Did Trump just kill Micron Technology?

While it will take some time to understand the impact of the recent US Tax cuts and Jobs act on the Semiconductor industry, the opportunity for US corporation to repatriate income certainly has made a splash. Traditionally, US semiconductor companies pay very limited tax at home. The majority of the revenue and investments are made in other jurisdictions that often have much more attractive tax regimes than the US corporate tax system.




The top 25 US semiconductor companies have increased the tax provision from 2B$ in Q3-17 to 16B$ in Q4-17. With a repatriation tax of 15.5%, this indicates that 80B$ is being brought back into to the US. Almost all of it is by 4 companies: Intel, Qualcomm, Western Digital and Texas Instruments.


What to do with 80B$

The intent of the Tax cuts and Jobs Act is to bring back investments and jobs to the US through a lower corporate tax rate. Undoubtedly this is also going to impact semiconductor revenue and jobs although it is unlikely that it creates significantly more manufacturing jobs in the US as the current immigration laws make it difficult to attract the right kind of skills. There are many more reasons than the tax rate that decides where to place a manufacturing facility.

All of the top 4 semiconductor companies are in a shape where they already can fund their own investments and return surplus capital to their investors. The question is what they are going to do with 80B$ in the US? We believe that we will see a couple of significant acquisitions in the semiconductor space involving US-based semiconductor companies, not only as a result of the cash but also it will be easier to get regulatory approval for two companies originating in the same triad.


What to buy for 80B$

If you have to buy a competitor, you might as well buy one that grows revenue. Either by selling attractive products or selling in attractive markets – or even better: Both!

Currently, there is one very attractive product area in the semiconductor market. Memories have grown from under 27% of the total market to over 37% in only 7 quarters. Certainly, some of this growth is based on inflated pricing that will return to a lower level at one point in time, but the memory market is a lot different from the last memory pricing cycle. From a market perspective, the two main growth areas are Smart Phones and the Datacenter, in particular, the hyperscale cloud datacenter. Part of this growth is based on increased memory pricing and will be reversed at a point in time. What is different in this memory cycle is that the data center has been able to absorb the increased memory pricing like no other application before. While PC and Smartphones are impacted directly by consumer decisions, the memory consumption in the datacenter is an investment decision. And you can be pretty sure Apple and Amazon are not going to run out of storage space.



Although it is not the optimum timing to buy a memory company at the peak of the memory cycle, we believe that memory is now a strategic component at the same level as processors used to be and it will be a vital growth area in the future.

If you were to acquire a US-based memory company, you would end up with a very short list, or with insignificant players. Memory revenue from US-based companies is concentrated in three companies: Western Digital, Intel and Micron. We believe Micron is the next large acquisition target and we believe that it makes a lot of sense for growth challenged Intel to attempt to become a DRAM company again. This aligns well with the company signalling a strategic change and more risk-taking.



Intel has a very clear market strategy, here illustrated by the 3 Horizons framework. Defending its two core markets, PC & Server, win the emerging Datacenter & Cloud market and then pursue future bets.

Eventually, Intel has a target to become a “Data” company, even if it will be true to its manufacturing roots, most of the future revenue could be generated by data, insights and knowledge.





Micron is a good match for Intel in all of its strategic markets. It has higher growth rates (some price-driven) and meaningful revenue in each market.




Micron is also sufficiently significant to make a difference on Intel’s numbers and they are perfectly aligned with Intel’s target markets and several large memory customers like Amazon and Apple are also repatriating a large amount of cash and could create a bidding war should they decide to engage. With so many potential buyers, we believe the chance of Micron coming under offer in 2018 is high.

While Qualcomm is unlikely to make a move given the current Broadcom battle and NXP integration it is likely we will see TI back in the M&A game after many years of absence. And there is a lot to choose from.





Should you be interested in our data and insights please contact Claus Aasholm for more information



Is Softbank milking ARM?

There was a lot of concern back in 2016 when Softbank bought ARM holdings for a record 32B$. Was the Japanese bank going to treat ARM as a milking cow or was it a big bet on the future as stated by the CEO of Softbank, Masayoshi Son. With the closure of 2017, it is possible to get an overview of a full year in which ARM has been fully controlled by SoftBank. The investment strategy and statements from Softbank still indicate an agressive investment philosophy but what is the verdict of the financial data.




