technology opportunitymedia.angelnexus.com/pdf/tao/tao-june-2016-ddw.pdf · 2018-02-16 · june...

June 2016

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In this month’s issue:

• Technology and Opportunity: Special Robot Edition Part 1

• International Robotic Trends and Forecasts

• New Recommendation: A Must-Own Industrial Robotics Powerhouse

• Portfolio News

• Banking 14.3% gains on Ambarella, 47.9% gains on Applied Materials, a 15.8% gain on Corning, and an 18.1% gain on SAIC (See marked items in our Portfolio Updates section)

Dawn of the Robots (Part 1)If you’ve been keeping up to date with our “This Week in Tech” series this month, you already know that Foxconn, the contract manufacturer responsible for building most of Apple Inc.’s (NASDAQ: AAPL) iPhones, recently revealed it has replaced 60,000 human workers with robots — effectively cutting down the workforce of a single mega-factory by more than 50%.

In a statement given to MarketWatch last week, Foxconn said it’s “applying robotics engineering and other innovative manufacturing technologies to replace repetitive tasks previously done by employees.” The company explained that it plans to “automate more of [its] manufacturing operations over the coming years.”

All said and done, Foxconn, intends to install an additional 1 million robots, replacing an estimated 30% of its human workforce by 2020 — but it’s not alone. As China’s South China Morning Post reports, in addition to Foxconn, “roughly 600 companies in the Kunshan region [where Foxconn resides]” are now looking to reduce headcount with robots. The scenario might sound like the beginnings of an apocalyptic sci-fi film, but it’s very real, and it’s happening today.

At the same time, Chinese investment groups have been furiously scooping up international robotics companies. The recent shopping spree includes:

• AGIC Capital’s recent purchase of Gimatic, an Italian firm that produces pneumatic and electric grippers, and sensors and positioners. The Financial Times reported a sale price between $112 and $169 million.

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• AGIC Capital, China National Chemical Corp, and Chinese state fund Guoxin International Investment Corp’s joint purchase of German industrial robot integrator KraussMaffei Group for $1 billion in January.

• A pending $5.2 billion offer by Midea Group for up to 49% of Germany-based robot giant Kuka AG (OTC: KUKAF).

• Wanfeng Technology Group’s purchase of Paslin, a Michigan integrator of welding robots, automation systems, and tooling for $302 million.

As for investment in the U.S., the Robotic Industries Association is reporting that North American companies ordered over 31,400 new robots in 2015, representing a 12% increase from the year prior. The rush for robotics is not isolated to the Asia region — it’s currently happening across the entire globe.Here’s a collection of some compelling visuals based on data from Boston Consulting Group:

Source: BCG Global Management Consulting


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With virtually every sector within robotics on the up, it should go without saying that investors would be wise to begin buying stock in robotics companies behind this trend. That said, we’re going to dedicate this and next months’ issues to exploring a few new robotics stocks to get bigger piece of the pie.

We’ll be starting off with the big guys first.

Of all the public robotics companies available, Fanuc (OTC: FANUY), Kuka (OTC: KUKAF), Yaskawa Electric Corp (OTC: YASKY), and ABB (NYSE: ABB) rank as the biggest powerhouses out there and account for upwards of 60% of global industrial robotics revenue...

We already have Fanuc in our portfolio, having first recommended the stock back in 2013. Kuka exploded from $84 a share to $110 following the Midea Group offer mentioned above, but we were unfortunately boxed out because the ADR trades with virtually no volume (the same is true for Yaskawa).

Switzerland-based ABB is arguably the best performer of the group and will be our official recommendation this issue. With both Fanuc and ABB in our portfolio, our exposure to industrial robotics is wider and better diversified.

We will also be recommending two smaller American robotics companies in your July issue to follow. The last company we covered to meet this description was Adept Technologies Inc., which was acquired by Omron back in April of last year. We closed that one out at a 110.8% gain.

Before we take a swing at that again, though, let’s take look at foreign automation powerhouse and compelling dividend play ABB.

New Recommendation: ABB Ltd. (NYSE: ABB)ABB Group is a multinational industrial automation corporation headquartered in Zürich, Switzerland. The company operates primarily in robotics and power/automation technologies. It ranks as a top 200 Forbes company and is one of the largest engineering firms in the world with over 135,000 employees, operations in ~100 countries, and annual revenue over $35 billion.

ABB is a company focused on keeping up with technological innovation. A diversified global powerhouse, the firm is found at the center of current developments in fields such as (but not limited to) clean energy, smart grids, microgrids (localized, independent grids), robotics, industrial asset effectiveness, and sustainable transport.

Here’s a simple breakdown of the company’s revenue to give you an idea of its focus:

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ABB is the single strongest cash-generator of the “Big Four” industrial robotic companies listed above, with plenty of capital on hand and limited debt. Despite a hefty $44.7 billion market cap, the firm’s projected growth rate is surprisingly strong at over 11%. Toss in a solid 3.68% forward dividend yield, and you have a compelling dividend growth play on your hands.

Here are a few key figures from ABB’s 2015 full-year results:

Outlook and Growth Drivers

In the short term, ABB is looking at a mixed macroeconomic bag. Management sees some positive signs in the U.S., with growth in China expected to continue, albeit at a slower pace than in 2015.

