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Date : 29/06/2021

Weebit Nano (ASX: WBT)

ASX :

WBT

Market Cap : $234.18 Million

Buy

52 Week Range : $0.26 - $4.27

Share Price : $1.73

Weebit Nano is on a fast path towards commercialisation with its product now ready for production. Given thier massive competitive advantages, we recommend a "Buy".

Company Analysis

Weebit Nano (ASX: WBT) is poised and optimally positioned to become a leading player in the semiconductor industry of the future. The company is transforming the ‘memory on chip’ industry and they are delivering a ‘need to have product’ to an industry that plays a central role in our future. For some perspective, WBT is currently trading at levels last seen in October last year and an analysis of trading volumes reveals that there is no speculative pricing influxed into the current stock price.

ASX: WBT has been one of the widely covered stocks at Shares in Value, and if you missed the first run, we believe there is a chance here to catch the second run quickly. Here is how the narrative has played out so far:

  • Weebit Nano have been working on innovating a new ReRAM technology that is set to revolutionise the semiconductor memory market, more specifically, the Flash and DRAM memory market.
  • Their technology is 1000x faster and 1000x more power efficient than the current memory technology and is also easy to manufacture as the company claims it is made from common materials found and used within the semiconductor industry.
  • Few months later, WBT has consistently hit their milestones, filed several patents, and their product concept has been validated. Following an equity raise, the firm are also optimally positioned to keep progressing.
  • As things stand going into FY2022, Weebit Nano is on the verge of beginning production. The catch? The entire semiconductor manufacturing industry has hit somewhat of a roadblock recently as the demand is just way too high for the supply to keep up.
Graphical user interface, chart, histogram Description automatically generated for Weebit Nano Ltd (ASX: WBT)
Source: Tradingview.com

 

Huge Market Opportunity

The semiconductor memory industry is driven by two very different technological solutions on either end of the spectrum – DRAM and Flash.

DRAM is a high speed and highly volatile memory. In a nutshell, high volatility means the chips lose the data as soon as power is cut off. The chips are associated with high power consumption and high costs per every gigabyte of memory. The data is limited to 2D density.

Flash however is quite the opposite. Its costs have been decreasing every passing year. It comes with speed much lower than DRAM, but it has 3D density capabilities (meaning, more data can be stored), and very low volatility & power consumption.

The number of devices a person interacts with everyday has been increasing. By 2025, research estimates reveal that an average person will interact with 4 devices every day. These devices are only getting smarter and in order to get smarter, they should be capable of storing more data, delivering it at higher speeds, reduce volatility of the data, and of course consume less power.

This rapid growth in data storage and processing is driven by a wide range of applications in a lot of industries. Phones, computers, and electronic devices are not just the sectors that demand faster and innovative memory anymore. With the emergence of technology, almost every sector is on the verge of disruption with big data and machine learning capabilities becoming more mainstream. Artificial Intelligence and Internet of Things applications are more widespread than ever before. The one common requirement for all these sectors is the availability of faster, denser, less volatile memory that also comes with lower power consumption.

Flash Memory market size Chart, bar chart Description automatically generated

The market size for DRAM at the end of 2019 was US$ 45 billion. While that of Flash memory is about US$60 billion. News of demand in the industry is at levels that we have never seen before as storage requirements are growing at 2x year-on-year.

WBT’s solution should fit in seamlessly and has the potential to completely replace the existing Flash Memory and also gain a lot of market share in the DRAM market.

ASX: WBT’s Competitive Advantage

To complement the huge opportunity that lays ahead for Weebit Nano, they also have significant competitive advantages and huge barriers to entry.

The low-cost nature and the usage of standard materials that are widely available within the semiconductor industry for production makes the entire process a lot less risky and affordable. This will ensure stable gross profit margins for WBT in the long-term.

Great, so what if there is a copycat firm out there that can replicate Weebit Nano’s process? The short answer is, its not very straightforward. Firstly, the firm has filed several patents that its now getting hard to keep track of them all. Weebit Nano continues to protect its intellectual property, filing five new patents during the December-half of FY2021 alone. Three of these are joint patents are with their research partner CEA-Leti, relating to ReRAM optimisation and multi-level storage in ReRAM (for Which Weebit has exclusive rights to commercialisation). Weebit Nano’s two other patents define a novel selector suitable for embedded ReRAM memory applications using standard Silicon on Insulator (SOI) low-voltage transistors, reducing the size of the selector, and enabling production of smaller, lower-cost embedded memory modules. Again, the materials they are using, and their production process is being protected.

In the latest quarter update, that is, ending March 2021, WBT filed 2 new patents that significantly improve ReRAM programming. Applicable to a wide range of ReRAM technologies, the patents use sophisticated analog circuits to increase memory endurance while reducing access times and power consumption. The first patent describes unique chip circuitries that operate in tandem to optimise the access time and power associated with programming the memory module, while also enhancing bit performance. The second patent doubles memory access speed by expanding the concurrency of ReRAM programming beyond what emerging Non-Volatile Memories currently support.

These patents and the incredibly long time it takes for a firm to have a product concept out there that can be manufactured safeguard WBT from future competitors crowding the space. For comparison, in all things technology, this niche industry is quite the opposite of the very easy to enter and overcrowded BNPL space. The technology innovation and validation alone take a good 5-7 years assuming the company in question hits all their targets and milestones consistently with maximum efficiency. This ensures high barriers to entry and de-risks WBT’s long-term success.

Progress, Progress, Progress!

