Third Quarter Earnings Updates: RDCM and VICR
I had such a great response from my single story formatted post on Radisys that I decided to change things up a bit for the blog. Rather than posting monthly consolidated letters where I sum up all my thoughts, I am going to try to deliver updates in a more traditional blog format, writing as things come up.
Its interesting to contrast Vicor with Radisys. Both companies are in a similar place; they have a large opportunity ahead of them, that opportunity is beginning to realize itself with new orders, the order build should really hit its stride in the second half of 2017, and the next couple of quarters will be relatively weak as we wait for the order book to build up.
The difference between the two companies is the way the market has interpreted the results. Vicor was up nicely on the day after their earnings release and has held up relatively well as the small cap market has suffered. Radisys was down and has continued to be down since their release.
Vicor reported a good quarter. VI Chip bookings were up 54%. Picor bookings were up 122%. Only legacy BBU bookings were down at 14%.
More importantly, on the call the company announced the first of its VR13 orders, “some major million dollar type orders that obviously are well beyond the prototype level”.
For those not following the story, VR13 refers to an Intel Skylake chip based server specification whose ramp has been delayed by continual delays in the Skylake chipset. Intel announced in their quarterly call that they were now shipping Skylake chips for sampling. Vicor’s announcement provides follow through to that data point.
Vicor also announced some other interesting development news. In last 3-4 months, they have been doing work on power on package technology, putting point of load power multiplier on the ASIC to provide 100’s of Amps in 6V to 1V range. Within several weeks they expect to see the first production of once such solution.
I added a little to my position in Vicor. I think that the VR13 ramp is upon us and results are more likely to surprise positively than negatively going forward.
There was something a little bit off about the Radcom call. Maybe it was my expectation, or at least hope, that there would be some new announcements. There wasn’t.
It didn’t help that a replay of the call wasn’t posted until this morning. I wonder whether the delayed move in the stock is because of folks that couldn’t listen to the call and didnt’ get their first impression until this morning.
There were some positives. There was the extension of deals with two CSPs. There was the use of the word “accelerating” for several of the CSPs that they are engaged with. And there was color that 2017 has some upside on smaller non-NFV deals with emerging market CSPs.
But there were also a number of things I didn’t like to hear. I didn’t like the language around the relationship with AT&T being “ok”, which is the term they used a few times. And I didn’t like that they continued to be vague about the new product that they won’t talk about and haven’t released to the wider market.
Referring back to my post last month on Radcom, I had been hoping that there might be an announcement piggybacking the announcement by Gigamon and their involvement with AWS and AT&T. The question was actually asked on the call, and while the answer was cryptic enough to leave the question open ended, its hard to verify that a GIMO/AT&T/AWS connection is there.
Also, if I understand the wording around the estimate that Radcom’s service assurance total addressable market (TAM) is $100 million between now and 2020, maybe 2018 given acceleration, it’s not really that big, and it shows they really do need to expand to new products to grow into valuation.
Finally the guidance that “the models” are saying no deals until the second half 2017 is sobering. They had originally anticipated deals towards the end of this year, beginning of next year. This isn’t surprising to me, I mean everything that I have read about service providers is that they move at a glacial pace, but its still a slip from the original color.
So I reduced. I resized Radcom so it is now closer to a regular sized position for me. No need to try to be a hero. I wouldn’t sell any more at these levels. It was a big move down this morning. And the upside is still significant, so its a stock I want to own. But I don’t want to have my portfolio heavily dependent on the story if it won’t play out until the second half of 2017. I have enough “2017 stories” already. I’ll keep my reduced stake and wait until we get closer and see where the price shakes out.