Resonant (RESN) may not be most peoples’ cup of tea as they’re a story stock, but there were two articles recently on SA that piqued my interest.
Parts taken from article 1: http://seekingalpha.com/article/2863516-resonant-a-disruptiv…
Resonant (RESN) is a development-stage company that is attempting to solve prevailing problems in the RF industry through their Infinite Synthesized Networks (ISN) technology. The company is currently working on improving surface acoustic wave filter (SAW) performance to match bulk acoustic wave (BAW) performance.
Current BAW filter prices average $0.62, while SAW filter prices are less than half the COST, at $0.28. The catch, of course, is that modern technologies require the high-performance BAW filters to function. This way, many companies are forced to pay twice as much for the better BAW filters.
Resonant has found a way to solve this problem with their ISN technology. They have improved SAW filter performance to match BAW filter performance, thereby giving producers the same performance for half the cost. This way, Resonant could potentially replace all BAW filters with their improved SAW filter, if their product is marketed and produced correctly.
The company has a total of 50 patents or patents pending related to their ISN technology. This is a strong intellectual property portfolio and ensures that the company can retain their industry position and the rights to their product once production commences.
The company set four milestones for their new SAW filter, and has already met three of them. The fourth milestone is projected to be met in 1Q 2015 (that’s now!), and production of the new SAW filter will commence 2H 2015.
Resonant is TARGETING the mobile phone industry with their new SAW filter. This industry is extremely large and fast growing. Furthermore, over 12 billion BAW units were used in smartphones in 2014 (1 billion phones sold * ~12 BAW filters per phone). This represents a huge addressable market for Resonant’s improved SAW filter.
Filter sets when Resonant will release the tunable filter design are projected to COST around $1.85 each. Resonant projects that their tunable filter set will cost less than $1.00 in total. This trims off nearly half the cost of the filter set while also decreasing the amount of space taken up by the filters.
Resonant’s business model has many appealing aspects. The company is not planning on actually producing any of their products by themselves, but has set up a licensing deal with Skyworks Solutions (SWKS) to have them produce and market the product, while Resonant receives royalties. Skyworks is a large supplier of RF front end products, with a $13 billion market cap, and has an expansive industry reach that Resonant lacks. They also have the ability to immediately start to mass produce and sell Resonant’s product.Alone, Resonant would not have this power. The licensing business model also sets the company up for very high margins, since they don’t have to incur any expenses having to do with producing, marketing or distributing their product. They simply receive the royalties from Skyworks for free.
The company’s expenses for the last three quarters were only $3.2 million, with the bulk of losses coming from the most recent quarter, at $2 million. If the company maintains this $2 million quarterly expense rate, yearly expenses will only come in at $8 million, which is paltry compared to the previously discussed multi-billion dollar addressable market. Furthermore, any other expenses incurred by the company will likely be through R&D or expansion, which I would consider “good” expenses, since they add onto the appeal of the company. They leave the “bad” expenses of production and distribution to Skyworks and future partners.
Resonant’s management also owns over 15% of the entire company. This shows that management activities will likely also align with the desires of shareholders. It is very appealing to have this kind of insider ownership with a company.
Resonant lost $2 million last quarter, mainly through payroll and R&D expenses. With a healthy balance sheet of $15 million and no debt, the company could easily last a year or more without revenues if the need arises.
They seem risky to me but I can’t get over the huge upside potential, I have no position but was thinking about taking a 1% or so and wait to see if they can turn the corner. Any thoughts would be greatly appreciated.