CDW Holdings

[BlueKelah]

For mobile no push into oled yet as its still too expensive. Samsung has been putting their amoled screen on their high end phones and tablets since galaxy s2 many years ago, but apple is still developing their own version, and all iphone still running led with backlights. Apple expecting to use oled probably in couple years time. The benefit for oled on mobile screen is still only marginal with darker blacks and slightly thinner profile. But conversely led has backlight giving better whites which iOS on iphones are based on anyways...

For everyday use on a small phone the oled tech doesnt really offer any super cutting edge benefit so it will take a while for industry to convert to oled only. This shift is slowly happening. This just means cdw has ample time and resources to make the shift.

Way i see it, if u dun start collect when the company is down, then u will miss it when the company is up.

Expect a dividend cut though the way business is going, which might be the trigger to push this to cash or below cash value.


sent from my Galaxy Tab S

[Boon]

To my understanding, mobile display technology could broadly be categorized into 2 types i.e. LCD and OLED.
 
LCD requires backlights but not OLED.
 
A LED backlit LCD is still classified as a LCD. The backlighting source or technology is LED but the display/screen technology is LCD. 
 
AMOLED (Active Matrix OLED), PMOLED (Passive Matrix), Super AMOLED etc are different types of OLED.
 
I could be wrong on this but my take is the mobile display is trending towards flexible OLED display. The keyword is flexible.
 
OLED seems to be a better candidate for flexible display than LCD for
1)  OLED does not require backlighting
2)  OLED only needs one piece of glass (or plastic) as the substrate whereas LCDs are made of two sheets of glass with a liquid crystal material being sandwiched in between. Bending or curving of LCD is possible but difficult – as the distance between the two sheets of glass have to be consistent.
__________________________________________________________________________________________________________________
 
Apple’s New Taiwanese Lab May Focus on OLED and Micro-LED Display Technology
Wednesday December 16, 2015 7:14 am PST by Joe Rossignol
 
http://www.macrumors.com/2015/12/16/appl...-led-tech/
______________________________________________________________________________________________________________________

[GFG]

To my understanding, mobile display technology could broadly be categorized into 2 types i.e. LCD and OLED.
 
LCD requires backlights but not OLED.
 
A LED backlit LCD is still classified as a LCD. The backlighting source or technology is LED but the display/screen technology is LCD. 
 
AMOLED (Active Matrix OLED), PMOLED (Passive Matrix), Super AMOLED etc are different types of OLED.
 
I could be wrong on this but my take is the mobile display is trending towards flexible OLED display. The keyword is flexible.
 
OLED seems to be a better candidate for flexible display than LCD for
1)  OLED does not require backlighting
2)  OLED only needs one piece of glass (or plastic) as the substrate whereas LCDs are made of two sheets of glass with a liquid crystal material being sandwiched in between. Bending or curving of LCD is possible but difficult – as the distance between the two sheets of glass have to be consistent.
__________________________________________________________________________________________________________________
 
Apple’s New Taiwanese Lab May Focus on OLED and Micro-LED Display Technology
Wednesday December 16, 2015 7:14 am PST by Joe Rossignol
 
http://www.macrumors.com/2015/12/16/appl...-led-tech/
______________________________________________________________________________________________________________________

You are broadly right.
There are still some difficulties with OLED which is why it has not taken off with smartphones.
OLED gives better contrast and resolution because you can control the lighting of each tiny diode. There is no general "backlight"
Cost is another problem, but as we all know, with mass production and greater acceptance, the cost drops dramatically.
Although I brought this OLED vs LCD up, I'd also caution into reading too much into it at this point.
I dont think all the smartphones are going to be converted just yet, it'd be quite some time away.
Currently only Samsung and LG has produced phones with OLED, and even then LG has stopped.
Oh and another advantage not pointed out thus far, is that with OLED, since a backlight is not needed, you can produce screens without a "border"
Now, most phones have a border around the screen.

@Bluekelah, I'm not expecting a dividend cut actually, although if it does happen, it shouldnt come as a surprise seeing how difficult conditions are at this point.
But the point i'd like to make is that if you are expecting a cut, then it doesnt make sense to talk about "accumulating" at this point because I am sure with a cut, the share price will show a very substantial drop.

I've done enough work on this for now, and will be working on other companies next. 
Will stay tuned to see what happens here.

