Drawing Capital Semiconductors - July 15, 2021 - IBKR Webinars
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July 15, 2021 Drawing Capital Semiconductors Sagar Joshi Jugal Lodaya Managing Partner Managing Partner Drawing Capital Drawing Capital Exchange and Industry Sponsored Webinars are presented by unaffiliated third parties. Interactive Brokers LLC is not responsible for the content of these presentations. You should review the contents of each presentation and make your own judgment as to whether the content is appropriate for you. Interactive Brokers LLC does not provide recommendations or advice. This presentation is not an advertisement or solicitation for new customers. It is intended only as an educational presentation.
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Drawing Capital Group LLC
Semiconductor Companies & Hardware Engineering
Presented by:
Sagar Joshi and Jugal Lodaya
July 15, 2021 www.drawingcapital.com
2 Drawing Capital
Disclosure
This presentation may not be reproduced in whole or in part without the express consent of Drawing Capital Group, LLC (“Drawing Capital”). This
presentation is not an offer to sell securities of any investment fund nor a solicitation of offers to buy, sell, or hold any securities. Past performance
of these strategies is not necessarily indicative of future results. There is the possibility of loss and all investments involve risk, including the loss of
principal. Drawing Capital may own securities discussed in this presentation.
The information in this presentation was prepared by Drawing Capital and is believed by Drawing Capital to be reliable and has been obtained
from sources believed to be reliable. Drawing Capital makes no representation as to the accuracy or completeness of such information. Opinions,
estimates, and projections in this presentation constitute the current judgment of Drawing Capital and are subject to change without notice.
Any projections, forecasts, and estimates contained in this presentation are speculative in nature and are based upon certain assumptions. In
addition, opinions and investment topics described herein are subject to known and unknown risks, uncertainties, and other unpredictable factors,
many of which are beyond Drawing Capital’s control. No representations or warranties are made as to the accuracy of such forward-looking
statements. It can be expected that some or all of such forward-looking assumptions will not materialize or will vary significantly from actual results.
Drawing Capital has no obligation to update, modify or amend this presentation or to otherwise notify a reader thereof in the event that any matter
stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Due to various factors,
investments that seek to track indices may lead to different performance compared to the performance of the underlying benchmark index.
Drawing Capital is not affiliated with Interactive Brokers LLC. Drawing Capital receives trade execution, custody, clearing, and other services from
Interactive Brokers LLC.
©2021, Drawing Capital Group LLC.
3 Drawing Capital
About
Drawing Capital is an innovation-focused private investment firm
headquartered in Silicon Valley, CA.
Drawing Capital aims to capture the expansion of a
technology-forward world by investing in leaders that we believe
carry undervalued growth. Our expertise in finance and data
science enables us to participate in investment opportunities in
public markets not captured by passive investing.
4 Table of Contents
Table of Contents
I II III
Technological Advancement Semiconductor Categories Historical Mergers & Acquisitions
IV V VI
Growth Catalysts Custom Chip Development Sample Companies
5 Technological Advancement
Technological Advancement
● Moore’s Law
I ● Computational power per constant
dollar
● Expansion in the depth and diversity of
computing
All information on this slide are opinions of Drawing Capital.
6 Technological Advancement
Computational Power Per Constant Dollar & Technological Progress
Data Source: Future Ventures, Steve Jurvetson, and Ray Kurzweil
7 Technological Advancement
Advancements of Chips Over Time
Data Source: Our World in Data, https://ourworldindata.org/technological-progress
8 Technological Advancement
Diversity, Depth, and Breadth are Expanding in Computing
IoT ML & Deep Edge Cloud
Connectivity Learning Networks Computing
CPUs GPUs HPC Networking
Data Super- Memory & Smart
Centers computers Storage Sensors
Biotech Digital DNA Bitcoin Custom AI
Computing Data Storage Mining Chips9 Semiconductor Categories
Semiconductor Categories
● A select group of companies have dominant
market share in specific semiconductor
II categories.
● We have identified 12 semiconductor
categories of focus.
● A dispersion in historical stock price
performance exists across semiconductor
companies.
