Yes, of course, I plan to diversify my SIMO holdings, but want to do that on a peak valuation and high price. Not now.
For SIMO's outlook, I'm fairly confident they have won the battle for high volume low cost client NAND controllers. There's only one other merchant maker of NAND flash client controllers - Taiwanese
Phison - and SIMO is perhaps 3x or 4x larger than Phison in NAND controllers, not really sure. SIMO will beat them over time, easily.
So I'm wondering what will happen to the NAND controller market over time in regard to internal controller groups in the 7 NAND market, and SIMO. That is the market battel - SIMO against the internal controller groups at the NAND makers.
Maybe eventually the NAND makers let SIMO make all the low end commodity NAND SSD controllers, and SIMO has a massive cash cow in perpetuity. The NAND makers make the high end enterprise state of the art controllers, and leave the low end commodity controllers to SIMO. That's what Intel NAND did. That would be great.
If the long term SIMO story looks anything like this, then SIMO is a cash cow in client controllers, and can invest in enterprise NAND controllers and capture lots of that market. SIMO kicked MRVL's butt in client controllers from 2015 to 2018, forcing MRVL to exit the market. I wouldn't be surprised to see them do the same thing next year and years on in enterprise NAND controllers.
That outcome would give us a share price above $75, and could be visible as soon as two years from now. I'd rather diversify then.
Or.....maybe the NAND makers try to make each and every required controller themselves, and over time SIMO is left only with the module makers as customers. That's a real drag, but it's still about 40% of the controller market. It's really bad, but SIMO survives. But.....if this is the market outcome, yes, I should sell SIMO today, because it's a cost conscious revenue shrinker, not a revenue grower.
It appears to me the good story is more likely. In UFS cell phone controllers, SK Hynix is supposed to return as a SIMO customer after trying to go it alone since two years ago. That is the trend that makes SIMO a fantastic investment (merchant market wins over internal). In SSD controllers, SIMO's gen 3 PCIe NVME controllers have 4 NAND makers as OEM customers. For the next generation gen 4 (which goes mass market beginning late next year) SIMO already has 5 NAND maker customers, including a new Korean NAND maker. Again, that's the trend (more NAND makers as merchant customers) that make SIMO a great investment.
But the market knows all this, and is saying the opposite. I'm trying to figure out what the market sees that I don't see.
This story already played out in disk drive controllers. But I don't know what happened. I'd love to learn.
Even if everything goes wrong, some larger semiconductor company should acquire SIMO at a crazy 80% premium, and SIMO's valuation now is so low it would be accretive to the acquirer's EPS. So that also makes me not inclined to "diversify". SIMO sold a crappy small division of theirs which for 10 years had flat to declining revenues, and they sold it for 2x sales.
SIMO right now is at 1.85x sales if you deduct their cash per share from the share price ($12 cash and property, no debt). They are the leader in their segment, highly profitable, and valued like a third tier declining piece of junk. A little bit of good news and it will be $45. I'll sit and wait. |
