Here’s why the US$307m acquisition of Edge AI chip maker Kinara is big news for Nanoveu (ASX:NVU)

Edge AI chip maker Kinara is being bought by NXP Semiconductors (NASDAQ:NXPI) for US$307m, or nearly A$500m. NXP, a Dutch semiconductor manufacturer that is US listed and capped at over US$50bn, announced the all-cash purchase earlier this week. We think this is good news for ASX companies working on Edge AI chips, like Nanoveu (ASX:NVU).

Why Kinara is a big deal for NXP

Simply put, because it shows Edge AI is on the rise and big semiconductor players will pay a premium to get ahead of their peers. And indeed, the spokesperson for NXP (general manager Secure Connected Edge Rafael Sotomayor) confirmed that.

‘The Industrial market is going through a transformation, with innovations like generative AI helping to deliver major improvements in efficiency, sustainability, safety and predictability, and in many instances, unlock new use cases and functionality,’ he said. ‘Adding Kinara’s AI capabilities to our broad intelligent Edge portfolio creates a scalable platform for new classes of AI-powered systems’.

Only a few weeks ago, NXP bought TTTech Auto AG for just over 600 million euros and Aviva Links for 235.5m euros. Both companies are big players in the autonomous vehicles space, and (by extension) Edge AI, because autonomous vehicles will only be possible with Edge AI.

Moreover, only a few days ago, NXP reported its fourth-quarter results and it reported revenue declines in all of its four segments. So, it is clearly keen to get ahead of the competition. And so the shareholders of Kinara will be winners given the big payout for this pre-revenue start up chip company. But it also goes to show that Kinara shareholders won’t be the only winners in this space!

It is big for Edge AI too

The ‘edge’ in ‘Edge AI’ represents the fact that Artificial Intelligence in such applications resides ‘at the Edge of the Internet’, in other words on devices rather than in a data centre or on a server. This will mean fast and more energy efficient end applications and it will likely open up new applications altogether.

Kinara has developed Edge AI applications, including the Ara-1 NPU, which is capable of advanced inferencing at the Edge, and the 40-TOPS (trillions of operations per second) Ara-2 for generative AI. Kinara also has a software development kit enabling customers to optimise AI model performance and streamline development.

The Ara NPUs are used in emerging AI applications in vision, voice gesture and a variety of other generative AI systems. The Ara-2 is capable of 40 TOPS. Both the Ara-1 and the Ara-2 enable mapping of inference graphs for its proprietary neural processing units. Their programmability ensures adaptability as AI algorithms continue to evolve towards AI and also ensure energy-efficient AI performance.

ASX-listed Nanoveu could benefit

Kinara’s acquisition bodes well for ASX-listed companies working on Edge AI chips. One of these is Nanoveu (ASX:NVU) that recently bought EMASS, which is developing an ultra-low power semiconductor System-on-a-Chip (SoC) for Edge AI applications. EMASS’ current suite of IP includes five core technologies in SoC’s, covering algorithmic transformation, hardware support, system architecture and AI-specific hardware accelerators.

These SoC’s are 20x more energy efficient compared to competitor chips and can handle 13 million AI parameters and process them at 30 Giga Operations per second (GOPS). It does this at less than 2 milliwatts of power consumption, which is unheard of in the semiconductor industry.

Watch our recent interview with  NVU  Semiconductor  CEO  Mark  Goranson

NXP paid ~A$500 million for Kinara

When looking at the valuation of Kinara, the nearly A$500m that NXP paid for this acquisition provides an indication of what ASX-listed AI chip development companies can potentially be worth to the right buyer. Nanoveu’s market cap at the time of writing was just A$24m, a far cry from the A$500m paid for Kinara. Given the right development and commercialisation track in the medium term could see the stock rerate substantially, in our view.

Conclusion

NXP’s acquisition of Edge AI chip maker Kinara indicates that the big chip makers understand how important Edge AI will be and are willing to pay a premium to get their hands on the relevant IP. We believe this bodes well for ASX stocks in this field, like Nanoveu.

Brainchip and Nanoveu are research clients of Pitt Street Research. Pitt Street Research directors own shares in both companies.

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