All information on this slide are opinions of Drawing Capital.10 Semiconductor Categories
Consolidation & Concentration in Semiconductor Categories
Hardware EDA (Electronic
CPU GPU Languages Design Automation)
Cadence | Synopsys | Siemens
Intel | AMD Nvidia | AMD | Intel Verilog | VHDL
FPGA (Field Programmable Semiconductor
Gate Arrays) Design Cores Equipment Raw Materials
Xilinx (AMD) | Altera (Intel) ARM | Imagination Technologies ASML | LAM Research | Applied Materials | GlobalWafers | SUMCO
KLA-Tencor
Foundries & Innovative & Emerging Chip
Manufacturing Conglomerates Flash Memory Categories
TSMC | UMC | SMIC | Qualcomm | Broadcom | Texas Samsung | Micron | Seagate | SK Hynix | Toshiba
AI & ML | Autonomous Vehicles
Memory | SanDisk (Western Digital)
Global Foundries Instruments | Samsung
All information on this slide are opinions of Drawing Capital.11 Semiconductor Categories Historical Stock Price Performance of Semiconductor Stocks Past performance is not indicative of future results. Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations. Data Source: Koyfin, https://app.koyfin.com/
12 Semiconductor Categories
Significant Business Growth for NVIDIA & AMD
FY 2016 LTM as of 6/27/2021
NVIDIA’s ➢ $5.010 billion ➢ $19.256 billion
Revenue, Operating Cash ➢ $1.175 billion ➢ $6.787 billion
Flow & Gross Margin ➢ 56.11% ➢ 63.26%
AMD’s ➢ $4.319 billion ➢ $11.422 billion
Revenue, Operating Cash ➢ $81.0 million ➢ $2.034 billion
Flow & Gross Margin ➢ 23.22% ➢ 44.79%
Past performance is not indicative of future results. Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.
Data Source: Koyfin, https://app.koyfin.com/13 Historical Mergers & Acquisitions
Historical Mergers & Acquisitions
● Significant multi-billion dollar M&A
III demonstrate both the growing
opportunity set and industry
consolidation.
● Large M&A brings regulatory scrutiny.
All information on this slide are opinions of Drawing Capital.14 Historical Mergers & Acquisitions Examples of Semiconductor M&A Deals Data Source: Corporate announcements and press releases.
15 Historical Mergers & Acquisitions Mergers & Acquisitions Bring Regulatory Scrutiny Data Source: US Department of Treasury, https://home.treasury.gov/system/files/206/CFIUS-Public-Annual-Report-CY-2019.pdf
16 Growth Catalysts
Growth Catalysts
● The top 3 companies in each semiconductor industry
category have significant market share, making it easier
IV to maintain pricing power and drive margin expansion.
● Application-based innovation is driving value creation
for customers, the end consumer, and shareholders.
● A virtuous cycle of hardware powering the digital
economy increases in flywheel benefits over time.
All information on this slide are opinions of Drawing Capital.17 Growth Catalysts Difficult Environment for Economic Profits from 1997-2012 Data Source: McKinsey & Company, https://www.mckinsey.com/industries/semiconductors/our-insights/whats-next-for-semiconductor-profits-and-value-creation
18 Growth Catalysts Economic Profits Returned for Hardware in 2013-2017 Data Source: McKinsey & Company, https://www.mckinsey.com/industries/semiconductors/our-insights/whats-next-for-semiconductor-profits-and-value-creation
19 Growth Catalysts Economic Profits for the Semiconductor Industry are Trending Upwards Since 2010 Data Source: McKinsey & Company, https://www.mckinsey.com/industries/semiconductors/our-insights/whats-next-for-semiconductor-profits-and-value-creation
20 Growth Catalysts Hardware Powers the Virtuous Cycle for Internet & Digital Businesses
21 Growth Catalysts
Why Now?
1 2 3
Growing Demand Business Success Technical Leadership
Application-based innovation Pioneering focus on engineering, Emphasis on hardware engineering,
across industries is driving large product quality, and innovation not financial engineering, is
semiconductor demand. drive value creation. important for long-term
semiconductor success.
