Supply Chain Use Case Getting Ahead of the Trade- Supply ...
Post on 18-Dec-2021
1 Views
Preview:
Transcript
Supply Chain Use Case
Getting Ahead of the Trade- Supply Chain and
Inventory Build Signals
On April 9, 2018 Emcore Corp. (EMKR US) reported preliminary FY18 (Sep) Q2 revenue of
$18 million to $19 million, below earlier guidance of $21 million to $23 million and Street
consensus estimates of $21.75 million. The shortfall was attributed to a significant demand
shortfall from one major customer. Emcore stock dropped as much as 12% intraday.
"Impact of a major CATV customer working through a large inventory accumulation was
greater than anticipated, resulting in lower than expected revenues from the customer during
the quarter."
Source: Emcore Press Release
Using SPLC relationships and fundamental data, we can find which of Emcore's customers
are working through inventory builds.
Emcore Supply Chain via SPLC<GO>
Source: Bloomberg Data, Company Reports
Both Cisco and Arris had inventory builds of 50% year-over-year. Because CommScope had
a decline in YoY inventory YoY, the analysis is narrowed to CSCO and ARRS.
Cisco had attributed a significant percentage of its inventory build to raw materials, which
appears to be memory purchases:
"..what we're trying to do is I'm trying to buy as much inventory as I can ahead, right? So I've
increased my inventory by a couple of 100 million for buying memory ahead but it's still a
constrained market."
Source: Kelly Kramer, Cisco VP/CFO, NASDAQ Investor Conference December 5, 2017
Arris has some raw material build, but not of the same magnitude as Cisco. And when
reading through Arris transcripts, there is a clear desire to reduce inventory:
"Our working capital is higher than we like at the moment, in particular, inventory, and we're
going to work hard in 2018 to reduce it"
Source: ARRS US 2017 Q4 Conference Call
From here, we can identify Arris as the likely culprit contributing to weak demand for
Emcore. Turn the analysis over to the supplier side of Arris, MaxLinear is the most exposed
supplier of the group, reporting 25% of its annual revenue from Arris.
Arris International PLC Supply Chain via SPLC<GO>
Source: Bloomberg Data, Company Reports
MaxLinear (MXL US) reported earnings after the close on May 8th, one month after the
preliminary results from Emcore. MXL posted revenue of $110.8M, below $112M guidance
and Street consensus. The shares plunged by as much as 26% the day following the
earnings release.
The negative signals for the MXL quarter were given twice before the release- on Emcore's
preliminary results announced on April 9 and within its official release on May 3 when the
company reiterated the negative impact felt from the "major CATV customer" inventory build.
The stock price in MXL was relatively flat over that time, it did not feel the effects of the
signal.
Timeline of Events
Disclaimer
The BLOOMBERG TERMINAL service and Bloomberg data products (the “Services”) are owned and distributed by Bloomberg
Finance L.P. (“BFLP”) except that Bloomberg L.P. and its subsidiaries (“BLP”) distribute these products in Argentina, Australia and
certain jurisdictions in the Pacific islands, Bermuda, China, India, Japan, Korea and New Zealand. BLP provides BFLP with global
marketing and operational support. The following are trademarks and service marks of BFLP, a Delaware limited partnership, or its
subsidiaries: BLOOMBERG, BLOOMBERG ANYWHERE, BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG
PROFESSIONAL, BLOOMBERG TERMINAL and BLOOMBERG.COM. Absence of any trademark or service mark from this list
does not waive Bloomberg's intellectual property rights in that name, mark or logo. All rights reserved.
top related