Inphi Corporation (IPHI) – Big Data Fast
Inphi is a semiconductor company that develops high-speed analog solutions that sell into communications, computing, and other markets. It is uniquely positioned to deliver ultra, high bandwidth optical platform solutions that enable the build out of hyper-scale Cloud data centers, service provider networks, and emerging virtual data centers. To put it more simply:
Inphi is the leader in data movement interconnects. We move big data fast, around the globe, between and inside of data centers.
On Tuesday, March 28th, there was a buyer of 1,000 July 50 Calls for 3.40 – 3.50, approximately a $345,000 bullish bet. Based on analyst commentary, Inphi is set up for a catalyst-driven 2017. As Stifel analyst Tore Svanberg said in a March 15th note:
“After capping off a record year, where the company’s core communications business (amplifiers, drivers and 10G/40G/100G physical layer) business outperformed and took share, demonstrated by the more than 60% y/y growth in CY16, we believe there continues to be solid momentum, exhibited by the many design wins underway. “
ColorZ – Stifel believes the company can grow its core communications business roughly 42%-46%, especially with ColorZ, which should add ~$45M in the year. At the Optical Fiber Communications Conference, it was reported that there were several ecosystem switch vendors and Open Line system suppliers demonstrating the ColorZ platform, highlighting the high interest of the solution, which increases speed of data while also keeping power and cost in check, while also offering the ability to perform live firmware upgrades. Microsoft (MSFT) is currently the lead customer, but there will likely be a second customer in the second half of 2017.
On December 12, 2016, the company announced that it had completed the acquisition of coherent DSP specialist ClariPhy Communications. ClariPhy is a leading provider of ultra-high speed SoC’s (System on Chip) for the service provider, metro and long-haul markets and is one of just three merchant suppliers with coherent DSP technology. ClariPhy is currently at an $8M-$10M quarterly revenue run-rate and is expected to add roughly $45M in annual revenue in FY17 (and another $75M-$80M in FY18). Stifel expects the deal to be slightly dilutive in the first half of 2017, but will likely turn accretive in the second half as new products come to market, and given the margin profile for ClariPhy which is slightly higher than Inphi’s, is expected to drive material accretion in FY18. ClariPhy will have new products for Metro sampling in 2H17 and within L/H and DCI, will be sampling in 2018.
Finally, management highlighted that while there has been several optical component vendors that have suggested that demand in China has weakened, Inphi is not experiencing this weakness. As it has been confirmed, the region’s national deployments are taking a pause ahead of the next phase, which is centered on more provincial deployments (Phase 12, or roughly 600 cities of 1M+ people), given this recent win that started in Q416, Inphi is now better able to weather this storm even as conditions are poised to improve/return in the second half of 2017. As Stifel notes, Inphi has benefited from ACO and DCO in China, and has won a very significant design with a premier Chinese OEM for DCO (sole-sourced currently). In fact, “this OEM represents ~45% of total ports that will be DCO, which is providing the necessary coverage to ride out any potential weakness in the market vs. their peers who do not have the same design win momentum.”
Wall Street currently has 1 Strong Buy Rating, 10 Buy Ratings, and 1 Hold Rating on the stock with a consensus price target of $53. Some of the more recent actions include:
March 22nd – Rosenblatt Securities reiterated its Buy rating and $60 PT
March 11th – Cowen reiterated its Outperform rating and $65 PT
February 11th – B. Riley reiterated its Buy rating and $60 PT
February 8th – Jefferies kept their Buy rating but boosted their target from $45 to $60
February 8th – Needham kept their Strong Buy rating but boosted their target from $50 to $55
