The extraordinary case of Weebit Nano: Marc Kennis talks ReRAM on Ausbiz

Weebit Nano’s ReRAM

Our own Marc Kennis appeared on AusBiz and provided a comprehensive analysis and discussion of his perspective on Weebit Nano (ASX:WBT), the ‘best performer of the ASX300’, and a story he has been closely following for the last 6 years.

See transcription below.

 

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Transcription

 

David: Andrew Page there from strawman.com. Well, let’s get straight to our second guest of the show to go and explain what is going on with Weebit Nano. It is one of the hot stocks on the ASX. To go and do that, we’ve got Marc Kennis joining us now from Stocks Down Under. He’s joining us in our Barangaroo Studios. Marc, it’s good again to catch up with you after a while as well. Explain to us firstly what Weebit Nano is because the share price has been rocketing over the past couple of years.

Marc: Yeah, sure. Well, thanks for having me. Look, Weebit Nano in a nutshell has come up with a new type of memory that can replace flash memory, for instance, in your mobile phone or in laptops, so that’s a very big market obviously. The very short-term focus for the company now is embedded memory, which is a small chunk of memory in a bigger device. So a system on a chip that has some embedded memory in there. That’s their first product, and actually earlier this week they announced that that product is now commercially available at SkyWater, which is a U.S. Foundry that will be producing this for their customers. So that was very big news. And so what they’ve done in the last sort of seven, eight years since it enlisted on the ASX, basically this technology has been developed, and developed, and developed, and the company has hit all its milestones without failure. And that’s a big achievement for a tech company in the semiconductor space because there’s always something that can go wrong or will go wrong.

So this company has got an excellent track record in sort of living up to the milestones that it sets for itself. So that’s really important. And the company is just now being rewarded for that, for the commercialization. In 2023 they will see first revenues, so it’s being rewarded for that commercialization that took six, seven, eight years to get to, but it’s now happening.

David: Marc, I know that you pay very close attention to what happens in the particular area of this space, like the chips and everything else. Can you go and try and simplify what the advantages that this product has over, say, rivals out there?

Marc: It’s really simple. If you are an electronic device manufacturer, say a mobile phone manufacturer, or you know, anything that’s got a battery in it, you want that battery to last as long as you can. So the components in that particular product need to be very low energy consuming. And Weebit’s got that. So it’s got a very low energy consumption, which means the batteries of products last longer, but it’s also really fast in terms of, you know, to process the data. So there’s a number of advantages. It’s also, in terms of scaling down, so the products get smaller and smaller, computer chips. Flash memory has a big problem in scaling down below 40 nanometers.

Without getting too technical, it’s really small, but these types of memories need to get a lot smaller to go into the most advanced products. And Weebit Nano’s ReRAM can do that. So it can scale… Right now they’re working on 22 nanometers, but it will without a doubt go below 20, and maybe who knows, below 10 at some point in time. So it’s energy consumption, it’s scalability, so getting smaller, and it’s also in terms of, you know, ease of manufacturing they’ve got a big advantage versus some of the alternatives out there.

David: So basically small, but very mighty, and maybe getting mightier by the day at this point in time. First commercial product is now available. Tell me, there must be a whole bunch of groups out there looking to go line up to go and take the advantage of this. What can we know about what’s coming down the pipeline when it comes to potential customers?

Marc: So in that sense, the investor relations strategy of this company is extremely clear. It’s very straightforward, very transparent, and so they’re doing a great job in that respect, so we know what’s coming. They’re talking to all the non-Chinese foundries in the world. There’s 10 really big ones, what they call Tier 1, 2 of those are Chinese. If we exclude those, my guess is they’re talking to all of them, the other seven or eight. So they’re talking to large companies, and that’s really important. And last year the news that TSMC, the biggest foundry in the world, has got ReRAM available for its customers, has basically led to a lot of inbound calls for Weebit because right now they’re the only viable alternative in the ReRAM space.

So that’s done a lot of good for the company. So what we expect is, actually they’ve said it themselves, by the middle of this year they expect to sign up another, one of the bigger foundries. But I think we can see a lot more of those maybe not this year, or we could, but probably next year as well. And then the trick is to get the technology qualified at these different foundries, which then means that their customers can start to implement ReRAM intellectual property into their chip designs. And that’s really where Weebit starts to make money based on the royalties on each chip that is being produced.

David: Look, it’s a compelling story at face value. One thing you’ve gotta go and ask though when you’re seeing a stock that’s moved this far this fast, is there an element of meme behind this as well? Because it just looks like it’s rallied very, very high. Would you go and still be willing to go and take on, and buy the shares at the current level, or would you wait for potential pullback at some stage?

Marc: Full disclosure, I own shares in Weebit Nano. I have owned that since 2017. But yeah, it’s gone really hard. Part of that has to do with the fact that it’s been included in the MSCI Australia, which means a lot of fund managers domestic, but especially overseas, fund managers that follow MSCI Australia need to invest in Weebit Nano, so that’s happened at the end of February. We’ve got Weebit being included in the ASX 300, so that will probably, you know, get some more installs that follow that particular index. They need to buy that stock as well. I think in the long run, this stock can go a lot higher. As your previous guest said about, say, Pointerra, and I’ve owned that one as well, it never goes in a straight line, there’s always big pullbacks. But I think in this particular case, I don’t see it as meme, I see it as a realistic sort of approach of the valuation of a company like this.

And I know it’s hard to value stocks like this, so you’ll have to look at M&A that’s been done in the semiconductor space to get a sense of value of these stocks, but I think it can go higher. I don’t know in sort of what timeframe, but longer term. Looking at the opportunities in this market, especially the standalone memory, where it can actually displace flash memory, that is a massive market. And Weebit’s got plans to manufacture its own product there in that space through foundries, and I think that’s the big money maker I think in the longer term. So anyone investing in this space, it’s been my experience, you know, just invest, be patient. Don’t look at the stock price every day, just, you know, buy and hold, and come back in a couple of years, see what happened. So it’s a bit of a long answer to a simple question, would I buy more? Yeah, on pullbacks I’d probably buy a bit more and then just sit it out because I think there’s a lot more upside to this one.

David: Just to kind of finish off, the state of the balance sheet, when it comes to, you know, cash that it’s got at this disposal at this point in time, how is that looking and do you think it might wanna go and take advantage of this excitement about the stock and maybe look to go and top up some reserves at some point soon?

Marc: Who knows? I think it’s about $40 million they’ve got in the bank at the moment, but yeah, semiconductor development is expensive and they’ve got a nice portfolio of things that they’re working on, so I think they can always use a bit more. Look, we’ve seen with other companies if you’ve got a big run-up in share price, there’s a good chance that companies might tap to market, so who knows what’s going to happen? Wouldn’t surprise me, but in the meantime, I think looking at sort of the longer sort of trajectory in the grander scheme of things, I don’t think that makes too much of a difference, especially if you’ve got limited dilution at the current share price. So for existing shareholders, I don’t see it as an issue at all.

David: Well, Marc, you’ve been holding since 2017, so congratulations on that alone. I look forward to going and chatting with you in the not-too-distant future. Take care.

Marc: All right. Thanks, Scutty.