The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
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As summarised in the opening bullet points it is a "heads up" that in the view of management things are going very well.
"Our growing pipeline reflects positive secular growth trends in data infrastructure markets and the continued investment in next-generation AI- centric connectivity solutions. This, combined with our talented team and strong balance sheet, give us confidence in our future."
With regards the numbers they seem impressive but a single quarter does not make a summer / needs to be integrated into the whole year and the bigger outlook beyond that - so I'd be more interested in the presentation of the finals in April.
Personally my current view on AWE is
- on the one hand it potentially has very significant upside.
- on the other (famous last words/China could invade Taiwan/whatever) I doubt if it is over rated / has significant downside in the immediate future
So for me it seems like there is an attractive risk/reward proposition at this point in time.
DYOR
Can someone with the time and level of knowledge please pick the bones of todays RNS. It looks too good to be true.
I absolutely agree that AWE has huge potential. However at this point it is hard to say whether they will ultimately end up in the semiconductor industry 'Hall of Fame' or being footnoted as 'also rans'. I'm hoping for the former.
In my own case I became particularly interested after listening to their OUTSTANDING Capital Markets Day presentation of last year (Jan 13 2023).
https://www.lsegissuerservices.com/spark/ALPHAWAVEIPGROUP/events/7aadd13f-2514-47e1-8281-baced5bae5e8 (no real registration required)
Potentially the company stands to benefit from a number of industry trends.
1) First and foremost the 'data explosion' and the solutions that AWE can bring to the table. A.I. as the 'topic du jour' tends to be mentioned first but there is a raft of other drivers. With industry leading solutions in serDes, co packaged optics etc AWE could be expected to benefit from the challenges currently being encountered.
2) Chiplets. Physics wise we have run out of runway in terms of cramming more functionality into smaller and smaller areas. Tomorrows solutions are going to have to be assembled from sub assemblies, some of which will be 'off the shelf' (AWE could be expected to benefit from their IP portfolio) and others which will be new. The enabler will be new interface technologies (where again AWE are at the leading edge / contributing to standards).
3) RISC-V. Eventually I believe RISC-V will do for proprietary instruction sets what Linux did for proprietary operating systems. If I was the likes of ARM I wouldn't be be worried in the short term but I would be worried in the long term. RISC-V seems to be coming along in leaps and bounds driven by the ROW's need to neutralise US tech hegemony and the trend towards 'less in more' (I only need a chip that will do 'my' job not 'any' job. It is probably going to cheaper, consume less power etc).
So AWE in the happy place of not only being able to serve specific trends but uniquely in a position to deliver solutions that potentially would be greater than the sum of their parts. Further 'Data' and the industry that surrounds it (ie AWE's addressable market) is growing exponentially and is recession proof.
2023 had been pencilled in as a year for digestion and consolidation following the various acquisitions of 2022 (Precise-ITC, OpenFive, and Banias Lab). So it is understandable that market wise the company was standing still / treading water for 2023.
However I do think 2024 will be a 'land grab' year for those in the 'data shifting' and 'custom silicon' industries so I would like to see them come storming out of the traps in 2024.
While the share price is determining the feelings of us public investors in the short term, a real industry veteran and deeply knowledgable expert, Daniel Nenni, recently posted a wringing endorsement of Alphawave on the industry website he runs, SemiWiki:
"Do you know who had another great year? Alphawave Semi did. Despite being relatively young in the industry (founded in 2017), the company has quickly gained recognition for its advancements in high-speed connectivity solutions.
Alphawave Semi is all about pushing the boundaries of high-speed connectivity. They design and develop semiconductor IP (Intellectual Property) solutions that enable fast and efficient data transfer within electronic devices. Their expertise lies in working closely with customers and partners developing advanced connectivity and signal processing technologies.
It has been an honor to work with Alpha Semi CEO Tony Pialis and his growing team of top notch professionals. As far as semiconductor ecosystem CEOs I would put Tony in my top 10, absolutely.
In my opinion chiplets will be one of the most disruptive semiconductor technologies and Alphawave Semi will be one of the companies leading the way...
Bottom line, to further reduce the overall risk of implementing a chiplet based design strategy, working with ecosystem experts like Alphawave Semi is critical, absolutely."
https://semiwiki.com/ip/alphawave/340060-alphawave-semiconductor-powering-progress/
Mr. Nenni knows what he is talking about better than we do, that at least is certain.
I agree semi-interested that as a minimum AWE need to at least meet the guidance reiterated at the interim's.
"The outlook for 2023 remains unchanged. Alphawave Semi expects 2023 revenue of US$340m to US$360m and adjusted EBITDA of approximately US$87m (or approximately 25% of revenue), which is at the mid-point of the revenue guidance range"
Though I'm worried about the term 'adjusted'. At the interim's the 'adjusted' EBITDA was $32.4m but after it it was decimated by share and retention payments the reported EBITDA was $10.7m. Were such payments a one off or are they likely to continue to drag down the reported EBITDA? If so for how long ?
