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Resonant automotive shipments and more +3

09:15 10-Nov-20


Resonant has announced that its initial Tier-1 customer has begun shipping filters for connected cars.  It notes that such shipments to the auto market average 3-5x the price of mobile phone filters, and that royalty billing for the parts can begin immediately.  This should make tonight's earnings guidance even more interesting and management explicitly notes the potential for automobiles in the second wave of 5G, 2-3 years from now.  I note that the Murata agreement would be expiring by that point, though this would be uncovered non-mobile revenue anyway.

I also wanted to follow up with some notes from the Vuzix call.  Management says the Verizon 5G first responder solution is being prepped for its pilot program with 6 companies.  Nation-wide roll out is expected in early 2021, with 4 or 5 digit units sales over 2-3 years, if all goes well.  It also is in negotiation for mass production of an HMD (head mounted display) for 1H21, with the potential for 5 digit sales over 2-3 years.  Other programs are over a year off from reaching similar stages, if history is any guide.  The level of hype here continues to rival UDC's and leaves a similarly bad taste in my mouth.

For reference, the company sold 2.7M units last quarter, and October was another record at around $1.2M.  The breadth of customers is at least good, and I do agree with management that some related business operations have seen sustainable change.  However, manufacturing costs increased 8%, though they decreased as percentage of product sales.  Management also references high component cross-over across its product lines, which should ease manufacturing difficulty.  We'll see what happens with introduction of next-gen glass that should have more of a mass market appeal, slated for 2H21, but I expect that profitability is still well over a year off.  That said, Vuzix had $24.9M net cash on the books, and only burned $3M last quarter, which is a little over a third lower than its typical run rate.  So there is the chance that we are done with dilution, if management's comments on decent and improving yields are to be believed.

A few other notes to close:
I continue to see all three stocks as undervalued.