Akoustis Technologies, Inc. (Nasdaq: AKTS) Looks to Disrupt Rapidly Growing Bulk Acoustic Wave RF Filter Market

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Key Players Include: Akoustis (Nasdaq: AKTS), Broadcom (Nasdaq: AVGO), Qualcomm (Nasdaq: QCOM), Qorvo (Nasdaq: QRVO)

By: Ross Silver, RIA & CEO of SylvaCap Media

Before diving into the technical explanation of what is taking place in the bulk acoustic wave (“BAW”) radio frequency (“RF”) filter market, ask yourself how many times you look at or use your mobile device each day. Well, if you are like most Americans, you touch your phone roughly 2,617 per day, and use your mobile device just about 5 hours a day. The graphic below depicts minutes of mobile device usage per day by mobile users:

Mobile devices have evolved from being a means to speak to one another to becoming multi-faceted devices with seemingly limitless applications. The evolution of mobile device has been driven by the incredible and rapid development of applications or “apps”.

The graphic below illustrates app usage by individuals’ year over year and projected usage through 2018:

So, how are mobile devices able to deliver massive amounts of data at light speed? The answer is a technically advanced wireless infrastructure enabled by some key components, one of which is RF filters. The availability of multiple features on a single platform is driving the adoption of the global BAW RF filter market. This is possible because of rapid technological advances in electronic devices such as notebooks, laptops, smartphones, and ultra-books used by both the public and private sector (including the military). These devices are increasingly functioning as multifunctional terminals that offer a range of new applications on a single platform.

What are RF Filters? RF filters include a broad range of surface acoustic wave (“SAW”) and BAW that cover all popular wireless standards including cellular, GPS, Bluetooth and industrial, scientific and medical (ISM) bands. Broadcom, with a $103B mkt cap, is the leader in the space as they have one of the widest portfolios of RF BAW filters and can cover frequencies from 1.8 to 3 GHz. Other companies such as Akoustis and Qorvo are also players and may represent appealing acquisition opportunities for the acquisition-friendly Broadcom, who is actively trying to acquire Qualcomm for over $120B. A key growth driver is the proliferation of smartphones and tablets. Applications in high-end smartphones require BAW filters to support frequencies above 2 GHz. Because BAW filters offer superior performance to SAW filters, and BAW filters sales are dominated by two major suppliers (Broadcom and Qorvo), they define the premium BAW RF filter market and command a higher average selling price. BAW filters have the smallest form factor and deliver improved selectivity performance. In addition, BAW filters can be massed produced because they can be produced on 6” and 8” low cost silicon wafers.

According to an independent report published by Mobility Experts in 2016, updated as of March of 2017, the global BAW RF filter market is expected to reach almost $5 billion by 2021, with a compound annual growth rate in excess of 16%. One trend that is expected to boost BAW RF filter market growth is the growing technological convergence in the LTE network as well as the global deployment of new 5G bands in the sub-6GHz spectrum.

Another independent report recently published by Technavio stated:

…the global bulk acoustic wave RF filter market vendors has high entry barriers due to the substantial capital investments required in research, innovation, and development of advanced RF components. The presence of big vendors such as Broadcom, formerly Avago Technologies, and Qorvo and the high pace of technological innovation in the overall semiconductor industry. In order to survive in this competitive environment, the vendors need to distinguish their product and service offerings through clear and unique value propositions. The competition among the existing vendors is expected to intensify during the forecast period, primarily because of the creation of bigger entities through large M&A activities such as the creation of Qorvo, the new name given to the alliance of RF Micro Devices and TriQuint Semiconductor.

Akoustis Technologies, Inc. (Nasdaq: AKTS) is an emerging growth company focused on developing, designing and manufacturing innovative BAW RF filter products for mobile and other wireless applications. Akoustis uses a patented and fundamentally new piezoelectric resonator technology that Akoustis calls BulkONE® in the manufacturing of its BAW resonators – the building blocks of high selectivity RF filters required to route signals in a smartphone or other mobile or wearable device, cellular infrastructure and Wi-Fi routers. Filters are a critical component of the RF front-end, and their use has multiplied with the launch and licensing of 4G/LTE, emerging 5G and 5 GHz Wi-Fi frequency bands. They are used to define the range of frequencies of radio signals that are transmitted (in the so-called “passband”) and simultaneously reject unwanted signals (outside the passband).

Akoustis uses high purity, single-crystal piezoelectric materials to develop a new class of high frequency BAW RF filters. The company is focused on fundamental physical property advantages of high purity, single crystal piezoelectric materials over conventional, highly defective polycrystalline materials used since the early 1990’s. Through atomic level engineering of crystal structure, Akoustis is focused on producing BAW RF filters that operate at higher frequency and wider bandwidth than those commercially available today. Akoustis exploits high thermal conductivity, high piezoelectric constant and high sound velocity in its single crystal materials to focus on delivering:

  • High frequency: BAW RF filters up 6GHz and beyond
  • Wide bandwidth: RF filters meeting increasing demands of 5G Mobile and 5GHz Wi-Fi
  • Small form factor: including 28x size reduction over existing 5GHz dielectric filters
  • Low insertion loss: to reduced heat generation and battery loading
  • High power compression and linearity: RF filter circuits
  • Sharper transition from passband: to reduce guard band between adjacent frequency bands

Single Crystal BAW Patent Portfolio

Akoustis has fifteen issued patents, including three patents under IP exclusivity agreements with two leading U.S. universities in the development of similar single crystal materials, plus more than twenty patents pending in the U.S. and internationally.

