IMG
Monday, 21 September 2015
AGM 2015
AGM 2015
I arrived quite early to see extensive building work ongoing as the final phase is nearing completion by the end of the year. In total the campus will hold 900 people.
For a while I thought I'd be the only attendee, fortunately most people had arrived and whilst a number of familiar faces and stalwarts were missing we still had many others who continue to be very very patient investors.
First impressions of the new Chairman Bert, he is a heavy weight in terms of stature, let's see if that leads to real progress where it matters with galvanising the executive management team and attaining the goal being revenue generation and ultimately consistent shareholder return.
In terms of the current financials - "poor" is the only word that can be used. Outgoing and frankly out of his depth CFO Richard Smith gave little reason for optimism. To be fair he did present fairly well but, without a clear indication of where the money is being spent I feel we are more in the dark than ever in terms of how this will really translate into forward revenue in the magnitude that makes the initial investment effort worthwhile.
Moving on to the industry and business presentation from HY. As ever it was well delivered and positive. Was it believable? Roll back a few years and no one would question the vision. Given the ride we've been on we can only question whether the strategy is plausible and without the pitfalls that have stricken us with regularity in recent years. Yet HY remains confident and circa £100m license fees in the last 30months must translate into something more than just treading water whilst peddling faster.
As for the slide show, here are some key points:
On mobile / tablets - IMG will see real growth in late 2016/17, we assume bulk of the growth will come via Spreadtrum. Hossein also mentioned that he saw the iPad pro as a shift from tablet based content consumption to creation. In the home with TV we see good business with Realtek and there is opportunity for connectivity as well. In the network space he spoke about heterogeneous processing as more video based data gets processed via the cloud. In wearables IMG are in the lead player and also have strong wins for graphics and cpu in China. With Automotive the key players in graphics and ADAS we have over 50% of the market.
IoT is massive, so massive that it will drive changes 10x greater in the next ten years than the last ten years.
Hossein talked about big focus China has put in the semi industry. China only makes 10% of silicon so has huge potential for IMG.
Verticalisation - Apple, Amazon, Cisco and now smaller companies with new markets.
Volumes - mix of customer base is evolving with different customers IMGs now deal with. We have the four categories of companies IMG deal with in the market place. IMG target all four. Within the partnership OEM space IMG now want to talk more about this market. IMG see huge growth in the platform level space. Big growth will come via adoption in health, industry, energy, retail, security/safety and agriculture.
IMG offer 3 types of IOT solutions from basic sensor hub to audio/vision based platforms. Creator gives developers the tools to build the infrastructure. This market will pick up in about three years.
Omnishield - security is a big thing. Current phones only have a single secure domain. This is ok if there is just one service provider. Virtualisation is the IMG technique to create up to 256 secure domains. Gaining real traction and is better than trust-zone. do not be surprised if ARM has something up their sleeve.
PowerVR
Focus to move down from mid-high end to low end. series 7 in production. Series 8 is very efficient super scaleable and is positioned for low end design wins. >50% share in car likely to increase by 2017. TV up take has been slow, but seeing design wins including Realtek. Ray tracing partnered with TSMC. Chip is now back and something cool will be demoed soon. Vision platform targeted for the IOT space.
MIPS
3 areas: mobile strategic win on modem side. Still aiming for Apps Processor. Automotive : Mobileye working with the undisputed number 1.
Micro controller side is doing well with Microchip. Design wins with tier 1 is the key and discussions continue. MIPS advertising campaign targeting Silicon Valley.
Ensigma
Relatively sticky as its new and is solving problems today. Explorer shipping in Korea . Whisper lowest power solution for IOT. In 5-10years they see wifi integration in chip. IMG want to be no.1 connectivity IP company.
IMG custom solutions designed to save customers $$$ in design costs.
Pure
To enable digital radio but pushed into unprofitable price points. Has been adjusted to middle price points. Pure is helping with IOT solution development.
HY summary
Rate of investment now tightly controlled.
Semi industry has changed but IMG are ready to make money from MIPS, Ensigma is 2 years from break even. powervr will continue generating revenue. This will enable the 30-40% target. Ray tracing is so disruptive you really have to show it in real silicon. TSMC very excited about it as it could generate huge revenue. 5-6 Ray tracing customers await.
Q&A
Tony, asked the question around profitability. I felt the answer was rather simplistic and I struggle to give IMG the benefit of the doubt here. We deserved a better response than the one we got. In fact HY was more cohesive at lunch on this topic.
