Ciena

Ciena is a manufacturer of wireless network backhaul equipment.

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Thesis: Key player in 5G network deployments, with expertise in hardware and software required to incorporate fiber optics into existing cellular infrastructure. A worthy "Huawei Hedge".

Target Price

$40.8

Valuation Details >>

Market Price

$55.9

07/07/20

Upside

-26%

Competitive Advantage

Core Competency? Hardware and Software to enable data transport in cellular networks.
Products: Better or Cheaper? Better. Focused on 5G and Optical, and the combination.
Historical Performance? Double-digit revenue growth over last 3 years. Accelerated recently.

Durability of Competitive Advantage

Competition/Threats? Huawei, Nokia, Juniper, Cisco, ZTE. But none are as focused.
Protection? High capex products, mission-critical, and reliant on custom software.
Cash Flow Volatility? Should decrease as 5G networks become more software-oriented.

Management Quality

Strategy & Action? Good. Focused on the right growth avenues.
Return on Equity? Mid-teens. Expect ROE to improve in the next 2 years.
Sustainable Free Cash Flow? About $318 million. Translates to roughly $40/share.

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Thesis Details Valuation Details Commentary

Published On: 06/18/19

Apple

Apple is the largest computer company in the world. Core products include smartphones and PCs.

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Thesis: Massive loyal fan-base and war-chest of cash generated from its core products. Now it needs to move on to new types of computers – Entertainment Operating Systems, Autonomous Cars and VR/AR. Has invested heavily in all 3.

Target Price

$234.3

Valuation Details >>

Market Price

$389.1

07/23/20

Upside

-40%

Competitive Advantage

Core Competency? Top-notch consumer electronics – software encased in top-notch hardware.
Products: Better or Cheaper? Better – high quality software and hardware built in unison.
Evidence: Historical Profitability? Stable revenue and EBITDA, but dependent on iPhone cycle.

Durability of Competitive Advantage

Competition? Heavy. Amazon, Roku for Entertainment. Google, for everything.
Protection? IP laws, Reputation, and Ecosystem lock-ins.
Evidence: Cash Flow Resiliency? Standard-cycle products but resilient customer-base.

Management Quality

Strategy & Action? Rightly moving beyond the iPhone. There are many growth avenues.
Alignment of Incentives? Good. Comp. linked to stock returns and to operating income.
Financial Productivity? High ROE business, with modest debt.
Sustainable Free Cash Flow? About $58 billion. Translates to rough valuation of $234/share.

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India

Retail

Media and Entertainment

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Thesis Details Valuation Details Commentary

Published On: 07/30/18

Xilinx

Traditionally an FPGA and SOC company. Moving towards more specialized chips for Data-centers and AI.

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Thesis: Xilinx is the largest programmable chip maker with a stable core business, and a new, innovative product that combines their expertise in FPGAs and SOCs, catering specifically to the new computing paradigm of Cloud/AI/IoT/5G/Edge – all five of them. Update April 2020.

Target Price

$90

Valuation Details >>

Market Price

$99.2

07/07/20

Upside

-11%

Competitive Advantage

Core Competency? Specialized chips (FPGAs, SOCs) for Cloud/AI/IoT/5G/Edge devices.
Products: Better or Cheaper? Better; 1 of 2 dominant FPGA makers. Innovated new ACAP product.
Evidence: Profitability? High, stable margins. But low revenue growth over last 5 years.

Durability of Competitive Advantage

Competition? Limited. Intel/Altera for FPGAs/SOCs. Hyperscalers may in-source AI Chips.
Protection? High barriers to entry – very specialized, patented technology.
Resiliency of Cash Flows? Resilient. Slow Cycle product with limited competition.

Management Quality

Strategy & Action? Positive. New Management centers strategy on Datacenters/AI/IoT/Edge.
Alignment of Incentives? Average. > 80% in long-term incentives. Management ownership low.
Financial Productivity? High ROE/ROIC company. Mostly driven by high margins.
Sustainable Free Cash Flow? Roughly $1.1 billion. Translates to roughly $90/share.

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Thesis Details Valuation Details Commentary

Published On: 06/18/18

Microsoft

Leading software developer. Formerly specialized in Windows and MS Office. Now emerging as a Cloud Computing leader.

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Thesis: Reorienting the organization to become “the productivity company” to play the right sport: Cloud/AI/IoT/Edge. It has a competitive advantage in most of that “stack”. Relative lack of expertise in AI, however, could be the thesis buster.

Target Price

$128

Valuation Details >>

Market Price

$211.8

07/23/20

Upside

-39%

Competitive Advantage

Core Competency? Bona Fide software developer – specializes in Productivity software.
Better or Cheaper? Veering towards Better. Seamlessness in Cloud/AI/IoT/Edge.
Evidence: Historical Profitability? Revenue & EBITDA growing fast. Harnessing Cloud tailwind.

Durability of Competitive Advantage

Competition? Heavy. Amazon and Google in Cloud. Also, IBM in AI. And PlayStation.
Protection? Familiarity & lock-ins with Windows users. And a new Services Architecture.
Resiliency of Cash Flows? More resilient now – moving towards subscription models.

Management Quality

Strategy and Action? Clear, decisive move towards becoming a Cloud/AI/IoT/Edge powerhouse.
Alignment of Incentives? Good. Significant portion of incentive-comp. is stock-based.
Financial Productivity? High Returns on Capital – higher with new Cloud/AI business.
Sustainable Free Cash Flow? About $49 billion. Translates to roughly $128/share.

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Thesis Details Valuation Details Commentary

Published On: 05/29/18

	Entry Date	Exit Date	Entry Price	Buylyst Valuation	Exit Price	Realized Return	Initial Rating	Final Rating
Ciena	06/18/19	01/06/20	$44.3	$40.8	$N/A	TBD	Watch	Watch
Apple	07/30/18	10/25/19	$189.9	$234.3	$246.6	30%	Buy	Hold
Xilinx	06/18/18	02/22/19	$70	$90	$119.3	70%	Buy	Watch
Microsoft	05/29/18	06/18/19	$98.4	$128	$135.5	37%	Buy	Hold

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