2 Reasons Why Zen+ Can Challenge Intel’s Dominance

Advanced Micro Devices (AMD) recently released the second generation of its infamous Ryzen processors, codenamed Zen+. This iteration is based on the 12nm process technology of GlobalFoundries as opposed to the 14nm process for the first generation Ryzen.

Zen+ packs roughly an additional 3% IPC increase while offering a 20% boost in content creation over Intel’s (INTC) premium Coffee Lake, i7 8700K. Moreover, Zen+ offers up to 15% performance boost over the first generation of Ryzen processors in gaming scenarios.

Power efficiency of Zen+ is an opportunity for AMD to capitalize on the market share opportunity in portable PCs market and servers. In the short term, aggressive pricing and comparable gaming performance will allow the company to gain desktop PC market share.

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GH Capital Uses Blockchain to Reduce Payment Costs for Merchants

GH Capital is utilizing blockchain to fuel cross-border adoption of its payment gateway ClickDirectPay. Thanks to blockchain technology, low fees and cryptocurrency integration will attract high risk merchants globally. ClickDirectPay is eyeing to make crypto-payments a user friendly experience, which can bolster adoption of cryptocurrency payments. 

ClickDirectPay (CDP), an online payment subsidiary of GH Capital Inc (GHHC), is planning to utilize blockchain technology for online payments. The company is looking to enable seamless cryptocurrency payments for shoppers. CDP will collaborate with merchants around the globe in order to integrate major cryptocurrencies including Bitcoin in the online shopping experience. “ClickDirectPay shall become a one-stop shop solution for online merchants worldwide to accept primary cryptocurrencies in real time, hassle free,” says Wolfgang Ruecker, CEO of GH Capital Inc. The CEO of the company didn’t go into much details of how exactly GH Capital is utilizing the blockchain to enable crypto-payments.

This can prove beneficial for ClickDirectPay as cryptocurrencies reduce cross-border payment limitations, allowing the company to capitalize on a global user base. Moreover, the company will benefit from high-risk merchant markets as blockchain technology and associated cryptocurrencies reduce chargeback risk resulting in low-cost processing for high risk merchants.

ClickDirectPay – low-cost, niche market strategy of GH Capital

Operations of ClickDirectPay were limited to Europe before. The company provided online banking electronic payments infrastructure for merchants; online banking payments are considerably famous across Europe. Sofort GmbH and iDeal are among the leading online banking payment processors in Europe.  CDP competed against these big players through attractive pricing including low-cost fixed fee options for merchants. The company also steered away from competitors as it created a niche for low volume, high value businesses amid fees that were charged on per-transaction rather than on transaction-value basis. You can see detailed report on CDP’s pricing advantage here.

CDP’s success in Europe was partially driven by inclination of banks towards online payments. Banking sector has to stay relevant in the online payment arena, and online banking electronic payments is a way to go. Companies like CDP and Sofort act as a gateway, which increases the user friendliness for the customers.

Despite the cost advantage, gaining ground on already established players isn’t very easy. Adoption was one of the challenges for CDP in the recent past. Now, with cryptocurrency ambitions, the company is steering away from competition like Sofort and iDeal.

Cryptocurrency integration bodes well for GH Capital

Support for cryptocurrencies like Bitcoin will create numerous opportunities for CDP including exposure to global market alongside high risk merchant markets. Most of the key cryptocurrenies have the properties like no-geographic restriction and irreversible payment structure.  The absence of geographic bounds enables global reach while irreversible structure of payment structure creates opportunities in the high-risk merchant markets.

Merchants operating in high risk markets have a problem of finding a decent payment gateway as large providers screen out high risk merchants. This creates an opportunity for small gateway players like CDP to tap in to the market.  However, up until now, as high risk merchants’ account entailed high charge back, it was difficult for payment processors to offer attractive rates.

CDP is enabling lower processing costs through blockchain

Blockchain based payments can reduce the charge back risk, which can translate into lower processing costs. CDP is bringing the costs down to 2% of the processing volume for cryptocurrency transactions. Usually, high-risk merchants pay fees that exceed 5%.  High-risk processors charge as much as 7%-10%, according Marshall Hayner, CEO of MetalPay. CDP can benefit from offering a blockchain based cryptocurrencies payment aggregator, which will attract high-risk merchants around the globe amid low-cost processing enabled by blockchain technology.

