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Mosys Inc. (NASDAQ:MOSY) Is Today's Tech Focus

Mosys Inc. (NASDAQ:MOSY) Is Today's Tech Focus
Written by
Jarrod Wesson
Published on
July 18, 2017
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The share price of MoSys Inc. (NASDAQ:MOSY), fabless semiconductor company, jumped last month on large volume. The company has not put out news that could justify such a move. Thus, we became interested in the company. We found out that it had announced cost reduction initiatives in May and the company has significant amount of intangible assets that should be appreciated by the market. Additionally, many market participants declared big stakes in MoSys. New buyers could have recently shown interest, which may explain the share price volatility and the volume. In this article, we will provide reasons to support our rationale. Before anything else, have a look at the recent share price action, and don't forget to note the growing volume over the past two months.SourceBusinessSourceMOSY is a fabless semiconductor company "focused on the development and sale of integrated circuits for high-speed networking, communications, storage and computing markets". MoSys targets multi-billion-dollar networking telecommunications, security, and data center OEM equipment markets and has designed products to support this growth in 100 Gbps and better networking speeds. Without a doubt the most interesting assets of MoSys are its patents. As of December 31, 2016, MoSys held 67 U.S. and 36 foreign patents on various aspects of its technology, with expiration dates ranging from 2018 to 2035. The patents are key in the business of MoSys. It is stated in the annual report:

The semiconductor industry is fraught by almost daily litigation regarding patent and other IP rights. Thus, the successful protection of MoSys’s patents and other intellectual property rights and their ability to make, use, import, offer to sell, and sell products free from the intellectual property rights of others are subject to a number of factors, particularly those described in Part I, Item 1A, “Risk Factors. Source

Additionally, the intangible assets are appreciated by the market as these assets can be sold if there is a cash need. The company proved it in 2011 when it sold 43 United States and 30 related foreign memory technology patents for $35 million in cash.Recent DevelopmentsOn May 11, 2017, MoSys put out its financial results for the first quarter which ended March 31, 2017. The following were the most significant financial figures:

  • Total net revenue for the quarter: $1.2 million, as compared with $1.5 million in 2016 for the 1st quarter.
  • Gross Margin for the quarter: 50 percent, which is lower than that reported in 2016.
  • Total operating cost: $4.8 million, which was worse than in the previous quarter, $15.1 million.

Without doubt, the most interesting item in the announcement was the words of Len Perham, the CEO and President:

After the close of the quarter, as previously announced, we revised our operating plan and began implementing our cost reduction initiatives. We expect to realize significant operating cost savings from these actions, and believe these expense reductions will position us to maintain ongoing operations and preserve cash until such time that our past design wins ramp more materially.Source

Mr. Perham further stated:

In addition, we remain focused on carefully managing operating costs and expanding our portfolio of design wins, while continuing to explore strategic alternatives and asset monetization strategies to ensure our viability and provide value to our stockholders. Source

The market should have appreciated the fact that the company is reducing costs and is looking for "strategic alternatives and asset monetization strategies." What does it mean? The company may be looking to sell a division, patents or something similar. An announcement of this type may make the share price increase. Perhaps the volume seen is the result of share purchases motivated by this new strategy.Finally, on June 30, 2017, MoSys announced that it had entered into a share purchase agreement:

It had entered into securities purchase agreements with certain institutional investors providing for the purchase and sale of 1,325,000 shares of common stock at a price of $1.70 per share and warrants to purchase up to 662,500 shares of common stock with an exercise price of $2.35 per share. The warrants will be exercisable six months following the closing date and will expire five years from the date they become exercisable. The gross proceeds of the offering are expected to be approximately $2.25 million. Source

An announcement of this type is usually followed by share price declines. The fact is that the share price did not move down, but it did the opposite. It is unusual, but we appreciate it.Sound Financial situationThe following per share numbers will help the reader comprehend that the current market price undervalues the company. Have a look at the amount of cash, and the fact that the book value per share is over the current market price. More than 60% of the long term debt could be paid with the cash on hand.Total Cash (mrq)5.57MTotal Cash Per Share (mrq)0.83Total Debt (mrq)8.7MTotal Debt/Equity (mrq)78.45Current Ratio (mrq)3.31Book Value Per Share (mrq)1.66SourceMarket participants who reported stakes in the companyThe following insiders in the firm own shares:

Direct Holders (Forms 3 and 4)

SharesDate ReportedRIORDAN THOMAS11,650Feb 28, 2017SULLIVAN JAMES3,738Feb 28, 2017MONSON JOHN STEARNS1,991Feb 28, 2017SourceAdditionally, the following market participants own big stakes too:HolderSharesDate Reported% OutValueIngalls & Snyder1,016,641Mar 30, 201715.23%2,490,770S SQUARED TECHNOLOGY CORP.415,100Mar 30, 20176.22%1,016,995Herald Investment Management Ltd172,000Mar 30, 20172.58%421,400Vanguard Group, Inc. (The)144,196Mar 30, 20172.16%353,280Blackrock Inc.118,907Mar 30, 20171.78%291,322Bellecapital International Ltd.90,000Mar 30, 20171.35%220,500Renaissance Technologies, LLC80,041Mar 30, 20171.20%196,100Royce & Associates LP68,427Mar 30, 20171.02%167,646SourceConclusionWe took a look at MOSY and found several interesting facts. First of all, the company recently announced that it will be initiating cost reductions and will explore "strategic alternatives and asset monetization strategies". This is music for market ears because it means that the company will try to enhance value for shareholders. In addition, the company does not only have valuable intangible assets, rather it is trading at less than its book value per share. Finally, insiders and market participants declared big stakes in the company. To sum up, try to follow the stock, as we can smell that other news may be reported soon. Subscribe to our newsletter for rapid information and assessment about MOSY and other stocks.We will be updating our subscribers as soon as we know more. For the latest updates on MOSY, sign up below!Image courtesy of Angel Bawa via FlickrDisclosure: We have no position in MOSY and have not been compensated for this article.

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