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penultimate Xebec update, GRoDT 4Q22 results & trade notes -3

16:17 02-Mar-23

• I calculate a loss of 13 cents per share, beating by 4 cents
• from $152.8M of revenue, which misses by $13.2M
• guides 1Q23 revenue to $127+/-5M of revenue, which misses by $24M
  

One more trade note related to Tesla's investor day...  MACom partner STMicro is down 6% in reaction to Tesla saying it will cut costs by reducing its use of silicon carbide in its power train.  These are Tesla investors, so they apparently haven't connected STM to MTSI yet.  I also haven't seen details on what the replacement MOSFET would be in the inverter design, but an upgrade to gallium, which could also be in the MACom/ST product set doesn't seem likely in this case.  I haven't been positive on MTSI at these levels anyway, but would-be investors should understand that it's possible that the MTSI could wind up being subject to the same sort of retracement in its expensive stock price.

On 3/2/23 08:51, Esekla wrote:

The Polestar call has just concluded, and the only thing I liked is that operating costs decreased 8%.  Management gave additional coverage on margins, expecting them to be weaker in the first half, and stronger second half with introduction of the Polestar 3.  It also said the Polestar 2 is eligible for tax incentives when leased, but management confirmed that U.S. manufacturing still won't ramp until mid-2024.  This could have been okay for a luxury niche, but not at money losing margins.  Management response to internet questions indicates focus on the rest of the world in the meantime.  Still, with management confirming that it will need more capital going into next year, I continue see Polestar's second-class manufacturing status with its owners as a damning flaw.

On 3/2/23 08:04, Esekla wrote:

Polestar has released its preliminary, un-audited fourth quarter results:

• I calculate a loss of 12.5 cents per share, which is in line with a recent estimate
  
• from $985.2M of revenue, up 126% sequentially

Official results won't be available until the end of the month.  FY23 guidance for just 80K cars is expected to be at similar margins until at near year end.  By contrast, Tesla provided an ambitious goal of producing 20M cars a year by 2030, and confirmed that its next gigafactory will be in Mexico.  Polestar had $974M in cash to maybe get through the year, but is exploring options for an equity or debt raise.  Either would be concerning in the current environment, but PSNY initially rebounded 7% to $5.40.  I still see no reason to own shares while the company has no line of sight to profitability.  I doubt the call starting now will change that, but someone consistently talking over the presentation so far seems amateurish.  I will write more if there is anything interesting.

On 3/1/23 16:42, Esekla wrote:

In prepared remarks, Vuzix guided 1Q23 to at least $3.5M of revenue, which misses by $0.4M.

On 3/1/23 16:36, Esekla wrote:

Vuzix has announced its fourth quarter results:

• a loss of 17 cents per share misses by 2 cents
• from $2.9M of revenue, which misses by $0.9M

The conference call is beginning now, but I am unlikely to write further.

On 3/1/23 09:23, Esekla wrote:

Before getting to active GRoDT earnings and news, I wanted to document a 9700 share INTC OMIB from the CEO's family trust.  I think this matters even less than the Quantum developer kit.  What does matter is that the requirements on CHIPS stimulus look somewhat onerous for would-be Intel investors, and further decrease the chances of MACom making a significant move.  New optical products are helping to keep the price of MTSI elevated, though.  I've been dubious of American efforts to domesticate manufacturing and think that Tesla is on a better track in Mexico.  By extension, that would also apply to New Fortress development.  I also think the data breach at Dish is worth mentioning, if only for its atrocious handling.  Somewhere down the road, I still think someone's going to put what's left of Dish and Lumen together for cheap.  Current LUMN investors will just have to hope that management is ready to turn the corner on its messaging next week, though.  See below for subscriber Q&A details on why I've called the turnaround.

Moving on to the GRoDTs, Xebec's fate now appears to be sealed, with the recent fire sale of several of its main assets.  I expect one more quick note that XEBEQ is completely removed from trade screens in March.  I will then probably wait until BGCP becomes BGC, later this year to move XBC to the public side of the website, though.

I'm inclined to ignore China's PMI and look forward to next week's economic data, which should be dominated by jobs reports in a lead up to the next Fed meeting on the 22nd.  I'm most interested in how the Fed will shift its messaging over the longer term; new economic modeling makes it look likely that it will eventually raise its 2% inflation target, which would be a long term negative for stocks.

Per the subject, I'll probably update this note with the Vuzix and Polestar earnings, assuming there is nothing very important.

On 2/27/23 15:10, a subscriber wrote:

Hello Esekla,

Thank you for all your insights.  I was wondering why the $3.50 mark for Friday was so important regarding the medium-term outlook.  I’m just trying to educate myself.  I’m assuming that it has to do with $3.50 strike options that expired on Friday, but don’t understand their significance.

On 2/27/23 15:44, Esekla wrote:

Sorry for not spelling it out my posts, but yes, you got the right message.  Specifically, there was an open interest of just shy of 50K puts at the $3.50 strike, which was at least 10x the typical level.  That indicates an aggregate willingness to buy almost 5M shares at that price.  Average daily volume has been almost 5x that, which is also pivotal in my experience.  The point here is that only the closing price matters because that determines whether the contracts would be executed or not.  There are other theoretical explanations, but if forced to guess again, I'd say that the decline today is probably the hedges from market makers being zeroed out.

It's as much art as science, but something I've studied privately for more than decade.  My finding is that these situations aren't completely determinant, but they are far better indicators than the technical patterns that many of the people I worked with on Wall St. use for computerized trading.  I consider those poor substitutes for actually reading the news, which they typically trail.  By contrast, the options are leading indicators of actual potential orders, and at the end of the day (or week, or month, more literally), it's the collision of buy and sell orders that actually determines trade prices.  So, I consider situations like this noteworthy and fundamentally significant.

Please, let me know if any of that was unclear or if you have other questions,

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