Aiming to become the global leader in chip-scale photonic solutions by deploying Optical Interposer technology to enable the seamless integration of electronics and photonics for a broad range of vertical market applications

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Message: New Wainwright commentary...hope you can read!

From: POET Technology Sales <[email protected]>

Date: Mon, Nov 19, 2018 at 10:37 AM

 

 


FIRST TAKE


POET Technologies, Inc.


POETF: Price: $0.24; Market Cap (M): $69
Rating: Buy; Price Target: $1.50

 

Kevin Dede, CFA

 


Misperception—Borderline Appalling in Nature—Presents Investor Opportunity; Reit Buy

 


Click here for complete report and disclosures

 

 

First orders received—the ultimate sign of progress toward full commercialization—and Mr. Market seems to snooze through it. One week ago, Monday, November 12, POET issued ground breaking press indicating the company had received $3M in prototype orders and development funding, the first P/L-recognizable revenue to result from the company's integrated photo-electronics effort since the announcement of the GaAs-based VCSEL strategy in December 2012, almost six years ago. POET's Interposer platform, announced in January this year, remains the company's primary focus in combining POET's etch capability on silicon substrate and flip-chippable laser technology acquired with BB Photonics and DenseLight, respectfully, in 2016. Importantly, last week's announcement regarding the $3M in orders represents work with more than one customer, and particularly interesting in deciphering the press that did not stipulate POET's previously-announced development partner, China-based Accelink, implies that this announcement clearly designates new partner customers. As we understand it, Accelink still represents a significant opportunity in providing 100G and 400G integrated photo-electric receivers to the burgeoning China datacom market in ultimately serving Huawei, arguably the largest telecom equipment supplier in the world, and Exhibit 2 on the following page defines the datacom-telecom opto-electrical transceiver opportunity as approaching $20.0B by the year 2025, up from $3.2B estimated in 2017 or a 26% eight-year compound annual growth rate. The nuances of meeting Accelink's specifications continue to enjoy POET's attention, and we suspect improvements in the waveguide etch process, specifically reducing insertion loss, should move the development of that product along to meet the 1Q19 prototype delivery timeline. In the meantime, POET has entertained RFP's from a handful of other companies, some of which have progressed to commercial stages—a hugely significant event that we think deserves grander appreciation than the four-cent gain for the week POET's shares were accorded for roughly 20%, or $11.5M in market capitalization gains, vs. a flattish Nasdaq last week. In considering POET's 24-cent share price, it appears the stock, and by association, the company, have progressed relatively undiscovered by institutional investors. We imagine the construct evolves markedly through the course of next year, however, as POET's unique integration capabilities become more broadly recognized within the industry and particularly by Wall Street, and further improved on by the tactics we think the company may contemplate addressing its profile-raising strategy, such as executing a string of financial maneuvers, including: (1) a reverse stock split on the order of 10-20x where a 20x reverse could push the stock price close to $5 from current levels while only reducing the share count to approximately 15M outstanding, and (2) a Nasdaq-focused listing change.

Complete validation of technology and approach. Per last week's press, the multiple orders from datacom and telecom "industry leaders" serve to validate POET's Interposer technology and the significant savings afforded through the integration process. As we interpret it, major global companies, not exclusively in China, are paying for POET's Interposer prototypes and their development to specifications—a giant step forward, in our view, for a mosquito of a company on the tail of the elephant-sized datacom-telecom industry. Large company consideration of the POET Interposer suggests a high degree of confidence that POET should meet technological development requirements, and we see our FY19 $10M sales estimate, still unchanged, as conservative in light of the doors that were opened as suggested by the press last week. Some investor consternation may have been sparked by the size of the $3M order announced. Expectations may have unfairly, or quite frankly, ignorantly included press-released sales figures at orders of multiples higher than those announced. And in mimicking many other investment propositions, we think sharp investors have an opportunity to exploit naivete in understanding that large companies need to start small, develop, prove, and commercialize through incremental steps versus making a huge all-or-nothing technology bet. Further, reading into the press at a deeper level, we are confident that POET has more development avenues to pursue than its resources may permit. And again, similar to many other small cap, resource-starved companies, decisions regarding development are most often swayed by complementary development funding, and we believe POET is seeing more broad-based industry support than it ever has in its opto-electrical development past.

 
   


Kevin Dede, CFA 
415-779-5876 
[email protected]

 


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