--- the subscriber area has no ads and those above are not selected or endorsed by this site ---


Resonant COO, EBIX OMIB, and Clearway/Covanta macro +4

23:33 02-Dec-19


Clearway has just priced its share offering at $18.70, further validating the short-term range I've projected while PG&E is still in flux. 

However, the trade news isn't improving, though it will take a month or so to see if there will be any real retaliation against France's digital tax.  The move seems strange even by current White House standards, since it had seemed that there was already a compromise in principle.

On 12/2/19 4:50 PM, Esekla wrote:

Resonant announced a new COO this morning, and while most of the media has picked up that he comes from Murata, it doesn't seem like the significance of him coming from Peregrine Semiconductor is fully appreciated.  For those who don't know, Peregrine was a semiconductor company that debuted for $14 per share in 2012 after 22 years of development largely aimed in miniaturizing and integrating RF front end components.  Due to the absurdities of western IP law, it was already suing RFMD, a stock I had long followed.  Peregrine's stock dropped well into the single digits but by October, 2013 the company had already signed a collaborative sourcing and licensing agreement with Murata and shipped 2 billion chips.  The following August, RFMD and Peregrine settled and cross-licensed and by year end Murata was buying Peregrine for $12.50 per share, which represented over 60% premium to the prior day's closing price.  In July of this year Murata selected Peregrine's long-time CEO and now director of semiconductor R&D to head its expansion efforts, and one month later Murata was becoming a RESN shareholder.

Peregrine's story should sound similar to Resonant's in some ways, but I took the time to spell it out in order to highlight a couple of key differences:

  1. Peregrine had significant shipments when it was bought out.
  2. Resonant has no legal impediments so far, though that could always emerge as a problem.

Point #1 highlights what I've been saying all along... that shipment growth is the surest indicator of progress for Resonant, rather than bottom line results.  We've been waiting over a year now for Resonant to hit the 25M unit milestone that it management looked forward to, but the potential for growth is there.  The cross-licensing settlement cleared the way for RFMD to merge with TriQuint and become Qorvo, whose stock price has since quintupled.  The "buying" article, above, also cites a 2014 projection by Ericsson for smartphone users to grow from 6.8b to 9.9b now.  For reference, there are about 10b mobile devices today owned by 5.15b people, and 3.3b of them are considered smartphones by today's standards.  So Resonant's use of Ericsson studies in its own projections is not necessarily just corporate marketing.

However, if one looks at broader statistics, it becomes clear that most of the remaining growth is in emerging economies, which leads us back to discussion of the trade wars.  I've been consistently referencing the latter half of next week as a potential pivot point for the market, and another reason for that is the end of a quorum at the WTO as of Dec. 11th.  Trump is already imposing metal tariffs on Brazil and Argentina, which is probably a boon to Covanta.  CVA continues suffering while commodities are in flux, but over the long term I see it as having the luxury of benefiting from both sides of the trade war.  Those who think the situation will reverse sooner rather than later, should be interested in Clearway, which is offering 5.4M shares to help fund its Carlsbad acquisition.  For my part, I note that the prospects are not exclusive.

Alternately, if we're going to see trade blow up even further, it will happen after the 11th.  The White House's supposed deadline for China is December 15th, but I can't see how anyone believes projections from that source anymore.  The points here are that Murata will be walking a line between evaluating progress at Resonant versus staying ahead of regulation and Chinese demand, and that things could still get MUCH worse before they get better.  The WTO has its problems, but unless some credible replacement emerges, the world was still much better off with it than without.  I continue to hope that Europe will eventually rise to take on the leadership that America is ceding, but that's not imminent. 

Compared to consensus-driven momentum or even value stocks, technology development takes a long time, and it is much messier.  The same is true to a lesser extent with business development especially in emerging economies, but the macro trends still favor those investments over the long term.  Thus I see an open market insider buy of 1K EBIX shares which increases the Director's stake by 6% as significant, even if the market has mostly ignored it.  The market ignores and forgets a lot of things, and that is often opportunity.  RESN was initially up a few percent, but closed flat.  It could easily drop further as we wind through December, and there are still hurdles that it could fail to clear.  However, there should be no real doubt about the extent of Murata's interest in the company at this point.