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Why SMART Global Holdings Stock Jumped 32.4% in July

By Keith Noonan – Updated Aug 7, 2019 at 6:52AM

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Investors and analysts gave the company's latest acquisition moves rave reviews.

What happened

Shares of SMART Global Holdings (SGH -7.11%) gained 32.4% in July, according to data from S&P Global Market Intelligence. The stock climbed early in the month, likely still benefiting from momentum created by the strong third-quarter results it posted in late June. It then saw a huge pricing jump following a press release detailing two acquisitions on July 9.

SGH Chart

SGH data by YCharts.

SMART Global is purchasing Artesyn Embedded Computing and Inforce Computing in order to expand into the embedded computing market. The acquisitions will expand the company's product offerings into embedded computing systems for federal, defense, industrial, edge computing, consumer, and communications original equipment manufacturer (OEM) markets.

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Image source: Getty Images.

So what

SMART Global is paying $80 million to acquire Artesyn EC, with the potential for an additional $10 million in performance-based compensation. The section below is excerpted from the acquisition press release and provides an overview of Artesyn Embedded Computing's offerings:

Artesyn Embedded Computing, Inc. ("Artesyn EC"), a private company based in Tempe, Arizona, is a leading provider of embedded computing solutions based on open standards such as ATCA, VMEbus, PCI Express and computer-on-module, with a large portfolio of long-life-cycle products, strong supplier partnerships and long-standing customer relationships. 

Artesyn will be integrated into SMART's specialty compute and storage solutions (SCSS) business, and operate under the name SMART Embedded computing. The company expects that this integration will allow it to "gain a foothold at scale in embedded computing markets." 

SMART is acquiring Inforce at a price of $12 million, and described the company this way in the acquisitions press release: 

Inforce Computing, based in Fremont, CA, is a fast growing developer of high-performance production-ready ARM ISA based embedded computing platforms for IoT [Internet of Things] applications. Enhanced by key partnerships with companies such as Qualcomm and Marvell, Inforce designs and manufactures Snapdragon™ and Marvell® processor-based system-on-modules ("SOMs"), single board computers ("SBCs"), and development kits. Inforce's embedded technologies are enabling the next generation of connected devices.

Inforce will also be integrated into SCSS.

Now what

The acquisitions are expected to give an immediate boost to SMART's profitability, so it's not surprising that the moves have been well received by investors and analysts. The diversification into embedded computing could also reduce volatility stemming from the typically cyclical memory chip market and some of the company's geographic segments.

SMART stock has given up some ground in August, with shares trading down roughly 10% in the month as of this writing. There doesn't appear to be any company-specific news behind the sell-off, as global markets have seen pullback stemming from increasingly tense trade relations between the U.S. and China and signs of slowing global economic growth.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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