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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: bruwin who wrote (66485)	2/9/2021 5:01:05 PM
From: Elroy	1 Recommendation Recommended By JohnyP Respond to of 78750

It is definitely odd that SIMO has a bullish three year forecast. They generally are actually conservative, and usually beat their current quarter estimates. I don't think revenues have meaningfully missed a current quarter's guidance for more than six years. But their ability to see more than one quarter out seems to be limited. They have definitely had to reduce full year guidance plenty of times in the past six years (make the current quarter, and the reduce guidance for the year). They say usually their customers give them solid orders for three months, and then forecasts for six months, and that's it. Due to the unusually constrained situation in the semiconductor industry their customers in 2021 gave them FIRM one year's worth of orders. I think the semi situation is so bad (everyone is constrained, with the exception of the NAND memory makers) that everyone in semis will take whatever they can get. That's why SIMO says they have firm orders for a lot more than $700m for 2021, but they are guiding the year to $650m-$700m. One interesting factor is a big competitor for SIMO's controllers are the internal controller development teams at the NAND makers themselves. If you're not aware, NAND is a type of memory, it goes in cell phones, PCs, gadgets and some high end cloud and enterprise infrastructure. Every NAND chip requires a controller (to tell the NAND memory chip where to store the signal). The controller is like the brains of the NAND memory chip, but it's a different chip from the memory chip. So anyways.......NAND memory makers also make controllers. At the moment, the NAND memory makers are unable to make enough controllers to satisfy their own demand due to the lousy constrained semiconductor environment. Since all the NAND makers have a relationship with SIMO, it appears they have off loaded their shortages to SIMO, and significantly expanded their effort to procure controllers from SIMO since they can't get the controllers made themselves. NAND makers fabricate NAND memory themselves in their own fabs, but the controller is a logic chip and the NAND makers outsource production of controllers to foundries like TSMC. SIMO due to it's larger size in controllers relative to any individual NAND maker has a better relationship with TSMC and better relationship with the general semi supply chain, so SIMO hopefully can meet the demand, which all the NAND makers have simultaneously dumped onto SIMO since they can't get the controllers made themselves. SIMO's foundry relationships are better than any individual NAND maker's foundry relationships, so they've all asked SIMO to make up for their current shortages. That's a big cause of the current SIMO boom. When the semi industry loosens up and it's easier to get chips made, perhaps the NAND makers bring those controller sales back in house. Or maybe not. Perhaps once they've outsourced some product line to SIMO, it stays external to the NAND maker. Maybe they move on to bigger and better things than boring PC and cell phone controllers. PC and cell phone controllers are boring low tech mass market cost sensitive products. More than a billion units per year. No one wants to focus on them (other than market share leader SIMO). We gotta wait and see how the internal versus external thing plays out, but the very recent trend is way way way in SIMO's favor. ---- Oh yeah, odd that SIMO has given a three year forecast. There is speculation that one of the big boys is trying to acquire SIMO, so SIMO is talking a big game to get the share price (and thus acquisition price) higher. This makes sense to me, and I can't really think of a better reason for them to make a three year forecast, rather than the normal one year start of year forecast.