Another day, another interminable sales “presentation” … my kingdom for a transcript!
This ad is from Jeff Brown for his higher-end tech stock picking service, Exponential Tech Investor (“on sale” for $2,000 for two years), published by Bonner & Partners, and he says he’ll be offering “tiny 5G bonus picks to buy now” as well as his “Top Pick to Buy Right Now.”
So whatever could they be?
Well, I did listen through the whole damn thing, and I regret it. I have no idea why they felt the need to use less social distancing than local news anchors are using nowadays just to get this presentation “interview” with Jeff Brown on the air (OK, that’s not true, I know why… because they have used this same format a few times, and it must be working to attract subscribers — whatever works in newsletterdom gets used over and over).
So what are these stocks he hints at in the ad?
“The first is a tiny company whose devices will be in every 5G iPhone.”
Which ties in to the “we’re in Phase 2 of 5G” that Brown has been talking up lately — he describes the development of this next wireless network in three phases, with phase one being the infrastructure buildout (he teased Nokia (NOK), Corning (GLW) and the various cell tower REITs for that over the past couple years, among others), followed by Phase 2 which will be led by devices (where he generally thinks components and semiconductors are the place to be, leading to his widely-circulated presentation about Skyworks Solutions (SWKS) as the “stock of the year” for both 2019 and 2020), and then by Phase 3 which will be the rollout of services and breakthrough products enabled by 5G’s faster speeds and eventual ubiquity (he pitched Twilio (TWLO) and Snap (SNAP) for that in 2018, but doesn’t drop any services hints this time out).
So what other hints do we get about the tiny stock he’s recommending as his “top pick to buy right now” stock?
He says they make a key part of cell phones that every one will need going forward, they sell special radio frequency filters — which will be in higher demand because 5G, with the frequencies it uses, will require a lot more filtering than 4G. He anticipates that this means there will be $24.50 worth of filters in new phones this year, compared to 75 cents worth in the generation of phones we might have seen a decade ago… and that will be true of all new phones, worldwide.
So that’s a bit market opportunity, clearly, though we’ve seen RF filters teased by folks for about a year and a half now as pundits have tried to get a jump on the 5G winners, and those stocks haven’t “worked” yet, whether because the pricing or competition is just worse than they expected (often true of technology components, where big buyers often offer a oligopsony, or because of the Huawei/tariffs/trade slowdown or the coronavirus collapse or whatever other reason (or just because getting 5G devices made and sold is a slow build, not an instant eruption).
(If “oligopsony” is a new word to you, it’s just the opposite of an oligopoly — instead of a market dominated by just a few providers who can charge what they want, it’s a market dominated by just a few customers who can pressure suppliers to offer lower prices, like Apple and Samsung for phone components… you can also use monopoly and monopsony to amaze and delight your friends).
Which means this sounds a bit familiar, actually. What other hints do we get?
Brown says he has met the CEO a couple times and talked to him, so it’s probably not as “brand new” an idea as the interviewer is implying… and he says this CEO launched a similar company during one of the prior wireless upgrade cycles, selling out to a major player for big gains, so Brown thinks he’ll be looking for profits for shareholders this time around, too.
And it’s got a market cap around $200 million.
And, last clues, it’s got a stranglehold on the best technology in filters, particularl in crystal filters, and has 30 patents along with 56 other patents pending.
So is this really just a rehash of Brown’s pitch for Akoustis (AKTS) that I wrote about almost exactly a year ago?
Yep. Sure seems like it.
Akoustis was teased by Brown back in April of 2019, with some of the “urgency” of his rationale being that Nokia (NOK) was about to report earnings, which would drive attention to the 5G story and make us all rich. Nokia was also a stock he touted for well over a year when it was in the $5-6 neighborhood — I’m not giving him too hard a time for that, he may well own it now and I was a Nokia owner as well, until I sold out at $4 and change last year after management’s summer of ineptitude.