The market does remain impacted by modest growth in Europe and geopolitical tensions in various regions. Industrial demand in the Americas is being hindered by a lower level of industrial activity, primarily in oil/gas and mining/minerals.

In light of near-term headwinds, the long-term demand outlook for ABB’s three largest customer

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sectors (utilities, industry, and transport & infrastructure) remains strong. Key drivers include:

• Major shifts in the electricity value chain (microgrids, renewable energy, etc.)

• Industrial productivity improvements through the Internet of Things

• Automation penetration

• Rapid urbanization

• Demand for energy efficiency in transport & infrastructure.

With its broad market presence, technological leadership, and financial strength, ABB is well positioned to tap into each of these opportunities for stable, long-term growth.

Recent Performance

As for its most recent performance, ABB faced a challenging first quarter but was able to improve cash flow and profitability regardless of lower orders (-7%) and a slight drop in sales revenue (-2%).

Cash flow from operating activities improved by approximately $200 million to $252 million during the company’s latest quarter. This can be attributed primarily to improved working capital management and lower income tax payments. Operational EBITA margin increased 0.9% points to 12.0%, while operational earnings per share increased 3%.

Here are the key figures:

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In addition to reeling in costs during recent headwinds, ABB continues to give back to shareholders.

ABB first announced a $4 billion share buyback program back in September 2014. During the first quarter of 2016, it purchased 27.7 million shares under this program with a buyback value of approximately $500 million. Since the program was announced, ABB has purchased a total of ~134 million shares with a buyback value of approximately $2.7 billion.

Dividend growth has been steady, with 2016 marking seven consecutive distribution increases for the firm. As mentioned above, the forward yield is a respectable 3.68%.

Valuation and Recommendation

From a valuation standpoint, ABB is priced attractively. Price to sales is 1.26 compared to competing industrial robotics firm KUKA at 1.43. Trailing price to earnings (P/E) is 23.85, with KUKA at a much pricier ratio of 42.96. The forward P/E is just 16.4.

Point blank, ABB is a global industrial and energy powerhouse operating in a wide range of long-term growth markets. This isn’t a stock that’s going to take off in share value anytime soon, but it’s a low-risk position perfect for intelligent, income-minded investors.

We rate ABB Ltd. (NYSE: ABB) a “Buy” under $22.00. The Risk Level is “Low.”

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Portfolio Snapshot and UpdatesNote: Items marked with ‘***’ will be closed out this issue. Please see below.

Amazon Inc. (NASDAQ: AMZN)

Snapshot:

Amazon is an American e-commerce and cloud computing company. It is the largest Internet-based retailer in the United States and the world’s largest provider of cloud infrastructure services. The company also produces consumer electronics and sells digital media content.

Updates:

Amazon will be launching its own standalone streaming music service to rival the likes of Spotify, Google Play Music, and Apple Music, according to recent reports from Reuters. Unnamed sources say Amazon plans to charge $9.99 per month for the service, which is comparable to other leading streaming services.

The service would be a natural complement to Amazon’s interactive speakers, which include a voice-controlled digital assistant (Alexa). Consumers could potentially use Alexa to request songs or artists using voice commands.

Still, Amazon has plenty of work to do before it can effectively compete. The company currently offers a catalog of just “over a million” songs to Amazon Prime subscribers. For perspective, Apple Music, Google Play, and Spotify each offer more than 30 million songs.

On the operational side, as revealed by the Houston Chronicle, Harris County Commissioner Court documents indicate that Amazon plans to build an 855,000-square-foot warehouse in a major northwest Houston business park. The proposed $136 million fulfillment center is expected to house 1,000 employees.

Amazon is seeking an abatement to lower its taxes on the project up to 65% for 10 years. The retailer’s fulfillment network provides it with a wide economic moat, so we always like to see expansion. The firm currently has upwards of 78 active fulfillment centers with an additional 22 expected in the future.

In less welcome news, the FAA has fined Amazon $350,000 for shipping unmarked corrosive chemicals back in 2014. Fortunately, this was a one-time incident and the fine represents a mere rounding error on Amazon’s bottom line. Nothing to worry about here.

We rate Amazon (NASDAQ: AMZN) a “Buy” under $535. The risk level is “Low.”

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***Ambarella Inc. (NASDAQ: AMBA)

Snapshot:

Ambarella develops low-power, high-definition video compression and image processing components. The company’s products are used in a variety of high-definition and ultra-high-definition cameras including: security IP-cameras, sports cameras, wearable cameras, aerial cameras, and automotive video cam recorders. Ambarella’s compression chips are also used in broadcasting TV programs worldwide.

Updates:

Ambarella has gained nicely since our last issue, climbing from $37.16 to around $53.00 thanks to better-than-expected first-quarter results released on June 2.

Results were not stellar, but as mentioned, they were better than expected.

Quarterly revenue fell 19.5% year over year to $71 million, still well above guidance calling for $55 million to $57 million.

On an adjusted basis, net income was $11.4 million, down from $23.7 million a year prior. Guidance was calling for adjusted net income between $8 million and $10 million.

