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From a TSMC point of view, their main partners in various areas
https://www.tsmc.com/english/dedicatedFoundry/oip/3dfabric_alliance
Thanks BlueRaphus, your insights have always been very helpful.
I agree with you that Tesla will spend a lot of money on AI infrastructure no matter whether they could eventually reach AGI or not. The stake is just way too high to miss the opportunity and let someone else own it exclusively (which musk hates)
Microsoft mentioned in their earning call yesterday that their capex last quarter reached $14b, next quarter at 16b, and guided “significant higher capex in 2025”. That’s a lot of money to be spent on GPU, ASIC, and networking equipments, maybe reaching 65b annual runrate . Google and META guided slightly lower but similar capex level too. It almost seemed that in order to compete in the “AI league”, one would at least spend $10b per quarter just to qualify to play. Most importantly, we haven’t heard from Amazon and Apple (the one with the deepest pocket) about their capex plan yet. The TAM might be even bigger than we initially thought.
This is perhaps a once in a lifetime tailwind for companies like Alphawave to thrive. So from this lens I can understand a little bit why the management sounded "I don't get out of bed for less than $10,000 a day" :) but I agree with what you said, the competition is always fierce. And business opportunities don't translate to financial success so easily. Execution is key and we might need to wait a bit longer to see the results.
As for the 3nm IP, I just checked and I think you were right - cadence has them too and so does Synopsys. I got the impression that AWE is the only supplier to Alchip because my industry friend told me at the time the only other comparable UCIe IPs was from GUC, which is a competitor of Alchip so they likely do not collaborate.
He also told me that AWE’s D2D PHY and controller is the best in class, in terms of speed, stability, energy efficiency etc. Maybe even better than the designs from Broadcom and Marvell(Inphi), who design custom chips for Google and Microsoft respectively.
Rz105, many thanks for your insights. They are appreciated.
I've known for some time now the identity of the hyperscaler customer for which AWE are developing the connectivity products as I've heard them mentioned in several podcasts.
I 'm crazy enough to have attempted a revenue model projection and for 2024, it assumes about $5 million for the connectivity products. That's probably ultra conservative. Certainly the 1st generation products were qualified last year and are now in production with first deliveries later this year. Listening to the Q&As of recent webcasts hinted that some of the 2023 R&D spend is for the second generation products.
I think you're on the money with Tesla being the automotive customer. I really can't see who else it could be. I know Elon Musk was emphasising only a couple of days ago that Tesla are not just an automotive EV company and are much more about 'autonomy'. So whether, Elon's project is destined for success or failure, I couldn't say, but one thing is for sure, a lot of money is going to be invested into this.
Alphawave are throwing a lot of money into R&D, not only the $78.2 million they have expensed but also the $53.3 million they have opted to capitalised, meaning effectively 41% of this year's annual revenue value has been spent on R&D. I am a little bit nervous about the level of R&D spend here. This they have to do, to get the products ready for market, but leaves me questioning how much more is required before they can scale back on the R&D investment. If it continues at the present rate, a cash placing round might have to be considered, though I hope not. Alphawave's competitors incidentally are also committing similar amounts to development percentage wise. Marvell spent 34.4% of their revenue on it and Credo 41.7%, Rambus 34%. Both Marvell and Credo reported losses. Rambus would have done were it not for the fact they sold off the PHY IP to Cadence. Credo did a cash placing last year and it had zero impact on the stock price!
I'm not 100% sure that Alphawave are the only one's with connectivity IP on TSMC's 3nm. I know that Cadence has too.
I really don't think the revenue ramp up need be in doubt. In about 36 months from now they should be able to report revenue somewhere in the order of $700 million to $1 billion with revenue split roughly equally between the three main streams: IP licensing & royalties, custom silicon and connectivity products. As long as they are achieving the high margins they claim and the development demands can drop off a bit then there shouldn't be an issue with profitability.
Thanks rz105 for excellent insights!
We could also workout this "$500m of potential lifetime silicon revenue based on 2023 design wins"
A typical AI ASIC costs $1500 to make by TSMC.
