Atomera (NASDAQ:ATOM) is the provider of multi-patented (307 patents issued and pending) MST technology which improves the efficiency of transistors. We have discussed these in previous articles, here is a simple summary:
The company is experiencing a double breakthrough now sprouting two JDAs (joint-development agreement). Not much is known about these customers because of secrecy, maintaining their competitive positions:
Before investors rejoice, there is no guarantee that either of these moving into the production stage this year, which would enable the company to gain royalties, the ultimate goal.
But there could be some additional milestone payments and license fees. As an indication of how slow this whole process moves, this is about their first JDA customer (Q1CC):
We announced that we were in the negotiation phase. And it ultimately took almost a full year before we can finally announce the start of the JDA, and then took us another year to get to the point where we would -- we had done all -- met all their technical specifications.
Now, the second JDA customer, a foundry, doesn't have to go through central engineering and management is convinced things will move considerably faster here, but it still gives investors a good idea of the time it takes for the iterative testing process to materialize.
Another look at the speed of development is their customer win rate, which has been stalling around 25 customers since 2019:
But on the other hand one could argue that they are already engaged with half of the top semiconductor companies.
The company has 19 customers and 25 engagements in the pipeline, 2 of which JDAs and 5 paid licenses. Management argues that the JDAs put pressure on the other customers to speed things up.
As a reminder of these phases customers go through and the different income streams this generates, this should be a familiar graph by now:
The company is addressing a number of segments like MST for RF-SOI, which is critical for 5G and has great commercial potential (Q1CC):
We hope this area will be one of the earliest to adopt MST and to bring it to production, considering the significant improvements we can bring to designs. Likewise, we continue to believe our technology has excellent potential in memory and for advanced nodes.
Industry capacity is so tight that it might prevent potential customers from experimenting but management argues they got plenty of interest nevertheless as customers want to keep R&D going.
They also created MSTcad simulation software on top of Synopsys Sentaurus TCAD tool and got some validation from the latter (Q1CC):
Last month, Synopsys hosted a joint webinar on how the MST tool set can be used to model MST's optimized transistor performance. Working together with Synopsys, we have already helped industry players gain a much better understanding of how MST can be integrated into their semiconductor manufacturing process.
Management believes that the tight industry backdrop is especially favorable for the company as semiconductor companies are looking for a way to cut cost and/or increase efficiencies to make up for CapEx cost and other price pressures. Here they illustrate the type of gains customers can attain with the help of MST:
And not immaterial, here are the potential gains from royalties for Atomera should customers move into the production phase:
The slide assumes a 2% royalty rate but in practice these are negotiated late in the game as customers get a clear idea of the kind of savings MST will produce for them.
An interesting take-away is that generating royalties from just one out of a possible 410 fabs would put the company into profitability, although not all 410 of these fabs are counted as addressable market as the company is very hesitant of the Chinese markets out of concerns for its IP. But there is still plenty to go at.
Revenues are still irregular, depending on license and milestone payments:
There have been quarters without revenue, this isn't very material, what is material is OpEx:
Some of that is share based compensation, non-GAAP OpEx is guided for this year at $15.25M-$15.75M. The company clearly wants to hire additional people to accommodate new clients but it is struggling to do so, management now says this will be done in H2. An even more relevant figure:
So the cash bleed is $13M a year and they have $24.5M left. They have about 6 quarters for a customer to turn into production and generate royalties before they have to go to the markets. Very well possible, but not guaranteed.
There might very well be some license income and milestone payments, but history shows these are rather small and not move the needle all that much. Some additional financing should not necessarily be a disaster:
The share count doubled in five years but it's unlikely to double again if the company manages to get a customer into production in the next 6 quarters or so.
A royalty based business model is of course very attractive as it basically creates 100% gross margins. We don't see all that much upside for OpEx either as they already have engaged half of the semiconductor companies and once customers move into production the OpEx necessary to support them is likely to decrease substantially.
The company has a market cap of $230M and an EV of $205M but that really isn't very informative apart from the fact that it has been a lot higher not so long ago:
No surprise there, given what has been happening in the markets for these kinds of stocks. One should also take on board that 20% of the float is short.
There is quite a lot to like:
However, no customer is yet in the production phase where they would generate royalties, and the company has a 6 quarter or so window to get there before finance would become tight.
If you are interested in similarly small, high-growth potential stocks you could join us at our marketplace service SHU Growth Portfolio, where we maintain a portfolio and a watchlist of similar stocks.
We add real-time buy and sell signals on these, as well as other trading opportunities which we provide in our active chat community. We look at companies with a defensible competitive advantage and the opportunity and/or business models which have the potential to generate considerable operational leverage.
This article was written by
I'm a retired academic with three decades of experience in the financial markets.
Providing a marketplace service Shareholdersunite Portfolio
Finding the next Roku while navigating the high-risk, high reward landscape.
Looking to find small companies with multi-bagger potential whilst mitigating the risks through a portfolio approach.
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in ATOM over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.