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Mr Spacely

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  • Why Intel Is Better Positioned Than Qualcomm [View article]
    So Apple is going to buy from INTC only for its US phones? Because other geographies don't have the same issue as the U.S. Why would Apple want to buy from a vendor that can only supply to less than half their volume? Dual source yes, but limiting one of those vendors is not a good strategy and removes the purpose of dual sourcing.
    Nov 4, 2015. 12:43 PM | 1 Like Like |Link to Comment
  • Western Digital Leverages Itself For SanDisk [View article]
    @motleytrout I agree but it’s not as straightforward as you say. The memory industry is changing. For the past 20 years, HDDs were the way to store data. In the next 20 years, HDDs will go the way of tape drives and be replaced by NAND. How long that transition takes is the key issue.

    If it’s orderly, then WD has just become the only company to be able to sell both high end NAND SSDs and low end HDDs. They will be the most vertically integrated memory maker and can address the entire market. It’s true that their 3D NAND is not cutting edge, but it’s one of only three options and if they can sell good enough NAND along with HDDs, they become more competitive.

    Even the mighty Samsung can’t cover as much of the market as WDC because they only sell NAND/SSDs – they have limited themselves to the high end. It may be the future and have the most growth with the most profit but today, it’s just a small portion of the market. Plus Samsung made a big bet on bringing everything in house. If their phones and computers sold like Apple’s, they would have been right, but so far, they haven’t, which has created utilization issues.

    MU/INTC were moving in the direction of becoming more vertically integrated but INTC got greedy and announced their own separate plans. At first blush, this appears to be a major reversal and leaves MU as it once was, a largely DRAM chip maker, not a vertically integrated memory maker. Yes they have 3D NAND and 3D XPoint, but how they make money on that outside of selling to INTC is still unclear. MU has once again been relegated to the commodity producer.

    With yesterday’s announcement Intel moves one step closer to becoming that vertically integrated master. In fact, I would argue that Intel is the model that they will all need/try to emulate – CPU, GPU, and storage – the convergence of the data center as Michael Dell calls it. They already do a pretty good business selling NAND to their DC customers now and this fab expansion will only help them. Once Intel moves big into memory and pairs 3DXPoint with a CPU, it’s over for everyone else.

    If I were to pick the winner, it would be Intel
    Oct 21, 2015. 11:46 AM | 6 Likes Like |Link to Comment
  • AMD's Classic Death Spiral [View article]
    I agree with the principle of your article that AMD is in bad shape but I don't think its as bad as you say.

    First, I was at the Financial Analyst day. My impression of Zen's timing was that they would qualify in 16 with maybe a little front end rev but full ramp revenue would occur in 2017. I've heard nothing over the past 5-6 months to suggest otherwise.

    Second, I would say that the C&G results are positive. Sure its down ~30% yoy but it is up seq and expected to grow seq again. Mgmt said Q2 was the trough. Should I believe them? Well, this is largely due to new graphics chips that are still ramping so it seems plausible. But the bigger takeaway is that they developed them, launched them and its now leading to revenue and share growth. Thats a positive story. Will it fix their problems, probably not, but were they able to develop a new competitive chip that improved the business? Yes. Baby steps. This is a model now for future graphics rollouts in 16 on FinFet and a model for Zen.
    Oct 20, 2015. 12:18 PM | 6 Likes Like |Link to Comment
  • Micron: Analysis Of The Analysts And Go-Forward Thoughts [View article]
    First, I wish Russ a speedy recovery

    Second, your first quote was not so ground breaking. It was basically a rehash of comments from the analyst day which is why it didn’t elicit a response. Mgmt said then that ramps and yields were ahead of prior node transitions. They also laid out a similar timeline for run rate production of 3D NAND at Singapore, ie 2016. This was merely an update to those comments.

    Third, 3DXpoint is a wild card. If you think it will be $4.8b in rev from $0 today, you should be levering your house, your car, your children and be putting those dollars along with every other one you can find into MU’s stock. Not even mgmt is doing that. Why? Intel. They said on the call that the best uses are in-memory databases and ultra-high-performance storage systems. But Intel is going to capture a big chunk of this market, especially IMDB. This wont be a memory technology in the sense that we currently define memory. The best use of this is when it is combined with a cpu, which Intel dominates, on an SoC. Intel is frantically working to create an SoC with 3DXpoint. This will change computing. Right now, one of the biggest bottlenecks is between the CPU and memory and I/O. If they sit right next to each other on a chip, with a very large memory cache, that bottleneck will be eliminated (or greatly reduced) and computing as we know it will forever be changed. So if the power of 3DXpoint relies on the CPU and MU doesn’t make a CPU that means Intel will dominate the market and MU will be left with the scraps. I seriously doubt that MU can ramp that market from $0 to $4.8b in 2 years. Some of your other quotes from the transcript more or less confirm this - mgmt’s inability or unwillingness to provide much detail. They either don’t know what the market will look like or are hamstrung by Intel and can’t say.

