I own avgo - just added to my position in fact (not today)they are buying....a mainframe company18.5b for 1b in cash flowno obvious synergies??????????????I saw the news last nighteven dreamed about it this is never a good signcourse, the purchase price is roughly 2 years of cash flowbut i wish i knew what they were thinkingmainframes? Declining sales base?Geez....my exposure is somewhat limited - about 1% or sobut geez...what a move...they had to know what would happenobvious why CA wanted cash, not sharesthey knew this would crush AVGO
No position, but I believe many who didn't really grasp (perhaps for a very long time) the strategy behind what Hock was doing and came late to understand the story - this group includes nearly everyone by the way (not a dig at you) - now feel like they get the strategy, and this one bothers them (seen a few negative references to it).My view is:Hock views tech as a crazy bloated cost structure strapped on the side of a few (essentially) monopoly business lines.Buy, remove bloat, manage the business for margins/profitability and rationality. Find synergies if they exist, but don't count on them.Essentially the strategy is to arbitrage the tech industries over-infatuation with (organic) growth (which leads to sh1t businesses being built along side amazing ones), and he then simply cobbles together a tech empire of high ROIC businesses with limited reinvestment opptys, and prints money.Not sure if CA will continue his winning streak, but doesn't seem off base to me, or shocking to me. No view on price, but it doesn't seem insane at least.YMMV!
Not sure if CA will continue his winning streak, but doesn't seem off base to me, or shocking to me. No view on price, but it doesn't seem insane at least.no, not insane, but for 18.4b they are getting 1b in a company projected to grow 0% with about half the sales in a mainframe division that is undergoing structural decay. Plus, CA is already in the midst of a restructuring plan. So AVGO buys a company that didn't seem all that cheap with growth problems while managing to lower its own organic growth profile, and all the while the 25% owner of CA jumped on the chance - as long as the deal was pure cash. https://investor.ca.com/~/media/Files/C/CA-Technologies-IR/d...I agree, it is almost like private equity taking out a high FCF slow grower (20% premium ain't much - CA has done nothing for years), and I don't think the - at one point - the 20% haircut on this deal was justifiable, but on the other hand the press release announcing the deal was remarkably short on anything that - to my untrained eyes - made sense.Plus, that 12b buyback AVGO announced it probably toast now - at the very moment the stock is lower. Good job AVGO.for me, AVGO goes into the penalty box as a static position...
hey - just a fwiwthanks for posting that notegetting another perspective, having a view looked at in a different way....very helpful
hey - just a fwiwthanks for posting that note as well!getting another perspective, having a view looked at in a different way....very helpfulOh no problem, thanks for your response.I appreciate the thoughts, and I'm also interested to see how folks view this company in particular. I have a strong "insider" view, but I have never owned (knew of Hock pretty closely from years ago before he was a big boss), and I don't know many folks who are in this name, so I like to hear the thoughts.From what I know, i have a very very solid feeling about the company culture and Hock specifically, but the model is a risky one (to me).My 2 cents.
this from a RJ report but it mirrors common sense and reflective of other things you can infer:*next BH in tech, or the next GE (ouch!)*acquisition is a clear sign consolidation going to to in other areas of tech with causes 3 concerns: 1 - indicates management not committed to strategy of generating and returning FCF to investors (e.g., my thought on the buyback), so this reflects on management's credibility 2 - this acquisition is outside of networking semiconductors and nobody has an idea if the strategy will be successful or not 3 - multiple assignment Or, management credibility, execution risk, and multipleI have few thoughts other than if nothing weird happens then these issues will maybe resolve themselves as the above is more confused evaluations - ala my thoughts about a frozen position - than bad fundamentals. or, as you said:Essentially the strategy is to arbitrage the tech industries over-infatuation with (organic) growth (which leads to sh1t businesses being built along side amazing ones), and he then simply cobbles together a tech empire of high ROIC businesses with limited reinvestment opptys, and prints money.Maybe buying out IBM is next...I not tempted to sell the shares, but wished I'd waited a week, which is almost as bad. --the analyst called it 'angry selling'
there is a strong irony hereas you imply, if AVGO had paid 10b for some company with 300m in sales but lots of potential, maybe nobody would have cared, but they did the thing you can't do in this market - they bot a company with static sales growth (to hell with profits)Perception is Everything“In the short run, the market is a voting machine, but in the long run, it is a weighing machine”not true in certain areas - Amazon gave license to void this principal...cause everybody and his brother can claim they are 'investing for the long term' even if they just suck
Buy, remove bloat, manage the business for margins/profitability and rationality. Currently, CA is doing the gross margin mid 80's, operating margin in 28% to 30% and net margin 20%. How much you can squeeze out? Assuming you are not going to invest in growth, and essentially going to run the franchise to milk the cash flow.