The available data confirms that Softbank is not treating ARM as a cashcow. Rather than trying to optimise EBITDA, ARM is allowed to increase operational costs significantly even though the revenue growth is single digits. R&D has increased by a staggering 60% while the SG&A costs has been boosted 44%. The headcount has increased by 22% while ARM’s semiconductor customers are cutting headcount by 5-10% a year.



The revenue of ARM has three main categories. The chart below excludes software to show the increaseing importance of royalties from chips sold, over licenses bought up front when customers engage with ARM and design with their architecture. Although licensing revenue is going down ARM is confident the new licenses has higher royalty potential that the earlier licenses.



Being acquired by SoftBank looks like a very good move for ARM. The agressive increases in operational costs shows that this is truly a future bet for SoftBank.


Other highlights and snacks from the lastest ARM presentation:

The ARM business model is very solid and perceived fair by the company’s clients. This is quite difficult as Qualcomm can testify. Their business model is constantly challenged by their customers and authorities. What is also interesting about it is that it give a view into the semiconductor market that is not available from the semiconductor companies.


As semiconductor devices increasingly become more integrated, more devices are containing processors. Arm now estimate that 70% of all integrated devices contain processors and that ARM has penetrated a third of that market.



Although the revenue from licensing has been decreasing the licensees has higher royalty potential:




Like the semiconductor companies we follow, ARM is also seeing a slowdown in the number of mobile units sold. The other markets have grown quite healthy and above the average non-memory market growth.



While ARM dominates the slow-growing market segment for mobile processors they have close to zero market share in the fast-growing server and data center market. This market, dominated by Intel and challenged by Nvidia, will be the next big target area for ARM.



The automotive market is changing from a power/discrete/microcontroller centric market to also include high-performance computing. ARM has a low market share but well positioned to get a significant share of the new opportunities. The chart below is a great overview of how ARM views the opportunity.



That ARM is interested in the IoT market is no suprise. However the company has a very interesting view on how the IoT market is going to be monetised. Semiconductor companies might enable this market but they will not derive the most value.



ARM have some interesting figures on the 4G to 5G deployments and the benefits that will be derived.


If you want direct access to our Semiconductor product, market and business data, please contact Claus Aasholm


Why would TSMC’s “collaborate” with Samsung on Bitcoin?

The ongoing transition of processing power from the PC to the Enterprise Datacenter and then to the hyper-scale cloud, is being joined by a new processing category. The meteoric rise of the value of Bitcoin has a significant impact on the Semiconductor Processing revenue. Although from a small base, the processing mining revenue has grown over 500% year over year, dominated TSMC customers and Nvidia. In Q4 the Cryto Mining share had risen to over 3% of the total processing market.



(Q4-17 numbers lack companies that have not yet reported – will increase PC and DC but not Crypto)


Already a key memory supplier to the Cryptocurrency mining market, Samsung is preparing to act as manufacturing foundry for the ACIS’s needed for processing. This might not be a major surprise but the statements that this is going to be a cooperation with TSMC does not make immediate sense. Samsung and TSMC are competitors in the foundry market and TSMC is without rivalry the largest manufacturer of processing ASIC’s to the Bitcoin mining market. Why should they “collaborate” with Samsung?



Bitcoin miners have traditionally been using Grapics Cards as they are better suited for mining that traditional server and PC processors. This has benefitted both AMD and Nvidia that has been the main suppliers of the cards to a level where there is a shortage. In order to protect its graphics customers, Nvidia has created and sold dedicated mining platforms during the last year but have stated that Bitcoins are best mined by specialised ASIC’s. This is confirmed by the rise of specialised mining rig manufacturers using proprietary ASICS’s. The main foundry for this activity has been TSMC that were willing to share their Crypto revenue figures last quarter but did not want to disclose them in Q4.  This is likely as a result of the pending “collaboration” with Samsung. It is obvious that this is not in TSMC’s interest and that they are not doing this voluntarily.

