First thoughts on MSCC for Vectron:
- 2nd quarter in a row with a late breaking pre-EPS M&A that will influence results in the out-quarter, with the disclosure lacking for investors to parse how much is the Vectron contribution (don't worry, we figured it out already Jimmy)
- Overlapping portfolio with Symmetricon, Zarlink, and Maxim timing acquisitions (potentially with part of Vitesse as well), all serving the same end markets and customers
- Volatile business, tied to telco infrastructure cycles
Why do you need so many overlapping portfolios?
In the last bunch of years, MSCC has acquired:
- Symmetricon - timing & synchronization
- Maxim’s timing business
- Zarlink – included network timing
- Vectron International from KN
Guess which end markets they all serve? Communications & Satellite! All of them.
What’s with the lack of disclosure?
Why not tell us how much revenue you are buying and at what GM%? Don’t you think we will be able to figure this all out eventually, and you won’t be able to move M&A revenue into the hole that real revenue was exposed to? Come on. How long will you play this game? (Hint: forever, since they have acquired the walking dead of semis that do not grow but they keep promising growth)
Ok, maybe a $6b company doesn’t have to provide disclosures on a $130m acquisition, you might argue. But your quarter is ending, it is earning season, and you just made an acquisition that will definitely influence Mar-Q revenue and probably also partially Dec-Q revenue. If you are proud of what you bought, why not tell us about it? This is the second quarter in a row where you have late breaking M&A into results, with details at least partly hidden.
Also, it is a bit funky to see you acquire specifically in the communications segment which has been struggling to grow.
What did you buy?
So in our timing business, we had some struggles in 2015. That business was down close to 30% in 2015 over 2014. We have not seen it come back to the levels it was in 2014 but it has been improving. (CEO of KN, 6/8/2016)
Our timing business -- it was about $100 million in 2015. (CEO of KN, 6/8/2016)
The timing business, the telecom infrastructure business is very volatile. (CEO of KN, 6/8/2016)
How much revenue historically in this business?
Based on our work, we also infer that Vectron was ~9% of total KN revenue in 2013, or ~$110m of revenue.
I'm not prepared to sit there and say that as we enter into 2016 that there is any type of significant improvement in the timing business at this point. So if -- what you would say in the timing business is if telecom infrastructure starts to resume, we will be in a good position to take advantage of that. And we will see growth sequentially and year over year. (CEO of KN, 10/26/15)
Strength was primarily driven by sales in precisiondevices aided by continued 4G LTE infrastructure spending primarily in China. We remain well positioned in a number of wireless infrastructure providers supporting these bills. (CEO, 7/28/14)
What is the problem with overlapping product – it’s more revenue, no?
Overlapping product just adds layers to R&D and product manufacturing roadmaps that are inefficient. And you can’t consolidate them to one product line because then you would have to go out and re-qualify all the socket wins, which is more headache and OPEX expense than anyone in semis would rationally tolerate for this kind of portfolio.
Bottom-line
It looks like you acquired a product line you already have, serving an area of customers you already serve with that product lineup, and despite the lack of disclosure, our best guess is about $26m per Q of revenue, the PERFECT SIZE TO PLUG THE HOLE between your F18 revenue trajectory and what the Street is expecting at a 6% y/y rate. This all looks fine but you’d better not tell anyone that in this case 1+1 will not =2.
Don’t worry, my lips are sealed.