count me more in hacker's camp. i was never a huge fan of Tan's roll-up strategy, but he had proven a great deal maker and cost cutter so far. Personally, I don't get the reaction -- yeah, it is outside AVGO's core competency, but CA actually matches AVGO's typical profile. It's been a while, but CA has a super profitable mainframe biz that is not growing or shrinking slowly, but since they couldn't get a decent multiple (until recently), multiple management iterations have desperately tried to grow the distributed part of the business, and most of it have higher growth but not much profit. It's almost right up Tan's power alley. I think another interesting point is whether Tan moving out of semi's is sending a signal about how he views that market, although it could be simply AVGO was getting too big. But if that is the case, what were current shareholders thinking anyway?
I think another interesting point is whether Tan moving out of semi's is sending a signal about how he views that market, although it could be simply AVGO was getting too big. But if that is the case, what were current shareholders thinking anyway?This is a great point that I hadn't considered. I assume size was the reason, but it could be a tops down call which is crazy bearish (and supports diverting buybacks to other business M&A).
Difference is, Bezos actually invested for the long-term.
no doubt, he is brillianta subscription modeland upfront paymentsand taking advantage of a moment in time ala what Gates did when IBM came to them for an operating systemAnd then branching out to other areasPlus, he's won now.But this isn't common, perhaps.Martian, non-Expert on All Things Amazon--wondering why I didn't invest in TROWwhen there was a flow reversal (my key metric)Stock is up 75% since thenGotta get the obvious ones
Oh it's definitely quite uncommon, I couldn't agree more. But as others have said, spending high upfront in a 'land grab' strategy where you wind up with sticky clients that automatically subscribe and don't care about the 5-8% annual increase and don't switch seems like a good strategy.The key to investing in them is figuring out if their self-analysis is correct or not!Plus valuation of course....goes without saying.
From the latest conference call opening remarks on CA purchase...“We’re buying CA because of their customers and [CA’s] importance to these customers. CA sells mission-critical software to virtually all of the world’s largest enterprises,” Mr. Tan said. CA sales mission critical software to virtually all of the world’s largest enterprises. These are global leaders in key verticals including financial services, telecoms, insurance, healthcare and retail. And CA does it a scale fairly unique to the infrastructure software space. This can only come from longstanding relationships with these customers that spend several decades. In other words, these guys are deeply embedded.Now, Broadcom does a lot of business with the cloud companies, building the digital economy, the leaders. Google, Amazon, Microsoft are all large customers for us. They’re growing rapidly and we are, as you notice, growing event. They use our leading edge silicon solutions to develop their next generation data centers to enable many businesses worldwide.On the other hand, when you look at the largest enterprises, which comprise CAT customers, these guys really have limited direct access to a mission critical technology. In that lies what we think is a new and huge opportunity. Just as we have done with hyper cloud players, we believe we can bring our compute offload solutions, our Tomahawk switches, Jericho routers, fiber optics and our server storage connectivity portfolio directly to these same large enterprises that are buying CA software. These large end users invest tens of billions dollars on IT infrastructure every year. Through CA, we believe we have a big doorway to engage strategically with these customers and provide them direct access at very compelling economics to the same leading edge -- and make through the same leading edge networking storage and compute technologies that are used to enable the cloud service providers today.Beyond this industrial logic, I might note, CA by itself is a great franchise. Mainframes remain the backbone of the enterprise computing environment and are relied on to run mission-critical applications. Mainframes process approximately 30 billion transactions per day and $7 trillion of credit card payments annually. Contrary to popular belief, over the last 10 years, mainframe models have actually increased 3.5 times, driven largely by increasing amounts of data generated with every single transaction. Given mainframes are the most important parts of large enterprises, we believe this will remain a strong and stable market opportunity for us for long term. CA is a leader in delivering a suite of mainframe solutions across application development and ITOM tools. So, bottom line, we actually see this opportunity, a great opportunity, I may say, to double down for future growth.
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