[GFG]

I have this in my watchlist since March 2014 when the price is still 14c. I have not vested in it as, back then,  I foreseen unsustainable dividend yield, coupled with the reduction of interest from the major shareholders, as well as the generous share options scheme for the top managements. Indeed I was wrong for the last 2 years, where we witnessed a maximum potential of 60% returns not counting the dividends. Though share price has now came down to the price I first observed, I did not get excited to join the boat this time, as to me the business moats now is not as good as before as can see from the quarterly results, I am still holding my opinion that the yield is not sustainable, and sudden overturn in profit and margin can happen any time. 

Lastly, in view of the widely expected financial crisis, I would choose to avoid high beta stocks now unless there is more than sufficient mos.

For the record, I'm still vested (small stake of 400 lots, no change from earlier posts) so I guess I'm talking AGAINST my own books here.

The business environment for CDW is really tough this year, and likely next as well.
Like I said, I've done a lot of work on CDW recently and they are undergoing a very tough time.
I think VB brothers who just merely look at the cash on its balance sheet, and (what is a favorite of most people) div yield, will be sorely misled.
Here's a very quick summary of the macro environment:
CDW supplies light guide panels ---> SHARP which in turn supplies LCD panels ---> mainly to Xiaomi. Also the 3rd supplier (in ranking) to Apple.
Closest japanese competitor is Japan Display.
Unfortunately for ALL the japanese LCD providers, the korean and chinese competitors have really undercut them, and they're all suffering. The MRQ analysis in SHARP's financials shows their LCD division is falling off a cliff. To top it off, in reality it's worse for CDW as CDW mainly supplies for the smartphone portion of the LCD division and SHARP's bigger LCD panels (eg. TVs) actually did better than the smaller panels (smartphones). So the combined figure given by SHARP for their LCD division (Even though its bad enough) is actually worse for the smartphone LCD component.
These figures pretty much coincide with the end client too: Xiaomi is having a mediocre year, and they have revised down their projections for total smartphone sales twice this year. And yet the latest report is that they are likely to miss even the latest projection. (80million units)
On top of that, in the mrq, SHARP has indicated that they will be presurrizing their suppliers to control costs, and all this relates to more margin compression for CDW.
Now, all this is not as important as the last factor: SHARP is now exploring a complete sale / joint venture for its LCD division. This is likely to be with JDI, but unfortunately JDI themselves are suffering. Foxconn (Taiwanese) is actually a better fit IMO, and they are keen too but this is unlikely to happen as Japan wants to keep SHARP's superior LCD technology within Japan. Which is really unfortunate IMO because combining 2 bad apples doesnt make it better.
Even with JDI, they are still going to find it hard to compete with the korean and chinese counterparts. BTW, Sharp has just gotten its 2nd bailout so a lot of this divestment talk is forced upon them. Sharp's CEO had earlier in the year declared that the LCD division will stay within Sharp, but has now done a turnabout and is considering sale or JV.
If the LCD is sold, there is no guarantee that CDW will get orders. Even if they do, the new owners will likely negotiate tougher terms for CDW.
It's how turnarounds are done. Nobody buys over a failing/loss making entity, and goes back to work status quo etc. Before a final deal is done, the new owners would've done due diligence, and figured out a plan to try to make it profitable again. This more often than not, esp in this case, involves consolidation of suppliers and pressurizing suppliers using economies of scale. 
So CDW may be either cut, or they may get more orders, but with lower margins.
Normally this is not a death sentence for the company, especially one which is financially strong (Currently!)
But if Sharp account for 69% of the revenue, it is basically a death sentence.

