Drawing Capital Semiconductors - July 15, 2021 - IBKR Webinars

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Drawing Capital Semiconductors - July 15, 2021 - IBKR Webinars
July 15, 2021

Drawing Capital
Semiconductors

Sagar Joshi                                           Jugal Lodaya
Managing Partner                                      Managing Partner
Drawing Capital                                       Drawing Capital

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Drawing Capital Semiconductors - July 15, 2021 - IBKR Webinars
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Drawing Capital Semiconductors - July 15, 2021 - IBKR Webinars
Drawing Capital Group LLC

                            Semiconductor Companies & Hardware Engineering

                                               Presented by:
                                        Sagar Joshi and Jugal Lodaya

July 15, 2021                                                                www.drawingcapital.com
Drawing Capital Semiconductors - July 15, 2021 - IBKR Webinars
2       Drawing Capital

    Disclosure
    This presentation may not be reproduced in whole or in part without the express consent of Drawing Capital Group, LLC (“Drawing Capital”). This
    presentation is not an offer to sell securities of any investment fund nor a solicitation of offers to buy, sell, or hold any securities. Past performance
    of these strategies is not necessarily indicative of future results. There is the possibility of loss and all investments involve risk, including the loss of
    principal. Drawing Capital may own securities discussed in this presentation.

    The information in this presentation was prepared by Drawing Capital and is believed by Drawing Capital to be reliable and has been obtained
    from sources believed to be reliable. Drawing Capital makes no representation as to the accuracy or completeness of such information. Opinions,
    estimates, and projections in this presentation constitute the current judgment of Drawing Capital and are subject to change without notice.

    Any projections, forecasts, and estimates contained in this presentation are speculative in nature and are based upon certain assumptions. In
    addition, opinions and investment topics described herein are subject to known and unknown risks, uncertainties, and other unpredictable factors,
    many of which are beyond Drawing Capital’s control. No representations or warranties are made as to the accuracy of such forward-looking
    statements. It can be expected that some or all of such forward-looking assumptions will not materialize or will vary significantly from actual results.
    Drawing Capital has no obligation to update, modify or amend this presentation or to otherwise notify a reader thereof in the event that any matter
    stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Due to various factors,
    investments that seek to track indices may lead to different performance compared to the performance of the underlying benchmark index.

    Drawing Capital is not affiliated with Interactive Brokers LLC. Drawing Capital receives trade execution, custody, clearing, and other services from
    Interactive Brokers LLC.

©2021, Drawing Capital Group LLC.
Drawing Capital Semiconductors - July 15, 2021 - IBKR Webinars
3    Drawing Capital

    About

    Drawing Capital is an innovation-focused private investment firm
    headquartered in Silicon Valley, CA.
    Drawing Capital aims to capture the expansion of a
    technology-forward world by investing in leaders that we believe
    carry undervalued growth. Our expertise in finance and data
    science enables us to participate in investment opportunities in
    public markets not captured by passive investing.
Drawing Capital Semiconductors - July 15, 2021 - IBKR Webinars
4    Table of Contents

    Table of Contents

                            I                       II                             III

             Technological Advancement   Semiconductor Categories   Historical Mergers & Acquisitions

                           IV                       V                              VI

                     Growth Catalysts    Custom Chip Development          Sample Companies
Drawing Capital Semiconductors - July 15, 2021 - IBKR Webinars
5   Technological Advancement

                                Technological Advancement

                                  ●       Moore’s Law

                          I       ●       Computational power per constant
                                          dollar
                                  ●       Expansion in the depth and diversity of
                                          computing

                                All information on this slide are opinions of Drawing Capital.
Drawing Capital Semiconductors - July 15, 2021 - IBKR Webinars
6     Technological Advancement

    Computational Power Per Constant Dollar & Technological Progress

Data Source: Future Ventures, Steve Jurvetson, and Ray Kurzweil
Drawing Capital Semiconductors - July 15, 2021 - IBKR Webinars
7     Technological Advancement

    Advancements of Chips Over Time

Data Source: Our World in Data, https://ourworldindata.org/technological-progress
Drawing Capital Semiconductors - July 15, 2021 - IBKR Webinars
8    Technological Advancement

    Diversity, Depth, and Breadth are Expanding in Computing

                          IoT        ML & Deep        Edge       Cloud
                      Connectivity    Learning      Networks   Computing

                           CPUs         GPUs          HPC      Networking

                           Data         Super-      Memory &     Smart
                          Centers     computers      Storage    Sensors

                         Biotech     Digital DNA     Bitcoin   Custom AI
                        Computing    Data Storage    Mining      Chips
9   Semiconductor Categories

