Ethernity Networks Share Discussion Threads

[504] 19/6/2022 13:01

Astral that's exactly what would happen if each contract required adaption. It is exactly how it has been up to now. Ethernity sell a solution idea. The product then needs to exactly fit the need of the client incurring an R&D expense which is within the margin.
Now the design is upfront and the sales are multiple so the relationship is broken.
Obviously there are other aspects of r&d but adaption was an ongoing part.
The new model is very different. The BN demonstrates a flat r&d spend just increasing with inflation. That's realistic although it may actually drop in reality because ground up development is behind us and forward it will be new evolutions of the current solutions.

[astralvision] 19/6/2022 12:39

Don't think anyone would expect R&D to increase proportional to increases in sales, that would be an absolute nonsense.What is clear is that the heavy rate of R&D is not expected to drop off at all, but continue at the same or elevated levels.I've got no problem at all with that, indeed it is to be welcomed.

[504] 19/6/2022 12:21

Astral that's a bit misleading. The r&d spend is just showing inflation.
$6m against revenue of $4.5m looks sad but against $40m in 3 years it seems quite reasonable. I certainly don't expect r&d to increase proportionate to revenue.

[504] 19/6/2022 12:18

Yes for sure other products will become ASICs like for mass production. I don't know if that's purely an r&d function. Certainly the code will continue to evolve. DU I am sure is already in that form. aceNIC has been evolving over the years and features like multiple FPGA and scalability through joining units has already been discussed.
I hope that the spend switches to enhanced mass production.

[astralvision] 19/6/2022 12:15

The BN disagrees with you, obviously the broker figures are not plucked out of thin air, they are ratified by ENET.The forecast R&D expenditure for this year and 2023 , 2024 is $6.4m, $6.7m and $7m respectively. That is incredibly high for a £14m company. A m.cap/R&D ratio of c 2.5.That is very good value and a very low ratio. Provided they are not wasting it, and there is no evidence of that, then that ratio is a big buy sign.Research and Development. The carrying amount of intangible assets is $6.4m. In line with the change in policy adopted from 2019 the Company no longer recognises R&D costs as an intangible asset but recognises these as an expense and charged against income. There is a planned $m increase in both R&D costs and marketing activities in FY22 and beyond. This is mainly a post COVID response, in line with the exciting market opportunity.

[purchaseatthetop] 19/6/2022 12:04

504. I see it differently in that I expect the universality to then by extended into whole new areas not attempted before. ENET is all about data transfer and that is applicable everywhere in 5G so no limits.

[504] 19/6/2022 12:01

I see it differently. The bulk of the R&D was adaption for solutions into the form for the contract. I don't see much of that going forward because UEP is a universal product now. XGS-PON is finished and in fabrication with first shipping Q4. Yes they will need to stay ahead but much of the previous work will not be in the future.

[purchaseatthetop] 19/6/2022 11:54

504. I think they need the warrant money because the R@D spending will continue or even accelerate.

[astralvision] 19/6/2022 11:50

According to the broker note, they don't need further cash/warrant money, but, in practice, I think they will, it will be running too close to the line, further opportunities could need cash and, apart from all that, MR loves a discounted placing or ringing his mates and trusted financial partner 5G up.

[504] 19/6/2022 11:35

It seems clear to me that there's plenty of information about the next few years but the market simply doesn't believe it. I guess at some point that will change.
Do they actually need the warrants money..

[astralvision] 19/6/2022 11:18

of course the component supply issue may act as a dampener on sales, hopefully not for this year and the supply issue could well be easing significantly by next year.

[purchaseatthetop] 19/6/2022 10:17

That is such a great gross margin. OK the R@D spending is high but once that is done the gross margin spews out cash and needs much lower working capital. Much better than lower investment but low gross margin that causes such problems on working capital with inventory and debtors during growth.

[astralvision] 19/6/2022 10:13

Again from the BN

Outlook and Forecasts

‘The Company expects significant revenue growth from its FPGA-based programmable system solutions and FPGA SoC, coupled with further growth in the FPGA Router-on-NIC’.

ENET has then helpfully provided quite detailed guidance on underlying revenue expectations for FY22 and FY23. The company is upbeat on order flow and the visible and cumulative revenue outcome 2022-23.
In a previous 2022 RNS, Feb 14th, ENET guided to c$20m revenue (cumulative) over 2022-23. We also note the difference between contracted and potential (pipeline) revenue. In our view, contracted revenue should be seen by investors as ‘base level’ expectations (purchase orders submitted and signed). We break out 2022 and 2023 expectations separately. This is the basis for our forecasts.

2022: $4.5m contracted revenues, from existing customers.

FPGA SoC revenues expected to significantly increase YoY: attributed to revenue associated from the orders in place mainly from the U.S fixed wireless system provider and a PON Chinese OEM customer.

Design kit and ongoing royalties: excluding other licensing deals in plan.

System Platforms (UEP and ACE-NIC): Growth from contracted deliveries (with
potential for upside, depending on components supply)

2023: $5.0 million of orders contracted.