Now for the positives:
- Sharp used to account for at 1 point, 76% of revenues and CDW management has said then that they'll try to diversify their revenue base. It has steadily dropped over the past 2 years to a current 69% so they have been doing what they said they'd do. Also, they've been trying to further diversify, you can see "other revenue" steadily increasing although it is still negligible currently. There's a tiny component that's related to some F&B business.
- Balance sheet is strong. As others mentioned, the business now has net cash, minimal debt, is free cash flow generative, discount to book value blah blah blah.
Here is where I think a bit of portfolio philosophy is needed. Sure, the business is great from a fundamental analysis point of view, but we have to remember that in certain industries, mainly tech related (CDW is considered within such an industry as its main revenue and main client is exposed to the sector heavily), macro factors are very important. The fundamental factors that are mentioned, is more likely due to a "built up" of past successes if i can put it that way.
- Management is honest and open. They have talked about such challenges repeatedly in the financial releases. There is also some discomfort about their management options issued (at a low exercise price of $0.105) but as I mentioned in an earlier post, it is not unreasonable as the price is around the share price when it was issued, and there's a fairly long gestation period. Sure, the main SH Kunikazu Yoshimi has sold shares in mid of 2014, but he has stepped down from management and it is not unusual or unfair to sell once they retire.
- Sharp has just launched in the middle of this year, a new in cell technology LCD. The pressure sensors are incorporated into the base of the LCD resulting in thinner screens. Generally I think Sharp has very superior LCD technology. They are just not able to combine the R&D and sales in a fashion to make it superior but the fact that there are suitors despite their LCD showing major losses, means that many insiders understand the value of Sharp's technology.
- When it comes to manufacturers like CDW, they actually enjoy a certain amount of pricing power simply by virtue of the long track record working with the client. From what i understand, not any manufacturer can approach Sharp to sell lightguide units. There's a certain accreditation process to make sure they're up to standard, so unless there are major cost savings, it is unlikely the client would switch to another supplier. Also, in some instances, the manufacturer actually provides inputs or suggestions to the end client, who may request for certain specs. So in this way, CDW's operations are not exactly commoditized and there's a certain pricing power there. Of course this cuts both ways. Cos it means when CDW approaches other LCD companies, it's harder to win contracts too.

Overall, like i said, it is a good company in a very tough environment. You can try to diversify revenue base, try to increase productivity by "Streamlining factory production" etc, but if the end client is not there, as a upstream manufacturer, things will always be tough.
Going forward, the key catalyst (whether catalyst for upside or downside), will largely depend on whether they manage to win new orders.
Until then, IMHO, even at $0.148, it is not a good value buy.
I'm not selling out cos its a small stake and while I'm not going to add now, I'm not offloading either and will hold to see how things pan out.
anyway current price ($0.14) is around my purchase price.

GFG thanks for sharing the info you have dug up.

my take is that if one were to look at business side of things, then the VALUE word should not be used. Since at any price this company will not be a "good value buy" under current circumstances, as you have put it a "death sentence" is likely coming, and already the decline in revenue and profits is apparent in latest financials. it would be more appropriate to classify such analysis with the GROWTH word. CDW is definitely not a good GROWTH BUY, but would not say it is not a good value buy....

CDW at 14c presents some good value(just good not fantastic or excellent) at current prices IMHO. If one were to believe they have the cash they say they have, 13c is net cash. This means paying only 1c for the rest of the business and hard assets(NAV ex-cash would be ~6cents). Even if one were to write off the business, there are still some factory/land sitting around. granted its not as delicious as say paying "50c for a dollar" or getting "60% of NCAV". At the moment business may be difficult and future looks bleak, but CDW with no net debt and a SHITLOAD of cash is in a pretty good position to either sit back and weather the storm or capitalise on picking up cheap assets when opportunity arise. Other korean/chinese competitors and suppliers to the LCD industrywill probably suffer a downcycle as well and may not even exist in a few years time.


For comparison, a similar company would be AEH. Almost at cash value and operations ramped down just sitting tight till next up-cycle.

Cash is always king when markets/business is bad and everyone is running for the exit. Pretty sure that's why we are still vested in this little bugger.

"....under current circumstances, as you have put it a "death sentence" is likely coming"

Nope, I didn't say a death sentence is likely coming. I said if they lose the 1 major client after the divestment by Sharp, then that's a death sentence.
They might not lose, or might even get more orders at lower margins.
I don't have visibility on that.
If I know for sure that they'd lose the client, then I wouldn't be holding. That'd be a conviction sell regardless of the current price.

There's a lot of other work I did on CDW, that's simply too long to write here.
Another aspect I didn't mention earlier is the LCD vs OLED technologies.
I suggest vested or interested VBs go read up on that.
I am not sure if there's an industry-wide push in future to OLEDs, will CDW be able to adapt and change to manufacture OLED related parts.
Bearing in mind that OLED technology does NOT need any backlight units.
Again I have no visibility on how things will pan out but I think SHs need to know of potential seismic shifts which can lead to the main product (backlight units in this case) being obsolete.

Also, Apple is now in the midst of building up their own LCD screen technology, so in the near future, they may be going upstream to manufacture their own screens and eliminate the need for LCD providers aka Sharp, JDI

"If one were to believe they have the cash they say they have, 13c is net cash. This means paying only 1c for the rest of the business and hard assets"

hmmm not sure if your calculation is the same as mine.
As of latest quarterly results, CDW has $57,499,000 USD cash. So if you mean cash per share, its about 11.6 US cents per share
(I take into account the outstanding share options that will likely get exercise so that is more conservative. The options are all in-the-money currently. So the total shares is 493,914,221)
I assume the 13c net cash is (total cash - current and non current bank borrowings)?
No doubt CDW has a strong BS, and management is conservative enough to hold cash precisely for situations like this where they may have to either invest or acquire to survive.

