MaxLinear Inc. - MXL
A look back at how it all started, and the subsequent return back to those levels.
Thought I’d add my name to the list of folks taking a victory lap on this name by doing a little bit of a retrospective look at how it has progressed over the years.
If you pull up a search of this blog, you will find nearly a dozen different spiels or updates related to MXL going back to 2015. My very first spiel (the process of importing older ideas is quite tedious, so I stopped at 2015), however, dates back to June 2010, when it was a $14 stock (somewhat higher than today) with maybe 35M total shares outstanding (today that number is closer to 90M shares).
In the year after first writing about them in 2010, the company would proceed to miss revenue estimates a couple of times, and the shares would eventually trade down to the $5 level, where they would remain for the next several years. Their revenue growth story never really materialized, and profitability, despite being a fabless chip maker, never happened either, as they were in a constant technological uphill battle against bigger and better companies like Broadcom, Microchip, or even (gulp) MACOM.
That all changed in 2015 when they discovered the art of acquisitions. For some reference, prior to their acquisition spree, they were doing maybe $40M in quarterly revenues.
One of their first acquisitions was something called Entropic Communications (formerly ENTR), a developer of MoCA technology (Multimedia over Coax Alliance), and it more than doubled the size of their revenues and it briefly brought them to GAAP profitability. I don’t believe MoCA is really a thing anymore, but there was a time when they were fighting for space inside every cable box.
Was ENTR wildly profitable? The opposite actually. ENTR was wildly unprofitable, which is exactly why MXL bought them. Though ENTR was losing roughly $100M or so a year on a GAAP basis, they did have roughly $55M in quarterly revenues with a 30%+ or so gross margin.
What MXL discovered with this acquisition was the art of buying another company, firing most of their employees off the bat, halting any meaningful development on any of the acquired company’s products or product lines, coming out with minimal updates, and providing a minimal level of support. Since they were severely curtailing any investment in any research and development in the acquired products, customers would eventually go away should something newer or better be introduced, but that didn’t really matter to MXL.
By purchasing $55M in quarterly revenues with 30%+ gross margins and by firing nearly all of the related OPEX from the acquisition (they also got some useful tax losses in the deal), they were basically able to take close to $15M of gross profit each quarter straight to the bottom line.
And Voila! They were now profitable.
So by this point in late 2015 the company was up to $95M in quarterly revenues, was projecting to earn $1.50 a share in actual GAAP earnings (untaxed, but still) in 2016, and was earning rave reviews and upgrades from the street. The shares, stuck in the $5-$10 range for years, exploded higher, eventually rising to $30 a share in 2017.
Having discovered a taste for acquisitions, the folks at MXL would rush into several others over the next couple of years.
2016 they purchased some assets of the former PMC-Sierra and Microsemi for $21M
In 2016 they would purchase $80M worth of assets and products from Broadcom.
In 2017 for $21M they purchased assets from Marvell Semiconductor.
In 2017 for close to $700M they purchased Exar Corp. (EXAR). EXAR was doing about $110M in annual revenues prior to the acquisition.
By 2016 the company was doing $500M in annual pro forma revenues, but with some difficulty integrating EXAR and the decline in ENTR revenues, they only managed to do $460M in pro forma revenues in 2017.
The next couple of years would be a period of digestion for MXL, and revenues would continue to decline as particularly the ENTR revenues continued their decline: in 2018 they would decline from $420M to $384M, while in 2019 they would decline further to $317M.
And then came COVID.
Remember the work-from-home rush? People upgrading their home-offices? Getting broadband? New modems? New routers? WiFi upgrades? WiFi hotspots? Anything home networking related just went through the roof.
That just happens to be MXL’s sweet spot and their target market. If you’re thinking about a company that can benefit from the masses upgrading their modems from DOCSIS 3.0 to DOCSIS 3.1 for better speed, then MXL is a way to play it.
During this rush, the shares of MXL would go on nice little run, rising from $10 a share during the depths of COVID up to $75 a share in early 2022 (you know, the time when PTON was a triple digit stock). Revenues, having bottomed in 2019, rose to $480M in 2020 and $900M in 2021 and topped out at $1.1B in 2022 before retreating to $693M in 2023 and the coming disaster that is 2024.
And still, the acquisitions would continue.
NanoSemi was purchased for $35M in 2020.
Intel’s WiFi business was purchased for $150M in 2020.
They would purchase a couple of companies simply called X and Y for around $15M in 2021 and 2023.
And yet the CEO, despite watching revenues decline to a much greater extent than any of his competitors, today maintains a bright outlook.
“In addition, our Ethernet, storage, Wi-Fi7, and fiber PON gateway products are all in the market today addressing additional new TAM, have strong customer traction, and are poised for meaningful growth. We are optimizing our efforts around these opportunities, which will be transformative for our future business while driving maximum value for our customers and shareholders.”
The company just reported quarterly revenues of $92M, down from $184M in the same period of 2023, and about flat with the revenues they reported back in the second quarter of 2016 (there they actually reported revenues of $102M). So quarterly revenues are now LOWER than they were 8 years ago, and instead of making 36 cents a share like they did in Q2 2016, they just lost 47 cents.
So a big round of applause to the management at MXL, who managed to watch their revenues rise 300% and subsequently round trip their revenues over an 8 year period of time despite making almost $1B worth of acquisitions. Just try to name another management team, especially in the chip sector, who has been able to accomplish that particular feat.
Truly a management you can trust.