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Management Commentary 2-1-2024

by | Feb 2, 2024

Align Tech (ALGN) earnings call on growth drivers…“We are committed to delivering on our strategic growth drivers of international expansion, patient demand, orthodontist utilization and GP dentist treatment to extend our leadership in digital orthodontics and dentistry. I believe that the next wave of innovation that we are introducing into the market will further differentiate Align and allow us to continue to increase our share of the large untapped market opportunity of 22 million annual orthodontic case starts as well as an additional 600 million consumers who could benefit from a healthy, beautiful smile using Invisalign Clear Aligners.  I discussed the innovations that we are planning to bring to market that would continue to revolutionize the orthodontic and dental industry in scanning, software, and direct 3D printing. With the introduction of iTero Lumina powered by Multi-Direct Capture technology, we are pushing the boundaries of what intraoral scanners can do.  And with the introduction of IPE, we have expanded the clinical applicability of the Invisalign system to nearly 100% of the orthodontic case starts. The ability to direct 3D print IPE will eventually lead to other direct printed products with the goal of direct 3D printed Invisalign Clear Aligners, which we hope to achieve in the next couple of years.”

PTC (PTC) earnings call on customers, cross-selling and expanding growth….“Industrial companies are still at early stages of leveraging product data effectively across our organizations. But they have started to move on it in a meaningful way. We see the opportunity the same way our customers do. Digital transformation is a journey. Our broad portfolio provides a lot of opportunity to help our customers be competitive, irrespective of soft PMI’s and economic cycles. Secondly, industrial companies are facing competitive pressures and are looking for new ways to drive productivity and efficiency. As they digitally transform, they also re-architect their workflows to streamline inefficiencies and drive collaboration with their manufacturing, quality and service operations. Again, it is the PLM System that takes center stage as this happens, because the PLM System is becoming the system of record for product data, and that makes the PLM System the epicenter for digital transformation of product companies. Increasingly, PLM Systems are being leveraged as the backbone for sharing product data across departments, as well as with design and supply chain partners. This is good news for PTC. The market is coming to us where we are strong. Another large value creation opportunity is cross-selling. PTC has done this successfully over the years, and we have additions to the portfolio that are meeting evolving customer needs and therefore presents significant opportunities for PTC. One is ALM or Application Lifecycle Management, which is led by Codebeamer and is now augmented by our acquisition of tier variance. Here we have the most modern and capable ALM solution in the market. Products now contain more embedded software than ever, and for many products there’s been an explosion in the number of unique software configurations that need to be developed and updated over time. While demand from the auto industry and its suppliers are a strong driver of ALM growth, demand for ALM tools is expanding in other verticals as well, due to the trend towards software driven products of all types. Clearly this is a interesting growth opportunity and we have been increasing our investments and focus in this area. ServiceMax significantly enhances our SLM or Service Lifecycle Management portfolio, enabling PTC to now offer the industry’s first truly comprehensive solution for service process optimization. The opportunity set here is large, and this segment is underpenetrated today with most of our wins replacing homegrown or spreadsheet based systems.”

Flextronics (FLEX) earnings call on Automotive growth drivers…“Next-gen mobility including EV-onboard electronics, charging infrastructure, advanced compute systems for the software-defined vehicle remain very important long-term growth drivers. And Flex plays a key role across these ecosystems to support the OEMs including designing or co-designing content, while bringing world-class manufacturing and supply chain leadership. Flex is well-positioned for every stage of this long-term technology transition. It is also very important to remember, as a platform, we are experts in complex computing power which gives us competitive advantage across multiple markets. Our technology and vertical integration capabilities serve many applications including hyperscale data centers, renewables, and next-generation mobility. Our customers look to us to help them navigate the complexity and implement these integrated capabilities to give them a competitive advantage.”

Qualcomm (QCOM) earnings call on PCs, AI and Launches….“In PCs, we’re driving towards the launch of Snapdragon X Elite in mid-2024 and are pleased that our design win traction continues to increase since the platform was announced last October. We expect Snapdragon X Elite to set the industry benchmark for own device Gen AI and Copilot experiences, in addition to leading performance and battery life for next-generation Windows PCs. We continue to believe that industrial edge devices with connectivity, high performance computing and own device AI will become one of our largest addressable opportunities fueled by the secular trends of digital transformation. As such, we’re celebrating our investments in solutions, ecosystem and broad channel enablement to position ourselves for growth while we navigate the industry-wide inventory drawdown. One key area of focus is to enable our customers to unlock the potential of Gen AI at the enterprise using our chipset solutions. As an example, Zebra Technologies and Toshiba recently demonstrated on-device Gen AI capabilities for enterprise workflows and inventory management at retail self-checkout, respectively. Additionally, Honeywell showcased a Qualcomm-powered edge AI box for warehouse applications. We do have some significant launches through the middle of the year, but obviously, the next big launch goes into the holiday season, starting with Apple and then going into the Android launches. So, that’s the typical cadence. Look, the automotive story of Qualcomm is primarily driven by share gains as models with our silicon part of our pipeline started to materialize into revenue. And the way you should think about it, historically, a lot of the revenue was telematics. Now, you see the largest component being a lot of the fully immersive digital cockpits on the car. And we already have some revenue from ADAS processing. You see a lot of cars, for example, in China, with both ADAS and autonomy. With our processor, you see some of our customers in the United States with our processor. And I think that continues to grow as we get towards our 2026 revenue target.”

Nextracker (NXT) earnings call on US strength, backlog growth and Solar market headwinds….“Q3’s performance was driven by exceptionally high deliveries in our US business, growing 70% year-over-year. We also highlight our international expansion progress by celebrating the 10-gigawatt milestone we reached in the Middle East, India, and Africa. We have long-term and proven track record in these regions, where in some cases, we have the advantage of first market mover. Our differentiated product reliability in extreme weather and ability to deliver large volumes at scale are well understood by customers. Our new contracted bookings continue at a healthy pace both domestically and overseas. This resulted in new record backlog significantly exceeding $3 billion. With the strong demand and record backlog year-to-date, we are increasing guidance.  As covered on our previous calls, there are multiple headwinds and tailwinds impacting solar development velocity. Headwinds including interconnection backlogs, permitting delays, and equipment shortages are real and can impact any specific project, EPC, or developer. But in totality, the combination of new entrants in both developers and EPCs and the increasing number of projects in their portfolios has allowed the market to continue expanding. Solar panel availability in the United States has improved significantly over recent quarters. And as things stand today, we are not seeing panel availability as a first order problem in the market. There are, however, multiple trade proceedings pending, which could impact panel imports from certain geographies into the US. We will need to see how this evolves over time to determine any potential impact. According to the Solar Energy Industries Association, at the 1-year anniversary of the Inflation Reduction Act or the IRA, 85 gigawatts of new US solar module manufacturing capacity had been announced, which inspires confidence that panel availability will be systemically addressed in the coming years. The US EIA, historically very conservative on renewables, is forecasting that solar and wind power will comprise the vast majority of new power generation. Solar is expected to have a 26% compound annual growth over the next 5 years, and within 10 years be the number one source of electric generation in the United States, comprising almost a quarter of all electric energy.”

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