When I buy a stock, it's usually a multiyear acquisition and Sequans Communications (SQNS) is no exception. Because it's hemorrhaging money, I've had the security on a short leash ever since I began taking positions in it back in early March. Initially, my stake sold for $2.90/share, and I've been dollar/cost averaging my position. My cost/basis is roughly $2.60/share now, and the security currently crosses the tape at $2.16, a haircut of approximately 22%.
Because my investing technique is not standard operating procedure for most mutual fund managers, I have more leeway being an individual investor. Conventional investing wisdom by many money managers suggests investors put stop/loss orders in at a 15% downside, but I often invest in topsy-turvy small-cap companies, and they tend to fluctuate in large ranges: high beta securities. I'll let a stock go down significantly before I sell it if I believe in the company, and I believe in Sequans.
Although the stock is down, this is no shot in the dark. Sequans is one of the new breed of semiconductor companies slated to bring LTE to your handheld computing devices. If you aren't familiar with LTE, it's a form of 4G which is like 3G on amphetamines. My last article on the company was only a month ago, but they reported earnings (or lack there of) last week, and I wanted to give readers a quick update. I prefer to read the conference call transcripts, but they aren't available. As an option, I listened to the Web cast.
My first impression from the conference call is that this stock may be dead money for the next six months. Not only did Sequans lose $.22/share last quarter, they are expecting a loss of $.21/share - $.23/share for Q2. In addition, the one year price target has dropped from $3.23 to $2.77. A predictable perspective would say to sell the stock, but I believe its whole is bigger than the sum of its parts.
Although CEO Georges Karam was very tight lipped about the specifics of what can be expected for Sequans in the near future, he did shed some light on the macro view: "We shipped LTE products in Q1 for use in trials, and in initial deployments in smaller markets such as Brazil and Australia. In addition, we received initial orders for our dual-mode LTE/WiMAX chip. We expect this pattern to continue in Q2 ahead of an expected ramp in LTE revenues in the second half of the year, based on design wins for major LTE markets such as the US, India and China.".
News about Sequans comes in dribs and drabs, but two steps they have recently taken occurred in the United States and China. Last month the company joined Verizon's (VZ) LTE Innovation Program. This collaboration was created to empower LTE innovators and foster the development of new technologies for Verizon's world-leading 4G LTE network. In China, Sequans announced a partnership with Nationz Technologies to work on a joint venture on dual-mode TD-SCDMA/LTE devices. The projected products offer great value that will facilitate a seamless transition for Chinese consumers into the next generation of wireless.
Another angle I have thought about in my decision to keep purchasing shares of Sequans while the price is down is Apple (AAPL). Apple is the puppeteer in the wireless broadband sector. They pull the strings of halo companies like ARM Holdings (ARMH), Broadcom (BRCM) and Skyworks Solutions (SWKS). So goes Apple, so goes the prospects of these semiconductor companies that reside inside the iPhone and iPad.
The buzz around the upcoming launch of the iPhone5 is that it will be an LTE enabled communication device. Even if Sequans isn't included in the phone, it could still be a propellant for the shares as other operating systems like Android (GOOG) join the fray, especially if Sequans current design wins translate into sales. When a new iPhone hits the market, the first thing companies like TechCrunch do is open the device and see what's inside. If that happens includes Sequans chips, you could be compensated handsomely.
Disclosure: I am long SQNS.