Hi Jeff, can you please comment on Akoustis (AKTS). The stock doesn’t seem to get a break from falling. Many thanks. — Lorraine
Hi Lorraine,
What’s happening with Akoustis is a real mess right now. I feel bad for the team at Akoustis, as I believe that a larger tech company is taking advantage of a small company and its financial position. I’ll dig into what’s happening right now.
First of all, Akoustis has been on an incredible run in terms of progress with its product development and design wins. Design wins are the lifeblood of any semiconductor company. A semiconductor company develops business by designing its semiconductor into an electronics product. And when that product goes into production, Akoustis generates sales.
There is a lag time between design wins and sales, especially as it pertains to consumer electronics, and that can create cash flow problems, especially for smaller companies. Akoustis has historically filled in those gaps with secondary offerings of its stock. The company is on track to reach cash flow breakeven by the end of this year, which is an incredible milestone.
The “mess” that is happening right now is that a larger semiconductor company, Qorvo, has sued Akoustis for the use of its intellectual property regarding BAW filters. Qorvo is a $10 billion semiconductor company that is sitting on $1 billion in cash (i.e. they have a ton of resources that they can use in a lawsuit).
A jury recently decided in court that Akoustis was violating its patents. This decision opened the door for Qorvo filing an injunction against Akoustis for the products that are believed to be using Qorvo’s intellectual property.
One of the more interesting dynamics of this whole circus is that Akoustis CEO Jeff Shealy spent 13 years at RF Microdevices (RFMD). And in 2015, RFMD merged with TriQuint Semiconductor and formed Qorvo. There is history there…
Where it gets interesting is that Qorvo sued Akoustis for what I consider to be fairly generic patents related to bulk acoustic wave (BAW) resonators. They weren’t related to the areas where Akoustis has a dominant intellectual property portfolio, they were more generic in nature.
And get this, one of the two patents (U.S. Patent# 7,522,018) expires on October 29th of this year. Why bother?
And why would Qorvo be attacking such a small company like Akoustis, which is currently a very little threat to its $10 billion business? Especially with generic patents, one of which expires later this year…
I’ll share with you what I think is happening. And to be clear, I’m speculating based on the information that I have, but I’ve seen this kind of thing before.
Qorvo has clearly been trying to damage Akoustis’ business and make it spend time and money on such a ridiculous lawsuit. The jury awarded Qorvo a total of $38.5 million in damages to Qorvo.
First, the amount awarded is tiny compared to Qorvo’s $1 billion in cash. In other words, it wasn’t about the money. And second, I have to wonder if the jury had the expertise to understand the intellectual property nuances regarding bulk acoustic wave filters. But I suspect that was by design.
I’m not going to comment on whether or not Akoustis did or didn’t do anything wrong. I don’t know. I do know however that Qorvo could spend a lot more on lawyers than Akoustis could reasonably do.
But it is clear that Qorvo was trying to drive down the valuation of Akoustis and inhibit its ability to conduct business with its unique filter technology.
Why?
Well, my best guess is that Qorvo wants to acquire Akoustis and its intellectual property on the cheap.
The fact is that Akoustis has technology that materially improves the performance of electronics devices over wireless networks. And Akoustis did such a good job patenting its own technology, that larger semiconductor companies are not able to produce products without infringing on Akoustis’ patent portfolio.
And now that 5G networks have been widely deployed and Wi-Fi networks are operating in higher and higher frequencies, Akoustis’ technology is much in need. And we can see that from all of Akoustis’ design wins. Akoustis may have been early to the game with its technology, but the market has come right to its doorstep.
I believe that the whole lawsuit is a ruse to force Akoustis into a fire sale to Qorvo. I’d actually be shocked if discussions aren’t happening right now.
To Akoustis’ credit, it planned well in advance for an adverse decision from the jury. On Wednesday, it announced that it already updated its manufacturing processes to remove any patented features claimed by Qorvo. Doing so removed any patent infringement.
Concurrently, it just raised another $10 million dollars giving it runway to make it to cash flow breakeven. This buys Akoustis some time, and most importantly strengthens its negotiating position with Qorvo.
Akoustis is worth so many multiples above where it is trading right now. The real question is whether or not Qorvo will step up and offer something reasonable that the Akoustis board will accept.
And on that point, your guess is as good as mine…
I’ve long hoped that Akoustis would remain an independent semiconductor company and grow to a billion-plus-dollar valuation, but I’ve always acknowledged that it would be a likely acquisition target.
If I’m right about my speculation, I hate to see these kinds of cutthroat tactics happening to such a great team/company.
But in the world of intellectual property, I’ve seen tactics like this before, and it sure looks like this is what is happening right now.