Aren’t payment gateways like CDP the opposite of decentralization?

Some might argue that using a centralized gateway like CDP kills the purpose of using blockchain, or cryptocurrency for that matter. Well, not for everyone.

High risk merchants and un-banked entities don’t prioritize decentralization. Blockchain and cryptocurrencies like Bitcoin serve the purpose of enabling low-cost transactions and reducing charge back risk, which benefits high risk merchants.

Moreover, not everyone is tech-savvy to use cryptocurrency wallets. Gateway solutions like ClickDirectPay can bring the cost benefits of blockchain while maintaining the user friendliness of payment processing for consumers. The point is that blockchain will help CDP offer user friendly cryptocurrency payment solutions, which can actually accelerate the adoption of cryptocurrencies as alternative payments.

Further, as cryptocurrencies are in their infancy, high volatility makes it difficult for merchants to use wallets directly. Merchants need gateways that have the ability to transform cryptocurrencies into Fiat currencies in real time.  That’s another reason payment service providers like CDP are essential for merchants to avoid volatility risk.

Overall, users and merchants will benefit from decentralization through low cost transactions enabled by blockchain. 

Cryptocurrency integration – Some Challenges

Most of the merchants are reluctant to integrate currencies like Bitcoin due to volatility of price and lack of visibility around future regulation. Problem of volatility can be solved by using gateways like CDP, but risk of regulatory setback remains.  

Another challenge relates to the consumer side. Consumer generally won’t see value in using bitcoin for payments if they have to buy cryptocurrency first, and then transact. This can be addressed by using bitcoin wallets, but that reduces the user friendliness of payment platforms.

Nonetheless, for the high risk consumer markets, anonymity of using cryptocurrencies like Bitcoin makes it an attractive solution. In other words, consumers of high risk industries see value in transacting using Bitcoin. 

Bottom line

GH Capital’s plan to use blockchain and cryptocurrencies can benefit the company in several ways. First, the company can steer away from competition in the European market. Second, it can address a global user base amid global nature of cryptocurrencies. More importantly, the company can emerge as a key payment processing provider for the high-risk merchant market as chargeback risk and, consequently, transaction costs go down for high-risk merchants. 

   

Disclosure: This publication is for informational purpose only and reflects the opinion of Focus Equity’s analysts. This opinion doesn’t constitute a professional investment advice. We have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Our technology analyst compiled this research piece. Focus Equity is a team of analysts that strives to provide investment ideas to the U.S. equity investors. This research piece is sponsored by a third party.

Intel Collaborates With AMD In An Effort To Find Middle Ground

Intel is using AMD's graphics silicon in its multi-chip module for portable PC space, targeting enthusiasts. It's good news for AMD amid exposure to the high-end market through this collaboration. Intel’s sourcing of custom-graphics chip from AMD might be a signal for price and market collaboration later.

 

This seems to be the beginning of a collaboration, rather than confrontation, between the only two consumer-computing players. The collaborative approach, and price signaling – in case it works, will help Intel sustain margins while boosting AMD’s market share in the mainstream PCs and high-end portable graphics space.

As An AMD Bull, 2 Things We Don't Like From The Q3 Filing

Unit sales didn’t grow much, indicating sluggish market share growth. Low visibility around EYPC sales indicates full-fledged server deployment needs time. Nonetheless, bull thesis remains intact as AMD is maintaining node parity.

Although sluggish unit sales growth and lack of visibility around EPYC sales are challenging, these headwinds are short term. Market share will gradually shift toward AMD as the company continues to offer comparable products. Ryzen’s full potential is yet to be seen as mobile processors just came out this month. Slow uptake in enterprise is natural, and share will improve substantially going forward.

AMD has successfully closed the technology gap. It’s only a matter of time before the company gains decent market share. Having two players in the market is better for both consumer oriented suppliers and data center service providers. It all comes down to the fact that AMD’s market cap is just around 4% of Intel’s market cap. Even a small dent in Intel’s market share will boost AMD’s market capitalization. Now, think about AMD taking more than 20% of Intel’s market share and you will know that it’s still a bargain.

