Spectra7 Microsystems Inc (SEV)

[Jimmer10]

Brokers: Spectra7 tipped for Oculus virtual lift
http://www.proactiveinvestors.com/columns/proactive-broker-wrap/24608/brokers-spectra7-tipped-for-oculus-virtual-lift-24608.html

Brokers: Spectra7 tipped for Oculus virtual lift
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09:01 29 Mar 2016

Spectra technology is expected to feature in the new Oculus VR head-set
Canadian broker Mackie Research has had a chat with the management of Spectra7 Microsystems Inc (TSE:SEV), after the high-speed connectivity specialist released its 2015 results, and sees no reason to change its 'speculative buy' rating.

Revenue was down 24% to US$4.2mln in 2015 from US$5.6mln the year before as the company phased out some old products and introduced new ones.

Despite product line transitions, the gross margin remained strong at 60% for 2015, albeit down from 75% the year before, with the fourth quarter seeing a slump in the gross margin to 46%.

Mackie described the fourth quarter results as “a non-event”, though it has trimmed its estimate for virtual reality (VR) and augmented reality (AR) headsets for this year and next.

Making the transition to new products is a fact of life in the sector in which Spectra7 (SEV) operates, and in fact the next few weeks could be very exciting for Spectra7, Mackie reckons, if industry “tear downs” show Spectra7 chips in consumer VR headsets.

A “tear down” is where a review site gets its hands on a new product and rips it apart in an attempt to discern which components were used in its construction.

“Customers should start receiving Oculus headsets today,” the broker said in a note released on Monday.

“We expect more reviews and most importantly, tear downs in days or weeks. We expect our own Oculus Rift headset in the summer. We plan to dissemble the cable (as we previously have done for HDMI cables) and expect to find SEV chips in the headset cable. Until then, we expect tear downs on popular technology websites/blogs to confirm SEV’s presence in major consumer VR headsets, starting with Oculus Rift. We note investors expect SEV to be the sole source provider for relevant functions in the Oculus Rift and likely other major VR headsets, therefore presence of SEV chips in these headsets is a very important milestone,” the broker's Nikhil Thadani said.

The broker is not expecting the company to tap the market in the near-term but said it will have to “navigate working capital requirements carefully” throughout the first half of the year.

Shares in SEV were trading at 65 cents on Tuesday Morning, up 3.2%; Mackie reckons the shares are worth C$1.