"Another aspect I didn't mention earlier is the LCD vs OLED technologies.
I suggest vested or interested VBs go read up on that.
I am not sure if there's an industry-wide push in future to OLEDs, will CDW be able to adapt and change to manufacture OLED related parts.
Bearing in mind that OLED technology does NOT need any backlight units.
Again I have no visibility on how things will pan out but I think SHs need to know of potential seismic shifts which can lead to the main product (backlight units in this case) being obsolete.

Also, Apple is now in the midst of building up their own LCD screen technology, so in the near future, they may be going upstream to manufacture their own screens and eliminate the need for LCD providers aka Sharp, JDI"

Wow.
2 weeks after I wrote that, this is today's news:

LG Display, Samsung Display to supply OLED screens for iPhones: Report
SEOUL: South Korea's LG Display Co Ltd and the panel-making unit of Samsung Electronics Co Ltd will supply organic light emitting diode (OLED) screens for Apple Inc's iPhones, the Electronic Times reported on Wednesday (Dec 30) citing unnamed sources.
The report comes after years of speculation that Apple will start using the next-generation technology in its phones. OLED screens are thinner and offer better picture quality than the mainstay liquid crystal display screens.
Japan's Nikkei newspaper reported last month that Apple plans to start using OLED screens for iPhones starting in 2018.
LG and Samsung Display are close to a final agreement with Apple for the screens, the Electronic Times report said, adding the two Korean firms plan a combined 15 trillion won ($12.8 billion) in capital expenditure to build up OLED production capacity over the next two to three years.
Apple will likely provide some funding to both firms to help with the investments, the paper added.
LG Display and Samsung Display declined to comment, while Apple could not be immediately reached for comment.
Samsung Display, which currently supplies OLED smartphone panels to parent Samsung Electronics and Chinese vendors, is likely getting bigger volumes from Apple than LG Display, the paper said.


Like I mentioned earlier, seismic shifts in the industry. The current yield may be misleading.

[BlueKelah]

yup things can evolved very quickly in the tech world. 

I think Apple may be starting to think that it may be more cost effective to adopt the OLED tech from Koreans, especially now that Samsung has the curvy screen and Apple which is supposed to be the forefront of design and innovation still doesn't have such an option on their phones. Their previous legal battle against Samsung has also effectively locked them out from accessing this tech. Looks like the deal is not done and there is a lot of capex and at least 2 years before we get OLED screens on Iphones. In the mean time, Apple is also designing their own microLED, or is that just for backup in case the deal with the Koreans doesn't pan out?

Theres a heap of OLED manufacturers out there, japan display does OLED as well, who knows maybe JDI will acquire SHARP . So basically OLED is widely available like LCD/LED tech and just a question of who can make it cheaper. CDW has plenty of money/network and opportunity to switch to OLED sector if it does take off in a big way, though the backlight business for LCD will continue shrinking as OLED tech will not need the backlight which they make.

In the short term business doesnt look good, but no point to analyse the business aspect too much, hard to predict what will make it turnaround and what will make it crash and burn. Dividend will likely be cut this year unless 4Q turns out to be amazing, so yield wise not looking good. But at current price with ~90% net cash, downside is pretty limited. Seeing value and hoping to collect more if it start trading at cash level or below..

-buying-

[Boon]

AMAT believes the future is for Flexible OLED Displays :
 
Next Generation Technology for Flexible OLED Displays
By Max McDaniel
15 October 2015
http://blog.appliedmaterials.com/next-ge...d-displays
 
APPLIED MATERIALS ADVANCES OLED DISPLAY MANUFACTURING FOR FLEXIBLE MOBILE PRODUCTS AND CURVED TVS
12 October 2015
http://www.appliedmaterials.com/company/...curved-tvs
 
The Future is Flexible
By Max McDaniel
11 June 2015
http://blog.appliedmaterials.com/future-flexible
 
I doubt if Apple would invest in any manufacturing facilities to produce their own screen as it makes no economic sense.
_____________________________________________________________________________________________________________________

[Boon]