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Macom Technology: Is the Growth Story Intact?

MACOM Technology (NASDAQ:MTSI) has been on a decline, shedding 38% of its market share since July. Stifel’s downgrade further shattered investors’ confidence as the firm cited weakness in China as worrisome for MACOM.

Negative sentiment is fueled by the slowdown in growth, acquisition costs and integration challenges related to newly acquired businesses like AppliedMicro.

Nonetheless, long-term prospects remain positive. The industry is set to grow, thanks to the exponential growth of cloud data centers and upcoming switch to 5G in the telecom industry. Recent weakness in growth and margin is a short-term headwind. MACOM continues to post double-digit revenue growth. Negative sentiment is overstated.

The market is reacting to short-term integration headwinds and a slowdown in growth. It's ignoring the fact that acquisition-related costs are a short-term headwind; integration benefits will follow. Further, industry analysts have a consensus on growth. Only some predict the slowdown to persist, but that’s also for a year. Over the long run, the stock is poised to benefit from industry growth. MACOM seems to offer some value in a stock market that’s flooded with overpriced momentum stocks.

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Netflix: Wall Street is Missing the Bigger Picture

Netflix Inc. (NASDAQ:NFLX) reported its third-quarter earnings recently, beating subscriber growth expectations. The company added 5.3 million subscribers during the quarter compared to the consensus of 4.5 million. While Wall Street is fixated on the subscriber growth, the latest earnings report sheds light on several concerns.

First, Netflix is evolving into a content company. This puts pressure on the financing needs as well as margins. Second, entering digital distribution is not very difficult, which is paving the way for new streaming players. This will result in content being offered though several platforms, pressurizing Netflix's distribution moat.

Netflix is an impressive entertainment company that benefited from its distribution model. As other companies see digital as the new distribution norm, they will focus on creating in-house streaming services. Creating an online distribution platform is no longer a barrier to entry given improvements in technology. 

Therefore, Netflix cannot rely on its distribution network alone. The company is focusing more on content as it can lose its distribution domination. High content costs will put pressure on Netflix’s financing needs as well as on its margins. 

Since the valuation is already high, the bottom line is Netflix should be viewed as a content creator with independent distribution, rather than a streaming player with a distribution moat. Investors should embrace the changing dynamic and stay on the sidelines for now.

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China’s Petrol-Free Incentive: Implications for Tesla Motors and the Industry

China is looking to ban internal combustion engine (ICE) cars, according to a Chinese Government official. Xinhua, the official press agency of China, reported last month that the Chinese government has begun to look into a ban on said vehicles without disclosing any timeline. However, Xin Guobin, vice minister of industry and information technology, said the policy will be implemented in the near future.

Despite some environmental concerns regarding battery production, EVs are gaining wide acceptance around the globe. China, the largest car manufacturer, is at the forefront of promoting EVs. A ban of ICE vehicles will benefit EV manufacturers, especially local players.

International players like Tesla, however, are not expected to benefit from the policy. Moreover, competition will be intensified in light of government support.

In short, EVs are here to stay. The same cannot be said about any specific EV manufacturer, but local players should flourish as governments support alternative fuel vehicles.

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ECB Meeting: Here's What You Need to Know

In a recent monetary policy meeting held in Frankfurt, the European Central Bank (ECB) kept interest rates unchanged while keeping the bond buying at a run rate of 60 billion euros ($72.2 billion) per month. Subdued inflation and an uncertain exchange rate are the primary reasons for the continued expansionary stance of the ECB.

Interest rates are expected to remain at the current level for an extended period of time. Regarding quantitative easing, bond buying will continue at the pace of 60 billion euros until the end of 2017, or beyond if necessary. 

The medium-term outlook for inflation and growth remains unchanged for the eurozone. Despite strong economic growth, inflation lagged behind the target rate. 

GDP growth is improving

Economic growth in the eurozone looks stable with GDP expected to grow 2.2% and 1.8% in 2017 and 2018. Compared to the June 2017 projection, GDP growth has been revised upward by the ECB in the current outlook.

