Sivers Semiconductors: Return of the 5G potential

Research Update

2024-07-19

07:25

Analyst Q&A

Closed

Jesper von Koch answered 6 questions.

Redeye believes the major design win announced in the Q2 report sets Sivers' 5G potential in a whole other light than before. While Redeye had almost no hopes for Sivers 5G ramp-up, it now appears very promising. Redeye raises its estimates and fair value range.

Jesper Von Koch

Contents

Investment thesis

Follow-up on financial KPIs

Product sales becoming a substantial part of the total

Cost base: Continued cost control

Financial position and burn rate: Inflection point required

Changes to financial estimates

Fair value range

Quality Rating

Financials

Rating definitions

The team

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Solid growth in products sales and good cost control

Sivers' Q2 report came in roughly in line with Redeye's estimate on total sales, but better gross margin and tight cost control left adj. EBITDA SEK10m better than we had expected. While Wireless came in below estimates, Photonics more than compensated for this. In particular, product sales grew by around 200% for both business units - albeit from low levels. However, it also makes it obvious that several of Sivers' customers are now moving to production with their products with Sivers inside.

New 5G design win with SEK100m annual sales

In the report, Sivers announced three new design wins in the 5G area. One of these includes a large global client that is believed to launch a product in 2026 with a total volume of around 1 million units from 2026 to 2028. We believe that a possible average selling price is likely to be somewhere between USD20-35, which would translate into almost SEK100m of annual revenues. This implies significant potential and exceeds our previous low 5G hopes.

Raising fair value range - Base Case at SEK14

On the back of the Q2 report, we raise our estimates for Wireless for 2026 and beyond by c9%. Meanwhile, we make small upward adjustments for OPEX, while slightly reducing our estimated gross margin. All in all, our EBITDA estimates are raised by 11% for 2026e and 2027e. As a result, we raise our fair value range from SEK3-20 to SEK3-22 with Base Case raised from SEK13 to SEK14.

Key financials

SEKm	2022	2023	2024e	2025e	2026e
Revenues	132.6	236.3	287.6	425.9	690.5
Revenue Growth	46.3%	78.2%	21.7%	48.1%	62.1%
EBITDA	-73.8	-33.7	-6.4	32.1	112.3
EBITDA Margin	-55.6%	-14.2%	-2.2%	7.5%	16.3%
EBIT	-185.2	-158.6	-118.2	-49.0	20.8
Net Income	-86.5	-165.2	-125.2	-44.2	10.9
EV/Sales	9.6	7.6	6.1	4.2	2.6
EV/EBITDA	-17.2	-53.2	-274	55.9	16.0

Investment thesis

Case

Exciting pipeline within Photonics with Wireless diversifying risks

Sivers has a promising pipeline in its Photonics segment, with initiatives that could result in a 5x revenue increase over a short timeframe. The anticipation of Ayar Labs moving to volume production in 2025, with pre-series orders starting in 2024, may bring in approximately cUSD50m for Sivers between 2024 and 2027. Additionally, Sivers has three F100 customers, each potentially generating annualized revenues of SEK500m (cUSD50m). The longest-serving F100 customer is expected to start volume production in 2026, with a pre-series phase in H1’25, indicating significant revenue potential. With over 40 design wins, Sivers' Wireless’s segment diversifies its business beyond the binary nature of photonics. In July 2024, Sivers’ 5G portfolio gained a breakthrough design win with cSEK100m annual revenue potential. The satcom business is progressing with pre-series orders, and one customer (we think All.Space) is estimated to be worth USD30m between 2022 and 2024, with a lifetime value of USD250m.

Evidence

Opportunity of Photonics orders from three Fortune 100 companies

Photonics has received several pre-series orders exceeding SEK150m from an F-100 company. If the customer proceeds, it will imply huge volumes (cSEK500m-3000m) we estimate from the first and cSEK500m annual potential from the others), representing a significant growth opportunity, albeit rather binary. Moreover, Ayar Labs’ customers expect to ramp up Sivers products within the next five years.

Challenge

Wireless crowded by tier-2 operators

Sivers needs to focus on customers whose products succeed. Despite announcing a three-year deal worth cSEK450m in 2020, the order was indefinitely placed on hold due to a customer missing its window. Currently, Sivers' Wireless customers are mainly tier-two vendors, including CCS, 8Devices, Cambium, and Airvine, primarily in Europe, which lags in mmWave deployment. However, Cambium has a well-positioned portfolio with a strong North American base. Sivers also has ADTRAN as a customer, a tier-one service provider in the United States. Additionally, Sivers claims one tier-1 customer obtained through its MixComm acquisition.

