Industry Background of People on This Forum

[rainman]

semiconductor

IC design engineer

[mg0516]

analyst at buyside shop, cfa.

[mg0516]

BG2008 - if you need a compounding pharmaceutical contact, let me know.

[CorpRaider]

He's full of something, that's for sure!  haha!

[Hawks]

Formerly Purchasing Manager with Fortune 500 company then Professor, School of Business in Ontario College system.

[gjangal]

Software Developer, building desktop trading applications at a bank

[Kraven]

Career advice and advice on matters of the heart.

 

I hadn’t answered till now, because I think most of you already know what I do and what my background is. :)

Though, I really envy your day job (besides investing, of course!)... ;D ;D ;D

 

I don't envy that day job at all.  It sounds insanely stressful.  Maybe I just don't have the personality for it.  I always hate giving people advice on anything of importance.  If I do something and I'm wrong I can live with that.  But if I give someone else advice that turns out bad, I'd have a really hard time with that. It takes a certain confidence in oneself to do that type of thing that I certainly don't have.  I'll stick to designing circuits.

 

Yes! But you know Kraven very well by now… He is full of self-confidence… Especially when matters of the heart are concerned!! ;D ;D ;D

 

Gio

 

 

I mean absolutely no offense to Kraven by saying this, if giving advice is in fact what he does, but I would've put money on it that he has said he invests full time and was thus kidding when he said "career advice and matters of the heart".

 

Investing is what I do to pay the bills, but providing advice is what gives me joy.  Nothing makes me happier than helping someone.  It's what I do.  It gives me that twinkle in my eye.  Look at what I did for Gio.  Thanks to my advice he now has someone special in his life.  Not everyone is able to do this.  Somehow I am able to both focus on investing and care deeply about others at the same time. 

 

[kirkomi]

Doctoral student in Computer Science and Mathematics. This is my last year. Planning to move to industry, probably tech job.

[Mikenhe]

Investing is what I do to pay the bills, but providing advice is what gives me joy.  Nothing makes me happier than helping someone.  It's what I do.  It gives me that twinkle in my eye.  Look at what I did for Gio.  Thanks to my advice he now has someone special in his life.  Not everyone is able to do this.  Somehow I am able to both focus on investing and care deeply about others at the same time.

 

So in future we have to address you as "Dear Abbey"?

[onyx1]

I'm shocked by the lack of people in capital markets.

 

I've spent 4 years as an investment banker.

 

There is a simple explanation.  Large IB's make it very difficult if not, almost impossible, to efficiently invest personal funds into anything other than government bonds or mutual funds.  The downside to an IB for even the appearance of personal investments made with pervasive insider information is extreme.  Rather than take this risk, smart IB management will prohibit specific stocks, or make the process of pre-clearance so cumbersome as to make personal investing not worthwhile.  Plus, they want their employees to focus their energy on the mother ship, not personal gain.

[Cunninghamew]

Work for investment advisor/family office....  we allocate most of our client's money (about 70% of assets) to outside funds (long-only, hedge funds, private equity funds, PE co-deals) and we invest the other 30% in house (this is mostly equities and some private stuff associated with the founding family).  I am a generalist, but tend to focus on individual equities (analyst and run a small portfolio) and our investments in hedge funds.

 

Background: Econ/math... interned for a large hedge fund for a year (2008) that focused on energy (specifically MLPs and Canadian Royalty Trusts)...  still learning how little I know

 

 

[investor-man]

But should we do Android OR iOS?

 

Discuss.

 

;D

 

PhoneGap -- concurrent release of Android, iOS, Windows Surface, and BBRY (for Prem)

[LC]

But should we do Android OR iOS?

 

Discuss.

 

;D

 

PhoneGap -- concurrent release of Android, iOS, Windows Surface, and BBRY (for Prem)

 

Perhaps we should design an app that allows people to fight about which smartphones are better. We can charge them a premium if they want to use stylized text such as larger fonts, bold, italics, colors etc :)

[eclecticvalue]

I'm shocked by the lack of people in capital markets.

 

I've spent 4 years as an investment banker.

 

There is a simple explanation.  Large IB's make it very difficult if not, almost impossible, to efficiently invest personal funds into anything other than government bonds or mutual funds.  The downside to an IB for even the appearance of personal investments made with pervasive insider information is extreme.  Rather than take this risk, smart IB management will prohibit specific stocks, or make the process of pre-clearance so cumbersome as to make personal investing not worthwhile.  Plus, they want their employees to focus their energy on the mother ship, not personal gain.

 

Same can be said of investment management, since you need clearance before you trade your personal account.

[tyska]

As far as this board having a lot of engineers on it, I think part of that might come from the population it's selected from: The Internet.

 

I'm not sure simply being an Internet forum explains the over abundance of engineers.  It might have 10 years ago, and certainly would have 21 years ago (when I first had Internet access). But Now?  Hell everyone I know from age 8 to 80 has internet access, this is everyone from any background and any profession.  Look at Facebook, most people are not engineers.  If non-engineers wanted to be here, they would be.

 

rkbabang, I should have been more specific.  I meant the Internet beyond Facebook/social media/news websites.  My completely-based-on-just-my-gut-feeling opinion is that engineering/tech types are less afraid of exploring and engaging in the outskirts of the Internet, which I'd consider CoB&F to be.

 

Given, I do think there's a natural overlap between the people who like engineering and the people who like investing.  However, I still think we have some additional skew here due to the population we're getting our data points from.

 

It also could be as simple as there is a tight supply of engineers and they are commanding high wages. Being the cheap "er frugal" type they are, they need to find investment ideas.  ;)

 

Heard of an engineer at a mine site planned to go back to family farm. They convinced him to stay by paying full salary for working half the year, rather than recruit and bring someone else up to speed.

[Uccmal]

Kraven has asked me to work for him on advising on matters of the heart...... 

 

 

Today I work as an Industrial Hygienist: chemical and biological health and safety in workplaces. 

masters degree in above.

BSC in Geography/environmental science

 

Worked in contracting, consulting, health care, and government.  Have been in thousands of workplaces and looked at hundreds of work processes.  Generalist at everything.  Expert at diddly squat.  'Cept those matters of the heart....

 

 

 

[Uccmal]

5 years public practice accounting (non- Big 4)

2 years property management

.5 years public housing in a remote Arctic village

 

Try to get out tomorrow after lunch to get your vitamin D.

 

I am betting you encounter a lot of drug and social problems in that role.  Talk about life experience, wow.

[AchilliesValue]

I'm a buyside equity analyst on a mutual fund team. We run 5 strategies w/ a lot of overlap, all value oriented. 

[Kraven]

Kraven has asked me to work for him on advising on matters of the heart...... 

 

 

Today I work as an Industrial Hygienist: chemical and biological health and safety in workplaces. 

masters degree in above.

BSC in Geography/environmental science

 

Worked in contracting, consulting, health care, and government.  Have been in thousands of workplaces and looked at hundreds of work processes.  Generalist at everything.  Expert at diddly squat.  'Cept those matters of the heart....

 

Welcome aboard!  I think we can help tons of people.  Believe me, investment gains are nice, but nothing like the feeling you get when you help in those matters of the heart.

[infinitee00]

Interesting to know the background of others on this forum.

 

I guess I am the nth engineer and the fifth one here ( after beerbaron, rkbabang, boilermaker and rainman) working in the semiconductor industry. I was actually surprised to see so many with engineering backgrounds - was definitely expecting the majority to be finance majors/MBAs ( maybe they didn't care to post).

 

my background

- started off as a software developer after undergrad ( undergrad and grad degrees in Electrical Engineering)

 

- Currently, a mixed-signal IC design engineer (7 years, power electronics) - although 90% of my work involves analog circuit design.

 

- Getting integrated circuits to work over different voltage, temperature and process variations and then making sure they perform well within a 5-sigma (sometimes 6-sigma) std. deviation from the expected performance parameter definitely makes you think about risk mitigation and margin of safety all the time ( and probably makes you more conservative than the average person). Not much different from Structural engineering or software stress testing I would guess. It's pretty amazing that any circuit works at all, given the complex and idiosyncratic nature of device/material physics  :)

 

- I generally do not read or follow most of the tech threads  (my intelligence is somewhere between a mule and a snail, so I look at the longest tech threads and follow the loudest voice. If that person seems extremely convinced almost to the point of being a zealot and a fanatic, I just bet my entire life savings on that company. Yes, I don't have a spine either !! ).

 

- kidding ! I hardly invest in my industry and have made very few investments in tech in the last few years. Not because I don't understand the sector/industry or I am afraid to invest in tech, but because I am quite conservative and want to see great businesses at compelling valuations ( not something I have been finding lately).

[infinitee00]

Since many here have provided some insight into their industry, here's a few unsolicited comments/advice and biased observations from a semiconductor industry non-expert ( an industry analyst may be able to provide much more insight than us engineers)

 

> The semiconductor industry is very broad and finding experts who understand the entire industry is almost impossible (sometimes even finding experts in each segment is difficult). Moreover, the industry dynamics change very fast and the industry as a whole is quite volatile. I would be careful about listening to any industry insider who claims to be an expert on the industry and even more careful in using their advice as a basis for my investment decisions. Working in an industry doesn't make us experts. In my experience, sometimes a vast majority of employees are clueless about their own company's strategy or financial condition, leave alone the entire industry.

 

> There was a McKinsey study I read some years back that claimed that in the last 15-20 years, the semiconductor industry as a whole ( excluding Intel) has been a money losing industry. If I remember the report correctly, it mentioned that Intel has created more value than the entire semiconductor industry combined. I cannot vouch for the reliability of that study but just from being an insider, I can say that sounds about right. 'Promising' companies that raise millions from venture capitalists but then fail to make any money for shareholders are a dime a dozen in the semiconductor industry ( true for most of tech sector I guess). For every Intel, Qualcomm, Analog devices, Texas Instruments, Micron there are hundreds that folded or sold out at a loss. The thing to remember here is - be extra cautious when you invest in this industry.

 

> The cost of building a fab and researching/modelling new processes has grown significantly with each new process generation ( almost 2X for every halving of process nodes i.e say going from 65nm to 32 nm). In the future, very few companies will be able to build or invest in new fabs as processes shrink, since they will need a certain amount of revenue and profitability to justify such an expense ( I have seen estimates that the cost of building a fab for a 300mm/22 nm process can cost upwards of $7Billion and needs sustainable revenues of ~$10 billion to operate the fab. There aren't many companies in the semiconductor industry that generate that kind of revenues). There maybe only 4-5 companies in the world that can build and operate a fab beyond 22nm as the revenues won't be sufficient to sustain such an investment. (other than dedicated foundries, I don't know any company other than Intel, that generate revenues to build and run a 14nm fab ).

 

This maybe seen as a moat for those companies, although that doesn't mean companies that work on older process nodes cannot compete, but it's an uphill battle. This also means that dedicated foundries/fabs like TSMC and Globalfoundries can have huge advantage and pricing power in years to come. If that happens and more and more companies continue to move to the fabless model, there might be capacity and time to market issues in the future. Unless the industry moves to a different type of basic device, material or process engineering altogether, it's difficult to see how smaller companies can compete effectively with the giants as we move to smaller process nodes. Looking at the flip side of the coin, one can see that if and when the industry moves to some other type of material or basic device ( e.g FinFETs, although who knows) , companies that have invested heavily in the previous gen fab will be left with billions of losses and will either have to retool their fabs at considerable expense or close them down. Some of those companies may not survive.

 

> R&D expenses as a % of revenue has been high throughout the history of the semiconductor industry. It is not uncommon for semiconductor companies to spend 12-15% of their revenues ( or higher) on R&D. R&D spending as % of revenues has actually been going up in the industry. This makes it even more difficult for smaller companies to compete directly with the large players. Since R&D expenses are always made with the goal of generating future revenues, one way I measure the effectiveness of R&D spending for a company is by looking at next few years of revenue as a multiple of R&D spend and looking at the long term trend.

 

e.g If a company spent $100M on R&D in 2010,  and earned 1B, 1.2B and 1.4B in 2011, 2012 and 2013 respectively. I would often calculate the effectiveness of their R&D by dividing the revenues from 2011, 2012 and 2013 by R&D expenses from 2010 ( in this case the multiples will be 10,12 and 14) and continue doing it on a rolling basis. One can possibly also calculate the 2 year and 3 year averages of this ratio. This is probably not a very scientific method to measure effectiveness of R&D, but I use it to get a trend and compare across different competitors.

 

> Like any tech company, the best resource of any semiconductor company are it's leadership team and engineering talent. Salaries are sometimes the highest cost in a tech/semiconductor company. Unfortunately, there isn't a good or objective way to directly measure engineering talent and the return on that investment. I tend to use # of patents, design wins/employee ( if available), revenue/patent and patents/employee as rough proxies to gauge the engineering talent of a company. This method is somewhat flawed as # of patents don't tell you the quality or revenue generating ability of the patents, but in the absence of a good metric, this is a useful workaround.

 

> In spite of the maturity of the industry- semiconductor industry is still growing rapidly ( projected anywhere between 8-15% annually for the next decade). Till about the 2000s, the Americas, Europe, Japan and Asia-Pac ( ex japan) were close to each other in terms of revenues. Since the 2000s however, semiconductor industry revenues in Asia-Pac have grown exponentially. Today Asia-Pac contributes close to about half the total worldwide revenues and almost 3 times more revenue than the Americas or Europe. However, the high growth has also been accompanied by high volatility, which is not a bad thing though as it allows knowledgeable investors to invest during those temporary downswings.

 

> A consequence of maturity of any industry however, is that the industry is no longer fragmented. There are very few segments and sub-segments within the industry ( processor, memory, wireless, power, test equipment,materials. and even EDA or manufacturing equipment) that have more than 2-3 players who control the bulk of the market i.e 60-80% of revenues go to the top 2/3 players. If you can find a #4 or #5 player in any segment of the semiconductor industry that is consistently profitable, chances are high that they would be acquired in the next few years. Maybe other industry insiders can point me to any segment they know that is still fragmented so that we can look at those opportunities.

 

> As someone mentioned in this thread, patents are over-rated and most do not make money by themselves. Probably 10% ( or even less) of patents generate 90% of the royalty/licensing fees. However most companies continue to pursue expanding their IP "Portfolios" aggressively. There is also a perverse incentive for senior engineers to file as many patents as possible, since promotions and bonuses are based on no. of patents filed - not the quality of patents or revenue generated from patents ( although some companies may be trying to change this culture).

 

> Like other high tech industries - Operating margins, Cash flows and ROICs are very important metrics. Although stability in this industry may be fleeting,  relatively stable companies with good competitive advantages will have GMs > 50%, Operating margins > 15%  and high ROIC numbers over an entire business cycle ( e.g Texas Instruments, Altera, Analog Devices etc). In spite of this, investing in the semiconductor industry has it's pitfalls as it's often difficult to see the danger lurking around the corner and one needs to know where the puck is going ( information about those are not always as readily available). The best companies tend to lessen this risk by constantly shedding low margin businesses/ products and buying or investing in high margin businesses/products that can grow at a decent pace and also by trying to maintain leadership in a few segments of the industry ( e.g a company that is # 3 or #4 in 5 different areas will not last very long in this industry).

 

That's all I could think of right now - not exhaustive by any means. I am sure others will have different and valuable perspective on the industry and can fill in for anything that I have missed.

 

Before you take the above info seriously, just remember that we engineers can dish out intelligent sounding BS very confidently, so - verify, verify, verify !!  ;)

 

 

[Straddle]

Banking, OTC desk.

[yadayada]

@infinite: thoughts on the moat of FLIR systems?

[beerbaron]

Since many here have provided some insight into their industry, here's a few unsolicited comments/advice and biased observations from a semiconductor industry non-expert ( an industry analyst may be able to provide much more insight than us engineers)

 

> The semiconductor industry is very broad and finding experts who understand the entire industry is almost impossible (sometimes even finding experts in each segment is difficult). Moreover, the industry dynamics change very fast and the industry as a whole is quite volatile. I would be careful about listening to any industry insider who claims to be an expert on the industry and even more careful in using their advice as a basis for my investment decisions. Working in an industry doesn't make us experts. In my experience, sometimes a vast majority of employees are clueless about their own company's strategy or financial condition, leave alone the entire industry.

 

> There was a McKinsey study I read some years back that claimed that in the last 15-20 years, the semiconductor industry as a whole ( excluding Intel) has been a money losing industry. If I remember the report correctly, it mentioned that Intel has created more value than the entire semiconductor industry combined. I cannot vouch for the reliability of that study but just from being an insider, I can say that sounds about right. 'Promising' companies that raise millions from venture capitalists but then fail to make any money for shareholders are a dime a dozen in the semiconductor industry ( true for most of tech sector I guess). For every Intel, Qualcomm, Analog devices, Texas Instruments, Micron there are hundreds that folded or sold out at a loss. The thing to remember here is - be extra cautious when you invest in this industry.

 

> The cost of building a fab and researching/modelling new processes has grown significantly with each new process generation ( almost 2X for every halving of process nodes i.e say going from 65nm to 32 nm). In the future, very few companies will be able to build or invest in new fabs as processes shrink, since they will need a certain amount of revenue and profitability to justify such an expense ( I have seen estimates that the cost of building a fab for a 300mm/22 nm process can cost upwards of $7Billion and needs sustainable revenues of ~$10 billion to operate the fab. There aren't many companies in the semiconductor industry that generate that kind of revenues). There maybe only 4-5 companies in the world that can build and operate a fab beyond 22nm as the revenues won't be sufficient to sustain such an investment. (other than dedicated foundries, I don't know any company other than Intel, that generate revenues to build and run a 14nm fab ).

 

This maybe seen as a moat for those companies, although that doesn't mean companies that work on older process nodes cannot compete, but it's an uphill battle. This also means that dedicated foundries/fabs like TSMC and Globalfoundries can have huge advantage and pricing power in years to come. If that happens and more and more companies continue to move to the fabless model, there might be capacity and time to market issues in the future. Unless the industry moves to a different type of basic device, material or process engineering altogether, it's difficult to see how smaller companies can compete effectively with the giants as we move to smaller process nodes. Looking at the flip side of the coin, one can see that if and when the industry moves to some other type of material or basic device ( e.g FinFETs, although who knows) , companies that have invested heavily in the previous gen fab will be left with billions of losses and will either have to retool their fabs at considerable expense or close them down. Some of those companies may not survive.

 

> R&D expenses as a % of revenue has been high throughout the history of the semiconductor industry. It is not uncommon for semiconductor companies to spend 12-15% of their revenues ( or higher) on R&D. R&D spending as % of revenues has actually been going up in the industry. This makes it even more difficult for smaller companies to compete directly with the large players. Since R&D expenses are always made with the goal of generating future revenues, one way I measure the effectiveness of R&D spending for a company is by looking at next few years of revenue as a multiple of R&D spend and looking at the long term trend.

 

e.g If a company spent $100M on R&D in 2010,  and earned 1B, 1.2B and 1.4B in 2011, 2012 and 2013 respectively. I would often calculate the effectiveness of their R&D by dividing the revenues from 2011, 2012 and 2013 by R&D expenses from 2010 ( in this case the multiples will be 10,12 and 14) and continue doing it on a rolling basis. One can possibly also calculate the 2 year and 3 year averages of this ratio. This is probably not a very scientific method to measure effectiveness of R&D, but I use it to get a trend and compare across different competitors.

 

> Like any tech company, the best resource of any semiconductor company are it's leadership team and engineering talent. Salaries are sometimes the highest cost in a tech/semiconductor company. Unfortunately, there isn't a good or objective way to directly measure engineering talent and the return on that investment. I tend to use # of patents, design wins/employee ( if available), revenue/patent and patents/employee as rough proxies to gauge the engineering talent of a company. This method is somewhat flawed as # of patents don't tell you the quality or revenue generating ability of the patents, but in the absence of a good metric, this is a useful workaround.

 

> In spite of the maturity of the industry- semiconductor industry is still growing rapidly ( projected anywhere between 8-15% annually for the next decade). Till about the 2000s, the Americas, Europe, Japan and Asia-Pac ( ex japan) were close to each other in terms of revenues. Since the 2000s however, semiconductor industry revenues in Asia-Pac have grown exponentially. Today Asia-Pac contributes close to about half the total worldwide revenues and almost 3 times more revenue than the Americas or Europe. However, the high growth has also been accompanied by high volatility, which is not a bad thing though as it allows knowledgeable investors to invest during those temporary downswings.

 

> A consequence of maturity of any industry however, is that the industry is no longer fragmented. There are very few segments and sub-segments within the industry ( processor, memory, wireless, power, test equipment,materials. and even EDA or manufacturing equipment) that have more than 2-3 players who control the bulk of the market i.e 60-80% of revenues go to the top 2/3 players. If you can find a #4 or #5 player in any segment of the semiconductor industry that is consistently profitable, chances are high that they would be acquired in the next few years. Maybe other industry insiders can point me to any segment they know that is still fragmented so that we can look at those opportunities.

 

> As someone mentioned in this thread, patents are over-rated and most do not make money by themselves. Probably 10% ( or even less) of patents generate 90% of the royalty/licensing fees. However most companies continue to pursue expanding their IP "Portfolios" aggressively. There is also a perverse incentive for senior engineers to file as many patents as possible, since promotions and bonuses are based on no. of patents filed - not the quality of patents or revenue generated from patents ( although some companies may be trying to change this culture).

 

> Like other high tech industries - Operating margins, Cash flows and ROICs are very important metrics. Although stability in this industry may be fleeting,  relatively stable companies with good competitive advantages will have GMs > 50%, Operating margins > 15%  and high ROIC numbers over an entire business cycle ( e.g Texas Instruments, Altera, Analog Devices etc). In spite of this, investing in the semiconductor industry has it's pitfalls as it's often difficult to see the danger lurking around the corner and one needs to know where the puck is going ( information about those are not always as readily available). The best companies tend to lessen this risk by constantly shedding low margin businesses/ products and buying or investing in high margin businesses/products that can grow at a decent pace and also by trying to maintain leadership in a few segments of the industry ( e.g a company that is # 3 or #4 in 5 different areas will not last very long in this industry).

 

That's all I could think of right now - not exhaustive by any means. I am sure others will have different and valuable perspective on the industry and can fill in for anything that I have missed.

 

Before you take the above info seriously, just remember that we engineers can dish out intelligent sounding BS very confidently, so - verify, verify, verify !!  ;)

 

Thank you for taking the time to provide your tough on all those points.

 

BeerBaron

[infinitee00]

@infinite: thoughts on the moat of FLIR systems?

 

I did some research on FLIR a couple of years back, so my information might be dated. I really like FLIR and our testing team actually uses their thermal imaging cameras in our lab. It is a fantastic company with a really good historical GMs, OMs, CFs. solid balance sheet and have grown considerably in the last decade - both organically and through some good acquisitions. However, I wouldn't invest in them now as I feel they are fully valued at this point.

 

FLIR and Fluke ( now a subsidiary of Danaher) are pretty much a duopoly in the thermal imaging market with FLIR controlling ~60% of the market. As far as I remember, they were very well diversified with revenues split between commercial, consumer and defense and almost 50-50 split between US and International. I don't know if that has changed since then. They have been trying to vertically integrate themselves for the last few years. Mgmt has claimed that this will make them more competitive but I am always skeptical when a tech company presents cost advantage as a competitive advantage. That may very well be true but I am not so sure at this point.

 

When I think of a moat, I think - can a company with significant resources and engineering muscle crash their party? My answer is  - Yes, but not likely. FLIR might have significant IP in this domain but still nothing insurmountable for a big company like , say, Samsung or Toshiba.  The switching costs are not significant for the commercial customers, although might be true in the defense/law enforcement market. I think the reason the big kahunas have stayed away from this party is because the market is sort of a niche and the market size may not be as big or attractive enough for them to invest in R&D, sales/marketing and distribution. The cost of FLIR's products are a miniscule portion of any company's R&D budget so managers and executives are not going to worry about a few thousand dollars as long as the performance is satisfactory. Also for startups, it will be difficult to enter this market as they would have to produce something that is probably 2/3 generations ahead at a lower price to convince FLIR's present customers to switch. So the source of their advantage for now maybe that they are biggest fish in a small pond and will probably be for some time. In fact, this small market size may be one of the reasons they have been diversifying from their core business ( moving into consumer and marine markets) and has been acquiring aggressively in the last few years.

 

The only thing I don't like about FLIR is their capital allocation. I hate it when executives abuse buybacks and buyback high priced stock to keep share count same due to dilution from options exercise. From 2003-2012, FLIR spent ~$600M on buybacks, yet their diluted share count has pretty much remained the same. This is not something I like to see, although I would say that their management has been pretty good otherwise.

 

Hope this helps.