Seeking Alpha
Contrarian, growth at reasonable price, macro, small-cap
Profile| Send Message|
( followers)

Summary

  • Echelon announced acquisition of Lumewave, Inc. Terms of the transaction were not disclosed. Lumewave’s current sales were not disclosed either but they will definitely not be material to ELON.
  • While my thesis didn’t anticipate an acquisition, Lumewave’s acquisition tries to revive Echelon’s falling sales in the Internet of Things segment where future growth lies.
  • I confirm my thesis that investors should wait for a clear signal that the sales and margins stopped deteriorating before buying ELON.

Echelon Corporation (NASDAQ:ELON) announced acquisition of Lumewave, Inc., for an undisclosed amount. Lumewave is a wireless outdoor lighting control system provider that supplies smart lighting solutions that communicate over wireless internet among other things. Lumewave has customers in the North American market. The stronger North American presence will complement well Echelon's international sales network. Lumewave's better wireless features add to Echelon's own lighting control capabilities which are primarily focused on wired systems. The benefits of Lumewave's products include energy savings as the system can automatically detect motion and is also programmable and controllable wirelessly through a Wi-fi, cellular, USB and Ethernet connection to run on specific hours or switch on/off, or even dim every single light on the street. The street lighting module can also collect and send other valuable information, including traffic movement density. The system also automatically monitors lamps for failures and automatically generates workflow for the lighting provider's service crew.

With this acquisition, Echelon more or less purchased additional sales to combat its own organic sales slump. Echelon probably also acquired some precious sales contacts to U.S. municipalities, universities, medical facilities and enterprises. The amount of Lumewave's annual sales is undisclosed, as is the purchase price. However, they are not likely to be material. Lumewave will benefit from Echelon's scale and international sales contacts. Specific synergies are yet to be supplied.

The original long ELON thesis worked well with a~100% price spike. However, the stock later gave up most of the gains and I later advised after weak quarterly earnings to wait until sales stop falling and financials start stabilizing. My advice remains the same. This small acquisition of an emerging technology that is often in pilot installations and has several competitors will probably not deliver substantial sales rebound in the near future. It will take several quarters, before synergies emerge beyond the current sales addition and before Lumewave's technology can fully reap the benefits of Echelon's wide sales network and reach.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Update: Echelon Acquires Lumewave, A Smart Street Lighting Control Provider