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new Tier-1 Foundry Partner for Resonant, Clearway 4Q19 schedule and more +3

09:20 22-Jan-20


Resonant has signed license agreements with a new Tier 1 Chinese Foundry partner, for multiple sub 3GHz RF filter designs.  It will receive upfront payments and additional royalties once minimum volumes are exceeded, which is important because the parts as characterized as high volume and high value.  However, the press release also states,
A key element in ensuring the success of our partners, we believe, is the licensing of our PMTx module of our Infinite Synthesized Networks (ISN®) software platform. By licensing this module to our foundry partners, we help them optimize their processes, ultimately providing lower cost and more competitive parts.
That's a compelling value proposition, but I don't see any way that Resonant can keep Chinese foundries from eventually copying such processes over the next 3-5 years.  That shouldn't matter, as I expect the company to be fully owned by Murata in that time frame.  However, if we don't see revenue ramping sharply by the end of this year and throughout next, that will be reason to bail out, even at a loss.  By then it should also be clear to what extents the Chinese or Japanese, with help from America, are going to win the trade/manufacturing war.  This is not an all or nothing proposition, but is an area where scale matters a lot.  So again, the in-between countries are going to matter much more than in the past.  So, Resonant is doing the right thing by working with the country that is leading innovation, and the designer that is leading the market (Murata).  RESN is trading back up to yesterday's stand-out highs in the pre-market.  So, don't think for a second that the Chinese don't know what is going on or that the trade war is over.  If China wins it hands down, then Resonant is likely to win the sprint but lose the marathon.

In such a case, I'll be happy to have my portfolio hedged with investments like Clearway, which has scheduled its fourth quarter report for the morning of Thursday, February 27th.  The average of 4 analyst estimates for the company call for EPS of 32 cents from $275M, rising slightly to $276M this quarter.  As usual, I will care less about these number than the company's growth & financing plans, including any color on the PG&E PPAs.

CTL might be another decent hedge, though I don't like current pricing.  The latest EIS announcement is a bit more interesting than the last one in that it leverages the global network, but it doesn't add any value, as the services are already included in the aforementioned and vastly underwhelming budget.  This is a good opportunity to point out that the trial I mentioned there was, of course, the Sprint+T-mobile trial, and that I saw fit to take some arbitrage positions.  Unlike FIT, this feels more like betting than investing, but I think it's a good one due to limited downside, and sometimes that's the best one can do in a market like this.  Don't expect me to keep reiterating "buy the dips in S", though.  Either I'm right or wrong about Big Money gaming this deal, and there probably won't be much else to say until we know.