During the call, it was revealed that roughly 45% of Ambarella’s Q2 and Q3 sales will be impacted by temporarily halted Sony operations following a 7.0 earthquake in Japan in April.

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Management was largely optimistic, though, about the second half of fiscal 2017, citing improving trends in drones, wearables, China, and security cameras. The positive comments were enough to reignite Ambarella bulls, with buying even spilling over to GoPro.

With much of Ambarella’s 2017 success relying on the launch of GoPro’s Hero7, however, our portfolio currently has too much exposure to a single product. After trading down for several months, we’re currently up ~15% on Ambarella. In anticipation of a choppy second quarter and an uncertain back half of the year, we’re going to close our position and secure the gain.

Sell Ambarella Inc. (NASDAQ: AMBA) at market for a 14.25% gain.

Amtech Systems (NASDAQ: ASYS)

Snapshot:

Amtech Systems is a supplier of solar panel and semiconductor capital equipment with a global presence in North America, Europe, and Asia. Amtech’s products and services include silicon wafer handling automation, thermal processing, and various products used for fabricating solar cells and semiconductor devices.

Updates:

No new updates for Amtech this month, but for those who missed it, here’s a brief recap of the firm’s second-quarter fiscal 2016 results reported last month.

Amtech recorded a net revenue of $22.5 million (beat by $1.34 million) and EPS of -$0.11 (beat by $0.33). Jointly, the firm reported customer orders of $45 million compared to $35.6 million in the preceding quarter.

The company now has $45 million of total bookings in the second quarter, including $28 million of solar orders, which is the highest solar bookings since the March quarter of 2011.

With those bookings, the company now has a backlog of $67 million, which is a 57% increase since December 31, 2015, and the highest in four years.

We rate Amtech Systems (NASDAQ: ASYS) a “Buy” under $7. The risk level is “Medium.”

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Analog Devices, Inc. (NASDAQ: ADI)

Snapshot:

Analog Devices is a semiconductor company specializing in data conversion and signal processing technology. The company develops analog-, mixed-, and digital-signal processing integrated circuits (ICs) used in industrial, automotive, consumer, and communication markets worldwide.

Updates:

No major news for Analog this month besides a price target lift from Merrill Lynch from $57 to $61.

Here’s a recap from the last 10-Q for those who missed it:

Analog Devices reported its second quarter of fiscal year 2016 with a net revenue of $779 million. Revenues by segment were as follows:

• Industrial, $385.3 million (down 1%)

• Automotive, $138 million (down 1%)

• Communications, $175.4 million (down 3%)

• Consumer, $80 million (down 27%).

Analog Devices is holding strong in industrial, auto, and communication markets, despite ongoing macro headwinds. For the third quarter, the firm is guiding to revenues up to the range of $800 million–$840 million and EPS of $0.66–$0.74. Gross margin is expected to be stable, while operating expenses are expected to rise slightly sequentially.

We rate Analog Devices (NASDAQ: ADI) a “Buy” under $50.00. The risk level is “Low.”

Apple, Inc. (NASDAQ: AAPL)

Snapshot:

Apple Inc. is a company that should need no introduction. The consumer electronics giant designs, manufactures, and markets a line of mobile devices and personal computers. It is best known for its iPhone, Macbook, iPad, Apple Watch, and Beats product families.

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It’s worth noting that while we believe the iPhone will eventually be overshadowed by AR/VR devices, Apple has a long history of pivoting its primary focus. We expect Apple to participate wholeheartedly in any emerging device market, whether this means cannibalizing the iPhone or not.

Updates:

Apple hosted its annual developer conference this month, and with hardware sales slowing, this will be an event Wall Street pays increasingly close attention to. Here’s what the company announced:

• Improvements in Watch OS and tvOS

• A rebranding of OS X to MacOS (signals a focus on four distinct software-hardware categories: iPhone, Apple Watch, Apple TV, and Macbook)

• An expansion of Apple Pay to the Web

• Opening up Siri to developers; improved voice commands such as hailing an Uber driver

• Improvements in photos and maps

• Subscriptions through Apple News

• Opening up messaging to developers. Ability to transfer funds through chat

• A new interface for Apple Music

Following the event, Drexel Hamilton analyst Brian White had this to say:

We find it virtually impossible for Android-based competitors to ever create a digital matrix that rivals “Planet Apple.”

And from Cowen and Co’s Timothy Arcuri:

With the introduction of new versions for all four of its operating systems, WWDC highlighted even more seamless integration across AAPL devices/platforms to further bolster the allure/stickiness of the ecosystem.

Credit Suisse has also reiterated an “overweight” rating on Apple and $150 price target on the

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stock. Jointly, the firm is raising its 2018 unit sales estimate to 250 million iPhones, up 16.1% from 2017 expectations. Credit Suisse also expects an average unit price of $667 for next year’s iPhone 8 versus $653 for the upcoming iPhone 7.

All told, Wall Street remains widely optimistic, with only two analysts calling the stock a sell and 42 recommending it as a buy.

As for hardware, you can expect iPhone 7 demand to be relatively tepid this year, but we’re confident market fears are overblown in the long term. Our advice is not to miss your shot to buy it on the dip.

