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Good call today with Qatalyst, the gave Landmark their independent assessment of the space and the deal. Good read and back up on the deal if you need it.
-------------------
Neil Callahan
917-945-9516

Begin forwarded message:

> From: Dan Klein <dan@deltavcapital.com>
> Date: July 18, 2012 5:57:35 PM EDT
> To: John DeLoche <jdeloche@rosemontseneca.com>, David Schaller <dave@deltavcapital.com>
> Cc: Scott Humber <Scott.Humber@landmarkpartners.com>, "Carrano, Mike" <michael.carrano@landmarkpartners.com>, Neil Callahan <ncallahan@rosemontseneca.com>, Jared Barlow <jbarlow@rosemontseneca.com>
> Subject: RE: Jason DiLullo of Qatalyst Notes
>
> Thanks for the clarification John.
>
> Dan
>
> _______________________________________________________________________
> Dan Klein | Principal | Delta-v Capital
> (o) 972-514-7228 (c) 617-510-7228 (f) 972-692-5946 | dan@deltavcapital.com
>
>
>
> DELTA-v: n., THE TOTAL 'EFFORT' REQUIRED TO CHANGE FROM ONE TRAJECTORY TO ANOTHER
>
> From: John DeLoche [mailto:jdeloche@rosemontseneca.com]
> Sent: Wednesday, July 18, 2012 4:51 PM
> To: David Schaller
> Cc: Scott Humber; Carrano, Mike; Neil Callahan; Jared Barlow; Dan Klein
> Subject: Re: Jason DiLullo of Qatalyst Notes
>
> thanks Dave and Dan, good notes. I made a correction below as one of the comments was referring to the EDA players rather than the foundries.
>
> John
>
> On Wed, Jul 18, 2012 at 2:39 PM, David Schaller <dave@deltavcapital.com> wrote:
> Dan integrated our notes with those that John shared just after the call.
>
> Dave
>
> ----------------------------------------------------------
>
> Jason DiLullo, Head of Semi M&A Qatalyst
> 20 years in M&A 15 in Semis. In last year did Atheros, National, Netlogic deals.
>
> Industry Perspective
> · Globall Foundries--design enablement, one of the biggest issues going forward for any semiconductor company. Chips are getting so complex that folks can't afford to spend on them
> · Industry adoption has been slow as this is not an easy problem to solve and the question of who owns the IP remains. the maturation of this business has been slow. the Fabs have recognized how important this is and will be. Synopses, cadence and others also recognize this.
> · The fabs need fabless companies
> · Software guys also need fabless companies
> · Anybody (<$500M - $1B) other than Intel and Samsung would benefit from a fabless company. Intel and Samsung are investing heavily in their fabs using Capex spending to heavily get an advantage
>
>
> Buyers:
> · Foundries, then people like synopsys or cadence. Global Foundries likely #1 priority over time. TSMC and UMC (Faraday and Unichip) also logical buyers
> · Reaching to get to 30% margins – this will have an impact on the acquirer. This is at the very low end of what an acquirer would expect – might even be below what is typically interesting for an acquirer. There are not a lot of public companies that trade well with margins at that level
> · 20-30% margins are not uncommon for what they do
> · Foundry margins – they are still lumpy but it is around 20%
> o TSMC
> o UMC - does not make money
> o Global – does not make money often
> · Additionally, Customers could spin them in Cavium, ST who needs more and better design resources
> · EDA guys (Cayden or Synopsis or Global) need to have customers survive. They sell IP now and Jason would be surprised if the EDA players don’t do this within 5 years. Global is in the process of restructuring. Even if foundries like TSMC and UMC [JD: 18% Gross margins] have their own partners, they might be interested buyers because these business are all about scale. [JD: This next comment is regarding EDA buyers Cadence and Synopses] However, this would be a depression on their margins They are already moving to selling IP and might want to sell design services
> · VCs have largely left the semi infrastruture arena. Jason does not see a ton of investment because VCs are walking away from Semis more broadly
> · VCs investing in just the software and assuming they will be able to find the silicon somewhere
> · He views this as an ASIC business – mid 30s and 40s
> · AMI a bit below 50% on GM and not extremely profitable from an operating perspective and sold in 2006 to On Semiconductor
> · They don’t get paid a lot for services
> · One opportunity for these guys is for them to create IP over time. This will help them expand their margins
> · LSI – has big asic business and has a lot of IP. Also Avago
>
> Valuation
> · Downside: Looking at 1x revenue, but could be as low as 0.75x revenue.