Challenge

Photonics not moving forward

Sivers is discreet about its photonics customers but discloses that three Fortune 100 companies are actively testing its technologies. The first Fortune 100 customer has been evaluating Sivers for almost four years for a consumer product, investing approximately cUSD15m in engineering. In Q2’23, the customer ordered 30,000 chips from Sivers for qualification and system testing. Notably, other photonics-focused companies, like Rockley Photonics with Apple, have incurred higher engineering fees before product launches. This raises concerns that the customer may need to spend more before reaching volume production, potentially causing delays. The challenge lies in the limited insight investors and Sivers have into key customers' plans.

Valuation

Attractive pipeline of projects should close the valuation gap

Sivers has an attractive order book, with mass production for Sivers first generation beamformer already while newer generations are being developed. Followed by its first F100 customer in 2026. We estimate a sales CAGR 2023—2027 of 63%. The scale-up should allow for significant EBIT expansion, and we forecast Sivers to reach positive cash flow in Q4 and EBIT margin to reach 22% by 2027.

Follow-up on financial KPIs

Q2 developed slightly above our expectations with sales +14% y/y, and 5% above our estimates. Photonics sales was 41% above our estimates (+2% y/y, while Wireless developed slower than we had expected, but still grew by +27% y/y. Adj. EBITDA was SEK-12m, compared to last year's SEK-17m, and our estimates of SEK-22m. All in all, a solid but a number-wise uneventful quarter.

Sivers Semiconductors: Estimates vs Actuals
SEKm	Q2'24A	Q2'24E	Last year	Beat/Miss	Y/Y
Wireless
Net sales	29.2	33.4	23.1	-13%	27%
- of which product sales	10.3		3.3		212%
- of which NRE & Other	18.9		19.8		-4%

Photonics
Net sales	23.1	16.4	22.7	41%	2%
- of which product sales	10.0		3.8		163%
- of which NRE & Other	13.1		18.9		-31%

Total
Net sales	52.3	49.8	45.8	5%	14%
Capitalized work & other income	7.2	9.0	8.4	-20%	-14%
COGS	17.3	18.9	12.2	-8%	41%
Gross margin	67%	62%	73%	8%	-9%
OPEX	54.6	55.0	57.0	-1%	-4%
Adj. EBITDA	-12.4	-21.7	-16.6	-43%	-25%
D&A inc. adjustments	28.3	30.0	29.6	-6%	-4%
EBIT	-40.7	-51.7	-46.2	-21%	-12%
EBIT Margin	-78%	-104%	-101%	-25%	-23%

Product sales becoming a substantial part of the total

The main takeaway on topline was that product sales has jumped to a new, higher, baseline than before. Both Wireless and Photonics had product sales of above SEK10m, together making up c40% of total sales in Q2. In Wireless, Satcom continued to be the main growth driver.

Wireless

Wireless revenues per quarter, SEKm

Wireless LTM revenues, SEKm

Source: Sivers Semiconductors

Source: Sivers Semiconductors

In the report, Sivers reported significant progress in 5G. The company announced three new 5G clients:

NRE order from a well-known Japanese technology provider

New project for train connectivity with Blu Wireless

5G design win for fixed wireless customer access units (CPEs) from a major global company

Sivers stated that these three projects have a potential combined sales of c1 million units over the first three years of production, starting in 2026 (i.e., 2026-2028). Sivers also believes there to be a substantial upside to this projection.

We believe that a possible average selling price is likely to be somewhere between USD20-35, which would translate into almost SEK100m of annual revenues.

Photonics: Uneventful quarter, but main projects are on track

Photonics revenues per quarter, SEKm

Photonics LTM revenues, SEKm

Source: Sivers Semiconductors

Source: Sivers Semiconductors

There was nothing specific mentioned about the Q2 development in Photonics - as was anticipated. However, Sivers' most important projects incl. the F100 customer, the two customers in AI Photonics continue according to plan. Sivers expects these to generate new projects in H2 2024.

