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Xebec acquisition, earnings follow-ups and Resonant thoughts ?3


Xebec is purchasing another compressed air company, Titus, in Pennsylvania, for $8M to expand its service network.  Continued implementation of this strategy indicates confidence in growth to come, and the price is certainly reasonable, at about 0.75 times EBITDA.  However, like recent acquisitions, this one contains no statement about the purchase being immediately accretive as we saw with Air Flow.  If the stock jumps much above $4 today with a rising market, I might take some profits.

MagnaChip noted that its revenue from 5G phones doubled QoQ from 20 to 40%.  I think this is reflective of its high end product line, and ground that China still has to make up.  Management also noted that only 200M 5G phones should ship globally in 2020, but that number is expected to more than double next year.  This is all consistent with other sources projecting that 5G smartphone shipments don't overtake non-5G until 2023.  That gives a little more life to MX, but nothing that interest me.

Instead, I see these figures as relevant to Resonant, and my hope is that we can use the ramp to start vaguely defining some of the values for the market share to revenue equation that I began sketching out three and a half years ago.  It has taken longer than originally expected, and I am also pretty sure that Resonant's management still won't make it easy.  They were right about one thing, though: the number of filters used in high end phones has grown from 3-7 at the turn of millennium, to 40-50 today.  However, assuming and 4 filters per Murata 5G phone with steady market share, it seems to me that each filter would have be priced around 50 cents or more (which is the upper half of the typical range) to cover Resonant's operating costs.  Of course, there's still WiFi-6 and other non-mobile applications, but another capital raise continues to seem more likely than not, short of an acquisition in the next year.

Finally, my Energy Recovery coverage also should have mentioned a purchase order from India for a new Zero Liquid Discharge PX for improving the efficiency of waste water treatment.  This is separate from the Zero Mix R&D for chemicals & gas processing.  Waste water treatment uses twice the pressure of the SWRO process for desalination, but still far less than fracking.  The money is not yet on books, and hopefully Energy Recovery can avoid the difficulties that AMSC has had doing business in India.  I think the application is very interesting, but it doesn't change my stance on ERII.