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Bear of the Day: Akoustis Technologies (AKTS)

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Akoustis Technologies ((AKTS - Free Report) ) is a $300 million semiconductor designer and manufacturer of radio frequency resonators and filters. These specialty technologies facilitate signal acquisition and accelerate band performance between the antenna and the back end of mobile and other digital devices.

Akoustis applies pioneering next-generation materials science and MEMS wafer-manufacturing to address the market requirements for improved RF filters, targeting higher bandwidth, higher operating frequencies and higher output power compared to incumbent polycrystalline BAW (bulk acoustic wave) technology.

This will be crucial for the escalating demands of mobile data requiring higher frequency spectrum, such as 5G mobile, next-gen WiFi and network infrastructure, and defense markets.

Jargon Breakdown: MEMS, BAW, Piezo-Electrico

Micro-electromechanical systems (MEMS) are a process technology used to create tiny integrated devices or systems that combine mechanical and electrical components. They are fabricated using integrated circuit (IC) batch processing techniques and can range in size from a few millimeters to a few microns (one-millionth of a meter).

The Akoustis proprietary XBAW technology produces single-crystal, piezoelectric bulk acoustic wave filters (BAWF). This resonator-filter process technology drives electro-mechanical coupling and translates to wide filter bandwidth.

Piezoelectricity is the electric charge that accumulates in certain solid materials, such as crystals and ceramics, in response to applied mechanical stress. The word piezoelectricity means electricity resulting from pressure and latent heat.

By the way, Akoustis Technologies is headquartered in the Piedmont technology corridor near Charlotte, North Carolina.

A good definition of BAW comes from the UK technology research firm Absolute Reports...

"A BAW filter (Bulk Acoustic Wave) is a filter whereby the electrical input signal is converted to an acoustic wave by so-called interdigital transducers (IDTs) on a piezoelectric substrate such as quartz. The IDTs consist of interleaved metal electrodes which are used to launch and receive the waves, so that an electrical signal is converted to an acoustic wave and then back to an electrical signal."

Broadcom (
(AVGO - Free Report) ) and Qorvo ((QRVO - Free Report) ), the industry's leading manufacturers, accounted for more than 90% of revenues in 2019 as they also specialize in FBAR (thin-film bulk acoustic resonators). By region, China has the highest share of regional income, reaching 51% in 2019.

Where Does the Little Guy Fit in This Industry?

Founded in 2014 by experienced industry leaders and scientists from University of California at Santa Barbara (UCSB) and Cornell University, Akoustis went public in 2015. But the company was in a pure R&D stage for five years, unconcerned with generating revenue.

Thus, the stock spent most of that five years between $4 and $9 with its high-water mark year in revenues remaining under $2 million in fiscal year 2019 (ended June).

But 5G product roll-outs are ready this year and sales look to explode 440% to $9.7 million, as the company gains contracts with global top-tier telecom carriers and manufacturers.

Better yet, the next fiscal year (starting in July 2021) has analysts projecting sales growth to $52 million for a second annual round of whopping 440% gains!

Considering these projected advances in sales, by almost any valuation measures AKTS shares are attractive to early-stage growth-oriented investors.

Grabbing Attention from Big Customers

You might be wondering, given this estimated growth explosion, why AKTS is in the cellar of the Zacks Rank. I'll explain in a moment, but first here's how they recently described their market opportunity...

"With the shift to larger screens and larger batteries in mobile handsets, the space for antennas has been reduced and this has negatively impacted performance. In order to compensate, RF front-ends have countered by delivering an additional 1-2 dB of transmitted power – this has led to the need for RF front-ends with higher power handling."

And here was a key excerpt from their August 20 press release upon a third design win for their 5G small cell network infrastructure XBAW filters from an existing tier-1 customer...

The Company’s XBAW™ filters are uniquely suited to serve the 5G network infrastructure market given the ability to handle high frequency, wide bandwidth, and high power. In addition to the two design wins with this first customer, Akoustis has more than five active engagements with other tier-1 and tier-2 small cell network equipment OEMs which are currently evaluating the Company’s existing band n77 and n79 RF filter solutions. In addition, multiple OEMs have indicated the desire for additional new filters in the sub-6 GHz 5G bands.

Jeff Shealy, Founder and CEO of Akoustis, stated, “We are pleased to follow-up our two previous design wins with this third design win in 5G small cell network infrastructure. We are also experiencing increased customer interest in our small cell XBAWTM filter portfolio quarter-over-quarter, with over five current engagements, including multiple tier-1 OEM customers.” Mr. Shealy continued, “As we continue to expand our product catalog beyond the 14 design-locked RF filters, we expect to secure more design wins across multiple target end markets.”

5G small cell base stations are low power, short range cellular transmission devices, capable of providing extended coverage for consumers, enterprises, or to augment cellular coverage for 5G mobile service providers. They offer all the standard characteristics of a traditional tower base station and can handle high data throughput. 5G networks are expected to employ small cells in greater quantity than prior networks to help mitigate the shorter wavelengths associated with higher frequencies.

In an April 2019 report, Zion Market Research estimated the global small cell 5G network market was valued at around $381 million in 2018 and is expected to reach approximately $3.5 billion by 2025, at a CAGR of approximately 37% between 2019 and 2025.

(end of Akoustis PR from 8/26)

Why AKTS is a Zacks #5 Rank

It's just a simple case of analysts at one time this past summer-spring OVER-estimating the impact on the bottom line from all those new sales on the top line.

So in the past two months, the Zacks EPS Consensus (among 3 contributing analysts) fell from a loss of 53 cents to -69 cents for the current fiscal year 2021 where Q1 just ended in Sep.

And for the following year (starting in July of 2021), the consensus dropped from a projected profit of 13 cents to -6 cents.

So, we give a "D" for EPS growth. But clearly this company is just entering its "S" curve sales growth period and should be on the radar of anyone interested in 5G and key players like AVGO, QRVO, or Keysight Technologies (
(KEYS - Free Report) ).

Disclosure: I own KEYS shares for the Zacks TAZR Trader portfolio.

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