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Non-Tech : Kirk's Market Thoughts -- Ignore unavailable to you. Want to Upgrade?

To: Kirk © who wrote (12162)	10/19/2021 1:05:15 PM
From: Elroy	Read Replies (1) \| Respond to of 26808

More "O-word" called "scaling up their inventory levels" Yeah, this is to be expected given the supply chain "failure to deliver" of the past 12 months. As I understand it, this year the semiconductor supply chain failure was perhaps the worst ever, at least the worst of the past 20-30 years. It means loads of spots in the supply chain need to carry higher inventory. It would be odd if those spots did not "scale up" their inventory. And it makes sense that the auto industry was amongst the worst hit by the supply chain crunch. The auto industry is characterized by the extremely low "just in time" inventory model. When the one supplier can't deliver and halts the entire assembly line, the costs of that model (no production) obviously outweigh the benefits (lean inventory). Adding inventory is the obvious solution. It completely makes sense that inventories in general across the supply chain will expand. It will affect different companies differently (some a lot, some not at all). I don't really know how to take that general concept (inventories going permanently higher, some companies will have larger "pauses" than others, but we don't know which will slow the most, and we don't know the timing) and apply it to a specific stock investment. I follow SIMO closely. They make the processors which allow NAND memory to function. Their sales are exploding, way faster than their end markets. Their upwardly exploding revenues are due to market share gains, faster displacement of disk drives by NAND SSDs, perhaps price increases, and the above discussed increased ordering by their customers who want to increase their inventory of SIMO's chips. The first three things are good, the last can't last, but who to parse those four drivers into a better understanding of the future revenue trends is beyond me. The valuation is already dirt cheap, so it's easier to just drink margaritas and see what's going on with SIMO 18 months from now rather than try to read the tea leaves. SIMO is interesting because expansions in capacity by the NAND makers or by TSMC makes NAND memory and chips in general LESS EXPENSIVE, so theoretically that increases sales of NAND memory processors. Unlike the memory chip which declines in price when supply goes up, SIMO's sales price is basically fixed to unit volume, so it declines in price when units go up, but the price declines aren't nearly as large as that which affects the memory makers. So a glut of memory with low prices is fantastic for SIMO, it increases the number of devices which can use cheap NAND memory, and SIMO gets to sell another chip which is not so exposed to the memory price decline. Nevertheless, SIMO's valuation is crap. It will likely make $7.50 to $9.00 next year, with sales growing 17% in 2020, 70% in 2021, and maybe (who knows?) 35% in 2022, and EPS growing faster, and with $15 cash per share and no debt, and it trades below $70. So forward PE (if my numbers are correct) is less than 10x. Why a larger semiconductor company (MRVL, AVGO, MCHP, etc.) with a 35x or 50x PE doesn't just buy SIMO using stock, and call it immediately accretive to EPS, is beyond me. Actually, I wouldn't be surprised if Intel acquires SIMO after it has sold off it's NAND business to SK Hynix. Intel is PC processors and SIMO is NAND memory processors, and Intel is a big customer of SIMO so they know the value of their business, and Intel's history is being a mass market consumer electronics component supplier - which is exactly SIMO's business. Anyways.....