Cost base: Continued cost control

Sivers' cost base was held tight in Q2, with a total cost base of SEK55m, of which SEK8m was capitalized on the balance sheet.

The average number of employees amounted to 122, up from 117 in the last quarter.

Sivers Semiconductors: Cost base, SEKm

Source: Sivers Semiconductors

Financial position and burn rate: Inflection point required

Per the end of Q2, Sivers had SEK50m in cash, and has now used all existing bank loans. As such, the company had SEK50m in available cash when needed. Looking ahead, we estimate the company to reach positive cash flow in Q4 2024 - with about SEK30m to spare. However, this includes the assumption of a very strong H2'24. Asu such, while our analysis points toward no more cash needed, timing of revenues and payments could create a need of extra cash. The company has historically been good at raising bank loans, so a share issue may not be needed anyway. See below:

Sivers Semiconductors: Cash flow analysis

Source: Sivers Semiconductors

In our above analysis, we have estimated that working capital will increase by 30% of the sequential increase in revenues. This is a rough estimate and could fluctuate significantly.

Changes to financial estimates

Sales estimates raised by 5-6% for 2026e and 2027e, driven by an increase in Wireless

Gross margin is lowered somewhat for 2026e, whereas OPEX remains rather constant to previous estimates

Sivers Semiconductors: Estimate changes

SEKm	2022	2023	Q1 24	Q2 24	Q3 24E	Q4 24E	2024E	2025E	2026E	2027E
Total net sales	133	236	56	52
New					79	100	288	426	691	1,673
Old					79	100	285	431	653	1,591
Change					0%	0%	1%	-1%	6%	5%
Gross margin	63%	79%	69%	62%
New					59%	57%	62%	60%	58%	50%
Old					59%	57%	61%	60%	60%	50%
Change					0%	0%	1%	0%	-2%	0%
OPEX	166	234	52	52
New					48	42	194	230	295	366
Old					50	43	199	229	298	374
Change					-3%	-4%	-3%	1%	-1%	-2%
EBITDA	-75	-20	-8	-15
New					1	17	-5	32	112	477
Old					-1	16	-15	37	101	429
Change					-179%	10%	-69%	-14%	11%	11%
EBITDA margin	-57%	-8%	-14%	-28%
New					1%	17%	-2%	8%	16%	29%
Old					-1%	16%	-5%	9%	15%	27%
Change					2%	2%	4%	-1%	1%	2%

Sivers Semiconductors: Financial estimates

Sivers Semiconductors: Estimates
SEKm	2022	2023	Q1 24	Q2 24	Q3 24E	Q4 24E	2024E	2025E	2026E	2027E
Net Sales	133	236	56	52	79	100	288	426	691	1,673
- Wireless	60	152	31	29	60	82	203	304	501	727
- Photonics	73	84	25	23	19	18	85	122	189	946
OPEX	166	234	52	52	48	42	194	230	295	366
EBITDA	-75	-20	-8	-15	1	17	-5	32	112	477
EBITDA - Cap. R&D	-141	-81	-16	-22	-9	7	-40	-3	73	433
EBIT	-185	-159	-35	-41	-29	-13	-118	-49	21	363
EBIT - Cap. R&D	-244	-191	-39	-46	-37	-21	-143	-77	-12	325
EPS (SEK)	-0.4	-0.7	-0.1	-0.2	-0.1	-0.1	-0.5	-0.2	0.0	1.2

Growth (%)	46%	78%	-4%	14%	36%	35%	22%	48%	62%	142%
Gross Profit Margin (%)	63%	79%	69%	62%	59%	57%	62%	60%	58%	50%
Adj. EBITDA margin (%)	-57%	-8%	-14%	-28%	1%	17%	-2%	8%	16%	29%
EBITDA - cap. R&D margin (%)	-107%	-34%	-29%	-42%	-12%	7%	-14%	-1%	11%	26%
EBIT margin (%)	-140%	-67%	-63%	-78%	-37%	-13%	-41%	-12%	3%	22%
Net income margin (%)	-65%	-70%	-46%	-83%	-39%	-15%	-44%	-10%	2%	17%

Fair value range

Sivers Semiconductors: Assumptions, fair value range
	Bear Case	Base case	Bull case
Value per share, SEK	3	14	22

CAGR 2023-2027 per segment
Wireless	33%	48%	56%
Photonics	68%	83%	91%
Total	48%	63%	71%
Total sales 2027	1136	1673	2036