    To be sure, MU will benefit from 3DXpoint because they and INTC are the only ones selling it. But as of yet, we have no products, no design wins, no qualifications for anything 3DXpoint which means it is waaaaay too early to make a call on it.

    Oh ya, this acq today was absolutely imperative. Memory isn’t that great without a good controller. These are former SandForce guys who had a pretty good controller that they sold to STX so this should make a MU SSD highly competitive
    Oct 5, 2015. 03:10 PM | 9 Likes Like |Link to Comment
  • The Debt Whisperer: What Are AMD Bonds Telling Us? [View article]
    Great article from a credit guy. Many equity investors often struggle to understand what the credit implications are for a stock. The fact that the original recommendation (by a separate poster) to buy the 19s referenced it as a good relative value vs similar duration bonds shows that that guy didnt understand credit. Duration is almost meaningless for a high yield bond. To be fair, it is at the bottom of the list in terms of important risk factors. Cash flow is at the top.

    The issue with AMD is Zen + liquidity. The bond market isnt making a call on Zen, they are making a call that AMD wont be able to stabilize their cash burn before Zen launches. And if that is the case, AMD will probably need a liquidity lifeline. The problem with that from an unsecured bondholder perspective, and another factor contributing to the price decline, is that this liquidity lifeline will come in the form of an IP backed term loan that will prime existing unsecured bondholders. But $65 is kind of a push. If it was truly distressed, the price would be lower. If liquidity and being primed wasn't an issue, the price would be higher. So the $65 is kind of like kissing your sister. Meh.

    I am a bull on AMD. I think there are several things going into 2H that will show improvement. Remember, the company originally called for a strong 2H at their analyst day. This was derailed by HP in Q2 as they pulled back on buying and burned inventory ahead of their corporate split, but the underlying trends for 2H improvement are still there.
    1. AMD is launching new CPU products, Carrizo et al, which will diminish the overall trend of the PC market. Growing from low share is easy to do
    2. Graphics revs will grow and gain share simply because they have new product that is competitive and Nvidia doesn't have anything to counter.
    3. Similarly, commercial PCs should grow because they are new and again growing from a low share will be easy. And any incremental sales of comml PCs will benefit margins.
    4. A restock at HP will help drive PC sales
    5. Consoles will grow because of 2H seasonality.
    6. A reprofiled WSA will allow them to reduce inventory and add cash to the balance sheet by year end.

    All this suggests to me that their liquidity profile will improve in the near term. That still leaves all of 2016 to worry about, but I do think someone, likely MSFT more than Silver Lake, steps in with a few hundred million to ensure the company stays liquid. As another poster said, this will only add to the bullish sentiment. I think the bonds can push back up into the 70s if not 80s.
    Sep 14, 2015. 09:42 AM | 4 Likes Like |Link to Comment
  • So I Bought More Intel, And It Came With Some Micron [View article]
    Apple doesnt make chips, they make systems and only ones with half eaten apples on them.

    My point is, Intel makes chips for the other 80% of the market or however big the other part of the market is. The reason Apple can do better than Intel is because everything in an Apple from hardware to software is optimized to run as efficiently as possible in that closed system. If Intel made closed systems, you better believe they would be as good if not better than Apple. As it stands now, Intel has to make as generic a chip as possible so that Dell, HP, Lenovo, Asus, Acer, etc etc can then design systems around them.

    Intel will never be rendered obsolete unless Dell, HP, Lenovo, Asus, Acer etc etc are also obsolete. And even then, Intel has this little data center business that gives them some extra pocket change.
    Sep 10, 2015. 03:01 PM | 5 Likes Like |Link to Comment
  • Unigroup's Micron Bid Dead - Really [View article]
    I've said all along that the eventual buyer will be INTC. People think that's ludicrous but those people don't understand memory, just like the author. To truly do the Scifi computing sh1t you need compute and memory working in unison without latency. That means the two will converge. Right now Intel is fine partnering but eventually they won't be fine especially if MU is owned by the Chinese
    Sep 4, 2015. 09:36 PM | 1 Like Like |Link to Comment
  • 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