The reason for the cooperation is in our opinion driven by TSMC’s customers and more specifically by the largest Bitcoin mining Company, Bitmain Technology Inc. The company is claiming to deliver 70% of all the mining rigs to the Bitcoin miners and have had all of their BM1384/7 chips made on the TSMC 16nm process. Delivering in excess of 200K units a year with 100+ ASIC’s in each, they are likely behind most of TSMC crypto revenue. We believe Bitmain is now buying for more than 1.5B$ yearly run rate with TSMC and is now so powerful they can force TSMC to help Samsung 2nd source their ASIC’s. This could have a significant impact on both TSMC’s and Samsung’s revenue if the Bitcoin valuation stays high.



The top Bitcoin Mining ASIC companies:

Bitmain: Incorporated in Hongkong, the Beijing startup Bitmain Technologies Ltd is controlled by a trust in the Cayman Islands. Bitmain designs the silicon that goes into its bitcoin mining rigs, assemble the machines, then sells them to customers around the world. It also operates the machines for its own account, runs vast bitcoin mines that it rents out on contract to others, and, finally, manages several of the world’s largest mining “pools”—agglomerations of processing power so huge that they greatly improve the odds of successfully mining a bitcoin block. Bitmain manages Antpool and BTC.com, account for 28.9% of all the processing power on the global bitcoin network. Last four days results shown below.



Bitmain produces and sells hundreds of thousands Antminer rigs a year. According to Bitmain, they sell 70% of all mining rigs to the market, effectively providing 70% of all the processing power on the network. The latest Antminer rig is based on the BM1384/7 chip.

BitFury: Bitmain considers BitFury their main competitor. Although predominately a blockchain company, BitFury also delivers hardware for bitcoin mining: BitFury is basing their hardware on a proprietary 16nm ASIC manufactured by TSMC called BF8162C16

Canaan: Another Beijing company creating mining rigs based on their Avalon Blockchain ASIC

Article: Bitmain


“The state of the memory market” by Hynix

Hynix reported their Q4 results today and is giving the next insight into the memory market. Adding close to 1B$ in revenue by adding 100M$ in COGS, Hynix is still increasing pricing on DRAM. This is confirmed by the increase in operating income. More than 700M$ additional profit on 100M$ extra production cost.


The divisional data shows that NAND is now outgrowing DRAM. The NAND revenue growth is predominantly through increases in shipment quantities while the DRAM expansion is still price driven.



You can find the full Hynix factbook here.

Nvidia is leaving Cryptocurrency Mining

There are rumours surfacing that Nvidia has lost interest in the crypto mining market and are limiting sales of their products to this market. Initially, most crypto mining activity was done on powerful PC graphics cards which is still the case for some of the newer cryptocurrencies. According to Nvidia, the BitCoin algorithm is easy to implement in an ASIC and more effective. While Nvidia has made dedicated boards for crypto mining the bulk of the BitCoin business is moving rapidly to ASIC where manufacturing capability and costs are more important than software, ecosystems and support. Nvidia is surrendering this market to TSMC that have seen a surge in revenue over the last few quarters.



Article: Limits on GeForce Products


Nvidia Conference call Comments:

“So what happens is when a crypto — when a currency — digital currency market becomes very large, it entices somebody to build a custom ASIC for it. And of course, Bitcoin is the perfect example of that. Bitcoin is incredibly easy to design in its specialized chip form. But then what happens is a couple of different players starts to monopolize the marketplace. As a result, it chases everybody out of the mining market and it encourages a new currency to evolve, to emerge. And the new currency, the only way to get people to mine is if it’s hard to mine, okay? You got to put some effort into it. However, you want a lot of people to try to mine it.

And so, therefore, the platform that is perfect for it, the ideal platform for digital, new emerging digital currencies turns out to be a CUDA GPU. And the reason for that is because there are several hundred million NVIDIA GPUs in the marketplace. If you want to create a new cryptocurrency algorithm, optimizing for our GPUs is really quite ideal. It’s hard to do. It’s hard to do, therefore, you need a lot of computation to do it. And yet there is enough GPUs in the marketplace, it’s such an open platform that the ability for somebody to get in and start mining is very low barriers to entry.