> · Upside: 15x earnings – he thinks they will look at it from an earnings perspective not revenue. If they can get a competitive process maybe it is a little better than this.
> · Company has work to do to get to prove out their R&D and get to the margins required to have a good M&A outcome
>
> __________________________________________________
> David M. Schaller | Managing Director | Delta-v Capital
> (o) 972-510-5705 | (m) 214-263-5708 | dave@deltavcapital.com
>
>
>
> DELTA-v: n., THE TOTAL 'EFFORT' REQUIRED TO CHANGE FROM ONE TRAJECTORY TO ANOTHER
>
> From: John DeLoche <jdeloche@rosemontseneca.com>
> Date: Wednesday, July 18, 2012 3:31 PM
> To: Scott Humber <Scott.Humber@landmarkpartners.com>, Michael Carrano <michael.carrano@landmarkpartners.com>, DAVID SCHALLER <dave@deltavcapital.com>
> Cc: Neil Callahan <ncallahan@rosemontseneca.com>, Jared Barlow <jbarlow@rosemontseneca.com>
> Subject: Jason DiLullo of Qatalyst Notes
>
> Jason DiLullo, Head of Semi M&A Qatalyst
>
> 20 years in M&A 15 in Semis. In last year did Atheros, National, Netlogic deals.
>
> Globall Foundries--design enablement, one of the biggest issues going forward for any semiconductor company. Chips are getting so complex that folks can't afford to spend i themselves.
>
> On semis.
>
> Industry adoption has been slow as this is not an easy problem to solve and the question of who owns the IP remains. the maturation of this business has been slow. the Fabs have recognized how important this is and will be. I
>
> Synopses, cadence and others also recognize this.
>
> Samsung and Intel. they are using Capex spending to heavily get an advantage.
>
> Buyers:
>
> Foundries, then people like synopsys or cadence. Global Foundries likely #1 priority over time. TSMC and UMC (Faraday and Unichip) also logical buyers.
>
> Additionally, Customers could spin them in Cavium, ST who needs more and better design resources.
>
> EDA guys need to have customers survive. They sell IP now and Jason would be surprised if the EDA players dont do this within 5 years.
>
> VCs have largely left the infrastruture arena. Jason does not see a ton of investment because VCs are walking away from Semis more broadly.
>
> VCs investing in just the software and assuming they will be able to find the silicon somewhere.
>
> Valuation:
>
> Downside is 1x revenues. At worst worst case is three quarters revenue. Upside is 15x earnings.
>
>
>
> John DeLoche
> Managing Director
> Rosemont Seneca Technology Partners
> One Market, Spear Tower, 36th Floor
> San Francisco, CA 94105
> office: 415 293 8147
> mobile: 415 793 7070
>
> This email communication is privileged and confidential and is intended only for the individuals or entities named above. Any unauthorized dissemination of any of the contents of this email is strictly prohibited. If you are not the intended recipient, please do not read, copy, use or disclose to others the contents of this communication. Please notify the sender that you have received this e-mail in error and then delete the e-mail.
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>
>
>
>
> --
> John DeLoche
> Managing Director
> Rosemont Seneca Technology Partners
> One Market, Spear Tower, 36th Floor
> San Francisco, CA 94105
> office: 415 293 8147
> mobile: 415 793 7070
>
> This email communication is privileged and confidential and is intended only for the individuals or entities named above. Any unauthorized dissemination of any of the contents of this email is strictly prohibited. If you are not the intended recipient, please do not read, copy, use or disclose to others the contents of this communication. Please notify the sender that you have received this e-mail in error and then delete the e-mail.
>
> =2