With AMOLED on the Rise, Full High Definition Screens Proliferate Further in Q3 2015, IHS Says
Wednesday, December 23, 2015 8:01 am EST
http://press.ihs.com/press-release/techn...015-ihs-sa


_______________________________________________________________________________________________________________________________________

[GFG]

FY15Q4 results

EPS dropped slightly compared to last year:
1.64 cents (fully diluted) vs 1.75 cents last year

Key things I've observed:
- Debt has been pared down substantially. Total bank borrowings is not just under $5mil USD, which can be easily covered by their cash on hand of $50.3mil USD
- impressively, dividend has been maintained despite a challenging year. If you're a dividend kinda guy, CDW is even better than REITS etc
Here is CDW's dividend track record:
FY09: 0.5cents
FY10: 0.6 cents
FY11: 0.7 cents
FY12: 1.2 cents
FY13: 1.2 cents
FY14: 1.2 cents
FY15: 1.2 cents
As it stands, the current annualised div yield is >10%! In reality, it's even higher because they pay out part of that as an interim dividend. As one can see from the track record, the company doesn't cut its dividend easily but increases gradually annually (Except in FY12 when the increase is anything but gradual)
- Pengfu stake hasn't done well. Small loss from the 25% stake. CDW acquired the stake in secure their supply of light guide panels as that was the limiting factor previously. Unfortunately after acquiring, now the orders have dried up.
It happens.
- New ultra thin lightguide panels that was co-developed with a Taiwanese company, (My guess is that's Foxconn but there's no way of knowing for sure), have passed the product testing phase and now just waiting for approval by the end client. If the deal goes through, that's a major positive for CDW as it shows they are able to secure new orders

[BlueKelah]

Actually I am keeping a close eye on the foxconn bailout of sharp happening this week hopefully. There was some delay due to sharp handing in some omitted financial info which was not there when they first propose the deal. More liabilities i think, But I think foxconn not interested in money so much but more the patents and technology. Once they get it JDI might be in trouble as Apple sure to shift light panel making to foxconn. In which case suddenly cdw will be commission for iPhone light guides!!!!

The pare down of debt is definitely big plus.

Should the bailout happen then no problem for cdw getting new orders.

If the Taiwanese company that codevelop light guide is really foxconn then it's really hoosay liao next few years for cdw, but I dun like to speculate on that..

I have revested partly at 14c+ levels and will be considering adding more if trade receivables shows signs of ramping up. Management has mention the new light guide well received when they demo it, so some orders should start flowing in.

Hopefully next quarter goes into loss making whilst transition to the new ultra thin light guide, more chance to add at cheap price.

-v-

Sent from my MotoG3 using Tapatalk

[GFG]

Actually I am keeping a close eye on the foxconn bailout of sharp happening this week hopefully. There was some delay due to sharp handing in some omitted financial info which was not there when they first propose the deal. More liabilities i think, But I think foxconn not interested in money so much but more the patents and technology. Once they get it JDI might be in trouble as Apple sure to shift light panel making to foxconn. In which case suddenly cdw will be commission for iPhone light guides!!!!

The pare down of debt is definitely big plus.

Should the bailout happen then no problem for cdw getting new orders.

If the Taiwanese company that codevelop light guide is really foxconn then it's really hoosay liao next few years for cdw, but I dun like to speculate on that..

I have revested partly at 14c+ levels and will be considering adding more if trade receivables shows signs of ramping up. Management has mention the new light guide well received when they demo it, so some orders should start flowing in.

Hopefully next quarter goes into loss making whilst transition to the new ultra thin light guide, more chance to add at cheap price.

-v-

Sent from my MotoG3 using Tapatalk

They've only just gotten the nod for the new light guide panels, I'm expecting the end clients will take another 2 quarters or so before they place orders, IF they decide to do so.
It is definitely a + that CDW has partners to codevelop products with.

Unfortunately, I am expecting a very tough 1st and 2nd quarter for CDW this year.
The 2nd half may be good or bad depending on whether they manage to get the orders.
The maintenance of the dividend is very reassuring though, it is rare that there's no div cut despite a poor year. The div yield like I said, is pretty enticing

Also, I'd just point out that there's no news ever since CDW announced a 25% contribution to a china focussed investment fund. No investments, no updates.

The other somewhat related point is.... I'm now using Saxo capital to buy some local equities as the brokerage is by far the lowest.
And somehow CDW Holdings cannot be found on the platform. All the other SGX listed equities are there.
There's another US company called CDW Corporation and that's whats pops out when you try to find CDW.