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AWE closest peers are on NASDAQ and yes they have similarly increased.
In the last month, Broadcom has risen approximately 18% and Marvel 20%.
Credo has risen about 35% in the last month. Credo is similar in market size and does high end connectivity like AWE except that it generally offers "N-1" products meaning one step behind the latest generation tech. Credo has more cash in the bank as it has not splashed out on acquisitions like AWE and is not yet profit making territory.
Take note that AWE had suffered a retrace of approximately 44% since the H1 interim results as the market perceived the cash flow stats unfavourably. Assuming AWE keep on top of their cash flow management then their future growth should exceed their peers by considerable margins.
"The trading statement was much as I expected and was largely moribund.
I look forward to the analysis by BlueRaphus."
Barcap has provided his two-word conclusion of his personal analysis on the trading statement.
Perhaps his conclusion was reached on the basis of the only main negative in the statement and that is that the year-on-year comparison of new bookings shows a fall of 9%. In particular, the Licence and NRE bookings part has fallen by more than a quarter amounting to almost $15 million less than what they reported in Q3 of 2022.
The company however, pointed out that this does not include the fact that they won a further $20 million in custom silicon NRE bookings during Q3 but was not signed until the 3rd week of Q4. Had it been signed within the period this would have meant a 16% rise in bookings. They are sticking to playing by the book which is fair enough.
Moreover, if you look at their Q1 & Q2 trading updates, the bookings there were 312% and 196% up respectively compared with previous year on year bookings. The Q3 update also states that there is a very strong pipeline of opportunities expected in Q4. If you total up the 2023 bookings so far for Q1, Q2 & Q3, these add up to $260.1 million which already exceeds the total annual bookings achieved in 2022 of $228.1 million.
Given the strong pipeline forecast for Q4, they are on track for more than $300 million in bookings annually and quite likely to be around the $350 million mark which is similar to their guidance revenue for the year, therefore they are at least maintaining their backlog.
The design win rate is such that it is now heading toward exceeding 30 wins a year.
Only around 11% of new Licence & NRE bookings for the year to date has come from China, meaning that the company are effectively reducing their reliance on China revenue while still being able to scale up the business.
Perhaps one of the more interesting highlights is that they have received a design award for next generation chiplet-based AI with a view to a definitive agreement during Q4. As part of this design award the customer is replacing one of their long-standing semiconductor vendors with Alphawave. That on its own should tell you where Alphawave’s future is likely heading and I think there are plenty of polar-opposite words to moribund that can be used to describe this trading update.
Barcap,
Why is it shambolic?
Under current London Stock Exchange rules there is no obligation for listed companies to issue trading updates except when they are in possession of price-sensitive information. I'm sure Alphawave will issue a Q3 update but they are not obligated to do so and are free to determine its timing as suits them.
Probably will be on Monday. You're right though it should have been this week.
There's a press release out today regarding the Arm Total Design ecosystem which Alphawave has joined.
This effectively integrates Alphawave's most advanced high-speed connectivity IP and chiplet-enabled custom silicon platforms with Arm's Neoverse Compute Subsystems. In other words it gives Arm's customer base access to Alphawave's connectivity solutions.
https://awavesemi.com/press-release/alphawave-semi-elevates-chiplet-powered-silicon-platforms-for-ai-compute-through-arm-total-design/
https://www.arm.com/company/news/2023/10/arm-total-design-ecosystem
Hi Corissant, yes, the revenue of $315.5m shown on SimplyWall.st is the annual revenue made up of H2 2022 & H1 2023. H2 2022 revenue = Total 2022 revenue (185.4m) - H1 2022 (57.1m) = 128.3m. Therefore, annual revenue covering H2 2022 & H1 2023 = 128.3m + 187.2m = $315.5m.
So, in fairness to you, you were right to say the China portion of revenue for that 12-month period would have been around $200m.
As explained in my previous post the China portion of the revenue is expected to be reduced going forward in line with their 'simplified China go-to strategy' while revenues from all other regions start ramping up.