HBM is a must and that costs about $2000.
Packaging (Cowos) costs somewhere like $500-1000.
Add the costs up you get $4000-4500 per chip. Alphawave adds 50% gross margin on top, the end chip would end up selling at $8-10k. Yes that's much cheaper than Nvidia's H100 at $30k which is why these hyperscalers are building their own
$500m / $8-10k = 50,000 - 60,000 chips.
Latest large language models such as GPT3.5/4 were typically trained on computing cluster that contain about 10,000-50,000 GPU/ASICs. So the above calculation looks about right.
An educated guess is that this customer is AWS.
Hxulcolrdoh, I am equally looking forward to the optical product roll-out, they are expensive , e.g. 1.6G optic module costs $1-2k and coherent ones cost even more, and they typically ramps in high volume within cloud service provider (1000s to 10,000s of them). I know from industry insiders that this "$300m non-binding contract" is with Amazon. But I don't know how many they will ship to them this years, likely in small volume so that Amazon can test the products
Now I am more interested to see how their custom silicon line of business grows. For a couple of consecutive quarters now, the management's emphasis had been their 3-5nm IP design wins and custom silicon wins. Q1 trading update mentioned "1 IP win for a leading North American Automative company". As far as we know there's only one such company building custom chip in 5nm domain, and it's Tesla, and the chip is dojo2 chip for FSD. If we reached a point where Alphawave's management is able to share this name to the general public, I think that's gonna be pretty good news, because it confirms AWE's technical leadership.
I have some info from the supply chain that AWS's Inferentia(3nm), Trainium(3nm) are all done in collaboration with Alchip, a Taiwanese bank-end chip design company. Alchip doesn't have IPs, so it's almost certain that Alchip acquired those IPs from AWE for Amazon. Why? Because there's no IP vendor other than AWE that has connectivity IPs in 3nm. This TSMC process node is unimaginably expensive to develop anything, which explains AWE's high R&D costs this year.
As for Tesla, I know their Dojo 1(7nm) is with Alchip, and their Dojo 2(5nm) is with TSMC Direct. Oh by the way, Amazon's latest Graviton 3 chips, Google's tensor(3nm) are also developed with TSMC Direct. TSMC Direct is an alliance of multiple chip design companies that include Alphawave. You can find more info here:
https://www.tsmc.com/english/dedicatedFoundry/design-center-alliance
One interesting thing I note from the list of companies on that website, only Alphawave has 2.5D Cowos or 3D chiplet design capabilities (see the tick on TSMC 3DFabric column). That technology is an absolute requirement if you want to build an AI chip, using which you bind the computing unit with High-bandwith-memory unit together. Therefore, I highly suspect Tesla's Dojo2 (which is an AI chip), Google's Tensor, AWS's Graviton could at some point be developed with Alphawave's OpenFive unit, be it logic design, physical implementation, or the shipping of actual end-product. I remember Tony the CEO said they are working with "all hyperscalers" in the US, so I wouldn't be surprised Alphawave is involved in these high profile ASIC projects.
Frustrating as it is to have a lack of FINANCIAL visibility on future product sales for Connectivity Silicon IP / Custom Silicon / Connectivity Products, on the ENGINEERING front AWE do march relentlessly on e.g.
https://www.thetecharena.net/content/memcon24/alphawavesemi
Fingers crossed the "build it and they will come" approach will bear fruit.
The company does throw out a few tantalising teasers e.g.
- They say they see "$500m potential lifetime silicon revenue based on 2023 design wins". Presumably as time goes the increasing number of design wins results in additional and increasing future revenues.
- At the time they acquired Banias they said "Alphawave has negotiated a non-binding, multi-year purchasing framework with a leading North American hyperscaler that proposes a multi-year roadmap for Alphawave to develop and sell a portfolio of optical products and DSPs, including coherent DSP technology from Banias Labs, with sales potentially ramping to over US$300 million". The production line for the Banias related content is expected to start rolling in H2 2024.
On the one hand the teasers do not lead themselves to any form of modeling ( over what timescales are products delivered ? are sales front end loaded ? back end loaded ? evenly spread ? ).
