I will take the contrasting view. A few weeks ago I wrote on here that management should raise some cash while the opportunity presented itself, albeit higher levels would have been even nicer! This sucks short term, it always does, but my view is good management teams raise cash when the share price gets out of control. Look at what it's done to 3DP -- they are running on an oily rag despite commanding a ridiculous valuation at one point. They never raised cash when they absolutely should have. We shouldn't for a second think that Weebit should realistically be priced at 6.00-7.00 in this current market -- essentially a market cap of 1b for a company that (currently) doesn't make a cent of revenue. Don't get me wrong, I sit firmly in the bull camp here, this is a company that could realistically be earning billions in revenue one day. But that day is many years away and to get there they will need cold hard cash. Raising capital at 5.00 per share significantly reduces dilution (vs 2.00 a share). Yes, the share price games this week have been disappointing, but I am also careful to blame management / the company in this scenario, particularly with no evidence at hand. There are lots of people that are exposed/aware of a capital raising like this, and a good portion of those are external to Weebit. I think it pays to be cautious about a leaky ship, but I don't want to be too emotional about this in the scheme of things. Onwards and upwards.

Weebit Nano Ltd (WBT – Weebit) is a developer of next-generation semiconductor memory technology. Founded in Israel in 2015, the company develops Resistive Random-Access Memory (ReRAM) technologies which is a specialised form of non-volatile memory (NVM) for the semiconductor industry.

Investment thesis – Weebit is a leading disrupter in next-generation semiconductor memory solutions, with the company’s recent commercial deal validating its ReRAM technology. Other things I like:

• Industry tailwinds – applications such as IOT devices, smartphones, autonomous vehicles, artificial intelligence etc have ever-increasing storage requirements. Flash memory, the incumbent, cannot continue to scale due to cost, scalability and complexity limitations which make it more difficult to embed within next-generation chips. The next generation of memory technologies should address limitations in present storage, delivering data where it’s needed for real-time processing. Cost and power consumption are both important factors here.
• So, why ReRAM? What makes Weebit’s memory technology innovative?
  • It is highly scalable and offers multiple commercial and technical challenges over alternative technologies. 
  • It can be quickly and easily integrated with existing standard manufacturing flows and processes – consequently is it much cheaper when compared to alternative NVM technologies.
  • It is also proven to be significantly faster and more reliable and energy-efficient than existing Flash memory solutions.
• Recent commercialisation validates technology: Weebit recently announced its first commercial deal with SkyWater technology (NASDAQ: SKYT; US$1.3 billion MC). This provides commercial validation of Weebit’s ReRAM technology and commences the growth trajectory for the company’s technology onto customer chips. Volume production is anticipated by the end of CY2022. Weebit will receive licence fees and royalties as part of the deal. I anticipate (and hope) this recent deal will be the first of many. 
• Competent and skilled management team with a great track record. In particular the company’s Chairman, David Perlmutter, is the ex-Chief Product Officer of Intel Corp. The chairman is crucial for the company’s success – with his experience and connections in the industry likely to provide the company with additional competitive advantages on top of its innovative ReRAM technology.
• Cash holdings at 21million, with no debt. Well placed to continue its growth trajectory into FY22. 

Commercialisation strategy

Weebit’s technology can be used in both embedded memory and discrete (stand-alone) memory chips. The company is focusing on embedded memory in the short term – providing semiconductor companies like SkyWater with innovate solutions by embedding Weebit IP onto their chips.

Long term, Weebit’s goal is to expand beyond embedded applications into the much bigger market for discrete devices. Current discrete NVM encompasses NOR flash (which is broadly used for on-device code storage in consumer, automotive and industrial applications) and NAND flash (widely used for device and cloud storage).

Conclusion

In my opinion, Weebit has become less speculative with the recent commercialisation of its ReRAM technology. In the disruptive technology space, the first agreement is the most difficult (and important). I think this agreement makes the risk/reward element much more attractive. Consequently, I am more comfortable with it having a larger weighting in my portfolio – I am backing in a well-regarded management team and their ability to (continue to) achieve significant milestones through additional/future commercial deals. That said, there are still many risks that I need to be aware of going forward: 

Risks/to monitor

• My thesis is based on Weebit being a market-leading disrupter in memory technology. It needs to lead the way with respect to cost, performance, scalability, and reliability. Another company producing superior technology – and then commercialising – will result in my thesis being busted and I will sell immediately.
• The company’s recent annual report indicates it was in discussion with multiple companies re: commercialisation of its ReRAM technology. SkyWater represents the first – hopefully of many. Ideally, the company will slowly start to announce additional partnerships over the next 12-24 months. This will continue to see its technology validated.
• Monitor the commercialisation of Weebit technology within SkyWater, which should provide the company with competitive advantages. It is important that this transition is a smooth one – success here will almost certainly result in other customers seeking out Weebit’s technology.
  • In addition, how much will Weebit stand to make from its partnership with SkyWater? This will provide an indication of what we can expect from additional agreements etc. There aren’t a lot of details re: this yet.
• Losses in the year (11m) were more than double FY20 losses (4m). This is OK, particularly noting the progress the company made, but it’s not sustainable long term. Share dilution is particularly concerning, increasing twofold in FY21. With the recent partnership announcement and hopefully several more to follow in the coming months, FY22 should hopefully result in reduced levels of dilution and loss.

DISC: I am slowly starting to accumulate IRL and on Strawman – noting that my first entry point was $2.80. I think WBT represents great value between $2-$3.50 and I will continue to accumulate slowly at these levels. I am investing with a long-term horizon in mind here, provided the company continues to perform well. Well done to long term holders much before my time that have enjoyed phenomenal returns in the last few years.