Presentation is loading. Please wait.

Presentation is loading. Please wait.

IXYS Corporation (NASDAQ: IXYS) – the case for A SHORT

Similar presentations


Presentation on theme: "IXYS Corporation (NASDAQ: IXYS) – the case for A SHORT"— Presentation transcript:

1 IXYS Corporation (NASDAQ: IXYS) – the case for A SHORT

2 Investment Thesis Industry Analysis Company Overview Drivers Valuation
Table of contents Investment Thesis Industry Analysis Company Overview Drivers Valuation Conclusion

3 Investment thesis IXYS’ inability to capture future market growth, costly acquisition strategy, and increased price competition from competitive consolidation create a pessimistic investment that has been overvalued in the market. Recommendation: Sell FY 2017 Beg Price: $ Price Target: $10.65 (10.6% upside) RISKS The market believes that IXYS is able to maintain growth consistent with the market, but this is not true due to its inferior product mix and slowing demand A growth strategy focusing on acquisitions over R&D creates inefficient integration and has risk of product failure Strong price competition in majority of product groups, catalyzed by consolidation of competitors Daim CATALYSTS Strong overall incoming demand due to Internet of Things (IoT) wave Strong, long-term relationships with suppliers Low leverage risk, despite aggressive acquisition strategy

4 OVERALL SEMICONDUCTORS PORTER’S FIVE FORCES ANALYSIS
Industry analysis OVERALL SEMICONDUCTORS Mature industry with typically slow growth relative to the US economy and can be characterized by rapid innovation in a highly diversified and globalized setting U.S. supplies 50%+ of semiconductor demand (increasing production in parts of Asia) Market for semiconductors recently growing with increased electronics consumption (IoT), greater industrial applications, and growing demand in Asia Highly R&D intensive products with firms investing on average 30% of their sales in product innovation PORTER’S FIVE FORCES ANALYSIS New Entrants Substitutes Supplier Bargaining Buyer Bargaining Industry Rivalry LOW VERY LOW MEDIUM-HIGH HIGH VERY HIGH High startup costs and the industry is extremely capital intensive because new semiconductor companies must build a production plant Product is used in many different applications (expertise/reliability) and its functions are not replicable Depends on type, but machine suppliers and foundries have high power bc of specificity, while raw material suppliers have low because of similar products Demand for electronics is increasing, concentrated in subindustries, and the thread of backward integration Compete solely based on performance, so companies must constantly innovate to maintain market share and stay afloat Caroline

5 KEY OPERATIONAL DRIVERS
Industry analysis KEY OPERATIONAL DRIVERS Cyclic Nature Strong profits  invest in new manufacturing capacities  ramp up causes oversupply  in aggregate, drop in prices  shut off capital spending  shortage  higher prices Result is cyclic years of A) strong acquisitions & B) drops in prices Internet-of-Things Demand Network of physical objects that feature internet connectivity, and the communication that occurs between (a result of increasing needs for efficiency and connected devices) 33.1% CAGR to 2021 (Source: RNR Market Research) Caroline (Source: McKinsey & Co.) (Source: The Hacker News)

6 Company overview Specialized semiconductor company
Designing, developing, manufacturing & marketing niche semiconductors Founded in 1983 by Dr. Nathan Zommer Diversified industries (industrial, transportation, computer, medical, etc. BUSINESS STRATEGY Aggressive acquisition strategy instead of R&D investment (2001, 2009, 2013, 2015) Outsources over 1/3 of production to Samsung Electronics & other producers Shifting of overall product mix away from Power Semiconductor division towards Integrated Circuits (IoT chips) Caroline

7 ANNOTATED PERFORMANCE YTD
Company overview KEY FINANCIALS CORE MANAGEMENT Market Cap ($USD) 410.9M Enterprise Value ($USD) 297.6M Revenue (TTM) 319M EBIDTA (TTM) 40M Price/Earnings (TTM) 22.4 Stock Price ($USD) 11.91 Dr. Nathan Zommer (Chairman, CEO, CTO) Founder, strong grasp on R&D in industry, pioneer in niche semiconductors, previous experience at GE + Intersil, holder of 75 patents, & thought leader in niche semiconductor industry Mr. Uzi Sasson (CEO, President) Experience in financial and operational management, strong understanding of tax/accounting processes in the semiconductor industry, & balances strong technical founder with operational skills ANNOTATED PERFORMANCE YTD Introduces new “Wespack” rectifier diode Increased margins, earnings growth Caroline Second straight Q with Rev increase New 2.4 GHz receiver for IoT applications Announces new 3.2kV Thyristor (Source: Google Finance)

8 INFERIOR PRODUCT MIX & SLOWING DEMAND
COMPANY DEVELOPMENTS & DRIVERS INFERIOR PRODUCT MIX & SLOWING DEMAND Market currently expects IXYS to capture proportional level of future growth in semiconductor demand (IoT wave) We argue that IXYS will capture a much smaller percentage of this upcoming wave, and will actually decrease in the long-term For buyers, consolidation of product vendors is key because it lowers costs IXYS offers a much smaller product mix As demand grows/diversifies in the future, buyers will switch to vendors that can bundle to lower costs IXYS’ recent book-to-bill ratios indicate that demand is slowing for IXYS vs. the industry Ajay

9 COMPANY DEVELOPMENTS & DRIVERS
ACQUISITION VS. R&D STRATEGY IXYS pursues A&D strategy (2001, 2009, 2013, 2015) to keep up with changes in the industry, and relies less on R&D Higher variance and risk associated with integrating the technology Gives less flexibility and options to react to market changes quickly, as cash flows are locked up in A&D Examples: manufacturing capacity, marketing/sales R&D to Sales PRICE COMPETITION DUE TO COMPETITIVE CONSOLIDATION IXYS has tried to shift its product mix away from PS and towards ICs to better match the large growth in demand (Internet-of-Things) there However, they have seen strong price competition as bigger IC competitors have consolidated Larger consolidated companies are able to better cut costs and charge lower prices Smaller companies typically follow suit to retain customers Ajay

10 Valuation (Discounted cash flow)
COST OF CAPITAL Fama-French 3 Factor Model to estimate cost of capital Unlevered beta is with respect to the Russell proxy for the market and forecasted using comparables’ betas and Bloomberg adjustment MRP is aggregate forecasts of U.S. CFOs sampled by Duke CFO journal MRP adjusted for 30-year time horizon of project and replaces the survey’s 10-year TB with 30-year TB 3% deviation between CAPM and 3-Factor Sohum

11 DCF OUTPUT & SENSITIVITY ANALYSIS
Valuation (Discounted cash flow) DCF OUTPUT & SENSITIVITY ANALYSIS Bear Base Bull $9.95 $10.65 $11.95 IoT infrastructure stunned Faster than expected growth of Asian fabs -16.5% Unable to capture market growth Acquisition strategy plagued by failures -10.6% Stronger than forecasted market growth More efficient acquisitions for adding scale and product offers +.3% Sohum

12 Questions?


Download ppt "IXYS Corporation (NASDAQ: IXYS) – the case for A SHORT"

Similar presentations


Ads by Google