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If $ATOM (Atomera Inc.) Signs One Customer They Would Have Well Over $1.50 EPS Run Rate

|About: Atomera Inc. (ATOM), Includes: RESN, RMBS, WATT

Summary

ATOM has a patented technology which increases performance and power efficiency in semiconductor transistors.

Atomera is now engaged with 50% of the world’s top semiconductor manufacturers.

Signing one of the 6 customers in the final testing phase before license could result in well over $1.50 EPS run rate for ATOM.

Applying RMBS P/E ratio, that would equate to a share price of $25 with one licensee.

I recently wrote (included below) about Atomera Incorporated (NASDAQ:ATOM) and how they have an addressable market of $3.5 billion in the semiconductor market.  They are in testing with 50% of the worlds top semiconductor manufacturers.  

I wanted to add this huge supplemental point I missed while reviewing the ATOM presentation from September 2017. The slide below details both the revenue potential from the average semiconductor fab as well as one of the 6 larger fabs they are in the final decision phase on.

Source: ATOM presentation

Example 2 is from a leading foundry (which they have 6 in the final phase before licensing decision) and states the annual revenue potential is $28.8 million.

If ATOM were to sign one of the 6 licensees in the final phase they would have revenue of $28.8 million. However, this assumes that the customer only uses ATOM tech at one fab.  They could have many. Remember, ATOM addressable market is $3.5 billion.  So one customer in theory could provide more than $28.8m annual revenues.  Cash operating expenses / Adjusted EBITDA loss for 2017 was approximately $9.1m.  That would leave net income of approximately $19.7 million divided by current outstanding shares of 12.1 million to get EPS of $1.63 per share.  If they were to sign all 6 licensees in final testing and they all averaged like the leading foundry EPS would be approximately $10 per share. Again , this conservatively assumes that any licensees will only use ATOM tech at one fab. 

No wonder why Scott Bibaud, Atomera’s President and CEO stated, "a single license decision should be very rewarding to investors".

Rambus Inc. (NASDAQ:RMBS), which licenses chip technology and is profitable trades at a current P/E ratio of 15With one licensee and approximately $1.63 EPS at a 15 PE ration that would be a share price of $24.45. In the ultimate bull case scenario if ATOM were to sign all 6 licensees and at $10 EPS at a 15 P/E ratio that would be a share price of $150.  The price range of ATOM applying the RMBS P/E ratio for signing 1-6 customers in testing would be $25-$150.  ATOM closed at $5.50 yesterday. 

It is my opinion with the last customer update from ATOM stating they are engaged with 50% of the worlds top semiconductor manufacturers with 6 customers in the final license evaluation phase, ATOM is about to be discovered as an undervalued stock with great potential if they were to even sign once company to a license. 

Supplemental Information:

Articles For More Reading

Atomera And Moore's Law

ATOM In Barron's

Newsweek (Recent)  The Future Of Technology Is Uncertain As Moore's Law Comes To An End

Moore's Law Has Ended

Why One Small Company Thinks It Has The Key To Extending Moore's Law

Thin Films Could Boost Semiconductor Performance 

Recent Article I Wrote On ATOM:

Atomera Incorporated Has IOT Technology That Could Improve The $350 Billion Semiconductor Market

Atomera Incorporated (NASDAQ:ATOM) by their own description, "has developed Mears Silicon Technology™ (MST®), which increases performance and power efficiency in semiconductor transistors. MST® can be implemented using equipment already deployed in semiconductor manufacturing facilities and is complementary to other nano-scaling technologies already in the semiconductor industry roadmap. MST® is patented and enhances transistors to deliver significantly better performance in today’s electronics. That means your mobile phone will have longer battery life, IOT devices can be made smaller, and web servers will become even more powerful."

Tiernan Ray, wrote in Barron's, Startup Atomera has had a rough ride since coming public last year, but its novel technology to improve semiconductors bears watching. By inserting a film of oxygen atoms in chips during manufacturing, the company promises to improve performance and reduce energy consumption of chips without the tremendous cost needed to move parts to the latest and greatest manufacturing process.

CEO Scott Bibaud contends MST should be attractive to anyone building semiconductors. “Leading edge processes are now costing more than $1billion to develop. Using our technology, you can improve an existing process for somewhere in the tens of millions of dollars.”

ATOM seeks to license this technology out to major semiconductor companies. 

Total addressable market for ATOM is approximately $3.5 billion dollars. Source: ATOM presentation

ATOM updated their progress this week. 

  • A leading semiconductor manufacturer has entered Phase 3.
  • Atomera now has six customers in the Integration Phase (Phase 3) – double the number from a year ago.
  • One new customer has moved from Phase 1 (Planning) into the company’s Setup Phase (Phase 2) which means they have started wafers for use with Atomera’s technology.
  • Atomera is now engaged with 50% of the world’s top semiconductor manufacturers.

Atomera uses a customer engagement cycle model to keep investors informed about their progress toward commercialization.  There are three phases in Atomera’s customer engagement cycle; the third level or Integration Phase is the final step before a customer enters into a licensing agreement with the company.  Atomera now has 14 total customers evaluating its Mears Silicon Technology (MST): 6 in Phase 1, 2 in Phase 2, and 6 in Phase 3.

“We have been making consistent progress working with our customers to advancing them toward revenue for Atomera, doubling the number of customers evaluating MST in Phase 3,” said Scott Bibaud, Atomera’s President and CEO.  “In addition, our collaboration with Synopsys continues to bear fruit as the delivery of MST-inserted TCAD models to semiconductor manufacturers accelerates their evaluation and integration of our technology.  We believe the growing pipeline and enhanced modeling capabilities will help fast-track a license decision.”

In June, we provided details in our investor presentation showing that one significant customer fab adopting our technology could make us a profitable company. Although our evaluation cycle can be long and unpredictable, a single license decision should be very rewarding to investors. Any increase in customer engagements and proof to probability that we'll execute a license with at least one of the candidates.

Risks

Risks could include the lack of semiconductor companies wanting to license ATOM technology, thus eventually draining cash on hand. 

Financials and Valuation

ATOM sold 3.2 million shares at $7.50 in an August 2016 IPO.  They have approximately 12.1 million shares outstanding

As previously discussed, ATOM is pre-revenue pending licensing their technology. 

In the Barron's article in August 2017, CEO Scott Bibaud says Atomera is “very well capitalized,” with “almost three years of burn left” in terms of cash on hand.  ATOM has $19.6 million at the end of the September 2017 quarter.

While ATOM aims to be like Rambus Inc. (NASDAQ:RMBS), which licenses memory chip technology, RMBS has revenue and income. 

In my opinion, better comparisons would be Resonant Inc. (NASDAQ:RESN) and Energous Corporation (NASDAQ:WATT).  RESN and WATT are both also pre-revenue and trying to license their different technologies that could potentially serve large markets.  

WATT has a market capitalization of approximately $412 million.

RESN has a market capitalization of approximately $92 million.

ATOM has a market capitalization of approximately $67 million.

For ATOM to have a similar market capitalization as RESN, it would be a $7.60 stock.

For ATOM to have a similar market capitalization as WATT, it would be a $34.05 stock.

ATOM closed at $5.50 yesterday. 


Disclosure: I am/we are long ATOM.