Economic growth is being supported by the expansionary monetary policy, according to the ECB. Quantitative easing is resulting in favorable financing conditions along with facilitating deleveraging, which in turn is resulting in corporate profitability, employment gains and demand growth.

Inflation stays under pressure

The ECB expects headline inflation to decline during the last part of the year. Improvement is yet to be seen in measures of underlying inflation. Annual HICP inflation is expected to be around 1.5% and 1.2% for 2017 and 2018, according to ECB Staff projections. 

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Micron Maintains the Super Cycle

Micron Technology (MU) recently presented at the Citi 2017 Global Technology Conference, debunking the ideas and arguments of a slump or a downward cycle in the business.

Ernie Maddock, senior vice president and chief financial officer (CFO), believes the demand for both DRAM and NAND will stay strong during fiscal 2018. He cited the need for data storage and data processing as the key drivers of growth.

The management expects the DRAM and NAND bit growth to be around 20% and 40% for fiscal 2018; demand growth will be in line with the bit growth, according to Maddock. 

This eradicates fears relating to worsening demand and increasing supply in the industry. Micron is set to grow in the year ahead amid decent demand growth along with stable supply growth. 

Is demand under pressure?

The short answer is no. Collection and use of data, its rate of expansion, along with applications in the automotive industry are driving the demand for DRAM and NAND, Maddock said. He explained that collecting data requires processing while saving data requires memory, which speaks heavily to the demand side of DRAM and NAND.

What about supply?

The investor community is concerned about excess supply in the industry going forward. China is the most cited reason for the expected future bit growth. Further, supply growth of ~40% in NAND also adds to oversupply concerns. According to the Micron’s management, supply is expected to remain in line with the demand; it won’t surpass demand.

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You Can Benefit From Lam Research’s Memory Exposure

Lam Research (NASDAQ:LRCX) witnessed a fantastic year as evident from its full-year results. Gartner’s recent cut in its capital spending forecast for semiconductor equipment manufacturers clouds Lam Research's future prospects. The company appears resilient as it’s backed by the memory industry, not to mention its exposure to Asia Pacific.

Lam Research had an impressive year, resulting in revenue and EPS beat. The company posted revenue of $8.01 billion, up 36.1% on a year-over-year basis. Fourth-quarter revenue came around $2.34 billion compared to the consensus of $2.31 billion. Full-year GAAP EPS was $9.24, translating into a notable 77% year-over-year increase. 

Most of the revenue comes from memory as the company caters to the manufacturing needs of Micron Technology (MU) and SK Hynix Inc. Increasing foundry revenue can be attributed to Lam Research’s exposure to Samsung (SSNLF) and Taiwan Semiconductor Manufacturing Co. (TSM). Shrinking process node technologies continue to benefit Lam Research.

Samsung, TSMC, SK Hynix and Micron are among the top companies in terms of capital expenditure in the semiconductor industry. With a 31% increase, the DRAM/SRAM segment is expected to display the largest percentage increase in capital expenditures of the major products types listed this year, cited IC Insights in its May Update to the 2017 McClean Report. 

Lam Research is poised to benefit as four of the top five capital expenditure intensive companies belong to Lam’s client list. Lam Research’s exposure to the memory market also bodes well for the company. The company generates more than 60% of its revenue from the memory market.

Overall, slowdown in growth isn’t expected to hit Lam Research much because of its heavy presence in the memory market and Asia Pacific. Note that Asia Pacific is set to remain the highest-growing market in WFE going forward.

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Growth and Value Combined in 1 Stock

It’s usually difficult to find a stock at a bargain price when growth is involved but not always. ON Semiconductor (ON), a manufacturer of semiconductor components for power management and imaging, surprisingly offers growth and value.

The company posted explosive revenue growth during the first half of the year, yet it’s priced at 10 times forward earnings, and the growth is not expected to vanish during the next few years. Double-digit top-line growth is in the cards. Regarding the bottom line, analysts expect earnings to grow 27% during the next five years. 