Profitabilty assumptions
EBIT margin 2028	11%	24%	26%
Avg EBIT margin 2024-2028	-11%	-1%	1%
Terminal EBIT margin	10%	18%	21%
WACC	12.0%	12.0%	12.0%

Quality Rating

People: 3

Management has extensive and broad experience from the telecom industry, which gives it a good understanding of the market and a clear idea of in what applications the company can deliver most value. Furthermore, the ownership structure is reassuring. Management own shares in the company. However, we would like to see larger shareholdings from management and the especially from board members without any shareholdings. We note that there is a positive trend in insider transactions. Sivers Semiconductors has two main owners that have supported the company in previous rights issues. The company will also score higher once we have a longer history of the current management team.

Business: 3

The company focuses on areas that offer significant growth opportunities while still in a commercialization phase. A few areas are inherent to the company’s industry, hurting its business score. For example, it operates in a fast-changing market. However, we expect the score to improve as its gross margins increase and its revenue base widens.

Financials: 2

Sivers Semiconductors is still operating at a loss and invests substantial amounts related to developing new chips and increasing production capacity. The company has recently been refinanced through a SEK150m directed issue, a loan of SEK50m, and junior capital of SEK50m. We expect to increase the score of this parameter as the company grows and shows increasing profits.

Financials

Income statement
SEKm	2023	2024e	2025e
Revenues	236.3	287.6	425.9
Cost of Revenue	50.2	110.0	170.4
Operating Expenses	234.0	193.6	230.4
EBITDA	-33.7	-6.4	32.1
Depreciation	18.7	16.8	12.2
Amortizations	106.2	95.0	69.0
EBIT	-158.6	-118.2	-49.0
Shares in Associates	0.00	0.00	0.00
Interest Expenses	-6.5	-7.0	-7.0
Net Financial Items	6.5	7.0	7.0
EBT	-152.1	-111.2	-42.0
Income Tax Expenses	0.00	0.00	-11.8
Net Income	-165.2	-125.2	-44.2
Balance sheet
Assets
Non-current assets
SEKm	2023	2024e	2025e
Property, Plant and Equipment (Net)	90.8	98.5	116.2
Goodwill	391.6	391.6	391.6
Intangible Assets	817.6	747.0	706.2
Right-of-Use Assets	0.00	0.00	0.00
Other Non-Current Assets	0.52	0.52	0.52
Total Non-Current Assets	1,300.5	1,237.6	1,214.4
Current assets
SEKm	2023	2024e	2025e
Inventories	36.4	70.0	106.2
Accounts Receivable	45.0	55.1	81.7
Other Current Assets	14.7	43.1	63.9
Cash Equivalents	25.5	99.5	60.7
Total Current Assets	205.5	283.0	327.6
Total Assets	1,505.9	1,520.7	1,542.0
Equity and Liabilities
Equity
SEKm	2023	2024e	2025e
Non Controlling Interest	0.00	0.00	0.00
Shareholder's Equity	1,197.7	1,072.5	1,028.3
Non-current liabilities
SEKm	2023	2024e	2025e
Long Term Debt	0.00	46.0	42.0
Long Term Lease Liabilities	15.6	15.6	15.6
Other Non-Current Lease Liabilities	187.5	187.5	187.5
Total Non-Current Liabilities	227.0	273.0	269.0
Current liabilities
SEKm	2023	2024e	2025e
Short Term Debt	0.00	0.00	0.00
Short Term Lease Liabilities	7.2	7.2	7.2
Accounts Payable	37.7	51.2	79.3
Other Current Liabilities	5.8	86.3	127.8
Total Current Liabilities	81.1	175.1	244.7
Total Liabilities and Equity	1,505.9	1,520.7	1,542.0
Cash flow
SEKm	2023	2024e	2025e
Operating Cash Flow	-152.3	76.9	23.1
Investing Cash Flow	-63.6	-48.9	-58.0
Financing Cash Flow	200.0	46.0	-4.0

Rating definitions

The team

Disclosures and disclaimers

Premium Plan required to unlock

Contents

Investment thesis

Follow-up on financial KPIs

Product sales becoming a substantial part of the total

Cost base: Continued cost control

Financial position and burn rate: Inflection point required

Changes to financial estimates

Fair value range

Quality Rating

Financials

Rating definitions

The team

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