4 5 6
East-West Tensions Industry Consolidation Ancillary Benefits
Maintaining semiconductor The top 2-3 companies in each A successful and thriving
excellence in America promotes semiconductor category have semiconductor industry with
intellectual capital, national pride, significant market share, which can innovation drives an economic
and national security. drive pricing power and margin multiplier effect and a virtuous cycle
expansion. for digital businesses.
All information on this slide are opinions of Drawing Capital.22 Custom Chip Development
Custom Chip Development
● Better integration of hardware and software
● Unbundling of generic chips into specialized
V chips
● Vibrant innovative ecosystem of startups
and incumbent hardware companies
● Rise of AI & ML and necessity for
large-scale computing resources is driving
transformative progress in chips
All information on this slide are opinions of Drawing Capital.23 Custom Chip Development
Benefits of Different Hardware Supply Chains
Outsourcing Hardware In-House Custom Hardware
Outsourcing of expertise, manufacturing Unbundling generalized chips into
1 resources, and significant capex 1 specialized chips
Improved integration of hardware &
2 Industry standards 2 software
Custom specifications to meet specific
3 High speed-to-market 3 requirements
4 Globalized supply chains & cost savings 4 Competitive advantage24 Sample Companies
Sample Companies
● We curated a sample list of
industry-leading businesses and exciting
VI
startups within semiconductors.
● Significant technological advancement
and product updates are ongoing for all
of these companies mentioned in the
next 2 slides.
All information on this slide are opinions of Drawing Capital.25 Sample Companies
Examples of Startups & Private Companies in the Semiconductor Industry
SambaNova Cerebras Systems Groq
Mythic Wave Computing Flex Logix Technologies
Graphcore Adapteva Untether AI
All information on this slide are opinions of Drawing Capital.26 Sample Companies
Sample List of Semiconductor Companies
Semiconductor Category Example Company or Product
CPUs Intel ($INTC) and AMD ($AMD)
GPUs NVIDIA ($NVDA) and ATI Graphics by AMD ($AMD)
Electronic Design Automation (EDA) Cadence ($CDNS) and Synopsys ($SNPS)
Semiconductor Equipment ASML ($ASML), LAM Research ($LRCX), Applied Materials ($AMAT),
KLA-Tencor ($KLAC)
Conglomerates Qualcomm ($QCOM), Broadcom ($AVGO), Texas Instruments ($TXN), Samsung
Raw Materials GlobalWafers and SUMCO
Design Cores ARM and Imagination Technologies
Foundries & Manufacturing TSMC, UMC, SMIC, Global Foundries
Networking Cisco Systems ($CSCO), Arista ($ANET), Ubiquiti ($UI), Juniper Networks ($JNPR),
Extreme Networks ($EXTR)
Flash Memory Samsung, SK Hynix, Toshiba Memory, Micron ($MU), Seagate ($STX),
Western Digital / SanDisk ($WDC)
All information on this slide are opinions of Drawing Capital.27 Summary
Summary
The rise in artificial intelligence, machine learning, and application-specific tech-enabled advancement is
1 driving transformative progress in chips.
The categorization of semiconductor companies is helpful to understand the semiconductor industry
2 landscape. There is significant expansion in the diversity, depth, and breadth of computing today.
There exists an innovative ecosystem of dominating large-scale industry leaders and a thriving set of
3 semiconductor startups.
A virtuous cycle of hardware powering the digital economy continues to grow and compound at scale. A
4 thriving semiconductor ecosystem in America creates positive flywheel effects and an economic multiplier
effect.
The intersection between rationalized business models, high demand for innovation, significant tailwinds
5 and demand in GPUs, an active M&A market, and the unbundling of generic chips into specialized chips
presents a very compelling opportunity set for the engineering community and the investment community.
All information on this slide are opinions of Drawing Capital.28 Summary
Resources
Email: invest@drawingcapital.com Follow us!
Newsletter: drawingcapital.substack.com @JugalLodaya
LinkedIn: lnkd.in/company/drawing-capital lnkd.in/in/seanvanderwal
Website: www.drawingcapital.com lnkd.in/in/sagarrjoshiYou can also read