Regarding further growth, it might not be as explosive, but the company is going to witness healthy growth. The global automotive semiconductor market is set to grow at CAGR of 6.4% from 2017 to 2022, according to Lucintel. The automotive application of the imaging sensor market is expected to grow at a CAGR of 15.91% from 2015 to 2020. Advanced driving assistance systems and security awareness are driving the growth of the imaging sensors market. Regarding power management, TechNavio predicts the market will grow 7% p.a. until 2020.

Overall, ON Semiconductor is set to benefit from the growth of power management and image sensors. End markets like automotive will fuel this growth. Low double-digit growth is in the cards for the company amid its strong presence in the imaging semiconductor market. Further, integration synergies of the Fairchild acquisition are kicking in as operating expenses grew at a slower rate than revenue growth. 

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AMD Baidu Collaboration - Nvidia has a New Competitor in HPC

Advanced Micro Devices (AMD) is joining forces with Baidu (BIDU) to work on GPU computing in data centers. They are teaming up to enhance optimization for applications that use Radeon Instinct accelerators. Advanced Micro Devices is eyeing the high-growing neural network and machine learning market with its current Radeon Instinct efforts.

The company is targeting the machine learning and neural networks market with its new GPU architecture, Vega. It's finally targeting the right market. The company's new architecture supports FP16 and INT8 modes, which are highly beneficial for machine learning performance. 

The most significant take away from the recent announcement is the software optimization efforts. One of the widely cited cons for Advanced Micro Devices' data center offerings is the lack of optimization and software support.

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Being Second Best Isn't Bad for AMD

"Being second best” isn’t the problem for Advanced Micro Devices (AMD). The company’s success is driven from closing the gap between CPU technologies - it isn't based on beating Intel's technology. To that end, the company deployed 14nm process in order to close the technology gap.

In the past, AMD’s technology problem stemmed from being on a lagging process node. That problem is now solved amid GlobalFoundries’ push into advanced processing technologies powered by the likes of Samsung (SSNLF) and IBM Corp. (IBM).

There is no point to inking pages in discussing the performance of Ryzen, Epyc and Threadripper. There is a lot of material around the web covering the performance aspect. The point is that AMD successfully closed the performance gap between its technology and the technology of Intel. This will lead to market share gains going forward.

AMD has closed the technology gap, thanks to 14nm process technology and Jim Keller's designing capabilities. Lagging technology doesn’t affect the bull thesis at all, as the thesis was based on narrowing the technology gap. If AMD were to beat Intel, it should be in Intel’s place in terms of market cap. Anyhow, “second best” is a moot point as far as the investment thesis is concerned.

Regarding multi-threading, AMD is a serious threat to Intel in the datacenter market. China’s market is already showing signs of AMD's product adoption. Ryzen is completely different compared to Bulldozer. Bulldozer’s failure won’t be reflected in Ryzen. Thanks to crypto currencies, AMD’s GPU side has the time to make amends. The balance sheet is indicative of healthy business coming the company’s way.

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Recent FinTech Partnerships Bode Well for GH Capital

GH Capital Inc. (OTCBB: GHHC)

Technology; FinTech; Buy - Risky

VMoney exposes the company to online money transfer market. Allied Wallet partnership will increase the company’s visibility in Germany and Austria. Downside is already priced in as evident from current stock price.

FinTech is an evolving space with new and innovative methods of financial services endlessly coming to the market. Growth of online businesses is fueling the need for additional and efficient financial transaction solutions. Consumers are always looking for convenience when it comes to shopping and related payments. This changing dynamic is what’s driving FinTech’s innovation and growth.

Synaptics: Buy the Dip

Synaptics Inc (NASDAQ: SYNA)

Technology; Human Interface Solutions; 30%-50% Upside

IoT exposure, strong margin and cheap valuation put the company in value territory.

Synaptics Inc. (SYNA) lost more than 20% of its market cap in the last five days after acquiring Conexant Systems and Marvell Technology Group (MRVL) for a cumulative cash compensation of $395 million along with share-based compensation. You can see the detailed update here.

Synaptics also narrowed its midpoint revenue guidance for the fourth quarter of 2017. Cash spending, dilution and guidance revision were all too much for the market, and the reaction was ugly for Synaptics’ shareholders. The selling was not completely rational as the market just focused on the bad side and ignored the good one.