Despite the anticipated decline in revenue for 2015, which is estimated to be around 10%, Glenn W. Welling’s Engaged Capital increased its holdings in Silicon Image Inc. (NASDAQ: SIMG) by 40%. After adding around 1.15 million shares to its equity portfolio, the fund now owns 4.01 million common shares, representing 5.2% of the company’s outstanding stock. The stock already represented 10.63% of Engaged Capital’s portfolio by the end of the third quarter, proving that the fund was confident enough in the firm’s latent potential to further increase its exposure.
In a letter to the members of the board of directors, Mr. Welling highlighted the firm’s valuable, yet underappreciated assets and technologies, as one of the reasons behind its investment. Furthermore, the fund renewed its trust in Silicon Image Inc. (NASDAQ: SIMG)’s management, believing the board to be capable of unlocking the company’s underlying potential. In order to do so, the activist hedge fund proposed the company reduce its cost structure, which it claims to be bloated and better suited for a larger company.
According to the epistle, Engaged Capital believes Silicon Image’s operating expenses should be reduced dramatically, matching those of its industry peers. This would allow it to take advantage of its valuable High-Definition Multimedia Interface franchise and licensing revenue, thus unlocking greater shareholder value.
Engaged Capital LLC has a diversified portfolio, worth around $135 million, and focused primarily on companies with a small to mid-sized market capitalization. The fund’s investment strategy is based on fundamental analysis, derived from a combination of in-house and external research. In his position as Director, Glenn W. Welling has led Engaged Capital towards the information technology sector, which currently represents the largest portion of the fund’s portfolio. This increase in exposure to Silicon Image is yet another step in this direction, as the company has now turned into the fund’s fifth largest holding.
Silicon Image Inc. (NASDAQ: SIMG) is a $417.78 million market cap provider of audio, video, and data connectivity solutions. The firm focuses on delivering original equipment manufacturers with semiconductors for mobile devices and personal computers, such as high definition multimedia interface transmitters. Despite the recent drop in share price, stemming from the unfavorable revenue projections for 2015, numerous hedge funds continue to bet on the company’s success.
In addition to Engaged Capital, which ranks as one of the largest institutional investors in Silicon Image Inc. (NASDAQ: SIMG), a number of major hedge funds are also confident in this stock’s future potential. George Soros’ Soros Fund Management for example, disclosed holdings of more than 1.44 million shares by the end of the third quarter. Despite reducing its stake in the firm by 3% as of late, Jim Simons’ Renaissance Technologies continues to own more than 1.1 million shares, thus demonstrating it continues to believe the company can grow. Peter Keane’s Keane Capital Management on the other hand, increased its holdings in Silicon Image Inc. (NASDAQ: SIMG) by 15%, boasting half a million shares, which represent 2.43% of its equity portfolio.
In addition to liking Silicon Image, Engaged Capital seems quite fond of Oplink Communications, Inc (NASDAQ:OPLK). The fund recently disclosed an increase in its position, from 863,500 shares to 913,500 shares, representing 5.4% of the company’s common stock. The filing in which it declared this boost was accompanied by a letter for the company’s shareholders. Read all about it here.
Disclosure: Pablo Erbar holds no positions in any stocks or funds mentioned