                               Semiconductor Categories

                                 ●       A select group of companies have dominant
                                         market share in specific semiconductor
                          II             categories.
                                 ●       We have identified 12 semiconductor
                                         categories of focus.
                                 ●       A dispersion in historical stock price
                                         performance exists across semiconductor
                                         companies.
                               All information on this slide are opinions of Drawing Capital.
10    Semiconductor Categories

  Consolidation & Concentration in Semiconductor Categories

                                                                                                   Hardware                                  EDA (Electronic
                    CPU                                           GPU                             Languages                                 Design Automation)

                                                                                                                                           Cadence | Synopsys | Siemens
               Intel | AMD                             Nvidia | AMD | Intel                   Verilog | VHDL

        FPGA (Field Programmable                                                             Semiconductor
              Gate Arrays)                                   Design Cores                      Equipment                                       Raw Materials

           Xilinx (AMD) | Altera (Intel)               ARM | Imagination Technologies   ASML | LAM Research | Applied Materials |            GlobalWafers | SUMCO
                                                                                                     KLA-Tencor

             Foundries &                                                                                                                   Innovative & Emerging Chip
            Manufacturing                                  Conglomerates                       Flash Memory                                         Categories

             TSMC | UMC | SMIC |                          Qualcomm | Broadcom | Texas    Samsung | Micron | Seagate | SK Hynix | Toshiba
                                                                                                                                           AI & ML | Autonomous Vehicles
                                                                                              Memory | SanDisk (Western Digital)
               Global Foundries                              Instruments | Samsung

All information on this slide are opinions of Drawing Capital.
11    Semiconductor Categories

  Historical Stock Price Performance of Semiconductor Stocks

Past performance is not indicative of future results. Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.
Data Source: Koyfin, https://app.koyfin.com/
12    Semiconductor Categories

  Significant Business Growth for NVIDIA & AMD

                                                                                        FY 2016                                    LTM as of 6/27/2021

                NVIDIA’s                                               ➢        $5.010 billion                               ➢        $19.256 billion
                Revenue, Operating Cash                                ➢        $1.175 billion                               ➢        $6.787 billion
                Flow & Gross Margin                                    ➢        56.11%                                       ➢        63.26%

                AMD’s                                                  ➢        $4.319 billion                               ➢        $11.422 billion
                Revenue, Operating Cash                                ➢        $81.0 million                                ➢        $2.034 billion
                Flow & Gross Margin                                    ➢        23.22%                                       ➢        44.79%

Past performance is not indicative of future results. Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.
Data Source: Koyfin, https://app.koyfin.com/
13   Historical Mergers & Acquisitions

                                         Historical Mergers & Acquisitions

                                           ●       Significant multi-billion dollar M&A

                            III                    demonstrate both the growing
                                                   opportunity set and industry
                                                   consolidation.
                                           ●       Large M&A brings regulatory scrutiny.

                                         All information on this slide are opinions of Drawing Capital.
14    Historical Mergers & Acquisitions

 Examples of Semiconductor M&A Deals

Data Source: Corporate announcements and press releases.
15    Historical Mergers & Acquisitions

 Mergers & Acquisitions Bring Regulatory Scrutiny

Data Source: US Department of Treasury, https://home.treasury.gov/system/files/206/CFIUS-Public-Annual-Report-CY-2019.pdf
16   Growth Catalysts

                             Growth Catalysts

                               ●       The top 3 companies in each semiconductor industry
                                       category have significant market share, making it easier
                        IV             to maintain pricing power and drive margin expansion.
                               ●       Application-based innovation is driving value creation
                                       for customers, the end consumer, and shareholders.
                               ●       A virtuous cycle of hardware powering the digital
                                       economy increases in flywheel benefits over time.

                             All information on this slide are opinions of Drawing Capital.
17    Growth Catalysts

 Difficult Environment for Economic Profits from 1997-2012

Data Source: McKinsey & Company, https://www.mckinsey.com/industries/semiconductors/our-insights/whats-next-for-semiconductor-profits-and-value-creation
18    Growth Catalysts

 Economic Profits Returned for Hardware in 2013-2017

Data Source: McKinsey & Company, https://www.mckinsey.com/industries/semiconductors/our-insights/whats-next-for-semiconductor-profits-and-value-creation
19    Growth Catalysts

 Economic Profits for the Semiconductor Industry are Trending Upwards
 Since 2010

Data Source: McKinsey & Company, https://www.mckinsey.com/industries/semiconductors/our-insights/whats-next-for-semiconductor-profits-and-value-creation
20   Growth Catalysts

 Hardware Powers the Virtuous Cycle for Internet & Digital Businesses
21    Growth Catalysts

  Why Now?

                               1                                                2                                      3
                 Growing Demand                                        Business Success                    Technical Leadership

            Application-based innovation                         Pioneering focus on engineering,     Emphasis on hardware engineering,
           across industries is driving large                     product quality, and innovation        not financial engineering, is
               semiconductor demand.                                   drive value creation.               important for long-term
                                                                                                           semiconductor success.

