Ethernity Networks Ltd (AIM:ENET, FRA:82N) (AIM:ENET) said it will focus most of its research & development resources toward delivering complete system solutions as opposed to licensing deals after achieving a change in revenue mix in the first half of the year.
Directors of the AIM-listed company said they believe that the current signed contracts and orders received and expected, along with other customer discussions, show that Ethernity’s unique system solutions “can capture significant interest” in the Open RAN market that is increasingly prevalent in the wireless telecoms sector.
Historically the company provided field programmable gate array (FPGA) licences for virtual network appliances in the mobile telecoms sector.
But now with the main goal of becoming a supplier of “customised and differentiated system solutions”, notably in the 5G market, Ethernity has “elevated our offerings in the value chain” by offering not just the FPGA code, but also the software application and complete system solution.
“This focused and comprehensive strategy allows us to capture multiple times more revenue per unit as compared to that which can be derived from only selling FPGA code.”
The first six months of 2021 showed the change in the mix towards recurrent product revenue streams from the historical licensing and royalties revenues.
Total revenues increased 166% to US$0.96mln while the gross margin percentage declined to 63.4% from 88.2% due to increased revenues from product sales with lower margins as opposed to the near-100% margins from licensing and royalties revenues.
A return to normal operations after COVID-19 cutbacks saw R&D, admin and marketing expenses increase 7%, though underlying losses (EBITDA) were US$2.47mln compared to US$2.42mln a year ago.
At the end of June there was cash of GBP3.4mln in the bank.
In line with the strategy of being a solutions provider, the company said it intends to focus most of its R&D resources toward delivering complete system solutions as opposed to FPGA code licensing deals, with the latter consuming R&D resources “but produce only short term revenues and jeopardise our ability to focus on completing the system solutions that are the core of our growth plan”.
As the company moves towards becoming a supplier of system solutions that include FPGA, FPGA routing firmware, add-on differentiated features and complete software applications, during 2021, the company said it has not progressed certain FPGA licensing opportunities that are not in line with its new system solutions focus.
Directors said they will focus on opportunities that are aligned with the company’s 5G router activities and its variants, to preserve R&D resources for future growth versus short-term FPGA code licensing deals.
Chief executive David Levi said the results were in line with the board’s expectations.
“It appears that most of our engaged customers are now returning to more normalised levels of business operations and are finalising their development of new products and architecture. This is expected to lead to demand for our programmable products, and the deal flow forecasts for engagements this year remain intact. We are hopeful that these will continue to be concluded during H2 2021.
“We are pleased to be continuing the evolution of the company, with our strategy to focus on product and system revenue business versus short term licensing deals that are not in line with our system solutions.”
He said delays are foreseen with roll-out and deployment in India due to the COVID-19 situation along with the component shortage situation in general required for certain products, pushing back second-half revenues into the first half of next year.
He added: “The product contracts already signed, the product orders received (which are expected to grow), and the good progress with our Indian OEM will all fuel our revenue growth to position us not just as a technology company, but as a validated system product supplier with differentiated offerings, resulting in growing revenue streams that will allow us to be considered for larger scale deployments.”