Well, it's probably not a bad idea to buy SIMO down here around $56.
SIMO has about $7 per share cash and no debt. The cash amount should increase a good bit, perhaps up to $9 per share when they report Q3. Q2 had very high account receivables, and when they collect them in Q3 and also perhaps reduce inventory purchasing (due to the slowdown) the cash generation of Q3 should be nice.
MXL still has an agreement to purchase SIMO at roughly $105, and that agreement is just awaiting approval by the Chinese anti-trust regulators. Consensus (based on SIMO's $56 share price) must be that the Chinese aint going to approve.
If the deal collapses, SIMO probably gets $160m cash from MXL.
As for standalone SIMO, it's not clear exactly what's going on. When last SIMO gave guidance (January 2022) they expected to do $1.1b-$1.2b in 2022 sales, with big big growth expected in H2 2022 (now). SIMO said they would do more than $1.2b if they could get more foundry allocation from TSMC in 2022. Both the PC and cell phone industries have slowed tremendously - as evidenced by revenue guidance reductions by Micron, SIMO's #1 customer - and we have had no full year guidance update from SIMO since January. SIMO did ~$500m and $3.50 EPS in H1 2022. What they will do in the second half of 2022 is unclear, but the positive thing is once the "slowdown" inventory glut issue is worked through, SIMO should be back on track to deliver fairly strong sales growth compared to 2021 level of ~$930m.
Another big positive is in Q3 2022 SIMO delivered 53% gross margins, a decade high level. Perhaps they are actively trying to increase gross margins (that was one of MXL's objectives post acquisition). If SIMO can deliver sustainably higher gross margins, then it arguably deserves a higher than historic PE multiple. Higher gross margins means a higher level of technology, and a higher valuation multiple.
If we look out to Q4 2023 (15 months from today) and the deal has collapsed, I think we can expect SIMO to have $15-$20 per share in cash, no debt, and probably on AT LEAST a $1.2 billion in sales run rate, with EPS perhaps $8-$10 per year. That by itself seems like it's likely worth $100 per share. So deal or no deal, SIMO is probably a great buy now at $56 level. |