                               4                                                5                                      6
                East-West Tensions                                 Industry Consolidation                    Ancillary Benefits

             Maintaining semiconductor                             The top 2-3 companies in each           A successful and thriving
          excellence in America promotes                            semiconductor category have          semiconductor industry with
         intellectual capital, national pride,                   significant market share, which can     innovation drives an economic
                and national security.                             drive pricing power and margin     multiplier effect and a virtuous cycle
                                                                              expansion.                      for digital businesses.

All information on this slide are opinions of Drawing Capital.
22   Custom Chip Development

                               Custom Chip Development

                                 ●       Better integration of hardware and software
                                 ●       Unbundling of generic chips into specialized
                         V               chips
                                 ●       Vibrant innovative ecosystem of startups
                                         and incumbent hardware companies
                                 ●       Rise of AI & ML and necessity for
                                         large-scale computing resources is driving
                                         transformative progress in chips
                               All information on this slide are opinions of Drawing Capital.
23   Custom Chip Development

 Benefits of Different Hardware Supply Chains

            Outsourcing Hardware                          In-House Custom Hardware

                Outsourcing of expertise, manufacturing       Unbundling generalized chips into
        1       resources, and significant capex           1   specialized chips

                                                              Improved integration of hardware &
        2       Industry standards                        2   software

                                                              Custom specifications to meet specific
        3       High speed-to-market                      3   requirements

        4       Globalized supply chains & cost savings   4   Competitive advantage
24   Sample Companies

                             Sample Companies

                               ●       We curated a sample list of
                                       industry-leading businesses and exciting
                        VI
                                       startups within semiconductors.
                               ●       Significant technological advancement
                                       and product updates are ongoing for all
                                       of these companies mentioned in the
                                       next 2 slides.
                             All information on this slide are opinions of Drawing Capital.
25    Sample Companies

  Examples of Startups & Private Companies in the Semiconductor Industry

                                   SambaNova                     Cerebras Systems            Groq

                                      Mythic                     Wave Computing     Flex Logix Technologies

                                    Graphcore                       Adapteva             Untether AI

All information on this slide are opinions of Drawing Capital.
26    Sample Companies

  Sample List of Semiconductor Companies
          Semiconductor Category                                 Example Company or Product

          CPUs                                                   Intel ($INTC) and AMD ($AMD)

          GPUs                                                   NVIDIA ($NVDA) and ATI Graphics by AMD ($AMD)

          Electronic Design Automation (EDA)                     Cadence ($CDNS) and Synopsys ($SNPS)

          Semiconductor Equipment                                ASML ($ASML), LAM Research ($LRCX), Applied Materials ($AMAT),
                                                                 KLA-Tencor ($KLAC)

          Conglomerates                                          Qualcomm ($QCOM), Broadcom ($AVGO), Texas Instruments ($TXN), Samsung

          Raw Materials                                          GlobalWafers and SUMCO

          Design Cores                                           ARM and Imagination Technologies

          Foundries & Manufacturing                              TSMC, UMC, SMIC, Global Foundries

          Networking                                             Cisco Systems ($CSCO), Arista ($ANET), Ubiquiti ($UI), Juniper Networks ($JNPR),
                                                                 Extreme Networks ($EXTR)

          Flash Memory                                           Samsung, SK Hynix, Toshiba Memory, Micron ($MU), Seagate ($STX),
                                                                 Western Digital / SanDisk ($WDC)

All information on this slide are opinions of Drawing Capital.
27    Summary

  Summary

                              The rise in artificial intelligence, machine learning, and application-specific tech-enabled advancement is
                       1      driving transformative progress in chips.

                              The categorization of semiconductor companies is helpful to understand the semiconductor industry
                       2      landscape. There is significant expansion in the diversity, depth, and breadth of computing today.

                              There exists an innovative ecosystem of dominating large-scale industry leaders and a thriving set of
                       3      semiconductor startups.

                              A virtuous cycle of hardware powering the digital economy continues to grow and compound at scale. A
                       4      thriving semiconductor ecosystem in America creates positive flywheel effects and an economic multiplier
                              effect.

                              The intersection between rationalized business models, high demand for innovation, significant tailwinds
                       5      and demand in GPUs, an active M&A market, and the unbundling of generic chips into specialized chips
                              presents a very compelling opportunity set for the engineering community and the investment community.

All information on this slide are opinions of Drawing Capital.
28   Summary

 Resources

               Email: invest@drawingcapital.com            Follow us!

               Newsletter: drawingcapital.substack.com           @JugalLodaya

               LinkedIn: lnkd.in/company/drawing-capital         lnkd.in/in/seanvanderwal

               Website: www.drawingcapital.com                   lnkd.in/in/sagarrjoshi
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