In the lead up to the year, WBT completed the stabilisation process by improving the parameters of their technology and transferring it to a production facility. The stabilisation process significantly improved the quality of Weebit Nano’s memory functionality, bringing the level of functional cells to over 99 per cent –a key requirement when moving to production and in line with industry production standards. The stabilisation process also enabled Weebit Nano to increase the wafer-to-wafer and die-to-die uniformity and ensured batch-to-batch repeatability.

During Q3 FY21, Weebit Nano and its development partner Leti progressed development activities across both the embedded and discrete memory markets. The embedded memory module is on track to complete the design stage in mid-2021. Featuring enhanced functionality, the memory module is one of the first in the world to be integrated into a sub-system consisting of a processor, Static Random-Access Memory (SRAM), the ReRAM array and peripherals. It will enable potential customers to use the module to fast-track their own development of low-power IoT devices and sensors!

Last week, WBT announced it has created the industry’s first commercial integration of an oxide-based ReRAM (OxRAM) cell with an ovonic threshold switching (OTS) selector, a critical step in the company’s commercialisation path for the discrete (stand-alone) memory market.

This achievement is a significant step towards broadening Weebit’s target market beyond embedded non-volatile memory (NVM) to include discrete memory technology. New markets like IoT, 5G and AI are driving needs for emerging NVM on advanced process nodes. Weebit’s combination of ReRAM with an OTS selector promises to scale to the advanced processes and high memory densities that new memory chips will need. This milestone has been hit 3 months ahead of schedule and adds another channel for revenues to flow in.

Top-Quality Management driving Execution

Management need to know exactly what they are doing. There is compelling evidence to suggest that WBT has been very successful in their product development and commercialisation process so far. But can it get better? Certainly! Its reassuring to long-term investors that the firm continues to add quality to its management team.

During the quarter, Weebit Nano appointed non-volatile memory veteran Ishai Naveh as Chief Technology Officer. Mr Naveh brings more than 35 years industry experience to the role, previously serving as VP Non-Volatile Memories at Tower Semiconductor before co-founding early ReRAM company Adesto in 2007. His extensive semiconductor experience, specifically within Non-Volatile Memory and ReRAM, covers process development and integration, silicon manufacturing, setting technology requirements and directing technical teams to address customer requirements. As CTO, Mr Naveh will be responsible for the strategic direction of the Company’s ReRAM development, adapting it for the embedded, discrete, and neuromorphic markets, and differentiating it from competing technologies. He will also support Weebit Nano’s engagement with manufacturing facilities and technology transfers.

Where to Now?

The product has completed the stabilisation process, there is continuous improvement in the parameters, WBT has secured a selector, and now, Weebit Nano is on a fast path towards commercialisation. With its technology now ready for production, there are on-going discussions with potential semiconductor customers and partners, and the firm is targeting first commercial agreement in the latter half of 2021.

In a battle between the USA and China over semiconductors, WBT looks to have picked China and the massive Asian opportunity. This strategic decision will come with significant advantages such as – cost effective manufacturing at scale, a much larger consumer market, and several markets that are growing faster than the West.

There are two types of commercial deals we are keeping an eye on – license agreements with bigger players that will bring in royalties for WBT, and direct selling of their product. This opens up two different revenue models for Weebit Nano.

Both – the commercial agreement and the start date for production have the potential to be market sensitive announcements with catalytic properties.

Technical Analysis

ASX: WBT Chart Description automatically generated

ASX: WBT Trend

WBT exhibited a strong rally throughout 2020, from below one dollar to nearly five dollars per share by the end of January 2021. However, as anticipated, the impressive plus tenfold upside could not be sustainable and was mainly driven by traders’ and investors’ FOMO (Fear of Missing Out). Throughout the first quarter of 2021, WBT went back to its price equilibrium at A$ 1.8 per share. Technically, we have seen a divergence between the RSI indicator and the price action during the late phase of the rally to the recent high at A$ 4.27. The RSI continue to point lower and is now below the 50-level, which imply that WBT is heading to the oversold territory. Recently, we have seen WBT starting to pause around the price equilibrium of A$ 1.8 per share, which might show the beginning of a reversal.

Key price levels

The key area to observe is the A$ 1.14 – 1.40 which is the inflexion zone. We expect WBT to consolidate in this area and build up significant momentum for the next rally toward the 50% retracement from the earlier Sep-Jan21 swing high. Once the 50% retracement at A$ 2.28 is cleared, WBT will then attempt to reach the psychological level of three dollars per share where it will find strong support which is necessary for the next push to A$ 4.0 and beyond.

Volume and momentum

Volume decreases since the last 200-day with the 20-day volume average down by -33%. The price action remains neutral in the near term, evolving in a range between A$ 1.4 and A$ 1.8 per share.

Trade consideration

  • Market participants might be interested to enter at key support level: A$ 1.4 and A$ 1.14 per share.
  • Primary target price above $A 3.0 per share
  • Secondary target price at $A 5.0 per share
  • Consider reducing exposure below A$ 1.0 per share
  • It is recommended exiting the trade below 75 cents

Weebit Nano Ltd ASX: WBT Chart, histogram Description automatically generated

Recommendation

Weebit Nano is on a fast path towards commercialisation. With its technology now ready for production, there are on-going discussions with potential semiconductor customers and partners, and the firm is targeting first commercial agreement in the latter half of 2021. They have excellent competitive advantages, a stellar management team to drive execution and long-term structural tailwinds that support the investment case. As of 29-Jun-2021, we recommend long-term investors to “Buy”.

 

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