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Wednesday, March 6, 2019

Dialog Expect Low Volume Energous Sales in 2019

Earlier today Dialog Semiconductor announced on their conference call that they do not expect significant sales for Energous in 2019. Dialog is a large semiconductor manufacturer who produce, market, and sell Energous electronics to third parties, and previously invested up to $25 million in Energous. In the words of Dialog, the relationship is where:

We provide the product manufacturing and marketing part of that partnership. They do the front-end system design, the technology, the engagement with the customers in terms of getting into new areas

While Dialog claim to sell the parts, unlike most electronics parts there are no standard data sheets available for the Energous components, and you can't order them from their website, almost as if they don't want anyone to know the actual performance. As Dialog are a publicly traded company, they have earnings calls, and today they were asked how things were going with Energous. The link above has the full transcript, but here's a couple of relevant parts:

For 2019, it would be some amount of, if you like, low-volume shipment to innovative customers, first-time users, etcetera, who are trying things.

We don’t expect large volume in 2019. In fact, we have shipped already some units, but we’re talking thousands, they’re not millions. 

This is at odds with statement's from Energous' CEO, Steve Rizzone, from last week's WATT conference call:

A similar situation befell us with the second top-tier opportunity we were tracking for Q4 revenue. The customer was planning a second quarter product launch, which would have triggered a meaningful order in the fourth quarter of last year to support preproduction and initial mass production manufacturing ramp. ... With these changes, we now anticipate the associated chip order will come and ship in the second quarter of this year.

as well as:

We expect to see a number of additional products shipping to the consumer in 2019... A case in point is the fact that we expect to see a number of WattUp-enabled hearing aids from different manufacturers launched to the consumer in 2019.

Hmmm, who to believe?

Dialog announce expected volumes of a few thousand units, at a few dollars each? Given this, it confirms my expectations of no leaps in Energous revenue for the next three quarters.

Another potential issue this raises is that just last week Energous moved forward with a new stock offering, and raised around $23m, which at the current burn rate will barely last for 2 quarters, not enough to get them to 2020 and even a chance of volume sales. Steven Rizzone, CEO, had stated:

The transaction raised $25 million less expenses, which factoring on our existing cash, forecasted revenues, reduced expense budget for the year, should fund the Company for the foreseeable future. 

Let's be generous and say that the 'foreseeable future' is 4 quarters, in which case they need to cut expenses from around $50 million a year to $24 million a year. In the last couple of years expenses have been roughly $30 million in R&D (mostly headcount, currently 71), and around $16 million in stock compensation. So the CEO and pals can keep their stock comp and slash staff by about 50 people, though that  won't exactly look like a company with a future. Alternatively, they could give up 100% of their stock compensation, and only have to lose about 15% of the staff (11 or so). 

So slash staff, equity comp, or a mystery source of revenue? Hands up everyone who sees this crowd giving up their equity comp, or the magic money fairy dropping a large bag of $ at WATT HQ?

Speaking of stock, it is not having a good time right now. Here is WATT over the last year - see if you can spot where rumours of Energous being in the Samsung Galaxy S10 started, and when it was announced that it absolutely was not.

Only down 73% since this time last year...

(Repeating the seemingly obligatory statement - I have no financial position, short or long, in Energous or any related company. Nor have I ever had any such positions.)