I am a big fan of BrainChip and its neuromorphic computing model, yet the last quarterly report forces me to listen to the devil’s advocate. The facts are scarce, but even if you are a believer you have to pay attention to the financial reports as a balance to the enthusiastic views on Akida’s AI leadership potential.
There are two questions that jumped at me after reading the last financial report:
Is there a market reporting issue or an internal sales handling error?
Why did the cash receipts drop to almost zero in the September quarter?
Reporting Issues?
The 2022 June quarter report showed cash receipts of US$1.2m, but not a word about revenue. So did the March quarterly report. Yet the half yearly report (that include these two quarters) stated “Revenues for the half-year ended 30 June 2022 of $4,831,081 increased 529% from $767,545 in the same period a year ago. The increase in revenue is a result of the partnership with MegaChips and predominantly comprised licensing revenues of Akida 1000 recognised in the current period”.
The half yearly report was announced A MONTH AFTER the June quarterly report, so you could attribute the discrepancy on the fact that Australia ASX quarterly reports are cash reports and companies don’t have to discuss sales as they would when they have to adhere to accrual reporting standards.
The US$4m+ revenue was a clear signal that Akida is making progress and from this data it follows that in the next quarter you should see an uptick in cash receipts. I was surprised to see the abysmal actual numbers: just US$100k!
Worse, no explanation was offered what happened with the revenues mentioned in August. Even worse, the CEO stated that the sales team has now a (but modest) target limited to “convert evaluations into paid licences”. This is disappointing, because after a year of evaluations and stated revenues, BrainChips is yet to record commercial orders for Akida chips going into customers’ product, not jus the test labs.
It may be that the sales executive team was too optimistic and made the mistake in rushing to declare the revenue before the client agreed to it. This may explain the change in leadership that followed the half-yearly report.
In the September quarter BrainChip “promoted” Rob Telson to VP of Ecosystems and Partnerships (which virtually ended the BrainChip podcast - I listened to a few of them and found them useful as providing more colour around BrainChip’s adoption story), and announced the appointment of Chris Stevens as VP or Worldwide Sales. Changes in the executive team could be positive, but when that happens amidst a large drop in sales, in absence of better communication, they have an alarm ring to them.
Or, maybe it was simply an error, an oversight. Not a good one. In absence of any other details, it is almost a situation of black and white: with revenue, BrainChip looks well on its path to exponential adoption, without that revenue, BrainChip has a long way from achieving real traction in the market.
Product Issues?
The other part that is a bit peculiar is the emphasis on IP and Akida’s next generation. Why is BrainChip working on the next generation when the first one has achieved so little? Is that because the chip is not performing well enough? Is it lacking in one or more essential features that became apparent only after extensive and extended evaluations? If that was not the case, I suppose the customers would have paid happily for the licence given the favourable predictions published in the media in 2022. Usually, successful products have iterations that are increasingly paid by the customers, something we are not seeing yet happening with Akida.
Or, Just Because It Is 2022?
Maybe, in defence of BrainChip, the rising interest rates, the global supply chain turbulence and the war in Ukraine, has made the business reluctant to take the risk of investing capital in disruptive technologies, although BrainChip’s SNAP neuromorphic technology is exactly what smart companies would use to advance in difficult conditions.
It's now about a year ago that you were musing about issues at Brainchip. The head of sales left. At the same time their technology advanced (Version 2). Stockmarket shorts were able to profit from the fact that early access partners remain quite and accounts don't show recent activity. Would you like to take another look at them? Personally, I am prepared to ride out these waves ... but high risk is not propperly describing this investment.