Semiconductors, Memory and SSDs Specialist, Objective Analysis

Jim Handy

Semiconductors, Memory and SSDs Specialist

Objective Analysis

Objective Analysis offers third-party independent market research and data for the semiconductor industry and investors in the semiconductor industry.

Semiconductors, Memory and SSDs

Thematic (Sector/Industry)

After Japan's earthquake automobile makers had a lot to worry about, since they were already faced with critical semiconductor shortages.  Now unusually bad weather has hit much of the US, and has stopped chip production in three important fabs in Austin, Texas.  This Insight explores the winners and losers in this series of events.

After Japan's earthquake automobile makers had a lot to worry about, since they were already faced with critical semiconductor shortages.  Now unusually bad weather has hit much of the US, and has stopped chip production in three important fabs in Austin, Texas.  This Insight explores the winners and losers in this series of events.

Texas Weather Deals Second Blow to Automotive Chip Supply Chain

Saturday's 7.1 earthquake in Japan could have caused important supply disruptions for semiconductors.  We reached out to over a dozen companies to check their status, and those who replied indicated that there was little impact.  Still, the automotive sector has reason to be nervous.

Saturday's 7.1 earthquake in Japan could have caused important supply disruptions for semiconductors.  We reached out to over a dozen companies to check their status, and those who replied indicated that there was little impact.  Still, the automotive sector has reason to be nervous.

Japan Quake and Chip Shortages, Tough on Auto?

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Renesas reported solid 4Q numbers with revenue coming in at ¥191.6bn and EBITDA at ¥57.5bn, in line with consensus at ¥191.1bn and ¥58.7bn respectively. It was 1Q guidance which was the real story, however, as the projection is for ¥197-205bn in revenue and an OPM of 22% at the midpoint.

Renesas reported solid 4Q numbers with revenue coming in at ¥191.6bn and EBITDA at ¥57.5bn, in line with consensus at ¥191.1bn and ¥58.7bn respectively. It was 1Q guidance which was the real story, however, as the projection is for ¥197-205bn in revenue and an OPM of 22% at the midpoint.

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 8 February, <a href="https://www.smartkarma.com/entities/renesas-electronics-corp" target="_blank" data-smartkarma-citation="entities:15933:1" rel="noopener">Renesas Electronics (6723 JP)</a> <a href="https://www.dialog-semiconductor.com/sites/default/files/danube_full2.7announcement_final.pdf" target="_blank" rel="noopener">announced an agreement</a> to acquire <a href="https://www.smartkarma.com/entities/dialog-semiconductor-plc-664a1f83-2a21-4690-a91f-fb971832e7ad" target="_blank" data-smartkarma-citation="entities:21607:1" rel="noopener">Dialog Semiconductor (DLG GR)</a>, supplier of Apple.
Consideration. €67.5 per share, in cash, adjustable for dividends or capital distrubutions at the discretion of Renesas. To be conducted though a scheme of arrangement (document to be published on or before 8 March).
<ul>
<li>This values 100% of the equity capital of Dialog at €4,886 mn (as reported), for an implied EV of €4,556.5 mn.</li>
<li>This represents 3.7x EV/Fwd Revenue (vs. historic average of c 1.6x), 17.4x EV/Fwd EBITDA and 22.2x P/Fwd E (vs. historic average of 8x), (please see other recent transaction multiples further down).</li>
</ul>
The shares of Dialog shot up by 16% vs. the prior day, with c. €353 mn traded.
I believe the deal makes strategic sense, as the offer underlines the relevance of both power and low power connectivity to the automobile and industrial semiconductors.
The median implied valuation across multiples is €65.07 per share. On this basis, the price offered by Renesas seems fair.
Bloomberg has reported the interest of STM in Dialog, nevertheless, STM has already exposure to Apple and I doubt it would be willing to pay up to increase it.
Gross spread is c. 3.3%, with a high volume traded on today's (9 March session). The deal is expected to become effective in H2 2021.
With high chances for the deal to complete, recommendation is Long DLG GR.

On 8 February, Renesas Electronics (6723 JP) announced an agreement to acquire Dialog Semiconductor (DLG GR), supplier of Apple.
Consideration. €67.5 per share, in cash, adjustable for dividends or capital distrubutions at the discretion of Renesas. To be conducted though a scheme of arrangement (document to be published on or before 8 March).

This values 100% of the equity capital of Dialog at €4,886 mn (as reported), for an implied EV of €4,556.5 mn.
This represents 3.7x EV/Fwd Revenue (vs. historic average of c 1.6x), 17.4x EV/Fwd EBITDA and 22.2x P/Fwd E (vs. historic average of 8x), (please see other recent transaction multiples further down).

The shares of Dialog shot up by 16% vs. the prior day, with c. €353 mn traded.
I believe the deal makes strategic sense, as the offer underlines the relevance of both power and low power connectivity to the automobile and industrial semiconductors.
The median implied valuation across multiples is €65.07 per share. On this basis, the price offered by Renesas seems fair.
Bloomberg has reported the interest of STM in Dialog, nevertheless, STM has already exposure to Apple and I doubt it would be willing to pay up to increase it.
Gross spread is c. 3.3%, with a high volume traded on today's (9 March session). The deal is expected to become effective in H2 2021.
With high chances for the deal to complete, recommendation is Long DLG GR.

Dialog Semiconductor - Renesas Electronics Recommended Cash Offer

The market reacted slightly negatively to news that Renesas was interested in tabling a EUR67.5 per share offer for Dialog Semiconductors. On the contrary we believe that such an acquisition would benefit both companies and that the impact on Renesas’ balance may be manageable even without more equity capital. Given that the stock is down 12.4% from its recent peak we believe this is a nice chance to buy into the supply crunch in automotive semiconductors on this news. The risk of a raise in the acquisition price is non-zero but we do not believe things would become egregious.

The market reacted slightly negatively to news that Renesas was interested in tabling a EUR67.5 per share offer for Dialog Semiconductors. On the contrary we believe that such an acquisition would benefit both companies and that the impact on Renesas’ balance may be manageable even without more equity capital. Given that the stock is down 12.4% from its recent peak we believe this is a nice chance to buy into the supply crunch in automotive semiconductors on this news. The risk of a raise in the acquisition price is non-zero but we do not believe things would become egregious.

Renesas – Selloff on Dialog Announcement Opens Up Opportunity

Japan

Renesas Electronics Corporation researches, develops, designs and manufactures electronic components such as semiconductors and integrated devices.

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Renesas Electronics (6723 JP)

Texas Weather Deals Second Blow to Automotive Chip Supply Chain

A chip shortage is preventing the automotive industry from returning to full volume. Meanwhile Japan's earthquake and bad weather in Texas are...

Jim Handy

Japan Quake and Chip Shortages, Tough on Auto?

Will Saturday's Japan earthquake further disrupt the semiconductor supply chain? Early reports seem tame enough, but automobile manufacturers are...

Jim Handy

Renesas – Not Just About the Auto Side

Renesas Electronics posted strong 4Q numbers and punchy 1Q guidance setting the stage for a very strong 2021 as automotive, white goods and factory...

Mio Kato

Dialog Semiconductor - Renesas Electronics Recommended Cash Offer

I believe the deal makes strategic sense, the price offered seems fair. Gross spread is c. 3.3% (complexion exp. H2 2021). With high chances for...

Jesus Rodriguez Aguilar

Renesas – Selloff on Dialog Announcement Opens Up Opportunity

Despite the market's negative reaction to the announcement of a potential offer for Dialog, we very much like the news for Renesas. Details below.

Mio Kato

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