And so that’s the cycles of these digital currencies, and that’s the reason why I say that digital currency crypto usage of GPUs, crypto usage of GPUs will be small but not 0 for some time. And it’s small because when it gets big, somebody will be able to build custom ASIC. But if somebody builds a custom ASIC, there will be a new emerging cryptocurrency. So ebbs and flows.”

Why a Qualcomm takeover might be bad news for Broadcom Employees

Qualcomm has just released a statement about the Qualcomm Incorporated Non-Executive Officer Change in Control Severance Plan. 

In short, the plan is designed to calm the troops of Qualcomm while they are under hostile take-over threat from Broadcom. The plan is put into motion if there is a change in control of the company which includes a takeover by Broadcom.

The plan secures the employees below the executive level an extra severance pay if they are fired without cause within a two year period after the change of control. The severance pay is calculated by multiplying the numbers of years served by 2 weeks pay plus 4 to 16 weeks extra pay based on the level in the organization. Health care is covered for a similar period.

A midlevel employee with 10 years of service would get 28 weeks of extra pay while a high level employee with 20 years service would get 56 weeks of pay. High-level employees would get a minimum of 52 weeks pay irrespective of the number of years served while low-level employees between 26 and 2 weeks.


Qualcomm has taken a Poisoned Pill

To acquire a competitive company you need to pay more than it is worth but the logic should be that you are able to find synergies that can lower the costs of the combined company. The first casualties of the synergy process are staff functions and management positions. Apart from calming their own troops, Qualcomm has made it significantly more difficult for Broadcom to fire people following a merger synergy process.




This is further complicated by the pending Qualcomm acquisition of NXP and the fact that Broadcom has a significantly smaller number of employees than Qualcomm and NXP. It would be even worse for Broadcom if Qualcomm managed to finalize the NXP merger – then only 1 out of 7 employees would be Broadcom employees.




The Qualcomm plan can be seen here

You can find our merger factbook here







Micron keeps steaming ahead

Micron is the canary in the coal mine with its fiscal quarter ending mid calendar quarter. The quarterly result reveals that the memory boom is not over yet.



The strong quarterly revenue growth is not followed by any COGS growth, indicating that once more the growth is entirely price driven.





The yearly growth is slightly down year over year compared to last quarter but the quarterly revenue growth is still very strong and over 10% for the 6th quarter in a row.





Overall this has a massive impact on Microns operating cash flow and revenue.














An interesting signal in the Micron reporting is that the capital expenditure has increased by 55% quarter over quarter. Although Micron states this is according to the plan the Q4 capital expenditure signals a capacity increase after a few quarters of replacement level Capex spend.




Growth is still driven by the Compute and networking business and predominantly by DRAM to the data center.



Both Microns Flash and DRAM business are now dominated by the data center – in particular the hyperscale and cloud data centers. The gaming area is growing and includes DRAM for bitcoin mining.


You can find the 17-Q4 Micron Factbook here

If you are interested in using our research, data, and insights for your Corporate, Divisional, Investment or Purchasing Strategy, please contact Claus Aasholm





Strategic Selection of Automotive Suppliers in the age of Disruption

Selecting Semiconductor suppliers involves intense collaboration between highly skilled technical purchasers, component engineers and R&D engineers. Specs, parameters and features need to be evaluated for products launches that are several years out for cars that need to last for decades. While all of these activities are vital for successful design and manufacturing it is important not to neglect the strategic elements of supplier selection. This is of particular importance in the automotive industry where supplier decisions have impacts spanning decades.

The time from products are introduced to the time they become obsolete are measured in months making the supplier selection even more important. Most suppliers last longer than their products (unless they get acquired)


The overall business model of the Supplier

Semiconductor companies are built for revenue growth. Like sharks, they need to move to stay alive. Because of the massive investments and rapid deterioration of competitive technology, the need for growth is relentless. At the same time, Semiconductor investors expect double-digit returns every year. When semiconductor companies struggle to grow top line they start to grow the bottom line. They shift their focus from investment to optimisation of profit. As a customer, you can experience flat or even increased pricing even though the manufacturing costs keep decreasing. The stalled semiconductor supplier is betting on the cost of switching suppliers is too high for the customer.

A semiconductor company that fails to grow is also in danger of being acquired. As a customer, acquisitions are not your friends. Acquisitions increase the probability that products lines get killed or become low priority and the supplier is bleeding people with valuable knowledge key to keeping the product line alive.