The decision to change the policy direction was influenced by the recent change in both the geopolitical attitudes and macroeconomic factors toward China over the last couple of years. The gradual withdrawal from the commitment to invest in Wisewave, has inevitably skewed the investment performance in what was the 'China Product Partnership'. The replacement revenue now coming from other regions nevertheless appears to be gaining some traction.
"I saw there is around 200m revenue from China this year. This 2/3 of total. What a big portion. ([LINK REMOVED]"
When you say this year, you should note we only have the interim report for the first half of this year.
The total revenue for the 6 months period was $187.2m, of which about $124m (2/3) has come from China.
Take note also that the company secured the same amount in bookings and have therefore maintained their backlog at $365.4m.
The License & NRE bookings for H1 was $114.9m of which only 9% comes from China.
The remaining $72.2m of bookings is royalties and silicon coming from both North America and China. The split for that part is not stated. What is clear is that the portion of revenue coming from China is intentionally being reduced fairly rapidly and they have stated that in the near future the level of revenue coming from China can be expected to be below 10%.
"Also AW seems to bear losts from WiseWave involvement".
The company intends to exit the Wisewave venture as quickly as they can and in the last investor call they said
they will do that in the second half of next year. You can read the Chairman's statement under the heading
"Simplifying our China go-to-market strategy" near the bottom of page 7 of their 2022 annual report.
"Any discussion on their China involvement and WiseWave investment?"
Hopefully what I have said above should be sufficient to answer your questions.
"In 2004 I was immensely impressed by the Google search engine but did not buy any stock because I felt IPOs of 'trendy' operations were always at least fully priced. Big mistake, the price at the time was about $2.70 against $133 now."
Thought for the day: I wished too I could have invested in Google back in 2004. Although Google has had a fairly steady rise throughout the nearly 20 years it has been on the market. It has had some significant ups and downs on the way. In December 2007 the share had reached $17.87 and almost a year later had fallen to $6.56. That was a fall of 63%. Only as recently as November 2021 Google almost peaked at $149 and fell to as low as $87 only a year ago. That was a decline of more than 41%.
Alphawave's recent decline has amounted to not more than 33%. Maybe it could drop some more, maybe not.
If you are satisfied you've identified a genuine undervalued stock with long term growth prospects then it's always a case of sitting back and letting it run its course. Take the knock downs and big rises in your stride and be super patient. If you have a well disciplined trading strategy and the cash spare, buy a little in the lows and a sell a little after the sharp rises, but never play with the core holding until the day you decide you want to cash in your profits.
No one can guarantee Alphawave will be an eventual big winner because things like macroeconomics and geopolitics are extremely difficult to predict but technology growth trends if you have understood them well do tend to outperform even the rough moments of both the macroeconomics and geopolitics.
And just to add to my reply below on the very specific matter of capitalised R&D expenditure, I had asked if we could expect to see this amount significantly diminish in the future. Their answer was:
"Definitively lower as a percentage of revenue. As you noted, we are investing in the development of new products ahead of the beginning of the production ramp in 2024. There is always going to be investment in new products to support revenue growth but as the business scales even the same amount of investment will be relatively smaller."
So the short of it is that you should expect to always see some capitalised R&D expenditure on the balance sheet but that you can expect to see this decrease in percentage terms against the revenue generated. I'm personally confident the cash flow should start to look much healthier in future reporting periods.
Although these products are at the leading edge of the technology, this development is already well beyond the stage of 'proof that it works', and well into preparing them for manufacture at the foundry stage. The main risks associated with projects like this is not so much the new leading edge technology being deployed but rather things such as hyperscalers delaying or cancelling their plans as they adjust to the ever changing macroeconomic climate conditions.
Hi Monty,
I'm wondering if you have had any luck with a reply yet? I received a reply to my queries this morning.
Some of my questions were in relation to where the company sees its gross and EBITDA margins levels maturing to.
They believe their gross margins will progress to around the 50% region and EBITDA margins to around 40%.