I am persuaded that AWE have the right tools and people at the right time. However the market remains to be persuaded that AWE can capitalise on the opportunity. The opportunity will pass them by if they cannot strike while the iron is hot.
Make or break earnings/guidance coming up as far as i'm concerned. I believe in the story, but opportunity cost matters! Hindsight is 20/20, but my investment in AWE could have returned me 40% if I had plopped it in $QQQ last January instead. With corporate profits rising and interest rates likely headed down, I am getting impatient. Its clear the acquisitions have turned AWE profit and cashflow negative, with a short cash runway to boot, per last report.. Will the recent design wins make up for this in next 24 months? Market wants answers.
I do like the fact that he is standing in front of a map of the world.
I do hope that is a coded message that AWE plan world domination.
https://www.youtube.com/watch?v=m-IDeBodOyE
I have since read the book. It was very well researched and very detailed. I enjoyed it.
I'd have said that it was full of insights for the AWE management team.
Hopefully the AWE story will ultimately have more in common with that of ARM than Canadian trail blazers Blackberry / Nortel.
The book looks like an interesting read.
I believe we are expecting a "Q4 Trading Statement 2023" on Jan 23
I have been reading 'The Everything Blueprint' by James Ashton; very turbulent first decade for the stock!
When is Q4 earnings being reported? Will management do another investor day? Does not appear so, judging from the company website financial calendar.
Zzzzz .....
Further Industry coverage
https://semiwiki.com/ip/alphawave/339080-unleashing-the-1-6t-ecosystem-alphawave-semis-200g-interconnect-technologies-for-powering-ai-data-infrastructure/
AWE talk about their next generation pick/shovel for the AI gold rush.
"Alphawave Semi 224G Engineering Masterpiece" : https://www.youtube.com/watch?v=aBH6OJ3Ky7c
A new silent (I doubt if it meant to be) promo
https://www.youtube.com/watch?v=qFBFJaP5a9k
Last week Broadcom (AVGO) stock rose 21.7% (105% increase over the last 12 months) following an upgrade by a number of analysts after Broadcom had completed its $61 million acquisition of VMWare. Last Friday’s closing price catapulted them into the top 10 largest companies on NASDAQ.
This success is despite a 12% dilution of its shares in the last year and carrying a high level of debt (104% net debt to equity).
Back in September it was reported that Google is dropping Broadcom as a partner for the TPUs from 2027. This was also mentioned at the last interims and to which Alphawave CEO Tony Pialis had this to say:
“So, first a little background, Broadcom has been a player in the connectivity space since the early days of semiconductors. I respect the company tremendously but look under its current leadership they’ve been transitioning away from a pure play semiconductor company to now including quite a bit of software with a very different business model and a very different margin profile. This software margin profile is not a great fit for semiconductors so am I surprised that there’s reports that Google is moving away from Broadcom? Absolutely not! As I told you, Microsoft, just to deploy one generation of AI within its data centres will cost it billions using Nvidia GPUs. That same cost will apply 10 times more for Google and so Google is looking inevitably for more cost and power efficient approaches for delivering AI in future generations and as I mentioned during my talk that approach is moving to a much more customised and internally driven approach and this custom and internally driven approach needs custom silicon, it needs chiplets, it needs a tremendous amount of connectivity IP, so do I think there’s an opportunity for us? – Absolutely! And hopefully everyone, you know, did take notice that I mentioned that you know we secured multiple design wins with all the leading hyperscalers, and now my job is to expand that footprint and all these hyperscalers to capture the inevitable growth that will be happening due to AI.”
They certainly are at the forefront of developments the AI / data explosion arms race.
As an example of the intellectual horsepower available within the company here is an excellent presentation by Tony Chan Carusone their CTO.
"Co-Packaged Optics for our Connected Future" : https://www.youtube.com/watch?v=Xt-GY8Pkt6g
There's a press release out this evening where Alphawave are touting a collaboration with Keysight Technologies on a PCIe 6.0 Subsystem solution boasting speeds of 64 GT/s.
https://awavesemi.com/press-release/alphawave-semi-partners-with-keysight-to-deliver-industry-leading-expertise-and-interoperability-for-a-complete-pcie-6-0-subsystem-solution/
Superficially this might seem as implausible but dig into and it is not. The phone is the tip of an iceberg. Watch a Millennial casually / flippantly scroll through a selection of TikTok videos. Behind the scenes a vast amount of data is being stored, filtered and when selected bounced around cell towers / networks.
The traditional bottleneck of information processing has been processing speeds. However with the data explosion the theatre of war has moved significantly towards data shifting. Without solutions processors will be idling waiting for data to delivered. Things get exponentially worse with the exponential growth in data and sophistication of that data. AI, AI assisted searches adds fuel to the fire.
