SiRF - Valuation
Saturday, May 3, 2008
Over the last few weeks, I have been writing about SiRF. I am amply clear that a merger or acquisition would be the best end-game for the company today. The earnings conference call did not offer any immediate solace to SiRF investors though the company executives promised a turn of fortunes by the end of this year. In this article, I will conclude this series with a valuation of the GPS leader. I have carried this valuation primarily from an acquisition stand-point. To appreciate the perspectives offered in this piece, I recommend catching up on your reading here, here and here.
[I picked up the company’s shares close to its bottom. I will monitor its movement and offload it at around $10-$11 without blinking an eye. But that is just me!]
3 comments:
Spartacus,
Thanks for your note. Before I continue, I just wanted to clarify that Atheros and not MediaTek bought uNav.
INTC has a collaborative effort with SiRF for its MIDs as part of its convergence devices strategy. MRVL - your analysis is true. But as the company itself has stated, GPS is an imperative piece that is missing in its portfolio if it aims to be a major player in mobile wireless.
As for my valuation, like always, I have taken the non-traditional route and based it primarily on its product strategy, roadmap and competitive positioning,and not as much on historical financial data. I report the numbers out of my model based on reasonable assumptions. I don't claim it to be the right price.
-Vijay
Vijay - How are you doing your valuations in general? DCF? Market multiple? just curious. Andy
Vijay, I usually enjoy your articles, but this time, I think you're just being hopeful.
Acquisition would've been a good idea last year (BRCM reportedly paid over 250M for GL). But pretty much anyone who wanted a GPS chip manufacturer, and had the cash to shell out for it bought one last year. BRCM bought GL, and MediaTek bought uNav.
So who could buy SiRF? Most of the major semi companies already have their own GPS design groups (TXN, STM, BRCM, QCOM, ATHR). Most PND mfg's also make the low-end GPS chips in-house (GRMN, MediaTek).
So who's left?
-INTC: Doubtful. They don't want to be in anything but x86. Sold XScale to MRVL
-MRVL: They made a *loss* last quarter. Their cash reserves are far below their closest competetitor (BRCM). And they really need to focus on reducing costs (and handling options backdating issues) in their core business.
If SiRF *does* actually get acquired, I don't think it'll be at a big premium to their market cap. The company must be doing well, and there must be multiple suitors for there to be a big premium. When SiRF's only viable option is to get acquired (no-one buys their 'turnaround' strategy), I doubt if it'll get a big premium.
As an example, recall PLAY (Portal Player). Its stock got tanked (a lot worse than SiRF though: it only fell 50%) when it lost the iPod nano contract. And it was bought by NVidia for a 19% premium. NVidia really needed mp3 IP for its "Computer-on-a-chip", and had two-three billion in cash. Also, PLAY was making a nifty profit (as opposed to SiRF).
But I've been wrong before ;)
(Disclosure: I don't have a position in SiRF. I used to, but got lucky and sold last year at $27)