Select suppliers that has healthy growth and invest in OpEx & CapEx. You can contact Claus Aasholm or use our semiconductor factbooks to help with your strategic selection.

The leadership position of the supplier.

Apart from the business model, it is key that the supplier is an expert within your market. All semiconductor companies want to sell their products but not all can help you innovate and understands your market in detail. Align yourself with the wrong supplier and you will have to teach them about your business. The first parameter in your supplier selection should be the supplier’s revenue and market share.



While NXP still has a leadership position it is also obvious that their position is under pressure in particular from new players like Samsung and Qualcomm signalling the change in automotive electronics from body and powertrain to infotainment and ADAS.


The expertise of the supplier

A good proxy for expertise is to understand how dependent the supplier is on automotive products. It is rare that a high dependence on automotive is not followed by a high level of expertise in automotive.



While Intel might have great products it is safe to assume that Nexperia knows a lot more about the automotive market in general. It will probably also be safe to assume that Intel knows a lot more about ADAS that Nexperia which is why it is also important to understand the product categories that each semiconductor supplier sells.





The Expert/Leader map for Automotive.

A simple way of getting an overview of the expertise and the leadership position of the supplier is the Expert/Leader Map. If a supplier both has high revenue and a high reliance on automotive revenue they are an Expert/Leader. Companies with lower revenue and high reliance on are experts while companies with high revenue and low reliance are leaders.





Not only are these tools relevant for supplier selection, they can also be used for supplier negotiation. Companies outside the Expert/Leader box tend to respond more constructively in negotiations once they have been shown the Expert/Leader Map. They are well aware that buying from Expert/Leaders are a better deal from an expertise perspective and are often willing to compensate. Information and data are vital for supplier negotiations.

None of these tools is meant to be absolutes but should be used in conjunction with the operational purchasing tools.




Is it sensible to attempt to combine 90 business cultures into one?

The possible combination of 3 large Semiconductor companies is an extremely risky business operation. Apart from the operational elements the distinct cultures of Broadcom, Qualcomm and NXP would collide and create tension for many years to come. Anybody who has ever worked in a Semiconductor company knows that the individual cultures live for decades after the CEO has declared the merger successful and stated that only one culture prevails.


This specific combination is between three companies that have a predatory history and have bought many companies over time. Our research covers the last 10 years and shows that this business combination involves 87 other company cultures bringing the total to 90. Although it is likely that several of these cultures have not survived, the triple merger is certainly a risky operation.

We have visualised the complete merger story as a Metro Map that by the way has a similar size as the Washington Metro.




If you are interested in using our research, please contact Claus Aasholm for more information



Visualising the IoT opportunity in just two slides.

During their investor day 2017, Analog Devices showed two slides that brilliantly captures the IoT opportunity for semiconductor companies:

The first illustrates the number of devices per person from many people per device to many devices per person. A 4th wave should be added to illustrate that IoT really does not require a person as it is more about Machine to machine communication.


Although electronics become more advance and cheaper at the same time, revenue is driven by the exponential increase in number of intelligent units that needs semiconductors.



You can see all the slides from Analog Devices Investor day here:


What will make Qualcomm worth 103B$?

With an offer of 70$ per share totalling 103B$, Broadcom has initiated a discussion of the current value of Qualcomm. The share price of Qualcomm prior to the bid was floating around 53$ suggesting a market value of 79B$. The Broadcom bid has increased the value of Qualcomm’s share price in the vicinity of 64$ (95B$) suggesting the investor view is mixed about the probability of a merger.

The immediate response from Qualcomm to the offer of 70$ was that it was undervaluing the corporation. So who is right? How do you calculate the value of a corporation?

Calculating what a company is worth requires a view of the current financial state of the company and assumptions about the company’s future.


Shareholder Value Analysis (SVA)

An effective way of calculating corporate value without being a CFO is to create an SVA analysis. An SVA calculates the value based on a company’s ability to generate future cash flows. Because of the time value of money, the cash flows are discounted with the Weighted Average Cost of Capital (WACC). Don’t worry – you don’t need to understand WACC or discounting to read the rest of the article. All you need to know is that WACC for the semiconductor industry is approx 9.2% at the moment and that it can change over time. It can be seen as the minimum acceptable rate of return investors in semiconductor companies will accept.

