OK, for anyone who reads this board, I am interested to read NEGATIVE things about SIMO's stock. This seems to be about the best outlook for the company in many years.
Client SSD controllers are about 2/3rds of sales. SIMO has > 50% share of design wins in the new PCI gen5 controller chips. Those chips enter production in QQ3 2025, and those controller chips will dominate mid to high end PCs until 2030. This means (they forecast) SIMO's market share will go from about 30% to 40% ovefr the next few years in their largest segment. That's at least 10% growth in their largest segment, per year, for about three years. The PC controller segment will then stabilize as the cash cow until we see what happens with gen6 controllers in PCs in 2030.
The best part is the development expenses for this forecast growth in their largest segment has already occurred. This makes SIMO's largest segment a growing cash cow.
They say eMMC and UFS business trends are moving in their favor, thus hopefully producing market share growth. eMMC remains a high unit volume business, and the NAND makers are exiting the space, making SIMO sort of the only game in town for new design wins. UFS cotrollers traditionally have been sold as part of mobile modules which include DRAM, NAND and a controller, and sold by the three NAND makers that have NAND and DRAM capbility (MU, Samsung and SK). SIMO says the high volume low end is moving toward module makers and direct to phone maker sales where those companies buy a controller from SIMO, buy an entire NAND wafer from the NAND memory makers, and then the module makers make the memory module without DRAM (only NAND memory and SIMO controller). The reason this trend shift is occurring is the big memory makers want a 40% gross margin on their modules, while the module makers (especially Chinese module makers) are satisfied with much lower priced 10% gross margin modules, so price is pushing the cell phone companies toward the lower prices zero DRAM option, and SIMO is the leading UFS merchant controller makers so their controller is chip of choice for the low cost route. That story makes sense, whether it's true or not we will see as the years unfold.
Autos - Designs are won years in advance. SIMO says auto controllers will be 5%-10% of sales within two years. And (I think) once auto sales begin and become meaningful, they're only to go higher and higher for a decade or so. SIMO has Kioxia and an OEM for SSD auto controllers and Samsung as an OEM for eMMC auto controllers. SIMO sells it's own full auto modules, and SIMO has SSD controller chips which are qualified for auto sales. This segment is likely a steady grower for the next ten years.
Mon Titan and enterprise - This is a green field opportunity where all sales are incremental. SIMO has six design wins, two of them described as "tier 1", and these sales commence in H2 2025 and moreson in 2026. This segment should increase corporate gross margins as Mon Titan should have gross margins above 60%, and perhaps well above 60%.
NVDA eco-system 1 - This one is a bit hard for me to completely understand, but I'll try. They their offering is qualified for useage in NVDA's upcoming Bluefield 3 system. Only two companies have offerings which are qualified as of SIMO's last conference call, SIMO and the other sounds like it is Soladigm. Soladigm is the former Intel SSD division which was purchased by SK. The interesting thing is (according to my understanding of what they said in the call) Soladigm's offering (a 122TB SSD) uses a SIMO controller. So.....here's where I'm a bit unclear, but I think it means that SIMO has made it's own 128TB SSD, with a SIMO controller and some memory maker's memory, and SIMO is going to try to sell it's complete SIMO branded SSDs as part of the NVDA Bluefield 3 system. This is interesting because the controller for this SSD probably sells for about $50+, but the memory must sell for much more. I don't know how much 128TB of memory costs when inside a functioning high end SSD, but since this is going to be the largest high volume high capacity on the planet, I would imagine the price is very high. It would be nice if SIMO would clarify this question - is SIMO qualified to sell only the controller in the Bluefield 3, or are they qualified to sell a complete SIMO branded 128TB SSD in the Bluefield 3? If the latter, it seems like sales might be, well, extraordinary? And while there is no guarantee that this product will succeed (lots of serious competition in this space), SIMO has generally outperformed competitors when it has entered new spaces, so we gonna have to wait and see. But if it DOES succeed, it means steady (and perhaps rapid) revenue growth for years and years.
NVDA eco-system 2 - If the relationship with NVDA goes well, we can expect SIMO to make additional components for future NVDA products, and become an absolute acquisition target for many larger semiconductor companies (and to have the share price go a lot higher).
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So there ya have it. The only concerning bit of that story for me is the mobile controller sales growth. Maybe things play out as SIMO forecasts, maybe not, but their segment view makes sense (price competition pushes high volume low end phone makers to use module makers mobile packages rather than memory makers mobile packages, because memory makers demand high profits on sales than do module makers. It does make sense, especially for low end phones that only need to function, they don't need to be super spiffy.
Oh, I forgot the two big potential cash events.
The new office building is scheduled to complete THIS MONTH, and when it completes management has said they may do a sale and leaseback of the building. It cost roughly $125m (land and construction), is 25 stories high, and what can they get for a sale and lease back of an occuppied completed office building? I don't know, hopefully $150m at least.
The Singapore arbitration for the collapsed MXL-SIMO acquisition is expected to complete by Q4 2025. I think SIMO is very likely to win, and the question is just how much will they receive in cash? The break penalty is $160m, and damages. What were damages? We'll see, at least $40m I would think. And then you've got 2 years interest on this amount ($20m?). So I think MXL is going to easily owe SIMO $220m, perhaps more, and the question just becomes whether MXL can pay (or go bust). I don't know, but I imagine MXL has ways to raise $250m if the other option is bankruptcy, so I think they'll pay.
These two cash items together may be $400m cash in the door ($13 per share), or more depending on the office sales price and settlement calculation of "damages" from breach of contract.
SIMO could easily exit 2025 with $800m cash and no debt.
Ok. What's WRONG with SIMO as an investment at the moment?
The things that comes to mind for me are
1- China invades Taiwan.
2- Mon Titan design wins fail to turn into sales. A similar thing happened with Open Channel SSDs at Ali Babba a few years ago. Lots of talk, and then nothing meaningful happened as the SSD market didn't move toward Open Channel technology.
3- Same thing for NVDA qualification. It fails to turn into sales.
That's what I can come up with. We're going to get a good idea about 2 and 3 in the next four quarters. If those Mon Titan and NVDA sales do take off, SIMO's easily going to $100 or higher in 2026. |