We rate Apple Inc. (NASDAQ: AAPL) a “Buy” under $98.00. The risk level is “Low.”

***Applied Materials, Inc. (NASDAQ: AMAT)

Snapshot:

Applied Materials is an American manufacturer that supplies various equipment, services, and software to semiconductor fabricators — among other technology-based industries — to enable the manufacture of a wide range of electronic components.

Updates:

On Friday, AMAT’s board of directors approved yet another a stock buyback program, this time valued at $2 billion. This new plan follows a recently completed $3 billion repurchase program initiated last year. Jointly, the board also approved a $0.10 per share quarterly dividend, payable on September 15 to shareholders of record as of August 25 (works out to a yield of ~1.65%).

The buyback program follows impressive second-quarter earnings, where AMAT boosted third-quarter EPS guidance to deliver $0.48 per share, on a revenue beat (total $2.84 billion and up 14% year-over-year).

For the full year, earnings are projected to climb 28.5% year-over-year to $1.53 per share, with revenue expected at $10.38 billion (up 7.4% from last year).

AMAT plans to continue capitalizing on higher orders for NAND memory chips moving forward. The firm said it expects to invest ~25% more in NAND chip technology in the coming quarters. Heading into earnings, AMAT was down 8% on the year but was able to erase those gains in a day.

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To capitalize on the recent beat and solid guidance, we’re going to lock in our current gains with the possibility of entering back in at a later date.

Sell Applied Materials, Inc. (NASDAQ: AMAT) at market for a 47.97% gain.

CalAmp Corp. (NASDAQ: CAMP)

Snapshot:

CalAmp Corp. provides wireless communications solutions for various applications worldwide. It offers solutions for mobile resource management, machine-to-machine (M2M) communications, and other emerging markets that require connectivity. Its M2M and MRM solutions enable customers in energy, government, transportation, and automotive markets to optimize their operations by collecting, monitoring, and reporting business-critical data from remote and mobile assets.

Updates:

Late last month, CalAmp introduced its newest product for the connected vehicle market: an accident-reporting systems known as Innovative Instant Crash Notification (ICN) Service.

Whenever a crash is detected, ICN immediately provides critical data such as location, date, time, Vehicle Identification Number (VIN) and collision severity on a five-point scale to specified recipients (fleet management, insurers, parents, etc.).

Here was management on the value proposition:

Insurance providers are looking for a better way to mitigate risk and reduce the costs associated with the claims management process. At the same time, quick and accurate claims processing and settlement provides customers with a satisfying experience to boost policyholder retention rates. ICN is unique because of its innovative event dis-crimination capabilities and reporting reliability.

The ICN service can easily be integrated into a broad set of CalAmp devices including those currently deployed. Current customers can simply “switch-on” ICN to broaden the value-added services offered by CalAmp’s telematics platform.

CalAmp (NASDAQ: CAMP) is a “Strong Buy” under $20.50. The risk level is “Medium.”

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***Corning Inc. (NYSE: GLW)

Snapshot:

Corning Inc. manufactures high-quality ceramic and glass material for consumer and industrial applications. The company is best known for its incredibly durable Gorilla Glass, commonly found in consumer devices such as smartphones and tablets.

Updates:

After careful deliberation, we’re going to close out Corning this month. While we stand by our long-term bull thesis on the stock, near-term headwinds (lower glass prices and mobile device demand) are pushing us over to the sell side of the fence. Thanks to a strong rally since last month’s issue, we’re currently up 15.8% on Corning and would like to secure that gain with the possibility of getting in at a later date.

Sell Corning Inc. (NYSE: GLW) at market for a 15.79% gain.

Crown Castle International Corp. Inc. (NYSE: CCI)

Snapshot:

Crown Castle owns, operates, and leases shared wireless infrastructure in the United States and Australia. The company provides towers and other structures, including rooftops and distributed antenna systems — a type of small cell network.

Crown provides access to its towers, small cells, and third-party land interests through long-term contracts in various forms, including license, sublease, and lease agreements. Crown also offers network services related to wireless infrastructure, primarily consisting of antenna installations or subsequent augmentations, as well as site development services. The company operates upwards of 39,000 towers in the United States and approximately 1,700 towers in Australia.

Updates:

No news or updates for Crown Castle this issue.

Crown Castle International Corp. Inc. (NYSE: CCI) is a “Buy” under $95.00. The risk level is “Low.”

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Fanuc Corporation (OTC: FANUY)

Snapshot:

Fanuc Corporation is a leader in industrial robotics, with a product lineup that includes factory automation systems, laser cutting, motion control, and compact motors. Fanuc serves a wide range of industries including aerospace, agriculture, construction, metal forming, and automotive manufacturing.

Updates:

No news or updates for Fanuc this month.

Fanuc Corporation (OTC: FANUY) is a “Strong Buy” under $27.00. The risk level is “Low.”

Flex Inc. (NASDAQ: FLEX)

Snapshot:

Flextronics International (recently re-branded as Flex) provides customized electronics manufacturing services (EMS) to original equipment manufacturers (OEMs) in the electronics industry. The company also supports supply chain efforts through services packaging, transportation, design, maintenance, repairs, etc.