So I’ll recall what I wrote about Akoustis at the time — this is mostly from that 4/10/19 article, and I’ll add some udpates for what’s been happening in the past year… the stock is more or less unchanged, other than the fact that Brown’s attention sent it soaring 25% today (it was at about $6.30 when we wrote about his pitch last year):
We start with some of Brown’s tease from 2019:
“… the phone in your pocket will require several times more filters than it’s ever had before. And I’ve found a tiny company that owns the highest performing filter technology on the market — by far.
“They have developed a crystal filter technology that no one else is even close to matching right now.Are you getting our free Daily Update
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“They’ve got all of the intellectual property around this development…
“A total of 21 patents…
“With another 36 pending.
“If you want to use their technology, you either have to buy it or license it from this tiny 5G filter company.”
And Brown says he has met with the company’s CEO and has seen some progress already…
“This tiny company recently signed two 5G contracts.
“So far, they’ve refused to name their partners in public. Which means they’ve probably locked down contracts with multibillion-dollar players…”
“This business is only worth about $200 million in the stock market today.”
There aren’t a lot of “pure play” RF filter companies, though RF filters are a major product for some very big chip companies (Broadcom, Qorvo, etc.), so I can’t say that I have much of an idea about who the winners might be in this market, and I’m sure I’m less connected to the tech sector than Jeff Brown is (and, of course, I try to keep my arrogance in check), but I can, at least, tell you that the Thinkolator ID’s this stock both last year and this year as… Akoustis Technologies (AKTS).
Akoustis is an interesting little company that we’ve seen trotted out in the hustings a few times before, though last April was the first time I looked at it. Chris Wood pitched it as one of his favorite RF filter stocks in launching his 5X Profits service before that, and readers have asked about it a few times. It caught my eye partly because it’s small and is trying to differentiate itself not just with intellectual property, but with manufacturing — they bought their own wafer plant in NY to manufacture their piezoelectric crystal filters and speed up their process, which will presumably add to their manufacturing costs (compared to outsourcing to a huge semiconductor fabricator) but give them a lot more control over the process.
I knew nothing about crystal filters, but apparently they’ve been a core telecom product for decades — there’s an interesting history here from IEEE a few years ago if you’re curious (it won’t help you with Akoustis, but might provide some perspective on a technology that has been iterating and advancing since well before the microchip was invented).
Briefing.com posted a quick summary of a Craig Hallum brokerage upgrade of Akoustis after their last earnings report, essentially similar to a lot of different 5G-related forecasts in saying “wait ’til later this year” as everyone seems to see rollout of investment in a variety of 5G products and services starting late in 2019 and rolling into 2020. Here’s that note:
“Akoustis Technologies: Big Market Opportunity As AKTS Scales Production In The Coming Years. Reiterating BUY Rating And Raising Price Target To $10 – Craig Hallum (7.22)
“Craig Hallum raises their AKTS tgt to $10 from $8. The firm continues to believe AKTS has a significant opportunity in the 5G base station/small cell market given their ~$100 in content per base station/small cell. The firm believes with AKTS’ proprietary single crystal technology they are able to produce filters than can handle 2x the power at higher frequencies with up to 50% better performance. The firm thinks as base stations/small cells rollout in volume for 5G starting late 2019, AKTS will see growing demand for their filters. The firm notes AKTS continues to expect to sample their first filter for the infrastructure market in Q2CY19 and go into production in 2HCY19 with revenues starting in Q4CY19.”
The company’s investor presentation a year ago indicated that they had delivered some filter samples as of March 2019 for 5G customers, but that they had not yet received any firm orders in 5G — the 5G goals were that they would get a design win with a 5G mobile customer (meaning they get their filter designed into the product), and that they would also receive a 5G infrastructure order, both in the second half of 2019. So what’s the story now, a year later?
Well, they do have a new investor presentation available from this past March, and they do echo Brown’s comments that they’re transitioning from (five years of) R&D to commercialization of their products… and Jeff Brown’s comment about going from 75 cents to $24.50 per phone is in their presentation (though that was 75 cents for legacy 2G phones in 2014… more recently, the filter content is going from $19.50 per “premium 4G” phone in 2017 to $24.50 per early 5G phone in 2020, which is a little less dramatic).
