Everspin’s MRAM Memory Has Considerable Potential (NASDAQ:MRAM)

Everspin (NASDAQ:MRAM), a spin-off of MRAM inventor Freescale Semiconductor, is a producer of non-volatile MRAM memory that is gaining a steady foothold in an increasing number of segments. MRAM relies on the spin of electrons for memory retention which has a number of advantages (IR presentation):

Market

Developing into universal memory (combining DRAM for computing and NAND Flash for storage) is a distant prospect as it’s too expensive and capacities are way too low.

However, the same was said about NAND flash use for storage and the company argues that the potential of MRAM developing into a universal memory solution is still very much there.

In the meantime, MRAM is certainly gaining traction in segments where non-volatility, durability, robustness, and ability to withstand extreme conditions are important parameters.

A CAGR of 28% is a considerable secular tailwind but given the limited amount of MRAM players, they have to make that happen with advances.

The main drivers of the market expansion are data centers, industrial IoT, and aerospace, the latter as MRAM is better able to withstand extreme temperatures and radiation.

5G is a very important catalyst as this boosts demand for the industrial IoT and data center (and edge) applications where MRAM benefits are important:

Segments

The company has several segments:

• Toggle-MRAM
• SST-MRAM
• Licensing, Royalties, Patents

Toggle-MRAM

Available in 128KB-32MB densities, it is used in applications in the industrial, medical, automotive/transportation, and data center markets, replacing legacy FRAM and SRAM with multiple interfaces. It is the most durable MRAM version, but comes in low densities:

STT-MRAM

This is a newer form of MRAM, available in 256MB-1GB densities it is mostly indicated for replacing battery-backed DRAM in data centers and SRAM where more robust data retention is required.

In addition, it could begin to replace NOR flash memory as that has limits to scale beyond 45nm and STT-MRAM is already available at 22nm. There is an agreement with GLOBALFOUNDRIES (GFS) to develop 12nm versions.

New generation STT-MRAM

It became commercially available last month:

The EMxxLX offers the industry’s first xSPI serial interface based on Everspin’s unique STTMRAM technology. It is the only commercially available persistent memory with a full read and write bandwidth of 400 megabytes per second via eight I/O signals with a clock frequency of 200MHz. The low-power family of devices delivers the highest combination of performance, endurance, and retention available and are offered in densities from 8 to 64 megabits. The EMxxLX family can replace alternative solutions, such as SRAM, BBSRAM, FRAM, NVSRAM, and NOR flash devices… It is ideal for use in electronic systems where data persistence and integrity, low power, low latency, and security are paramount, such as industrial IoT, network/enterprise infrastructure, process automation and control, aeronautics/avionics, medical, gaming, and FPGA configurations.

The xSPI interface makes it much easier to adopt. It has a low density (initially maxed at 64MB), but this makes it a good replacement for SRAM. NOR replacement becomes viable below 22nm, potentially opening up another market.

A 128MB version is now available and sampling with customers but design wins are likely to take a long time and management don’t expect these to materialize until late 2023.

FPGA

Another market opportunity is that of FPGAs (field-programmable gate array)

The company signed a $2.8M licensing contract with QuickLogic Corporation for radiation-hardened FPGA technology using Everspin MRAM IP in DoD applications with options potentially taking it to $8.7M.

License, Royalties, and Patents

One source of license income is from partner GLOBALFOUNDRIES, which produces embedded MRAM (that is, embedded memory in systems on a chip with compute) in their solutions.

This is providing high-performance non-volatile embedded memory which replaces embedded flash, DRAM, or SRAM in any CMOS design, delivering similar capacities of memory with non-volatility.

This revenue source is lumpy, varying significantly from quarter to quarter, these were $0.7M in Q3 compared to $1.5M in Q2/22 and $2.8M in Q3/21.

Q3 finances

2019 was a difficult year but recovery set in even during the pandemic:

• Revenue +3% to $15.2M
• Cash flow from operations+$0.9M
• Licensing, Royalties, Patents, and other revenue $0.7M vs $2.8M y/y and $1.5M q/q
• GAAP GM 58.8% versus 57.1% in Q3/21
• GAAP OpEx $7.1M versus $6.9M in Q2/22 and $7.4M in Q3/21 increased costs to support the new STT industrial product expected to go into low-volume production in Q4.
• Net income $1.9M EPS $0.09 better than top-end of expectations
• Adjusted EBITDA of $3.4M versus $2.5M in Q3/21 and $3.3M in Q2/22
• Cash $23.4M

Q4 guidance is for GAAP EPS $0.0-$0.05 on supply cost and 28nm STT-MRAM development costs. There are also some cancellations and pushouts of orders and some softness in the data center space, but the backlog is still large so the company has plenty to keep busy.

There is considerable operational leverage which continued even during the lean pandemic years:

Gross margins have benefited from a decline in supply chain constraints and increased supply chain cost through efficiency and yield improvements.

Perhaps the most impressive financial metric is cash flow development:

There has been some dilution in the last five years:

There are about 1.5M additional shares coming from options and RSUs, so 22M shares fully diluted.

Valuation

The company has a market cap of $140M (at $6.4 per share) and an EV of $125M so the shares are selling at 2x FY23 EV/S.

Despite the revenue growth, the operational leverage and the remarkable turnaround in cash flow the shares still sell at the low end of their sales multiple.

This is likely the result of an expected EPS decline next year to $0.31 (from an expected $0.43 this year) but this strikes us as somewhat odd because those same analysts expect a further increase in revenue from $58.9M this year to $63.75M next year.

Risk

Everspin is a dominant player in the MRAM memory market and they have extensive IP, but they don’t have the field all to themselves. The Korean tech behemoth Samsung produces MRAM chips and has embarked on a novel architecture that overcomes the low resistance of MRAM, enabling it to include compute elements for specialized AI chips.

But the latter won’t appear on the market anytime soon and isn’t a direct competition for any of Everspin’s chips anyway, which so far has not been under great competitive stress, given the revenue growth and roughly 60% gross margins.

Conclusion

Slowly but surely MRAM memory is gaining traction and 5G is producing an important catalyst for broadening its use. While the use will remain a niche segment affair for a long time to come for a small but leading provider like Everspin this creates an attractive secular growth tailwind.

Company finances are also improving with the company now generating considerable amounts of cash flows already. While it’s always possible for some kind of breakthrough disruption to emerge elsewhere, there are no reasons we can see for this progress not to continue.