Over the years, Flex has developed a long customer list of recognizable OEMs including Cisco Systems, Dell, Eastman Kodak Company, Ericsson Telephone Company, Hewlett-Packard, Kyocera, Microsoft, Motorola, Nortel Networks, Sony-Ericsson, and Xerox.

Updates:

Last month we reduced our risk level on Flex to “Medium” following impressive second-quarter results, and it seems we were ahead of the curve as usual.

On June 9, Moody’s Investors Service officially upgraded Flextronics International Ltd.’s senior unsecured debt ratings to Baa3 from Ba1 and changed its outlook to stable.

According to Moody’s, the rating reflects that fact that Flex has demonstrated “steady progress in diversifying its capabilities beyond its roots in electronics manufacturing services.” Moody’s went on to point out, “The new collaborative design and build model between the company and its customers allows it to capture growth opportunities from new customers and markets. The

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company has delivered steady financial performance and now has a customer base that is less concentrated and that extends across an expanded industry set.”

Other than the Moody’s upgrade, no pertinent news for Flex. We will be increasing our Buy-Under price this issue.

Flex Inc. (NASDAQ: FLEX) is a “Buy” under $13.50. The risk level is “Medium.”

GoPro, Inc. (NASDAQ: GPRO)

Snapshot:

GoPro, Inc. manufactures a line of standalone high-definition action cameras, with its flagship “Hero” product line. The company also produces various mounting accessories for its cameras and software applications for video editing and social media.

Updates:

GoPro got a breath of much-needed fresh air this month following bullish comments regarding wearables from supplier Ambarella. Much of GoPro’s upcoming performance will rely on the Hero5, expected to release in October, so we’re going to wait on the specs and features before figuring out what to do here.

Potential capabilities of the Hero5, hinted by Nick Woodman, include “the most connected and convenient” camera GoPro has ever made. In short, the Hero5 is expected to do a better job of connecting to smartphones and the cloud, which we think will be enough to encourage customers to finally upgrade from their GoPro Hero3s.

The Hero5 is also expected to be smaller than previous models, capable of recording in 8K, and priced between $450 and $550.

GoPro, Inc. (NASDAQ: GPRO) remains a “Hold.” The risk level is “High.”

Himax Technologies, Inc. (NASDAQ: HIMX)

Snapshot:

Himax Technologies, Inc. is a fabless semiconductor company headquartered in Tainan City, Taiwan. The company seems to have intentions to infiltrate the world of virtual and augmented

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computing. Facebook uses its video processing chips for the Oculus Rift, while Microsoft and Google use its near-field displays for the HoloLens and Project Aura (previously Google Glass).

Updates:

No new updates for Himax this month, but here’s a brief recap of first-quarter earnings from last issue:

Quarterly revenue rose 1.3% sequentially and 0.7% year over year to $180.3 million — within Himax’s guidance range. Net income came in at $13.1 million — above its high end of guidance.

Guidance for the next quarter was strong. Himax expects revenue to climb between 7.5% and 12.5% sequentially, and 14.6% to 19.9% year over year (a range of $193.8 million to $202.8 million).

Himax (NASDAQ: HIMX) is a “Buy” under $10.00. The risk level is “Medium.”

Infinera Corporation (NASDAQ: INFN)

Snapshot:

Infinera sells low-cost and power-efficient data communications equipment to network operators building out Internet infrastructure. This includes long-haul, subsea, data-center-interconnect, and metro applications. The company offers high-speed “super-channels” that transport 500 Gigabits per second (GB/s) and metro connections of 100 GB/s.

Updates:

No news on Infinera this month, minus a coverage initiation by Nomura Securities with a “Buy” rating and a $17 price target. Nomura called Infinera “a long-term play in Webscale optical growth,” citing expected margin improvements and data center growth from $520 million today to $1.8 billion by 2019.

Infinera Corporation (NASDAQ: INTC) is a “Buy” under $17.00. The risk level is “Low–Medium.”

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Intel Corporation (NASDAQ: INTC)

Snapshot:

Intel Corporation designs, manufactures, and sells integrated digital technology platforms worldwide. It is the single-largest provider of semiconductors by revenue. It operates through PC Client Group, Data Center Group, Other Intel Architecture, Software and Services, and “All Other” segments.

Updates:

According to IDC’s latest PC forecast, global PC shipments are expected to fall another 7.3% in 2016, following a 10.4% decline last year. Despite the projected decline, the good news is that the rate of change is dropping. IDC believes that these declines will continue to narrow in 2017 before stabilizing in 2018.

Fortunately for Intel, the company is no longer so reliant on the PC for growth — those days are well behind us by now. The semiconductor giant has been able to find plenty of growth from its Data Center Group (chips for servers and networking), which now accounts for 30% of Intel’s total sales.

More than anything, Intel’s growth story stems from the Internet of Things... billions of connected devices such as autonomous cars, smart grids, etc. It’s not just about getting a chip inside these devices, either; as more and more “things” become connected, this will continue creating massive amounts of data to be processed in data centers, where Intel’s chips have a commanding 96% market share.

And as Intel Executive VP Diane Bryant points out, some of these devices simply trump the data use of a mobile device. A connected car, for instance, creates around 330 times more data than a mobile phone per day. A connected plane creates 6.7 million times more data.

