Applied Micro (AMCC) is one of the smaller names with a $572M market cap and trades 2.26X FY17 Sales. AMCC has not seen revenue growth since 2014 but forecasting double digit growth in 2017 and 25% growth Y/Y in 2018, also returning to profitability FY17. AMCC is developing its X-Gene Server and calls itself the “Data Center Semi Company.” It has technology leadership in ARM servers which could be coveted by an acquirer.
Inphi (IPHI) is a $1.4B Semi trading 3.6X FY17 sales, a bit pricey but is one of the best small cap growth plays coming off two years of 50%+ annual revenue growth and forecasting 20%+ growth annually through 2018, and also earning strong with $2/share EPS seen for 2018. IPHI is a play on the fast growing data center market and surely is one of the best targets out there. IPHI had an unusual buyer of 1,200 September $35 calls at $2.40 on 7-20. IPHI’s 68% margins are also near the highest of the group.
Intersil (ISIL) is a $2B Semi trading 3.2X FY17 Sales and is a player in the power management space for chips which has seen some deals already, including International Rectifier (IRF) acquired for a substantial premium. ISIL has a debt free balance sheet and an extensive IP portfolio with over 1,000 patents, attractive to an acquirer. It is of the lower growth nature with revenue growth expected to accelerate each of the next three years, but still mid-single digits.
Maxlinear (MXL) is a $1.39B Semi trading 2.92X FY17 Sales and is very profitable with a clean balance sheet. MXL has strong gross margins above 62% and a fairly high OpEx/Sales ratio. MXL is a leader in low power, RF/Mixed Technologies for broadband access and connected home. It also has some exposure to data centers and has a 5 year CAGR of 33%. Its key growth drivers include Over-the-Top video delivery, new Ultra HD video, and cloud services & media servers.
Mellanox Tech (MLNX) has a $2.18B market cap and trades 2.13X FY17 Sales, one of the cheapest names in the group, while also having 70% gross margins, an attractive name comparatively. MLNX revenue growth was 41.9% in 2015 and coming down to 32.2% in 2016 and 15.5% in 2017, but still growing faster than its larger peers while its 42.5% OpEx/Sales ratio is very high and an acquirer could likely benefit a lot from an acquisition. MLNX is a leader in InfiniBand and Ethernet Tech and set to benefit from the market transition to 25/50/100Gb from 10Gb. MLNX is a player on the secular trend play of more data needing to be more accessible everywhere and in real time. It has customers in a diverse set of industries including Banks, Automotive, Pharma, Oil & Gas, and Hyperscale companies.
Silicon Labs (SLAB) is a $2.24B Semi trading 2.85X FY17 Sales with 60% gross margins and an OpEx/Sales ratio above 40%. SLAB has recently been posting impressive numbers and is making strong inroads into IoT. It sits at a perfect market cap, fairly valued, and is in all the right markets, one of the top M&A targets certainly.
In closing, my top large targets are XLNX, MXIM, and MSCC. My top smaller cap targets, in order of likelihood are IPHI, SLAB, MXL, MLNX, ISIL, and AMCC.
Thanks for reading.
Twitter: @OptionsHawk
Author may have positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
