mannerisms

Ruminations on the electronics industry from David Manners, Senior Components Editor on Electronics Weekly.

The Wizards Of Wonga

Good old stock market traders – they’re as excitable as girls sometimes. The NXP share price shot up from $12-ish to $18-ish on news of the NFC Android software stack developed with Google for use in NXP’s NFC controller.

 

“It’s a $1 part so even if there was a part in every Android smartphone – say 150m devices – the share rise is out of all proportion to reality,” says Mike Bryant, CTO at Future Horizons, “to be frank even if it was their chipset in every Android phone this would still be ridiculous.”

 

Going from $12-ish to $18-ish on the share price adds around $1.5 billion to the value of NXP.

 

Wonderful world the financial world – smoke, mirrors fantasy – like the Wizard of Oz.

 

Rather seasonal though.

Tags: fantasy, girls, mike bryant, wizards, wonderful world

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7 Comments

  1. David Manners
    December 23, 2010 10:20

    $255m was the annual revenues of the SS group – $855m + a supply deal was the purchase price, Mike, but your point about the $1.5bn rise stands.

  2. Mike Bryant
    December 23, 2010 10:11

    I agree with much of what Robert says in his analysis. Philips/NXP has always had good engineers who come up with strong patents. However the selling off of the Sound Solutions unit, which had numerous such patents for mobile phone audio applications, for $255 million as DM reported in another post, gives a good idea of the value of such patents. $250m would have been a good rise in market cap, $1.5bn was just stupid.

  3. Robert
    December 23, 2010 05:02

    The incorporation of NFC readers into phones is not about chip hardware sales, it’s about the integration of the whole information system that is enabled with smart tags embedded into everything.
    NXP’s play is not simply a chip sale for 1 or 2, but rather a complete system that will have appropriate function level patents which extend the business value way beyond the profits made on a few million chips. If this functionality becomes universally integrated, NXP will occupy an industry position in NFC, similar to that of QCOM today WRT to WCDMA. today NXP has the “first mover” advantage, so their solutions are becoming accepted protocol. I agree that lots of other IC houses will have similar chips within 2 years, but they will be locked into maintaining NXP compatibility, which is where the value lies for NXP.

  4. Arun Demeure
    December 22, 2010 15:30

    I agree, most investors’ reasoning probably wasn’t very sophisticated. And while I don’t think the result is completely out of whack, my analysis was basically a best case scenario. I certainly don’t think the market cap increase is rational given the probability that it won’t happen.

  5. David Manners
    December 22, 2010 13:39

    Arun, many thanks – that’s very illuminating indeed. I think actually, to be fair to the stock market guys, they may just see an NXP-Google association and think: ‘This is a BIg Thing’ – maybe going beyond just NFC – and buy shares accordingly.

  6. Arun Demeure
    December 22, 2010 13:15

    I agree this is massively excessive BUT there are fairly credible rumours that Apple will also integrate NFC in the iPhone 5 with a NXP chipset. And there won’t be combo Bluetooth/WiFi/GPS/NFC single chips ready in time for the iPhone 6 (there will be for the iPhone 7 in 2013 though).
    So if that rumour is true, NXP might sell about 100-150M units over 2 years through Apple alone. And I hear the chip prices for NFC are still closer to $2 and $1, so assuming high gross margins it’s possible that NXP would get $1 in profit (not revenue) per phone. So multiply 100M units per year (i.e. 200M units for iPhone+Android over two years) by a fair P/E of 15 and you get a ‘fair’ market cap increase of… $1.5B!
    Not so crazy after all maybe. Assuming the rumour is true, which nobody knows, so still kinda crazy. And of course that’s excessive extrapolation: by the end of 2014 the standalone NFC market will be dead as a dodo in phones (Broadcom/CSR/TI are all working on single-chip combos). And it makes no sense to apply a P/E metric to a one-time profit. But our financier class does love excessive extrapolation now don’t they?
    On the other hand, NXP has a very good position in NFC tags (which is what you might put on a poster for your phone to read) so maybe one revenue source will replace another eventually. Even if it does, it’s not as if this is new information – everyone has known all of this for some time. Not that expecting markets to be efficient was ever realistic…

  7. Mike Bryant
    December 17, 2010 17:02

    Philips Semiconductor was only really worth a little over $5bn at the time it was sold to KKR. That it was sold at such a premium showed Philip’s nous and KKR’s lack thereof.
    Since then NXP has sold or closed fabs, sold off its wireless and other business segments, IPOed some shares but still has to service a huge debt. On the plus side it has bought a few companies to get into growth areas and recently introduced some excellent new products.
    My personal view is thus that $12 a share is actually about right.
    But even if I am wrong and they are undervalued, those paid to value companies should be doing that regularly and not making knee jerk reactions to what is actually hardly a massive deal with Google.
    I believe the STMicroelectronics/Stollman NFC partnership will also fit into Android phones just as well as the NXP/Trusted Logic solution so NXP might not even get all sales for these phones anyway.