HY when asked the question about FTSE 100 by Paul, he unsurprisingly responded yes in 5 years (2020), but that would mean a market cap of £4-5bn at today's market cap which would need something remarkable to happen. My view is we need licensing to be double where we are now by 2018 to have even a faint sniff of that.
Post presentation, I wondered into the demo room first. Having wondered around quickly I was about to leave for lunch but luckily bumped into Alexandru Voica and we had a good 20min conversation. Firstly graphics, series 7 delivered to Apple's requirement and series 8 will take things forward. We've heard already about the increased scalability of series 8 and that will matter as high end tablets encroach into the laptop arena. Seemingly we are in a one year cadence cycle. On the current series 6XT/7XT Alex showcased a new demo on an iPad. Graphics quality was fantastic. He stated with Vulkan IMG are leading the pack, and it is now up to Android developers to start to use this far more efficient and graphically rich approach and shift away from OpenGL ES. This would be a key differentiator. In terms of where Alex sees Arm currently, he expects them to shift from vector based to scaler based solutions. He feels IMG have a healthy lead but when price is a key factor you cannot always win as we have found to our detriment in the past 3 years.
We moved on to Ray Tracing. Demoes on the new silicon are a couple of months off, we can assume CES is a good stage to showcase. With Ray tracing IMG have in his words a 5 year lead in mobile. Competition wise the PC space IMG expect to see the likes of AMD and Nvidia give IMG a run for their money. In terms of mobile space we are 2-3 years out from end user product but we can expect this to be when series 9/10 is out and the hybrid solution will no doubt be amazing.
Alex then moved on to talk about Creator and we can expect to see announcement of a family of creator products servicing different needs and different end user capabilities. On wearables aside from Apple Watch he appeared to place more emphasis on Android Wear which is surprising given current sales.
Having concluded the demo room I moved on to the lunch marque. Unsurprisingly, HY was encircled by many and would expect Pete and Tony's accounts to fairly comprehensive summaries. From what I gleaned when asked about the sox supplier space he mentioned 3 - Qualcomm, Mediatek, and Intel. Nothing will happen with the former, things are slowly improving with Mediatek (which means it's neck and neck with Arm); with Intel I got a two phase answer, currently IMG are not doing well, however the expectation is things will improved via the significant relationship with Spreadtrum. As for the Intel relationship as a whole this continues albeit one can assume they've refocused for the short term in pushing the Rochchip/Mali socs.
In terms of current state of play and investment strategy HY was better in his explanation as to why he made the decision to scale and diversify. His legacy is to leave the UK industry with a thriving company that's around in 20 years time, unless of course they get an offer they can't refuse...
Apart from HY, I talked to a number of people in the senior management team. No surprise they all reiterated things are progressing well and felt disappointed not to be allowed to shout about what's on the horizon (hopefully not storm clouds). Talk was about using a different business model for new business and where attainable subscription based services would be a supplementary model to follow via cloud based services.
So what are Pure up-to, they've retrenched from the US, and refocused on DAB with key markets - UK, Germany, Norway and recently Poland have signalled a full digital switchover. We spent some time with Christ Moseley and Paul Smith who joined a bit later. We learned, Jongo is dead, the concept of wireless speaker will be reborn mid-2016 with something uniquely differentiating. It will feature an all new MIPS based SoC which incidentally isn't a frontier silicon solution. As for current focus, there are some new radios of which key is a new F3(?) which has inbuilt Spotify capability. I also glimpsed at a legato esq model as well as one up market model that will give Roberts some challenge. In terms of market share Pure is around 26%, behind Roberts 33%. Chris alluded to getting back to no.1 but will that deliver profitability - no need to give an answer :(. Paul mentioned that Caskeid is doing ok and we can expect further news this year. He also referred to a non audio use case for Caskeid, supposedly with video.
So for conclusions : for many years at the AGMs we've seen a lot of optimism and this was no different. Ultimately, with little to back up the body language as simply the numbers did not stack up. To get to where we need to be in 5 years time, what management need to set are aggressive executable targets that eat into the competition in the next 2,3 years?
What is the investment strategy? As the budget grows the % spend might tail off but the absolute spend and how it translates to a revenue multiple is what matters! On an upbeat note, if things do work out and we achieve 50% of the plan we will be in a far better place.
To end, many thanks again to the wonderful Susi for organising the AGM it was and always is a great day at KL. We only need some tangible progress on the revenue front in the 2nd half to fully rekindle our dampened enthusiasm.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment