Mobileye's Rancid Kitchen Sink
CFO shenanigans, weird/contradictory statements, and an epic disaster...
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Hello wonderful subscribers. Happy Friday!
How was your week?
Better than MBLY 0.00%↑ I hope.
On January 4th, 2024, Mobileye released what is called a pre-announce. It is customary for public companies who know they will miss expectations by a wide margin to release preliminary financial results/guidance before an official earnings report and call.
The actual earnings report comes out on January 25, 2024. Sell-side analysts are gona have a field day.
In the meantime, let’s go over the official pre-announce press release and translate the corpo speak.
FY2023 and Q4 2023 Preliminary Financial Results
The table below sets forth preliminary estimated financial results for our fourth quarter and full year of 2023. We have not yet finalized our financial results for the fourth quarter and our actual results could differ from those set forth below as we complete our financial close and our auditors complete their audit.
This is normal. It takes a few weeks for auditors and paperwork to come together.
Our preliminary results reflect revenue consistent with the guidance provided on October 26, 2023 and Operating Income (Loss) and Adjusted Operating Income that are moderately better than expected.
This is true. Adjusted (non-GAAP) operating income is ~4% higher than expected for FY23. However, notice that the Q4 2023 revenue is not much higher than guidance but operating income is significantly higher.
CFOs have some discretion when it comes to realizing revenue for the current quarter (N) or the quarter right after (N+1). When **** hits the fan, they often shuffle some numbers around to make current quarter look ok (or better than expected) but the guided quarter terrible. This practice is called “kitchen sinking”.
Q4 2023 having ~50% unexpected upside in operating income with ~expected revenue is a clear sign of CFO shenanigans.
FY2024 Preliminary Financial Outlook
As a result of our standard planning process for the upcoming year, including discussions with our Tier 1 customers to determine potential orders for 2024, we have become aware of excess inventory at our customers, which we believe to be 6-7 million units of EyeQ® SoCs. Based on our discussions, we understand that much of this excess inventory reflects decisions by Tier 1 customers to build inventory in the Basic ADAS category due to supply chain constraints in 2021 and 2022 and a desire to avoid part shortages, as well as lower than-expected production at certain OEM’s during 2023.
As a result of normal planning, MBLY 0.00%↑ realized demand for their products has imploded. My guess is China macro.
As a result, we expect that first quarter 2024 revenue will be significantly below first quarter 2023 revenues and that we will see revenue normalized during the remainder of 2024.
In FY2024 we expect total revenue in the range of $1,830 - $1,960 million. This is underpinned by expected EyeQ® shipments of 31 – 33 million units (as compared to approximately 37m units in 2023) and SuperVision shipments of 175k – 195k units (as compared to approximately 100k units in 2023).
We currently expect Q1 revenue to be down approximately 50%, as compared to the $458 million revenue generated in the first quarter of 2023.
50% quarterly revenue drop YoY is a disaster, especially for a growth company.
We also currently believe that revenue over the balance of the year will be impacted by inventory drawdowns to a much lesser extent. As a result, we expect revenue for Q2 through Q4 2024 on a combined basis to be roughly flat to up mid single-digits as compared to the same period in 2023, and we expect inventory at our customers to be at normal levels by the end of 2024.
The bolded sentence is extremely suspicious and contradictory, especially if you do some basic math from the FY24 guidance numbers. They claim that it will only take one quarter to deal with this inventory problem and the rest of the year will be ok. And yet, the low-end of FY24 guidance implies several bad quarters where revenue contracts YoY.
We anticipate that the lower-than-expected volumes in the EyeQ® SoC business will have a temporary impact on our profitability. Similar to revenue, we expect Q1 profit levels to be significantly below the subsequent quarters. We expect Q1 2024 Operating Loss to be in the range of $257 to $242 million. Excluding amortization of intangible assets and stock-based compensation, we expect Adjusted Operating Loss in the range of $80 to $65 million in the first quarter of 2023.
We expect FY2024 Operating Loss to be in the range of $468 to $378 million. We expect Adjusted Operating Income in the range of $270 - $360 million.
On the bright side, the stock tanked 30% off this pre-announcement so that should help with stock-based compensation expense.
Key Takeaways
Automotive market is deteriorating. It’s looking like another quarter or two of pain will need to work its way thru the system before the bottom is in. I liquidated my (small) ON Semi position and SiTime positions in response.
I am looking to diversify into MEMS and power semiconductors in H2 2024. Staying out for now and putting upcoming bonus money into safer stocks.
Mobileye is not representative of the auto semi industry. Something really bad has happened (specifically) to them. We find out on the earnings call in a few weeks.
Here is a fun analogy:
If corporations are people, then auto semi companies such as ON 0.00%↑ , STM 0.00%↑ , and NXP 0.00%↑ are sick with the flu or have moderate bacterial infections.
MBLY 0.00%↑ is having a seizure on the floor, curled up into a fetal position, and muttering strange/contradictory statements while feebly giving a thumbs up.