There are 7 value drivers that impact the future cash flows of a company in which Revenue growth and operating margins are most important for valuation of a fabless semiconductor company.

An assumption that satisfies the Broadcom bid can be seen below:

You don’t need to understand all of the technicalities of the calculation other than the Yellow box represent the value in m$ and in share price, based on the assumptions above. The sensitivity analysis lower left shows that the value of Qualcomm is impacted most by Operating Margin and Sales Growth Rate.

Operating Margin: In this example,  25% is chosen. Since the beginning of 2016, Qualcomm’s OPM has varied between 5.6% and 41%. The most recent was 5.6% showing Qualcomm’s dependence on license payments from their customers.

Sales Growth Rate: The latest quarter Qualcomm experienced -4% growth compared to the same quarter last year. This was again impacted by low license payments from customers based on legal disputes. In the example, 7.3% is chosen to satisfy the 70$ bid.

In other words – Qualcomm is worth 70$ if it can maintain an OPM of 25% and a Sales growth rate of 7.3%.

Value at 25% OPM

Real business nerds (yes we are) would immediately try and find out what different Sales Growth Rates would do to the valuation of the Qualcomm:

The chart shows (Assuming 25% OPM) that the market estimated that Qualcomm was able to grow sales 2.5% per year. The Broadcom offer would balance if Qualcomm was able to achieve 7.3% sales growth per year.

It is also possible to investigate Operating Margins impact on Qualcomm valuation. If the assumption is made that Qualcomm will be able to achieve an average sales growth rate of 7.3% the impact of various Operating Profit Margins can be evaluated.

The prebid valuation shows it could be achieved at 18.5% OPM and that the current Broadcom offer balances at 25% operating margin.

It is important to understand that for Semiconductor companies with most of the value tied up in intangible assets, a discussion about value is a discussion about expectations about the future. When Qualcomm states that the Broadcom undervalues the company it is really a discussion about two different views about the future.


We do Semiconductor market, Company and Business research based on our proprietary data. We supply data for your Strategic processes. We deliver visual intelligence reports.

We help

           – Semiconductor Companies Compete

           – Electronic Companies buy Semiconductors

           – Investors Invest in Semiconductors.

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Divisional Semiconductor Growth, Q3-17

Most of the Q3-17 results of semiconductor companies have been published and it is time to take a look at the divisional growth of the top Semiconductor companies. The results already show that semiconductor revenue growth is dominated by price increases in the memory market favouring companies like Hynix, Micron and Samsung.



The Hynix DRAM and Micron Computing divisions have experienced extraordinary growth and reveal both the product and the market hotspot. The data centre market is on fire and has an insatiable hunger for memory. In particular, the DRAM market is heated – Hynix experienced twice the DRAM growth than NAND. The skew between DRAM and NAND is a result of the last few years investment strategies of prioritising NAND over DRAM. The memory companies have all been surprised by the increase in DRAM demand – they expected the world to convert to flash.




A shift in the Semiconductor Market

Nvidia’s Tegra division has the highest growth of non-memory divisions together with AMD’s computing and graphics division. Also, Nvidia’s GPU division is not far behind. This is by far the largest division of the three and growth is driven by GPU sales to the Datacenter. The Datacenter revenue is up by 114%. This result is revealing that the DRAM hunger is created by the growing need for Artificial Intelligence in the Cloud Data Centre.



Removing the large memory companies from the list gives a deeper look at the divisional growth:

  • The good divisional results from On Semi and Renesas are driven by acquisitions.
  • The results of the Broadcom storage division also indicates growth in the data centre.
  • Wireless, Industrial, Analog, IOT and sensors are high on the list.
  • Embedded micro has done reasonable but below market growth.
  • The automotive business has been disappointing despite much talk.


We do Semiconductor market, Company and Business research based on our proprietary data. We supply data for your Strategic processes. We deliver visual intelligence reports.

We help

           – Semiconductor Companies Compete

           – Electronic Companies buy Semiconductors

           – Investors Invest in Semiconductors.

Contact Claus Aasholm for more information.