Importantly, significant further growth over 2022 is expected from both additional orders from existing contracts and further contract wins.

FPGA SoC: Revenue growth expected over 2022 relating mainly to existing committed orders from customers. Upside comes from further follow-on deployments in existing customers’ platforms that already embed the Ethernity ENET FPGA SoC and Flow Processor.

System Platforms (UEP and ACE-NIC): Resulting from the UEP revenue anticipated for follow on orders for the Contracted UEP Module, other new business under negotiation for the UEP cell site router, and ACE-NICs for 5G and vRouter markets.

The company’s 2022/23 outlook is optimistic, and the business appears to be scaling well on the top-line (backed by up new orders). This is a revenue/gross profit story, in our view. In terms of additional features of the ENET financial model, we highlight:
Long term gross margins to trend towards the 60% – 70% levels, vs the 2021 gross margin, 73.8% (85.4% in 2020).
The gross margin will still vary according to the revenue mix as Royalty and Design Win revenues are at c100% gross margin before any sales commissions.

On our published forecasts, ENET will continue to be loss making in FY 2022/23, before turning a small EBITDA profit in FY24. On our forecasts, ENET is funded to cover cash burn through this period.

[astralvision] 19/6/2022 10:10

From the brokers note:

ENET has made strong commercial progress with a number of OEMs. This is reflected in the 2022/23 contracted revenue and order book. ‘During the recent WISP event in March, 50% of OEM vendors presenting in the show either use or have signed with ENET to use their products in offerings’. As a whole, there is strong OEM validation of the ENET.

Objectively, why would customers choose ENET as a vendor ? We highlight the following:

1)The only vendor that offers Routing function on FPGA NIC

2)Wireless Bonding allows better utilisation of the network

3)Higher port count resulting in additional saving for customers

4)Faster innovation to adopt the latest technologies. Flexibility in adoption of new network solutions

5)Offers differentiated products for the market

[astralvision] 19/6/2022 09:48

Ofcourse re your suggested $6m for this year, the only thing ENET will be measured against is the broker forecast for c $4.5m.The broker cash flow forecasts suggests they will be ok for cash through to profitability. We will see!

[504] 19/6/2022 09:31

Who would those insiders be.
It's only Ethernity management who has an overview. I speak to Ethernity employees quite regularly and they know very little about anything outside of the scope of their current assignment. Across the business clearly there are lots of elements on course but without seeing the complete picture it means very little.
Even the projected $6/14m the current valuation is such that they miss it in a disastrous way. With regards the $6m I suspect that H1 will be $1.5m and H2 $4.5m. However the $4.5m+/- depends totally on when mass production starts and how big the Q4 shipping of XGS-PON is.
I am relaxed about it because by the time it announced lots more will be going on and cashflow is just one consideration. As long as income ramps quickly from sales they will be through cash parity quickly.

[purchaseatthetop] 19/6/2022 09:22

To be fair the insiders have huge numbers of share already!

[j arthur rank] 19/6/2022 09:15

Would expect to see some insiders buying in then.

[504] 19/6/2022 08:32

"targeted volume availability in Q4 2022"
Interesting choice of words. I first read it as a staged expansion with increasing target volume. However it actually means filling existing orders from Q4. Not just production hoping for sales but manufacturing into orders.
I wonder how and when Ethernity will report this volume. I also wonder if it is subject to testing. I have been told that the testing is not about whether or not it works as the specs are well established.
Interesting times ahead, in complete contrast to the times behind. The main event is about to start.

[504] 18/6/2022 20:32

I don't know when this will happen but now for the first time Ethernity has product going for mass production.

[504] 18/6/2022 20:08

No. in fact nothing has happened yet, just talk. It's very likely when it does and the market sees it the whole dynamic changes. Currently OEMs are positioning in response to their timeline for the areas they cover. They are all different. China is immediate but open ecosystem has a very small footprint currently. Japan and India are moving fast and embrace the DIY solution. The US has just a couple so far but more to come. Europe will be a surprising large market but are just in the early stages.
The smart people will be looking beyond 5g initial and deep into 5g+ and 6g. Ericsson, Nokia and co will be ripping their hardware out in 5 years as it will be obsolete.

[purchaseatthetop] 18/6/2022 19:55

504. I see exactly the same thing. The global connected world will have Ethernity IP in little bits everywhere. But it has not happened yet. Yet.

[504] 18/6/2022 18:53

I will keep 50 or 100k shares for interest. I have a goal. I have always thought £5-10 was likely. At £1 with a reported looming new market ahead £5 looked accessible, I don't think that has changed.
Of course I don't expect people to see what I see. It's difficult to imagine Ethernity selling into the majority of OEMs in a multibillion market.
Ethernity are all through this market. Ethernity are from the core to the radio. The open solution is the only thing that makes sense and market share will exceed current thinking. Why? Because when you ask like minded people the same question the majority give the same answer.