By comparison to their mature large scale peers (e.g Marvel and Broadcom) they operate EBITDA margins in the 30 to 40% range.
More interesting though is that I also asked specifically about the kind of margins they are expecting to eventually achieve with respect to the optoelectronic products currently in development. They believe these will achieve gross margins in the 60 to 70% range.
Some points worth bearing in my mind with the optoelectronic development; they already have a framework agreement with a hyperscaler to sell these products to, the silicon products have already been deployed, and when revenue starts coming in next year that means production parts are being shipped to the customer.
In addition, these can be sold as standard products and the company has already engaged with key module makers which effectively opens doors to further opportunities with other customers. This segment of the business covers the full range of silicon from Active Electrical Cables (AEC) and Active Optical Cables, the full DSP range (in both PAM4 and Coherent) and there will be other types in the future.
I think it's also worth mentioning that the company has expectations of eventually generating very high revenues well in excess $300 million with the hyperscaler that they are involved with within the next five years or so. The transition from copper to optics within data centres for both the short and long reach connections is an inevitability in order to achieve the rapidly growing demand for faster data transfer rates at low power and low latency. So the addressable market at $1.4 billion growing to $3.6 billion by 2026 is very likely to be well in excess of $10 billion by the 2030s. Currently, there are very few competitors working in this space so AWE look to be in a good place to capture a commanding portion of this addressable market.
Hi Monty,
Usually Jose is usually quite prompt at replying but I guess the period immediately after results are his busiest as that is when he gets the most enquiries coming in. I sent an email only yesterday and I'm prepared to wait a couple of weeks for a reply. There's no harm giving him another reminder though. His direct email is jose.cano@awavesemi.com.
My impression is that the share based payments are as a direct consequence of the M&A activity and it would have taken a few months before making these hence why they are showing in the H1 2023 figures and not in the preceding 2022 figures. If you listened to Christian's answer to the question on the capitalised development expenditure he explained that these start to get amortized as soon as the revenue starts coming in. I'll leave you with the transcript of that part of the Q&A session:
Question: Can you talk about the capitalised R&D and what’s included and if this run rate is to be expected in the long term?
Chris: Yeah sure. So what’s included in the capitalised R&D? Well, it’s mostly our own product development as we said in the presentation. So there’s a mixture of things, there will be some IP, there will be some engineering work going into those actual products. In terms of the sort of Life Time of that capitalised R&D and effectively what were amortizing over that can range from 5 to 8 years depending on the nature of what’s being capitalized. Some of that will start being amortized quite quickly because it starts amortization as soon as that technology is available for use and some of that technology is for us to use within the business so that will start amortizing quite quickly but then some of it will take longer and as Tony has said you can expect to start seeing our own product revenues materialize in 2024. That’s when the majority of what we are capitalizing today will start to amortize.
My comment: You will note the $24.7 million capitalised development expenditure. Most of that is attributed to the cost of developing the optoelectronic products for the North American hyperscaler, so when the revenue starts coming in next year this cost will be amortized against that revenue. I am however expecting quite a bit more of this capitalised development expenditure to materialise in H2 this year as well and you should see that figure pop up in the end of year result next April but it will all be eventually amortized against the incoming revenue.
Barcap,
I’m well aware that company reports have a positive spin on them and it is to be expected that they contain forward looking statements. That’s normal. They are however also audited and it is illegal for them to contain misleading information. Therefore you can generally count on them as good sources for understanding the company.
I usually add quotes to sentences that have been cut and pasted and often provide the link to the source. If I haven’t done that it usually means it is my own compilation effort from various sources.
I’ve mentioned before I am capable of looking for both the negatives and positives on the information I research and am more than willing to share these and offer my opinion on them.
I’m not a lazy copy and paster as you seem to imply. It takes brain effort and critical thinking to do objective research.
I share some of what I research on these boards for the the benefit of anyone who cares to read it. That is what these boards are for.
