. Third, I’m not an expert but there are a number of ways that cloud/SaaS revenue can show up in financials. The first thing to understand is what actually makes up cloud rev. Cloud is a loose term and means whatever the person saying it wants it to mean. Many people use the word cloud or SaaS but are actually talking about very different delivery models. Anyone following a Cloud/SaaS company knows the first thing to do is figure out exactly what they mean by the word. Your presumption is that def rev should grow in equal amounts to their bookings. But this is not the case. A booking does not equal rev and thus def rev. Let’s say they book a $1m contract. If they bill and collect a one year subscription, then yes, def rev should reflect the balance of the year that is left on this billing because they have collected the cash but not yet delivered the service. But if they bill and collect qtrly, then def rev will barely change because all the movement occurred intraquarter. Also, on the one hand you complain that the level of def rev didn’t change, but then agree that it contributed to cash flow. That says, as would be expected, they converted def rev to rev and then reloaded it with new sales. Again, nothing unusual here.

    Amortization of intangibles – “What we find unusual is that NCR splits these costs among three income statement categories: Cost of products, services, and SG&A.” You obviously don’t understand amortization of intangibles. These are from acquired assets. They can be related to software IP (Products), the value of a workers knowledge (services) or a trademark (SGA). And yes, these are costs of their acquisitions, but they are non cash adjs to the P&L. To get an accurate assessment of the earnings power of the current business it makes sense to exclude them. If you want to assess the success or failure of the acquisition there are other ways to do this, like ROA or ROIC.

    In the end, you raise some valid points that merit close watch by investors. NCR is not a very ethical company as evidenced by their long list of legal cases. But I don’t believe they are trying to deceive investors. In fact, most of what you call out, you were able to piece together through NCR's own disclosures. Their presentation may not be the best, but I think they offer a wealth of information in the notes of the statements that allow analysts to make their own adjustments. I would argue that NCR offers some of the better disclosure.

    I think like most F500 companies, they are big and unwieldy and have many competitive forces to battle which is never easy and fraught with peril. As long as they disclose those dangers, investors can make their own assessments. But thank you for pointing out some of the more egregious.
    Apr 29, 2015. 02:44 PM | 6 Likes Like |Link to Comment
  • Is Intel Trying To Hide Its Mobile Troubles? [View article]
    Im GM. I sell cars and trucks. All these cars and trucks use similar engine configurations, interior components and other vehicle systems. I dont just report X number of cars and Y number of trucks. I tell you the specific number of each make and model.

    Intel doesnt have to break out every item they sell, but you would think that if mobile is such an important market they would break it out, if it was doing well. This is a clear attempt to hide their sh!tty results. Good on Bill Maurer for calling them on it.
    Apr 7, 2015. 11:02 AM | 9 Likes Like |Link to Comment
  • Zebra: The Motorola Enterprise Unit Is On The Right Track [View article]
    2 things

    1. An acquisition of this size and complexity takes well more than 1 or 2 qtrs to integrate. If they do it right and fully integrate, it will take at least a year until we can see whether or not it works. Despite mgmt’s bullish comments, I think I’ll wait a few more qtrs to make my own call.

    2. From your article "Importantly, the risk/reward appears attractive. The downside risk is limited as expectations for Enterprise are pretty low. But should Zebra succeed in reviving the business, the value creation potential would be huge in light of the company's high financial leverage."

    How can leverage provide such huge upside but not any downside? It can't. The reward of leverage is equal to its risk. You say downside is limited because of low expectations. Hardly. Expectations can be wrong and will no doubt be lowered if they have a bad qtr. They now have a very large interest payment that needs to be mailed out every qtr. They already have a cash headwind from elevated uses related to the integration and restructuring and if MOT results continue to decline, they could quickly find themselves in a liquidity crunch. In that case, your downside is enormous.

    I’m not saying that is going to happen, but the risk of the integration is still very real and significant and is in no way behind us.
    Mar 26, 2015. 01:57 PM | Likes Like |Link to Comment