On the other it is clear that AWE are serious players in a burgeoning market.
See March 1st posting... I eluded to maybe the best option for you. Ah well, we've all been there.
Unfortunately, too much loss for me to bail out now. Certain people have always warned about this equity but.....we live and learn. Good luck 👍
Well i've been away for a few days with no mobile signal and have come back to my Alphawave investment having gone from 70% up to 1% down .
I am kicking myself now for not getting out in the green when I had the chance.
I dont know about you guys but i dont want my capital tied up here for 2 or 3 more years before things get better, so I'm getting out now at a very small loss whilst I still can
Yep you have the best tech and still not make investors wealthy if you can't manage a business.
I watched the Blackberry Movie last night, absolutely brilliant
"While the film is said to be loosely based on Losing the Signal: The Untold Story Behind the Extraordinary Rise and Spectacular Fall of BlackBerry, director Matt Johnson wanted the film to be a period piece reflecting the culture of the 90s with references to pop culture of the time."
The webcast was recorded and you can listen here: https://www.youtube.com/watch?v=_L4N0nzJ2wY
rz105, I agree with what you say. Hoping that from hereon there won't be any further financial disappointments. I did note however that they seem to expect to drawdown further on their cash balance this year, so year end 2024 may see a further lower cash balance although they also mentioned an expectation of higher revenue stream in the second half of this year. They expect 2024 H1 revenue to be less than 2023 H1 revenue as they continue to invest heavily in capital / R&D which is mainly focused on the 2nd generation opto-electronic connectivity product development for the tier 1 hyperscaler.
Tony did emphasize that the R&D is based on development of already proven technology as opposed to speculative research. He also mentioned that Alphawave are now number 4 in the world of silicon IP design (behind Arm, Synopsys and Cadence) in terms of revenue generation in that area.
Coincidentally, I've just found a recent link on this very subject:
https://semiwiki.com/semiconductor-services/ipnest/343875-semi-market-decreased-by-8-in-2023-when-design-ip-sales-grew-by-6/
I'm still not really any the wiser regarding when and on what scale Non Recurring Engineering revenues translate into recurring product shipments, sales and royalties.
Engineering wise the company is in Linda "I don't get out of bed for less than $10,000 a day" Evangelista mode. It seems to be the case that a) a lot of money is being thrown at AWE to develop products and they can cherry pick opportunities with prospective high margins /revenues. However it remains the case that the company is betwixt and between developing products and a product ramp. In the short term ( certainly H1 2023 ) financially the company will continue to tread water.
Over time as design wins translate into shipable products revenue visibility will become much more predictable - but we are not there yet.
I am impressed with the new CFO. He does claim that AWE have dramatically improved their ability to forecast and manage cash. I do believe him. He does seem to have hit the reset button in terms of procedures and projections.
Some points shared by Tony -
- 80% of pipeline comes from AI/AI related opportunities
- 83% in advanced nodes (e.g. 2023 6 design wins at 3nm are expected to translate to revenue over 16-24 months )
- allegedly AWE is one of only 3 companies in the world leading edge with IP connectivity solutions for AI.
- current AWE 'projected' silicon IP revenues are $500m starting in 2025.
- Banias which has yet to generate revenue 'is on track' to start shipping products in the second half of 2024. Orders have been received from a leading North American hyper scaler and a networking OEM. Work has already commenced on next generation products.
- custom silicon market reported at the CMD as a $7bn TAM estimated to grow to £11bn by 2027 - revised to grow to $30bn by 2027.
- opto electronics market reported at the CMD as a $4bn TAM estimated to grow to £7bn by 2027 - also expected to increase significantly.
AWE's addressable market is huge and they are well placed carve out a lucrative slice of the cake.
There was an attempt by an analyst (Sandeep) to get some sort of handle on likely product deliveries with a question (I paraphrase ) "How many hyper scalers are likely to ramp up orders over the next 2-3 years and how much confidence can we have in these orders ?". Tony didn't really answer the question. He simply said that AWE work with ALL hyper scalers and a the point at which they do it is only regarding proven technology that can be readily adopted.
It looks like the rubber is really only going to hit the road late 2024 / early 2025 but if Tony is even only partially correct in his expectations AWE will then take off.
Thank you BlueRaphus, unfortunately I saw your message late and missed the webcast. Have you attended and found out anything meaningful in the meeting?
I am personally puzzled that how come on one hand the company is "shifting away from low margin China business" but on the other hand guided lower than expected EBITDA margin at 20%? The only explanation would be that the higher margin licensing business revenue is dropping even faster, which is possible because they mentioned about recognizing licensing & NRE revenue less aggressively. If that's the decision by the new CFO from Rambus, that's actually a good thing, because the mess around AWE's finances is finally over, hopefully.
I feel that the old CFO really did an awful job to be fired that way.
No, they said there would be one today also.
Here’s the link:
Results Presentation and Webcast
A presentation for investors and analysts will be held today at 8.30am BST. The webcast will be accessible via:
https://awavesemi.zoom.us/s/84323327486?pwd=WFdWQzArdVBsN3JJcGlFbEM5WUo3Zz09
Passcode: 802056
They only said that detailed Q1 results would be published today, not a webinar?
If you go their website at 7am or just minutes after there will be an RNS here:
https://awavesemi.com/investors/regulatory-news/
In that RNS you will have the time of the session and there will be a link to the zoom session with a passcode.
If you not bothered to listen to the live session you will find a recording of the here about 30 minutes to an hour after the session has ended: https://awavesemi.com/financial-results/
Hope that helps.
Thanks, but on what platform?
It will probably be the usual crew: John (Chairman), Tony (CEO), Rahul (CFO). Jose will do the usual intro. They might bring in an non-exec like Jan.
Do you or anyone else know who's hosting the AWE webinar on Tuesday?
I'm sure that on Tuesday Tony P. will big up AWE's engineering excellence.
Currently however there is a creditability shortfall in terms of how this engineering excellence manifests itself in comparable financial performance.
This is what I would most like to see satisfactorily addressed next Tuesday.
Their current CFO is relatively new having joined last October.
https://tools.eurolandir.com/tools/Pressreleases/GetPressRelease/?ID=4405322&lang=en-GB&companycode=uk-alpw&v=
They also have a new Chief Revenue officer who only joined in February.
https://awavesemi.com/press-release/alphawave-semi-announces-appointment-of-charlie-roach-as-chief-revenue-officer/
The rest of the directors and management team can be read about here:
https://awavesemi.com/company/leadership/
And there's more detailed information on their backgrounds in FY2022 report from pages 72 to 77:
https://fr.zone-secure.net/28934/1843059/pdfs/Annual_Report_2022.pdf
It's fair to say that thus far they have over-promised and consistently under delivered where it matters (i.e on the financial reporting). Let's see if the two supposedly highly experienced recent recruits can turn it around. The preliminary update and investor call on Tuesday talked of taking a new bottoms up approach hence the downgrade in the outlook.
What are the problems of the directors in you opinion? not trustworthy? Lack of management experience?
Yes I agree , I've only held this stock 3 months and itit's been a downhill trajectory, lost £1600 on a £4000 investment , Not sure if it will improve or not but its clear few trust this company and I no longer do , got more chance of a claw back invested elsewhere imo
I have continually warned private investors about this company over the last 2 years.
Investors need to study a company's USP AND the directors and people running it.
On this board some people supporting this company were so focused on the technology but failed to study the directors.
I have always said that I don't trust the directors and I think many in the city agree.
Be it at your own risk if you decide to buy at "bargain basement" prices. They are at this price for a reason.
I have always said this company will go bust once all its cash assets have been used up.
Cheers Barcap
Despite the lack of financial progress the company has been announcing significant engineering progress.
However at the point at which it doesn't pay for itself the engineering excellence becomes a problem.
Over the course of 2023 net debt increased by $85m. Cash decreased by $85m. Cash at the start of 2024 was $101m.
Engineering needs to start paying for itself sooner rather than later.