The latest Investing Matters Podcast episode with London Stock Exchange Group's Chris Mayo has just been released. Listen here.
"Clearly investors were looking for materially positive news from the CMD presentation - and essentially are saying it was a disappointment. A 7% down draft means something."
Maybe or maybe not. In my opinion, the volatility is more down to the fact that volumes are small at the moment. Yesterday's closing volume was 2.2 million shares which represents a mere 0.2% of the shares outstanding. It's not even clear that there were more share sold yesterday than bought. While a 7.46% drop may suggest that, it is not always the case.
The CMD presentation was very upbeat as one might expect as they are afterall doing a sales pitch to investors. Jefferies had already downgraded their target from 2.70 buy to 1.50 hold, a week or so ago and JP Morgan revised theirs from 2.00 to 1.90 overweight yesterday (which is still a positive outlook).
Personally I don't get too hung up on the day to day volatilities. AWE has risks and it is important to understand what they are. For me what the management had to say about their strategy made a lot of sense and I'm satisfied to accept those risks and be very patient with this one. The new CFO and CRO have a lot of useful past experience and for me they came across very well in their presentations.
Yesterday’s presentation is now available to watch here:
https://awavesemi.com/investors/events-announcements-and-presentations/
Hi Awave,
It was available via the LSE Issue Services website but as the event is now finished it is no longer accessible.
A link to the recoreded session should eventually turn up here soon:
https://awavesemi.com/investors/events-announcements-and-presentations/
The presentation slides are available there.
Thanks for your earlier reply on the UAlink. That was helpful.
It's interesting you mentioned weight because I actually had the same thoughts. These guys are valuable assets to the company and I'd hate to lose them to some medical misfortune. I've great admiration for what they have achieved and what they bring to the company. I'm somewhat overweight myself and having given all alcohol since the New Year I have managed to lose a few kilos and now over half way to reaching my target weight.
I enjoyed listening to this CMD, more so than the last one. I like their strategy, it's a risk, but I do think there are clear signs already that it will pay off. Interesting also that Tony P couldn't restrain himself from dropping the hint to expect some news in the next 24 hours. More than a hint really? Arm - Alphawave-Semi partnership stepping up a gear of sorts?
We'll see. Regardless, I think Alphawave are now in much better hands with the likes of Charlie and Rahul.
Stanley Tucci... LOL. You're right he's a dead ringer for Charlie!
I agree it comes across as a strategy aimed at breaking Nvidia's dominance.
Not sure, but it also looks as if this development for a new open standard may seek to replace other industry protocols such as CXL and PCI express? AWE has close partnerships with most of the UALink group participants so perhaps it is something that should benefit players like AWE?
It's certainly a question I think worth asking of AWE.
You cannot really equate telecoms or general IT business with the business of chip making - especially the niche business of high end silicon IP and connectivity chips for datacentres and AI infrastructure. They are different beasts. They already have Michelle Senecal de Fonesca with telecoms background, and David Reeder has corporate finance experience in the semiconductor sector who has held executive positions at Broadcom and Texas Instruments.
Bringing in a couple of people who specifically have involvement with datacentres and the development of AI infrastructure, and are sufficiently independent of Alphawave, is what the company now needs at this juncture.
It makes perfect sense to change out independent non-executives if they don't have the appropriate background experience in the specialty sector of data centres / AI. They still have three non-execs and will be adding at least two more with appropriate background experience to ensure they have more than half the directors serving as independents.
Now that they have almost completed the acquisition consolidation phase and are moving into the rapid scale-up of their business, it is vital to have independents with a relevant background appropriate to the datacentre/AI sphere.
Also it is actually quite common for companies to change out independent directors and limit their tenure.
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.
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/
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
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.
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.
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.
As soon as I saw the RNS this morning I made the reluctant decision to get out altogether. I've done so with a profit of around 18% over 2 years. Not exactly what I had in mind but better than coming out with less than what I put in.
It's likely now that I will wait until after the results before I make a decision to get back in or not regardless of whether price is higher or lower than now. I genuinely thought they would hit their guidance or exceed it. Further, I'm not thoroughly convinced of their reasoning for missing the guidance - accelerated exit from China? - that's a weak excuse. To be fair though it should be noted that missing the guidance by less than 10% isn't exactly disastrous but it does show they haven't got a proper handle on their finances yet.
Last month Alphawave did a presentation on advanced custom silicon for AI and Data Centres.
If you haven't already, it's well worth watching and there's a Q&A session at the end which always worthwhile listening to.
It's available to listen to here:
https://awavesemi.com/advanced-custom-silicon-for-ai-and-data-centers/
The presentation slides are available here:
https://awavesemi.com/wp-content/uploads/2024/03/Advanced-Custom-Silicon-for-AI-and-Data-Centers-2024.pdf
Alphawave are a significant key partner in the Arm Total Design ecosystem providing the connectivity IP.