Internalized Supply Chain Reduces Wafer Cycle Time and Increases Wafer Capacity

In June 2017, Akoustis completed the acquisition of STC, a manufacturer of large diameter MEMs Wafers. The $2.75M acquisition included a 122,000 square feet wafer factory on 57-acres, a 6-inch wafer fab facility including wafer production tools, and MEMs operation capable of producing annually an estimated $150 million of the company’s single crystal RF filters with minimal facility upgrades and equipment additions. The transition from external to internal wafer manufacturing reduced wafer cycle times from 60 days to less than 20 days, with further reductions expected. Further, the company’s internal fabrication facility is expected to support both R&D and manufacturing requirements through 2018 and can be ramped with additional labor and alleviation of tool bottle necks.

First Manufacturing Line Completed in NY Wafer Factory

In January of 2018, Akoustis announced it has completed the installation of manufacturing equipment at its New York plant which allows it to process wafers from the point of receipt of raw wafers up to the packaging of the RF filter die. The capital buildout consolidates the company’s epitaxy, wafer fabrication and trimming work centers under one roof, establishing the industry’s first single crystal BAW RF filter factory. Key manufacturing tools have been added eliminating previously outsourced pieces of Akoustis’ wafer fabrication process. Qualification of the tools has commenced and is expected to be completed this quarter (1Q18).

The company has added scalable metal-organic chemical vapor-phase deposition (MOCVD) manufacturing to produce its patented, single crystal piezoelectric materials. Advanced single crystal materials are key to Akoustis’ technology which exploits unique material science to address critical RF filter requirements for existing and next generation communications applications, including emerging 5G wireless. The MOCVD capability is configured for 150mm diameter wafers and is forward compatible up to 200mm diameter.

Mary Winters, VP of Wafer Fab operations in the company’s NY State facility, commented in a recent press release, “Consolidating our entire BAW process in-house reduces cycle-time for product development and enables a more reliable supply chain to manufacture wide bandwidth, high frequency RF filters.”

In that same release, Jeff Shealy, CEO of Akoustis, commented, “We now have the capacity to service multiple end markets using high performance, high complexity RF filter products. This consolidated manufacturing capability positions us to execute our business plan, including technology and first product qualification for commercial manufacturing for emerging 5G wireless applications in the first-half of calendar year 2018.”

Upcoming Milestones

There are several term milestones which could prove to be catalysts for Akoustis. The company expects to freeze and qualify its patented, first generation BAW wafer process technology, qualify its first RF filter product for commercial manufacturing in the first-half of calendar year 2018. Once achieved, Akoustis will be positioned to expand its single-crystal BAW RF filter products for multiple end markets. Akoustis’ product focus is on innovative single-band filter products for the radar market, the rapidly growing 5GHz Wi-Fi market, followed by the LTE and 5G smartphone applications. The 5GHz Wi-Fi market is rapidly expanding based upon the combination of Tri-Band frequency deployment and multiple-input, multiple output (so called “MIMO”) architectures. These 5GHz RF filter products present the greatest near-term commercial opportunities for Akoustis.

Technology Applicable to Multiple Markets; Initial Focus Includes 5GHz Wi-Fi Routers

Akoustis has sampled its RF filters across multiple end markets from its newly acquired NY Wafer Fab. In August and September 2017, AKTS separately announced first shipments of high performance LTE-TDD Band 41, 2.6 GHz BAW RF filter prototypes that it believes will satisfy the challenging filter requirements in the high growth 4G LTE mobile market in China; a first shipment of premium high-band BAW filter prototypes for a radar application that will operate with a passband between 3.5GHz and 3.9GHz; and a first shipment of the industry’s first single-crystal 5.2GHz BAW RF filters for 802.11ac Tri-Band Wi-Fi routers. These were the first discrete RF filters produced in the company’s recently acquired NY manufacturing facility.

The company was also engaged by a customer to design multiple filters for multiple frequency bands using its single crystal BAW technology. In November 2017, Akoustis announced its first shipment of high performance single-crystal BAW diplexer filter module prototypes. These initial prototypes were shipped pursuant to a customer engagement and purchase order announced by the company in May 2017. The purchase order covers the cost of engineering development and initial delivery of BAW RF diplexers for band-specific applications in the frequency spectrum below 1.5GHz.

Also, in November 2017, Akoustis announced it had received a first purchase order from a top-5 Handset OEM for sample quantities of the company’s 4G/LTE and 5GHz Wi-Fi RF filters.

Sure sounds like an exciting investment idea to us and Akoustis may represent an attractive investment opportunity at the current valuation. We added Akoustis to our portfolio of companies available at www.sylvacap.com. Let us know your thoughts on Akousitis by sending us an email to info@sylvacap.com and be sure to register on our site in order to receive our monthly newsletter as well as further updates on Akoustis and other small cap companies/investment ideas.

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Contact: info@sylvacap.com

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Ross Silver is the CEO and founder of Sylva International. Mr. Silver is a Registered Investment Advisor with over 15 years experience in equity research, investment banking, and asset management. Mr. Silver served as a consultant for the National Institutes of Health and holds a Series 65 securities license.

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