Daily BriefsTMT/Internet

Daily Brief TMT/Internet: SK Hynix, Powerchip Semiconductor Manufacturing Corp, Microsoft Corp, Servicenow Inc, KPIT Technologies, Arista Networks, Netgear Inc, Renesas Electronics, Iridium Communications, CloudFlare and more

In today’s briefing:

  • Revised Rules on Short Selling Restriction in Korea: Effective 3Q This Year
  • PSMC Placement – Well Flagged and SI on the Rise, but Momentum Has Been Very Weak
  • Microsoft:  Growth Bulls Versus Value Bears
  • TMT Earnings Quick Hits: Spotify and ServiceNow
  • KPIT Tech: Strong Execution; Margins Exceed Expectation
  • Arista Networks Inc.: Initiation of Coverage – Market Position
  • NTGR: Catalysts for Growth, Buy
  • Renesas (6723) | Buy the Dip
  • IRDM: Calling Home with Free Cash Flow
  • Cloudflare Inc.: Initiation of Coverage – Market Presence & Scope For Expansion. Other Key Drivers

Revised Rules on Short Selling Restriction in Korea: Effective 3Q This Year

By Sanghyun Park

  • If short-selling accounts for more than 30% of total daily trade volume, it will be newly designated as an overheated short-selling stock, resulting in a one-day short-selling ban.
  • If the stock price falls by more than 5% on the day of the short-selling restriction, the restriction period is automatically extended by one more day.
  • We should pay attention to a possible increase in the trading volume of single-stock futures (SSF) due to short-selling bans, which can result in a more significant basis distortion.

PSMC Placement – Well Flagged and SI on the Rise, but Momentum Has Been Very Weak

By Clarence Chu

  • Powerchip Semiconductor Manufacturing Corp (6770 TT) (PSMC) is looking to raise US$420m via its GDS offering.
  • The firm is offering 23.3m GDSs (350m common shares at a 1 GDS to 15 common shares ratio) at a 6-9% discount to last close. 
  • The deal is well flagged via both media reports and the company’s announcements. Short interest has been growing in tandem as well.

Microsoft:  Growth Bulls Versus Value Bears

By Steven Holden

  • Microsoft Corporation is the most widely held stock among active US equity investors. Of the 297 active strategies in our analysis, 80.1% own Microsoft at an average weight of 5.10%
  • There is a growing dispersion between Value and Growth managers in MSFT.  Growth managers are at record levels of ownership, whereas Value managers are running their largest underweight on record.
  • US Growth managers are relying on Microsoft to deliver an increasing proportion of the Growth within their portfolios. The cost of that growth is coming under scrutiny by Value managers

TMT Earnings Quick Hits: Spotify and ServiceNow

By Aaron Gabin

  • Spotify’s earnings were not as impressive as they seemed. Revenue beats driven by huge FX tailwinds, while MAU beats are coming from low ARPU regions.
  • ServiceNow’s earnings were not as weak as seemed. Uberbullish CEO Bill McDermott had already guided to elongated sales cycles, but we think reiterated margin targets and 130% NRR matter more. 
  • Inverse results…Spotify jumped without any evidence of progress towards an unbelievable LT operating model, while ServiceNow fell without evidence that its (superb) LT model is in question.

KPIT Tech: Strong Execution; Margins Exceed Expectation

By Ankit Agrawal, CFA

  • KPIT Technologies (KPITTECH IN) [“KPIT Tech”; “KPIT”] reported a robust Q1FY23 earnings with CC revenue growth of 6% QoQ (26% annualized), well above the 18-21% guided for FY23.
  • The biggest positive surprise was on the margins front with EBITDA margins coming in at 19.4%, exceeding the 18-19% band guided for FY23, despite the supply-side headwinds.
  • More importantly, the demand outlook continues to be promising despite macro-economic concerns around US and Europe.

Arista Networks Inc.: Initiation of Coverage – Market Position

By Ishan Majumdar

  • This is our first report on cloud networking solutions provider, Arista Networks.
  • The company had a strong quarter and generated record quarterly revenues of $877.1 million backed by a strong performance in software support renewals and services.
  • Cloud titans were their strongest and largest vertical for the last quarter, followed by enterprise, cloud specialty providers and financials tied for second place, and service providers in fourth.

NTGR: Catalysts for Growth, Buy

By Hamed Khorsand

  • NTGR is reaching the inflection point of rebalancing its channel inventory after deciding to transition away from lower priced wireless routers
  • Upgrading to Buy Rating from Neutral with inventory rebalancing near the end, strong SMB sales trends momentum, and growth within service provider
  • The higher sales performance from the SMB segment was not expected and should contribute to NTGR growing revenue in 2023 with upcoming release of WiFi 7 on deck

Renesas (6723) | Buy the Dip

By Mark Chadwick

  • Renesas stock is down around 8% following quarterly earnings and a very conservative Q3 outlook
  • We think the market is over reacting and believe that Renesas is a key beneficiary of secular growth in auto and industrial electronics
  • The stock trades at a discount to global peers, despite a strong story for improving shareholder returns

IRDM: Calling Home with Free Cash Flow

By Hamed Khorsand

  • IRDM continues to benefit from the momentum in consumer adoption of personal communications devices embedded with capabilities to use IRDM’s satellite network
  • The quarterly results were overshadowed by IRDM’s disclosure of entering into a technology sharing relationship for using IRDM’s satellite network as backup connectivity to smartphones
  • During the second quarter 2022, IRDM added approximately 80 thousand new commercial IOT subscribers to bring the total to over 1.3 million

Cloudflare Inc.: Initiation of Coverage – Market Presence & Scope For Expansion. Other Key Drivers

By Ishan Majumdar

  • This is our first report on Cloudflare, one of the leading cloud-based security solutions providers in the world.
  • Cloudflare has recently equipped partners to deliver a comprehensive Zero Trust solution with the Cloudflare One Partner program.
  • Moreover, the company recently expanded its platform zero trust for becoming the only provider of cloud-native with Network scale.

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