My biggest admiration is for those who can successfully work with the stock in both directions. This requires being able to understand and anticipate market sentiment ideally before it happens or at least responding to it rapidly. It requires being highly attentive, having a disciplined strategy and being emotionless. I don’t have enough time or energy to follow that method so I stick with the basic value investor strategy and lots of patience. In recent years this has proved very effective for me.
Copied from where Barcap?
No the weighing machine is not corrupted. It is the ‘voting’ machine that corrupts the market and it’s the weighing machine that brings the eventual justice.
Alas, it was Benjamin Graham who made the famous quote.
Benjamin Graham was a highly successful investor and is considered one of the most influential figures in the field of investing. He achieved notable success both as a practitioner and as a teacher of investment principles. Graham's investment philosophy, which focused on value investing and fundamental analysis, has had a profound impact on the investment community and has been followed by many successful investors.
Graham himself had an impressive track record as an investor. He was able to achieve significant returns by identifying undervalued stocks and holding them for the long term. One of his most famous investments was in the stock of a company called Geico, which he purchased when it was trading at a deep discount to its intrinsic value. The investment turned out to be highly lucrative, earning Graham and his clients substantial profits.
Furthermore, Graham's teachings and principles continue to be widely studied and applied by professional investors to this day. His book "The Intelligent Investor" is considered a classic in the field of investing and has influenced generations of investors, including renowned investor Warren Buffett, who was one of Graham's students.
Alphawave is now trading a deep discount and is well positioned to become highly lucrative.
Well done if you profit well from your shorts, though for someone who believes the company will go bust it should have been a no brainer for you to make your additional short while it was sitting for a couple months in the 140s & 150s but no you could only manage it near the bottom of the market’s ‘voting’ run! As you are convinced this one is going bust I’d suggest you hold the short until the administrators knock on the door, though be warned if there’s any chance of that happening it could likely be when your grandchildren are collecting their pensions.
Barcap,
Please don't take my posts personally. They are never intended to be personal.
I don't believe I have called you any names or made any insults?
My bother is that you are in the habit of making claims without backing them up with any real substance.
I will always respect anyone for having opposing opinions but it helps when those opinions are supported with some solid reasoning. Then there's an opportunity for decent constructive debate.
I mean saying things like "Maybe it's difficult for you to see the wood for the trees" might be an opinion you have on me, and that's fine, but it doesn't help anyone. I'm happy that you have enjoyed the chats.
I can think of several convincing and seemingly sensible reasons as to why the market has punished the stock price following the interim results. I can also counteract them with equally convincing reasons why the market has overreacted and got its judgement wrong. I always try to look at a situation from opposing ends before arriving at any conclusions. At the end of the day the market is an unpredictable playing field but usually given time and patience it will eventually value the company on its actual performance.
AWE is still in its consolidation period as it continues to transform the acquired companies and develop its connectivity products. Three major acquisitions in a short 18 month period was always going to have its challenges (some of them clearly not well anticipated by the company) and as a consequence we are seeing the inevitable price volatility. Another 12 to 24 months I expect it will be much clearer to see if they are delivering in line with their 2023 & 2025 guidance figures.
ShearClass,
In regards to your comment about capitalised development expenditure:
As the acting CFO said in the investor call the $24.7m R&D capitalised expenditure relates primarily to the staffing costs involved with the Opto-Electronic products that are being developed for 2024. It was zero the year before because they hadn't started this product development work by end of 2022. Banias labs wasn't acquired until October 2022.
This is an entirely legitmate cost to capitalise and it isn't going to repeat once the product development is completed. By this year's end you can expect this amount to easily exceed $50m to $60m in total. This product development is associated with a non-binding purchasing framework agreement with a hyperscaler where the expected minimum sales over a multi-year period will exceed $300 million. In the agreement there is a max of 2.5% share capital to vest based on product purchases of up to $700 million.
In regards to your comment about there being no headroom for more large acquisitions:
I think three major acquisitions in the space of approximately 18 months is quite enough to be going on with don't you think? The company has made it clear it has no intention nor need to make further acquisitions to accomplish its ambitious goals. Also, I've no idea what you are on about with YoY comps?
Barcap,
Your posting history is quite something to behold! Your reputation proceeds you!
Yes you posted your views and 'feelings' on the stock on 30 Jan this year.
Merely 6 points (which you openly admit to being alleged).
Five of which are verifiably false and one which only you could know about as you state to have seen 'photos' of their lab!
You started on AWE with a buy at £3.71 on 24 Sept 2021 declaring you'd done your research and that they look real good or similar words to that effect. You said sit tight everyone don't let the crooks steal your shares!
Even as the shorting campaign was well underway you declared "The Tea Lady says it will close 250p and may get to 260p. Pause before another move up!". All of a sudden a few days after you change your tune!
and declare your short at £2.57.
Your declarations on other stocks don't look great either.
You bought Darktrace at £5.10 on 31 Nov 21. Some days later you declared "This ones quite a long haul!"
Indeed it must be a long haul as it sits at £4.16 nearly two years on!
You bought Kainos at £15.73 on 17 Jan 22 and it never rose after then. Today it sits at £11.59.
You called bottom on Ocado at £9.20 on 27 Apr 22. But the price only kept on falling and today is at £6.80.
On AWE you declared it would be 50p by April!
I didn't buy in to AWE until February this year right around its bottom point.
I have no concerns. Of course there's some risk involved here but a very low probability of them materialising.
Like your view on Darktrace (which I have no opinion on) I'm in AWE for the long haul and I am absolutely certain it will still be in existence and thriving in 2027.
So far as I can recall, you've never given a basis for why you think the company will go bust long term - other than your view that the management are incompetent for which there is no credible evidence.
What will most likely happen long term is that the company will be bought out and certainly at a premium to today's price if not at a premium to the opening IPO price. This will be well beyond 2027 and more probably in the 2030's.
Happy for you to come back to me at end of 2027 on this one and we can discuss again where you went wrong in your determination of the management.
I think what is interesting Barcap, is that this is where I start off too when I first look at an investment especially for long term investment prospects. You could apply a cynical approach rather quickly and rule it out almost straightaway.
My due diligence process doesn't include 'hunches' or 'feelings' however.
For board of management due diligence, I have a check list with 10 areas for close examination with 3 questions in each area. How does yours go?
You're welcome Barcap!
I appreciate you may have lots of experience trading bull and bear markets over the years and I don't doubt you may have mastered a skill in picking the right moments to buy or short on stocks.
I'm not one for identifying stocks on the basis of nasty feelings or sniffing out a bad'un, but hey, good on you if this is what has worked for you.
I 've read all your posts on AWE sometime ago now and your explanations unfortunately didn't pass my litmus tests for sound reasoning. I can however offer plenty of criticism of Alphawave. The major one being that they raised nearly a £1 billion at the IPO of which only £360 million went into the company's coffers, the other nearly £640 million going into the selling shareholders pockets. Clearly they had a set a budget they considered adequate to accomplish the long term company goals but which has proved to be well below what was needed. The fact they had to take out a debt facility to complete all their acquisitions is somewhat embarrassing considering how much they were able to raise.
In reality however, I don't think they had originally planned on buying Banias labs and the decision to do so was a change in strategy arising from the fact they identified an opportunity to capitalise on a particular sector within the connectivity space with the largest anticipated future growth trend and that's in Opto-electronics. If they have got this strategy right then they can expect to bear the fruits from this in about 3 years from now, though they will get some revenue from it starting next year. Had they not made that last acquisition, you would not have seen them reporting an operating loss yesterday. Moreover, they wouldn't have had need for a debt facility.
So the crux of the matter really is whether you believe they made the right decision in acquiring Banias Labs and whether their strategy to develop Opto-electronics based connectivity products was a gamble worth taking. To properly understand why this was worth the gamble requires a good knowledge of the trends and of what's happening in the world of data centres, high performance computing and all things AI related.