Resonant, Inc (RESN)

[tykundegex]

Report: Resonant’s Strategy to Tackle 5G

https://tailwindsresearch.com/2019/02/resonants-strategy-to-tackle-5g/

(contents were forwarded to me from RESN IR so I assume it's public domain)

Resonant’s Strategy to Tackle 5G
By Daniel Carlson -February 13, 2019

Trading up well over 100% in 2019, Resonant (RESN) is the best performing stock in Tailwinds’ Universe. However, this strength is more of a bounce of an extremely oversold condition. There remains significant upside in shares of RESN…if they can execute on their goal of disrupting the RF filter marketplace.

To date, we have been, and remain, very excited about the company’s ISN platform. They have developed a software product that enables faster and cheaper designs of filters. The original plan was that phone manufacturers would be large buyers of these filters. Why wouldn’t they be, right? The products save money and that being price competitive is the key to survival in electronics manufacturing.

The truth, however, was that there’s more to gaining market share than building a portfolio of me-too products. Resonant’s products are indeed everything they are advertised to be. The problem is that gaining customer traction as a small piece of the supply chain is harder and takes longer than anticipated.

When Resonant talks to customers, they have been facing headwinds. Their products compete against those from big companies like Broadcom and Murata. Customers switch from these companies very reluctantly as they have a proven track record of volume production of a qualified, reliable product.

At the same time, RESN designs are going head to head against internal design groups. When your buyer might have to lay off their team if they shift to your product, there will be a major internal discussion (battle?) before any shift is made.

All of which means that, to date, Resonant has delivered on products and design, yet failed to meet expectations with ramping royalty revenues as their customers transition to OEM sales. . Don’t get me wrong, they have been making continual progress and getting closer to an inflection point, but with a royalty-based business model, in the risk averse smartphone market this has been slow.

ISN Leads to Faster Designs

To be clear, this note is not meant as an attack against Resonant. They have delivered technically, which is the most important thing they can do. Yes, sales have been slower to materialize than expected…or guided to, for that matter. But, behind the scenes the progress has been substantial. In this regard, I’m referring to their revolutionary ISN platform.

The ISN product developed by Resonant is indeed industry changing. As a refresher, it enables RF filters to be designed primarily in software. Instead of drafting designs that need to be fabricated, tested, then reconfigured, refabricated, etc., ISN allows the bulk of the design work to take place in the software. The result of this is the ability to create designs much cheaper and faster than otherwise possible.

The other benefit of designing in software is the ability to try new designs and structures without needing a fab nor a significant budget. A radical new design can be tried in software to the level at which its future performance is well enough understood to give it the green light on fabrication. Thus, many possible changes to design and structure of a filter can be sampled theoretically before launching prototypes.

Which leads us to 5G. As someone said to me the other day, “If all you have is a hammer, everything looks like a nail.” Broadcom and others are taking existing filter designs and working diligently on improvements to get them to 5G. This is a long and slow process. And, it might never get there.

5G…A Game Changer?

You may have figured out where I’m going with this story by now. Little Resonant starts out trying to make existing products cheaper and faster, and finds validation of their designs in 4G in a very mature and competitive market. Then Resonant applies the power of its ISN tool to the nascent 5G market.

The next generation of cell phones will all be running on 5G networks. What this means is that much (much!) more data, in particular video, is going to be pushed out to phones. In order to have the bandwidth to support this, network operators are moving to spectrum with broad swaths of availability. This exists in the spectrum north of 3 GHz.

Future filters need to work over a larger bandwidth and also at much higher power. These are the two demands of 5G and the complexity of this shift is leading to many technological challenges. In the RF filter space, Resonant saw that current filter building blocks were going to have a tough time adapting to these new demands; if ever.

Which is the genesis of XBAR, Resonant’s answer to the 5G issue. XBAR is a 5G filter platform. It is also the first product in Resonant’s portfolio that is not simply a better version of an existing product. Instead, XBAR is a whole new structure for filters.

As such, XBAR represents a major tactical shift for Resonant. With XBAR Resonant hopes to be the first to market with a high performing 5G filter for cell phones. Sure, the other filter manufacturers have products, but, in initial testing, it appears the specs on XBAR could offer vastly better performance, particularly in regard to interference as 5G traffic inevitably picks up.

MWC…The Big Unveiling

Later this month, the wireless world will converge on Barcelona for the Mobile World Congress. This is where the first XBAR filters for 5G, currently being fabricated for the Congress, will be revealed.

How will this be received is the big question for investors. I believe there will be two reactions. The first is going to be great surprise and delight. The product being shown will be revolutionary. The structure is very different from the typical BAW structure. Mobile phone manufacturers should be very enthusiastic.

Unless, of course, you were around for the development of FBAR. The current standard in filters took 10 years to perfect. For those in that process, XBAR will look very premature. Except for one thing; ISN. With their design platform, the timeline to development of an acceptable XBAR product available for installation in phones should be degrees of magnitude shorter.

At Tailwinds, having dug deeper into XBAR and having gotten a much better understanding of the product, we are in the excited camp. This product is a game changer for RESN. Instead of fighting for market share in existing product lines, they are moving towards being a leader in the hottest area of wireless: 5G.

We believe RESN needs to be reevaluated based on XBAR. If the product is as successful as it appears it may be, this stock could truly become a 5G must own. There is work to be done, and a product to be proven, but the potential appears greater than ever.