It just dwarfs what your phone and your PC are delivering and demanding from a service and network capacity perspective.

Indeed, this is one of the biggest reasons the market is underestimating Intel right now. Investors are looking at Intel as an ancient tech company with too much stake in the PC, but it ultimately has a solid future vision with relentless data growth on its side.

Intel Corporation (NASDAQ: INTC) is a “Buy” under $34.00. The risk level has been adjusted to “Low”

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International Business Machines (NYSE: IBM)

Snapshot:

IBM is an American multinational technology and consulting corporation, with headquarters in Armonk, New York. IBM manufactures and markets computer hardware, middleware, and software. The company provides infrastructure, hosting, and consulting services in areas ranging from mainframe computers to nanotechnology.

Updates:

Back in October, IBM announced a technology services arrangement with Abu Dhabi-based Etihad Airlines valued at an estimated $700 million.

Now, the firm has earned the business of another Middle Eastern airline, announcing a 10-year, $300 million agreement Emirates Airline. By international traffic, Emirates is the fourth-largest carrier in the world.

Under the arrangement, IBM will “provide IT Infrastructure delivered as a service, allowing the airline to improve efficiency on its passenger support systems and functions.” The service will utilize IBM’s mainframe, data storage, and real-time data encryption.

IBM has also secured a long-term partnership with the American Diabetes Association, to bring together the cognitive computing power of its Watson AI with the Association’s collection of clinical and research data. The goal of the partnership is to build an AI “advisor” for diabetes patients and caregivers.

Last but not least, IBM has announced a partnership with Cisco to launch new Internet of Things services. Cisco will contribute its edge analytics solutions and IBM its Watson IoT platform and business analytics offerings. It’s still unclear what services will stem from the deal.

International Business Machines (NYSE: IBM) is a “Buy” under $140.00. The risk level is “Low–Medium.”

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InTEST Corp. (NYSE: INTT)

Snapshot:

INTT is a semiconductor capital equipment company, which means it manufactures machines used in the production of electronic components.

The semiconductor capital equipment industry can be divided into two classes: front-end and back-end. The front-end involves silicon wafer and computer chip fabrication. The back-end involves assembly, packaging, and testing.

InTEST works on the back-end of this cycle, providing automatic test equipment (ATE) used by semiconductor manufacturers to test their integrated circuits and wafer products.

Updates:

No updates for InTEST this month. For those who missed our take on earnings last month, here’s a recap:

InTEST reported first-quarter results on May 13th, beating consensus on both top and bottom lines. Bookings were $9.8 million, compared with fourth-quarter 2015 bookings of $7.3 million and first-quarter 2015 bookings of $11.4 million. 20% of first quarter 2016 bookings were derived from non-semiconductor test.

Revenues for the quarter were $8.6 million, compared with fourth-quarter 2015 net revenues of $7.9 million and first-quarter 2015 revenues of $10.2 million. Again, sequential growth but annual decline.

As usual, InTEST shines in the realm of profitability. Gross margins were 47%, compared with a fourth-quarter 2015 gross margin of 46% and first-quarter 2015 gross margin of 48%.

Cash and equivalents were $25.0 million, compared with $25.7 million sequentially. The company repurchased shares totaling around $471,000 during the quarter.

Looking into the second quarter, InTEST expects revenues in the range of $9.5 million to $10.5 million and EPS from $0.03 to $0.07 per diluted share.

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CEO Rover Matthiessen spoke during the call, saying the company plans to enhance margins moving forward, which is both unsurprising and exactly what we want to continue to see. The firm’s long-term objectives will be focused on diversified growth through acquisition, as inTEST evolves into a broad-based industrial test company.

InTEST Corp. (NYSE: INTT) is a “Hold” at current prices. The risk level is “Medium.”

Iridium Communications Inc. (NASDAQ: IRDM)

Snapshot:

Iridium is a global communications provider. The company offers the world’s most extensive voice and data service through a fleet of next-generation low-orbit satellites. It is currently launching the NEXT satellite constellation to serve the machine-to-machine (M2M) communications market.

Updates:

A few important pieces of news for Iridium on the operational side of things.

First, Iridium Communications Inc. has announced its new satellite broadband service Iridium Certus will be commercially available in the second quarter of 2017 targeted at maritime, land mobile, aeronautical, and government markets.

From the press release (emphasis mine):

Iridium Certus is an advanced, multi-service communications platform that will improve business operations by delivering higher-quality services to market at a greater value. It is poised to enable the fastest and most reliable L-band mobile satellite service for customers of all kinds, regardless of industry. Leveraging the robustness and reliability of the Iridium® network, Iridium Certus is a versatile service, delivering broadband communications to meet user needs as a standalone option or alongside VSAT solutions. The service will support a wide range of partner products targeted to the specific needs of maritime, land mobile, aviation and government users.

Iridium Certus will be powered by Iridium NEXT, the company’s next-generation low-earth orbit satellite constellation scheduled to begin launching this summer (September 12, 2016).

Speaking of, Iridium’s first NEXT satellites completed assembly and testing this week and are prepared to ship to their launch site at Vandenberg Air Force Base in California. We’ve been

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patiently waiting for deployment since 2013 and are up 45% on the stock since then.

