Beaten Down Semiconductor Could be AI Play
One broken down company has a shot at being a good investment.
Maxlinear has probably been among this semiconductor cycle's worst companies, if not the worst. I think that it might be time to give them a fresh look. This report will be partially paywalled, with the company overview in front of the paywall and the rest behind the paywall for paying subscribers.
Company History
Company Overview
Why Now and the Catalyst (Paywall)
Valuation (Paywall)
Company History
Maxlinear was founded in 2003 in Carlsbad, California, by eight engineers. Today, Kishore Seendripu (CEO/Chairmen) and Curtis Ling (CTO) are still founders and work at the company. Maxlinear is a fabless company focused on mixed-signal products in the semiconductor industry.
Maxlinear went public in 2010, and its products were primarily focused on digital set-top boxes, automotive navigation displays, and digital TV products. Maxlinear still has a share in set-top boxes and home gateways but has changed its business through acquisitions.
MaxLinear has acquired multiple companies. In May 2015, it acquired Entropic Communications, and in April 2016, it bought Microsemi's wireless backhaul business. The acquisition of Exar Corp for $687 million was completed in May 2017. MaxLinear also acquired Intel’s Home Gateway Platform Division in 2020.
Maxlinear’s acquisition of the Intel Home Gateway business was a homerun acquisition in the last semiconductor cycle. The problem is that they topped that deal with one of the worst acquisitions, Silicon Motion. I have written about that, notably here in this piece.
The conclusion is this: they overpaid for a cyclical company at the top of the cycle, and then, between Geopolitical reasons and overpaying, they backed out of the deal. They probably will have to pay the break fee, which is still an overhang on the stock today. What’s worse is that SIMO’s business is past the trough, so SIMO as a company pretty much only did poorly when MaxLinear tried to own it. What a botched acquisition.
Today, MaxLinear is humbled by its previous high and botched acquisition, but it’s probably not a forever-broken company. Let’s discuss their business lines and what exactly they do.
Company Overview
Maxlinear has a few key markets; this is their slide discussing these businesses. At a high level, they overspend telecom spending, specifically on the home. They own the gateway in your home (Wi-Fi box).
Today, their most significant revenue product is the Gateway SoC and RF Front End. After acquiring the Intel business, they improved the attach rate of their RF business to the gateway. Here’s an example of the homerun they achieved after the Intel acquisition.
Now, it’s not just a cable gateway business. They have a large share of the wireless backhaul and wireless access businesses. This is another content story for them, as they have benefited from the 5G rollout. However, that business has meaningful headwinds today, but they have taken a share in Backhaul and Radio head RF.
They have potential wins in WiFi7, DOCSIS, PON, 2.5 Ethernet, Wireless, Optical Transceivers, and Wireless Backhaul. Put differently, they are a connectivity company, with the vast majority of their business focused on telecom. They are edging into the datacenter.
Theoretically, they will take share in each of these successive product roadmaps. They believe that they can 2x the entire semiconductor market through the cycle. That’s a bold statement, but until the fall, Maxlinear was putting up solid numbers.
This is a charming story, but they are in the absolute dregs and have almost no credibility right now. I think that could change soon.
So why do I think Maxlinear has a real chance of being worth an investment after a 70% drawdown from peak? Behind the paywall, I have a lot more thoughts on competitive positioning, valuation, and a catalyst.