The main two areas where improvements are needed in data shifting seems to be volume/speed and power consumption (the power consumption of large data centres can be measured in tens of Megawatts of which networking is a significant and growing proportion).
There are BIG opportunities for companies who can offer solutions that shift large amounts of data fast whilst in terms of protocols/wrap around smarts - deliver the data power efficiently.
AWE seem to be in the right place at the right time with the right toolbox. Time will tell. Tony Pialis certainly talks a good fight.
The question that was actually asked was: "You mentioned that there’s a handful of companies that can execute design, manufacturing and delivery of chiplets, who do you see as the main competitors in this space and also in Optoelectronics?"
Tony's precise answer was: "So, great question. Look the five companies that I mentioned in my talk that are able to manufacture chiplets are companies like AMD, Intel and Nvidia. They implement chiplets for their own products. There is no-one today that is developing and deploying chiplets to the broader market, so there’s no competition today for that. That’s where we’re laser focused enabling the rest of 150, 250 semiconductor companies to be able to implement chiplets, not just the five stalwarts that are able to do it today. In terms of who else has great connectivity technology I think I’ve already mentioned that. The only other player that can implement PAM4 and Coherent at leading edge is Marvel. Broadcom has great PAM4 technology but not really a player in Coherent. So for us it’s Marvel and you know what, I love that competition, because Marvel is a great company with extremely long lineage and I’m honoured to be at the table with them but look, the world needs more than one player in the space especially with the explosion of AI, we need competition, we need a robust ecosystem and we’ve invested to be a strong player in the space over the next decade."
So in correct context, Tony was saying that only Marvel can implement both PAM4 and Coherent at leading edge.
I think this is arguably correct and still remains the case today. That said, Credo earlier this year announced plans to collaborate with a Dutch company called EFFECT Photonics to develop coherent DSPs. So eventually, they too will likely be a player in both PAM4 and Coherent at the leading edge .
Mmm...
When asked at the interim's "Who are AWE's main competitors in the opto electronics space?"
Tony Pialis responded "Who else has great connectivity technology? The only other player that can implement PAM4 and coherent at leading edge is Marvell."
Was this
a) incorrect ?
b) correct at the time but no longer correct ?
c) correct at the time and still correct ?
d) 'An answer' to an imprecise question ?
As far as I know Credo build SerDes based on so called N-1 process technology and they can achieve similar or even superior power/performance because of their architecture and feature. They used to have expertise designing SerDes using extensive analog and mixed signal, and therefore have power advantage as compared with DSP+ADC approach. Besides, rather than supporting both PCIe and Ethernet, their SerDes only focused on Ethernet/optical protocols with selective frequency range so that they can optimize power further. (Of course, this can be their weakness from IP business pov.) Using N-1 process technology can make their products more cost competitive while claiming comparable power and performance.
Besides, their AEC (active ethernet cable) is unique to the market. It provides an low-cost yet more reliable alternative than optical fiber and passive cables. Credo AEC is tailor-made for cloud customers and has many different forms. This is by far their cash cow, followed by copper PHY products.
Credo’s last quarterly report indicated that they generated $44 million for the quarter ending 28 October 2023 and $79 million for the last 6 months. So broadly equating to an annual revenue of about $160 million and which is less than half of what AWE are on track to generate for 2023.
And yet, Credo have a market cap of $2.8 billion compared with AWE market cap of $1 billion.
So Credo are valued at 2.8x that of AWE for less than half the total annual revenue.
Moreover, Credo are currently loss making with an annual net loss of around $36 million.
Their cash & cash equivalents position at the end of October was nearly $129 million.
Credo’s share price surged about 27% to $18 in the last couple of months and amazingly had absolutely no difficulty whatsoever in doing another public offering last week to raise a further $175 million at $17.5 per share merely for working capital! Clearly, on the US markets Credo are perceived to be highly investable.
Credo are presently ploughing money into R&D at more than $60 million per year.
Credo’s products, as far as I can understand, when I last checked are what you call n-1 grade products. This means one step behind the latest generation of technology, and therefore essentially less superior to the range of products and IP on offer from AWE. If Credo are fair value today, then you might argue that AWE are at least worth 3 times more.
The AI bandwagon rolls on with Google's Gemini announcement. One small step for Google (allegedly), one giant leap for mankind (allegedly).
Regardless as a 'pick and shovel' play for the AI gold rush things should be looking rosy from AWE's point of view (at their interim's presentation they stated "approximately 2/3 of our pipeline comes from AI or AI related opportunities" - https://www.youtube.com/watch?v=07A8Bpy4iMM )
Can we assume that all steps have been take to ensure that all Banias assets are secure from any collateral damage that may arise as the IDF pursue it's 'Final Solution' to the 'Palestinian problem' ?