Isn’t she a beaut?

Iridium Communications Inc. (NASDAQ: IRDM) is a “Buy” under $9.00. The risk level is “Medium.”

iRobot Corporation (NASDAQ: IRBT)

Snapshot:

iRobot is an American robotics company that serves the consumer, medical, enterprise, and military industries. iRobot’s product functions range from home cleaning to telecommunication to various military operations. iRobot currently generates the vast majority of its revenue from its Home Robotics division.

Updates:

After a long battle, iRobot management has finally defeated the Red Mountain Capital Partners insurgency. Simply put, this means the board won’t be replaced with some random dudes who think they can do a better job of running a robotics company by cutting R&D. Back to business as usual.

iRobot (NASDAQ: IRBT) is a “Hold” at current prices. The risk level is “Medium.”

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JinkoSolar (NYSE: JKS)

Snapshot:

JinkoSolar (NYSE: JKS) is a Chinese firm that makes a variety of photovoltaic (PV) products, including solar modules, solar cells, silicon ingots, and silicon wafers. The company operates internationally (69% outside of China) in two segments: manufacturing and solar projects.

Updates:

Jinko reported first-quarter results on Friday, May 27. Here are the highlights from the call:

First Quarter 2016 Highlights

• Total solar module shipments were 1,600 megawatts, 102.7% increase from last year

• Total revenue of $847.8 million, representing a 98.8% from the same period last year

• Solar power projects generated 210 GWh of electricity, representing an 81.7% increase year over year.

• Revenue generated from solar power projects was $28.8 million, also an 81.7% increase from 2015.

• Gross margin was 21.3%, compared with 19.5% in the fourth quarter of 2015 and 20.3% in the same period last year.

• Jinko repaid the entire remaining balance of its 4.00% Convertible Senior Notes due on May 15, 2016.

During the first quarter, Jinko ranked as the number one module supplier among its peers. China remains the company’s biggest market with “a number of big orders continuing to come in.” Jinko expects this trend to continue in the second quarter.

For the second quarter, Jinko predicts total solar module shipments to be in the range of 1.6 GW to 1.7 GW. For the full year 2016, the company estimates a range of 6 GW and 6.5 GW.

JinkoSolar Holding Co. is a “Strong Buy” under $22.00. The risk level is “Medium.”

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LG Display Co. (NYSE: LPL)

Snapshot:

Not to be confused with LG Electronics, LG Display is its own independent company with a niche focus on panel technology. It is one of two organic light-emitting diode (OLED) companies trading on the public market.

Beyond becoming the new standard for crystal-clear resolution, the flexibility of OLED allows displays to wrap around the edges of devices, providing more surface area and multiple viewing angles.

OLED displays can be rolled up into a tube for easy transportation or worn like wristbands. The technology can create a more panoramic viewing experience on curved televisions and can even be used as virtual paper.

Updates:

No news or position changes on LG Display this month.

LG Display Co. (NYSE: LPL) remains a “Hold.”

Micron Technology Inc. (NASDAQ: MU)

Snapshot:

Micron is best known for producing many forms of semiconductor devices. This includes DRAM, SDRAM, flash memory, and SSDs. Its consumer products are marketed under the brands Crucial Technology and Lexar. The company was named one of the Thomson Reuters Top 100 Global Innovators in 2012 and 2013. It is ranked among the top-five semiconductor-producing companies in the world.

Updates:

No big news for Micron this month minus a delay in its planned acquisition of Japanese DRAM maker Inotera (Micron will be acquiring the remaining 70% it currently doesn’t own) with plans to update us on the situation later this year.

Analysts have responded positively to the deal, with a raised price target from Merrill Lynch and positive comments from Morgan Stanley — the idea being a delay gives Micron more time to

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assess the DRAM market and adjust terms of the deal. We’re neutral regarding the announcement.

Micron Technology Inc. (NASDAQ: MU) is a “Strong Buy” under $15.00. The risk level is “Low–Medium.”

NXP Semiconductors N.V. (NASDAQ: NXPI)

Snapshot:

NXP specializes in near-field communication (NFC) technology. NFC allows for wireless communication between devices at very short distances with increased security. The technology is being used in public transport, event ticketing, home health care, patient identification, interactive museum exhibits, contactless credit cards, and as hotel keys, just to name a few markets.

Updates:

As NXP transitions into emerging markets such as connected vehicles, the company has announced the divestiture of its standard products business to a group of Chinese investors for about $2.75 billion. The unit will be sold to Beijing Jianguang Asset Management and Wise Road Capital and will include a transfer of 11,000 NXP employees. The deal will more than double NXP’s current cash position.

NXP Semiconductors N.V. (NASDAQ: NXPI) is a “Strong Buy” under $74.00. The risk level is “Low–Medium.”

Oceaneering International, Inc. (NYSE: OII)

Snapshot:

Oceaneering International provides engineering services and hardware primarily to customers operating in marine environments. The company’s services are marketed to oil and gas companies as well as the aerospace and construction industries. The company receives the bulk of its revenue from ROVs and Subsea Products.

Updates:

No big news for OII this month minus the appointment of William B. Berry to the Board of Directors.

