I just looked it up, and historically SIMO's inventory has been well below it's quarterly sales.
In Q4 2020 sales were $140m and inventory was $110m
In Q4 2019 sales were $153m and inventory was $88m
Those numbers are (I think) normal. Every old quarter I looked at had inventory 60%-9o% of sales.
Last quarter sales was $123m and inventory was (gulp) $307m!
I'm going to bet most of that $307m inventory is NEW gen4 SSD PC controllers and UFS 3.1 controllers, in other words, the new stuff that won't be obsolete for a year or two.
So, if sales are going to stabilize at about $200m, they can probably sell inventory down to $150m, which means they would sell (and not replace) $150m+ of the current $307m inventory.
Selling that $150m+ inventory with a 50% gross margin should generate $300m cash.
So.... a reasonable cash position (as long as they don't need to write down any of this inventory, which is likely the case) at the end of Q4 (if not Q3) 2023 is $280m (Q1 end cash position) + $300m (reducing inventory balance by $150m) + $160m (break up fee) = $740m. That's like $24 per share cash!
It seems like a lot, but I'm not sure where the numbers are wrong.
The bloated Q1 2023 $300m inventory should all turn into cash over the following two or three quarters, and the lower the ongoing sales, the more the cash should be.
If sales stabilize at a higher number than $200m, like $250m, maybe the inventory balance only reduces to $200m (producing $200m cash as they sell down $100m of inventory and do not replace it), but.....if sales are going to be $250m then that's the level where MXL entered the deal.
Aug 7th is happening at exactly the wrong quarter - Q2 2023 is before all of the inventory is sold off (although hopefully it begins) and before revenue recovers from the cyclical dip. I think by Q1 2024 latest SIMO should be a gorgeous cash rich acquisition target again.
If I see this, surely MXL sees it as well. |
