| | | FWIW
A question from someone on SA and my answer.
Question
Hello Gary, I'm getting impatient with the recent decline in Sequans.
Breakeven opportunities have presented themselves with optimistic share
price rise. Taking a loss at this point would not even compare to the
loss incurred over the years of holding the bag. I have recently
purchased shares in the Covid stocks and the gains are weighing hard on
selling Sequans, freeing up money to add to my winning positions. It
looks as if SQNS share price may be reserved for the remainder of the
year and its not unrealistic to think that a lot of portfolios will have
or will chase Covid stocks. Please share your opinion on this matter.
Thanks XXXXX (Redacted)
My Answer.
It has been a long frustrating ride and while I think things are probably in the best place that we have seen for several years we are still a far cry from looking like we are on a glide path to break-even or better.
I wish I had a better sense of how Cat-M\NB-IoT was doing. As you know they talked up their pipeline as having $200M in it but that was close to 2 years ago and it seems like we are only doing a few million per quarter.
Positives are:
$30M+ cash on hand
LTE-M appears to be ramping slowly
Uptick in broadband, at least for now.
CBRS looks like it could be a solid opportunity for them
I think NXP and Microchip could be strong positives for them but at best I think that is late next year before they are shipping in any significant volume.
They have several strategic partners, one that is willing to invest $35 million in them to produce the 5G Taurus chip.
Although Cat-M and NB-IoT are 5G technologies the market does not treat them as such. However, if they bring a 5G chip to market they could get some significant attention from the market in general.
LTE over satellite could be quite profitable as they are the only solution in a niche market that is not worth pursuing by QCOM.
Their quarterly expenses seem under control so some of the benefit from the strategic investor is going to the bottom line. Not just inflating their expenses with the group in Israel.
Downsides:
We have heard it all before, the promises and the failures.
Georges has a track record of excessive optimism.
Same management team that has brought us a streak of failures in the past.
They don't admit mistakes so it's hard to pivot if you can't admit that you are wrong.
A lot of debt and large quarterly interest payments.
Slow ramp in Cat-M seems to undercut their whole business strategy.
Very opaque quarterly calls and untrustworthy estimates of future business.
Small player that can't generate much PR because their deal partners prefer anonymity, so the market can't get excited.
I share your pain in losses as well as the lost opportunity, 4 years for me. In that time AAPL, AMZN have quadrupled with a much lower downside risk than Sequans.
Even though LTE-M has not taken off I still believe that it is a matter of time. The cost\benefit just seems too strong for it to not become pervasive.
It's a question of risk.
If you were to assess risk based on management's past performance then I think you would come to the conclusion that this stock carries too much risk.
If you were to assess risk based on market demand and supply for their products I think you would conclude that they have a decent portfolio of products in a marketplace with a relatively small number of providers. With a market cap of only $200M it has a lot of potential upside if LTE-M really takes off.
But management still needs to deliver continuous reliable growth every quarter for this to become a story stock. Trouble is, in the four years I have followed them I think the best "run" they have had was 2 consecutive quarters before they shit the bed.
I think they will plod along for a while and will see some revenue improvement but it will be mixed with disappointment. Barring any sudden news I don't see a rapid change in their business prospects for the remainder of 2020. We should have more clarity on their LTE-M and CBRS prospects by 2021.
I continue to hold. LTE-M just makes so much sense and offers great utility at low cost, coupled with long battery life. It seems like a no brainer and yet the market has been incredibly slow to respond. Where are the LTE-M standalone smart watches\wearables.
Too often if the past I have substituted the judgement of "analysts" for my own judgement that has led me to selling stocks like AAPL, NFLX and FB prematurely. I think the technology is a winner. The question is whether SQNS can hang on long enough for the LTE-M market to mature. Personally I think they can, but it could easily be dead money for the next 9 months.
Good Luck. |
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