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Update 11:15am: Updates shares, adds SIMO price target cut at Roth MKM.
MaxLinear (NASDAQ:MXL) was cut to hold from buy at Craig-Hallum as guidance was below estimates and there was uncertainty over Silicon Motion (NASDAQ:SIMO) following MXL’s decision to terminate the acquisition. MaxLinear plunged 23% on Thursday and Silicon Motion dropped 15%.
“MXL’s inventory burn continues into 3Q, as the guidance comes up well short of consensus and Craig Hallum estimates, although MXL believes 3Q will be the bottom; we don’t think investors will believe it until it is clear,” Craig Hallum analyst Richard Shannon wrote in a note on Thursday. The MXL price target was cut to $25.
MaxLinear’s decision to terminate the Silicon Motion (SIMO) deal may be a “negotiating tactic” to get a lower price, though its not clear if such a negotiation will take place or how long it will take, according to Shannon.
“We believe it is wise for fundamental investors to step to the sidelines while both the inventory burn cycle and SIMO deal plays out,” Shannon wrote.
MaxLinear (MXL) on Wednesday said it exercised its contractual rights to terminate its $3.8 billion planned purchase of Silicon Motion (SIMO), saying SIMO suffered a material adverse effect,” and SIMO is in material breach of representations, warranties, and covenants. MaxLinear provided its notice to SIMO after it received antitrust approval from China for the deal, which sent shares of SIMO soaring as much as 83% on Wednesday.
Separately Roth MKM analyst Suji Desilva cut his price target on Silicon Motion (SIMO) to $60 from $100, citing a “significantly” lower probability of a deal close and smaller probability of negotiated deal at a lower price. Desilva maintained his neutral rating on the shares.
Desilva believes the next step will be for both parties to address the merger agreement in an overseas arbitration setting.
Silicon Motion (SIMO) is scheduled to report Q2 results after the close on Thursday.
