The UMC investment turning into a bonanza and Maverick Networks becoming a cash cow - credit goes quite a bit to the management, who on a more pragmatic note decided not to chase money loosing chip business ventures. In the Chip/Semi business though there are some 50+ companies making all kinds of chips - it is companies like LLTC (pre-tax profit margin -54 %), MXIM (pre-tax profit margin -47 %), INTC (pre-tax profit margin - 35 %), VTSS (pre-tax profit margin -35 %), that are high yielding businesses and not "also ran"s like AMD(pre-tax profit margin - 3 %), NVDA (pre-tax profit margin - 3 %),
CRUS (pre-tax profit margin - 6 %). ALSC won't be able to match the 30+ % profit margins of the Chip leaders like LLTC, because it will take them years to set up shop, neither should they try to mimic companies like Micron (pre-tax profit margin of 5 %) by doing business in huge volume to generate paltry profits. The most prudent management decision should be if we pump in 100 million what do we get back? - if it is 40 million every year for the next five years
- then agressively chase that opportunity! On the other hand, if you are like AMD and you are only generating 5 % profits getting only 5 million for the next five years, why go after the business ? - get out sooner than later - like NSM did this year! You can get better returns from buying a thirty year T-Bond which yields 6 % without any headaches!
Thus ALSC pumping 7 million into a startup like Maverick is much more worthwhile on a risk/reward basis. If it fails it is chicken sh.....
On the other hand if it takes off like Maverick - do ten more of the same! IMHO the Reddys are playing the cards right by not burning money on losers. That itself is a big plus for ALSC in the long run!
Once bitten ......(ALSC was bankrupt once, if you remember!)ALSC should watch out! |
