| | | FWIW I bought some more SIMO on the dip Friday. Evidently BofA downgraded SIMO from Buy to Sell due to challenging growth drivers going forward. BofA ranked SIMO buy at $83, and sell at $66. You can decide how valuable their info is.
My thoughts are SIMO will head back up to previous recent highs ($82 or so) along with the semi group. Lately SIMO seems to trade more with the semi group than anything based on SIMO company specific fundamentals, and I think that's good for the share price. On a company specific outlook SIMO always meets or beats it's own guidance, so it's nice to be invested in a stock that will fall and rise with semis, and is unlikely to have company specific disappointments.
SIMO has been spending a lot this year and that has depressed operating margins. Hopefully that high spending in 2024 will pay off in increased or at least stable sales in future years. I think they spend when their NAND maker OEM customers ask them to do a project, so down the road it's more likely that the sales resulting from the spending materialize.
On the gross margin front their gross margins have slowly improved this year. The cut prices and gross margins during the 2023 inventory correction slowdown, and as previous design wins with low prices flush out of the system and get replaced by new design wins with higher gross margins, the number goes higher. Their 2024 full year guidance implies a very nice ramp from Q3 to Q4, with Q4 above 48%. That will (I think) be well received if achieved.
MXL settlement in 2025 could add $200m or more cash to the balance sheet. The completion of the office building and sale / lease back of the complete and occupied building could add at least another $150m to the balance sheet. SIMO already has ~$350m cash and no debt. While I'm not sure the dividend will go up this Sep when they announce the amount for the next year, in 2025 if business is doing well and both of these cash events happen, it's sort of easy to see a dividend bump to $0.75 per Q per share. If not a dividend bump, then perhaps another $100m share repurchase as SIMO will simply have too much cash.
Another company may buy SIMO any day. Small dominant semiconductor companies willing to sell themselves are rare.
What else? SIMO is both growth challenged due to exposue to PCs and cell phones, but also they are more stable and reliable as a result. SIMO has growth segments of autos (hopefully) and enterprise flash controllers, but it will be a while before those two segments are large enough to move the needle. PC SSD controllers are probably 60%+ of sales, and they don't move up or down much unless SIMO gains more share. That's hard to count on, but with the spending on 6nm PC SSD controllers that has occurred in 2024 it's certainly possible. It's not that hard to see NAND OEM's deciding to just buy an existing PC SSD controller from SIMO rather than spend the development money themselves.
My thoughts are SIMO hit $83 or so recently, and nothing has changed. Next year probably looks better than this year, so it should hit $83 again as long as semi sector sentiment stays positive. Basically, buy the dip. |
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