The addressable market for custom silicon is currently about $9.2 billion this year and growing at a rate of 15% per year.
They issued an RNS back on 13th October 2022 which relates to the acquisition of Banias Labs and the non-binding framework agreement with the hyperscaler.
https://tools.eurolandir.com/tools/Pressreleases/GetPressRelease/?ID=4173559&lang=en-GB&companycode=uk-alpw&v=
"The Company expects the ramp of new Optical products to start in 2024 and profitability to improve from 2023 levels as products go into high-volume production and generate additional revenue. Alphawave anticipates additional revenue synergies given the complementary nature of the technology and its contribution to the product roadmap."
"The non-binding purchasing framework agreement defines a potential portfolio of optical DSPs, including coherent solutions based on Banias technology, that Alphawave intends to develop over the next several years. The Company anticipates ramping up sales to the leading hyperscaler over a multi-year period, with the potential for aggregate sales to exceed US$300 million, subject to the Company qualifying the products for use in the hyperscaler's data centers on a timely basis and ensuring sufficient silicon availability to meet its usage demands."
"In addition, the non-binding framework agreement contemplates the Company issuing future stock warrants of up to 2.5% of the issued share capital of the Company, with vesting based on purchases of Alphawave silicon products of up to US$700 million over the same period, and an exercise price based on the current trading price of the Company's shares, subject to downward adjustment if the Company's shares trade lower prior to issuance. The Company intends to solicit all required shareholder approvals, ahead of finalizing any warrant grants, which are not expected until at least 2024."
I've named the hyperscaler because it's been mentioned several times in posts by a number of well respected semiconductor bloggers including Semi Analysis and Fabricated Knowledge.
Comparing the technical products between these two companies is something I haven't as yet got fully to grips with.
It's true that they both offer high speed connectivity using the same protocols PCIe / CXL etc.
Astera Labs mainly offer retimers while Alphawave don't as far as I can tell.
When high speed data is transmitted over certain distances the signal quality deteriorates and retimers are devices that essentially clean up the data signal. It achieves this by amplification and then retransmitting a new copy of the signal. Market demand for retimers has been increasing as data quantity and speeds have been increasing over time.
Astera Labs have taken the approach of also offering a packaged software product called COSMOS which is designed to work with their full range of retimer products to provide a full suite of diagnostics and telemetry features enabling operators to optimize the data transfer performance.
Software is something that Alphawave don't do as far as I understand it. Yes they offer various PHY for SerDes, PCIe, UCIe die to die and HBM. They also offer the controllers and subsystems for these protocols including ethernet. The software for these however comes from elsewhere. This is more a case of allowing operators the flexibility to select the software product of their own choosing.
If I have understood correctly, it's possible that Alphawave's high end connectivity IP products achieve similar levels of high quality high speed data connectivity without the need for retimers and hence the possible reason they don't offer them as hinted in one of their press releases on their partnership with Nubis. Or, it is simply that it's a component that their customers incorporate from another of their partners elsewhere particularly in custom silicon designs.
While Astera Labs now have a ton of IPO money to invest into their business, their focus until now has only been in their retimer range with controllers and optimization software. No chiplets or custom silicon or opto-electronic investment on the horizon as yet. Astera Labs growth prospects stem from the partnerships they have with Amazon and Nvidia. At the current ridiculously high share price however and P/S ratio two to three times higher than their NASDAQ competitors I don't personally see them as an attractive prospect at this time.
Meanwhile, Alphawave's future is quite promising and currently generating more than three times the revenue of Astera Labs. They have an array of high profile partnerships including the multi hundred million dollar prospect with Amazon AWS which should hopefully see a range of opto-electronic products set for delivery this year. The current share price and P/S ratio being only half to a third of that of its NASDAQ competitors still makes it a far more compelling investment prospect.
"** Jefferies sees semiconductor equipment sector poised for solid Q1 performance with robust orders and optimism for
continued growth, despite slight demand softness in automotive and industrial markets.
Jefferies favors Dutch ASML ASML.AS , ASM ASMI.AS , and Swiss VAT VACN.S with "buy" recommendation for robust Q1
orders on strong DRAM demand and positive 2024 outlook, reinforcing sector confidence.
Also spotlights Alphawave AWE.L and Aixtron AIXGn.DE as top small-midcap choices with "buy", expecting strong Q1
order intake and resilience in tech advancements. **"
From Thomson Reuters.
Yes you could be right there. The X330 has CoWoS packaging (as will the X340) but the mention of that in relation to the Nvidia chips could just mean like similar to how they have CoWoS on the Nvidia chips. It's vaguely worded as well as being a translation from Korean.