And, yes, mobile devices are the huge market — they say that’s a $10 billion market for filters in 4G and 5G mobile devices, while their “niche” markets of routers, military applications and network infrastructure tally up at about $1 billion. They say that their “value proposition” filters can reduce size, improve battery life, reduce dropped calls, and, in infrastructure applications, support higher power throughput and improve sensitivity. I assume the other high-end filter makers offer something similar (Qorvo and Broadband are probably the big competitors they’re most focused on, I imagine, though there must be a bunch of others).
They have made some progress recently — they announced their first network infrastructure design win just yesterday, with a “tier 1 OEM”, they’ve gotten a few orders for infrastructure filters and got their first commercial volume order for an infrastructure project a couple months ago, but on the mobile side (which is that bigger market) things are moving a bit more slowly — they have gotten multiple orders from a “tier 1 mobile customer”, but no commercial orders yet as far as they’ve said (they’ve developed the filters, delivered them, and gotten follow-on orders for more, but from what I understand this is still “development” stage, nobody is ordering hundreds of millions of filters just yet… which means we’re not talking about a design win in the next iPhone, probably, though you never know).
Akoustis is small, with still no real revenue yet as they are really just beginning to transition into life as a commercial company (as opposed to an R&D startup), so it will probably continue to be a bumpy ride, but given their infrastructure orders they noted yesterday I assume we’ll see a more substantial revenue number next quarter.
If it’s true that their single-crystal filters have advantages over the polycrystal filters (to dramatically oversimplify the distinctions), and they can pry some orders from Broadcom and Qorvo for 5G and WiFi base stations to get a little cash flow going, perhaps that could be enough to get them over the hump. I have no idea what their margins will be like on these first commercial orders, or how long it will take them to become profitable — but it will presumably be at least a year. They have also raised money along the way, including about $30 million late last year, and that usually moves the share price as well.
It’s hard for a little guy to break in to a duopoly, even with an arguably better technology, and as a guy who’s distinctly not an expert in the technology we’re talking about, that makes me a little skeptical — partly because the ever-acquisitive Broadcom, for example, could have easily bought Akoustis well before now to acquire that technology if it is indeed critical… but you never know, sometimes exciting things come in small packages (Broadcom is a huge $100 billion company, Akoustis just $250 million now… that does mean that Akoustis will be far more sensitive to growth in their business, but it also means that Broadcom could easily acquire Akoustis as almost an afterthought).
But anyway, that’s the still-skeptical take I’ve got on Akoustis after looking over their materials for a bit — there’s reason for optimism if you think management is on the right track and they’ll hit their goals, and they have already done reasonably well at that over the past year, certainly better than some tiny “overpromise” companies, but Jeff Brown supplied you with plenty of optimism… you don’t need that from me today. Balance his predictions of fabulous opportunities in 5G thanks to their unique RF filter designs against the fact that this is a just-getting-started tiny component supplier in the land of giants, and you can do your own risk/reward assessment.
And, sadly, he doesn’t really drop any meaningful hints about the other top-secret picks he’s teasing… this is what he does say, if you’d like to hazard a guess:
For the second pick, he says this company makes “advanced sensors” that will be used in every iPhone as well as in the breaking market of self-driving cars, and they’re also small and unknown. If I had to hazard a guess there it would be a photonics/laser company, perhaps Lumentum (LITE) or II-VI (IIVI), and I have owned and do still like the prospects IIVI (though I stopped out earlier this year, which so far looks like a mistake). That’s a wild guess, however, and it could be any kind of sensor.
And the third one is a chipmaker that is in every key area linked to 5G, has billions in sales and thousands of clients but is unknown and is a fraction the size of Intel or Qualcomm. Which, again, could be almost anybody — I’d probably throw Qorvo (QRVO) in as a guess for that one, but it’s also a wild guess.
So I’ll leave you to it, friends — have any thoughts on Akoustis and its “Number One” position for Brown, or guesses about what the other two stocks might be, or favorites you like for 5G beyond what Brown talked up or hinted at? Let us know with a comment below… thanks for reading!
Disclosure: Of the stocks mentioned above I own call options and/or shares in Apple, Crown Castle, Intel and Nokia. I will not trade in any stock covered for at least three days, per Stock Gumshoe’s trading rules.