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Berry previously served as Executive VP of Exploration and Production at ConocoPhillips. He has over 30 years of domestic and international oil and gas experience with ConocoPhillips and Phillips Petroleum Company.

Mr. Berry holds Bachelor of Science and Master of Science degrees in Petroleum Engineering from Mississippi State University. He currently serves on the boards of directors of Continental Resources, Inc. and Frank’s International N.V.

Oceaneering International, Inc. (NYSE: OII) is a “Buy” under $35.00. The risk level is “Medium.”

Opko Health, Inc. (NYSE: OPK)

Snapshot:

OPKO Health is a mid-stage biotechnology development and medical diagnostics company. OPK has a deep drug candidate pipeline spanning from kidney disease to cancer treatments. It also provides a revolutionary diagnostic test known as the 4Kscore, used in prostate cancer screening. The company’s proprietary diagnostic technologies allow doctors to keep blood-based tests in house rather than outsourcing to outside laboratories.

Updates:

Opko will be moving to the NASDAQ on June 24. This won’t effect your position at all or the OPK ticker symbol. Opko CEO Cr. Phillip Frost thinks the NASDAQ is a better fit for an emerging biotech firm, and we can’t help but agree. Again, though, this will have no notable effect on the stock.

Other than the exchange jump, no big news for OPK minus a coverage initiation from Standpoint Research to “Buy” with a $16 target, indicating +60% upside from current levels.

Opko Health, Inc. (NYSE: OPK) is a “Buy” under $11.00. The risk level is “Medium.”

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Photronics Inc. (NASDAQ: PLAB)

Snapshot:

Photronics is a small technology firm that provides a unique fabrication tool for creating advanced chip circuit designs — something called a photomask. Photomasks are essentially high-precision plates made of quartz that contain images to be printed microscopically on electronic circuits. In short, photomasks use light to transfer complex, geometric patterns onto computer chips.

Updates:

Nothing new for Photronics this month. But here are the highlights from the second quarter covered last issue:

• Revenue at $122.9 million, down 3% from last year

• Net income at $11.9 million

• Flat panel display (FPD) sales up 36% year-over-year

• High-end FPD sales up 66%

• Plans to invest $40 million through 2017 in additional FPD capacity and capability (capacity is currently at max production)

• Reduced total debt $60 million and grew net cash $23 million sequentially

• Third-quarter 2016 guidance: sales between $118 and $128 million; diluted EPS between $0.10 and $0.18

With the termination of its joint venture with Micron earlier this month, Photronics does anticipate lower IC demand from them moving into the third quarter. Still, FPD should remain strong as the industry launches new high-end products. Judging by the numbers, Photronics is transitioning just fine.

Photronics (NASDAQ: PLAB) is a “Buy” under $13.50. The risk level is “Medium.”

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***Science Applications International Corporation (NYSE: SAIC)

Snapshot:

SAIC helps governments integrate technologies by providing full life-cycle services. This includes but is not limited to hardware engineering, program management, training and simulation, cloud computing services, software design, and logistics/supply chain support.

At its core, SAIC is a company that leases talent. The company has ~13,000 employees, 68% of whom are deployed to customer sites. Its value rests primarily in this talent base and the relationships it’s built with clients over the years.

Updates:

SAIC is coming off a 52-week high following first-quarter results for fiscal 2017. Some key figures include:

• Revenues of $1.2 billion

• EBITDA margin of 6.7%

• Operating income of $66 million

• Cash flow: $35 million

• Repurchased 622,000 shares for $30 million

• Book-to-bill ratio of approximately 1.0

Overall SAIC had a strong quarter, beating both EPS and revenue estimates by a hair. Following last month’s rally, we’re up about 20% on the stock, which has been incredibly stale in terms of price action the last 12 months. We’re going to close the position, not because we don’t like the company, but to secure the gain and make more room in our portfolio.

Sell Science Applications International Corporation (NYSE: SAIC) at market for a gain of 18.13%.

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Synaptics Inc. (NASDAQ: SYNA)

Snapshot:

Synaptics designs and manufactures human interface solutions for mobile computing, communication, and entertainment devices. Most notably, the company creates chips used for processing touchscreen movements in mobile devices. The company’s clients include Google (NASDAQ: GOOG), Amazon (NASDAQ: AMZN), Blackberry (NASDAQ: BBRY), Nokia (NYSE: NOK), Samsung (KSE: 005930), HTC, LG, and Sony.

Updates:

No official news for Synaptics this month.

Synaptics Inc. (NASDAQ: SYNA) is a “Buy” under $70.00. The risk level is “Medium.”

Technology and Opportunity Copyright © 2016, 111 Market Place, Suite 720, Baltimore, MD 21202. All rights reserved. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. Technology and Opportunity does not provide individual investment

counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. Neither the publisher nor the editors are registered investment advisors. Subscribers should not view this publication as offering personalized

legal or investment counseling. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question. Unauthorized reproduction of this newsletter or its contents by Xerography, facsimile, or any other means is illegal and punishable by law.

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technology opportunitymedia.angelnexus.com/pdf/tao/tao-june-2016-ddw.pdf · 2018-02-16 · june...

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