Ann: Frontgrade Gaisler Licenses Brainchip's Akida IP, page-67

Indeed. This is a great deal, well done Brainchip team!

*Frontgrade Solutions is a trusted industry leader:

• The global space economy is projected to reach $1 trillion annually by 2040, fueled by advancements in satellite technology, space exploration, and commercial ventures.
• AI-powered systems capable of operating efficiently in challenging environments, like BrainChip’s Akida, are becoming essential for autonomous operations, navigation, and imaging in space, aligning seamlessly with the sector's drive for innovation and efficiency.

Why 10–15% is a Strong Royalty Rate

1. Standard Royalty Ranges:

   • Industry norms for licensing IP often fall between 5% and 10% of net sales, depending on the product and market.
   • 10–15% royalties are above average, indicating that Frontgrade values Akida’s unique capabilities.

2. Space Sector’s High Margins:

   • Space-grade components, such as radiation-hardened microprocessors, command premium pricing due to their specialized design and extreme reliability requirements.
   • Even with lower volumes, the higher price of these products can make royalties significant.

3. Low-Risk Revenue for BrainChip:

   • BrainChip incurs no manufacturing or distribution costs, making royalties a high-margin revenue stream. All costs for producing and selling the chips fall on Frontgrade, while BrainChip benefits from sales success.

4. Validation from ESA and Frontgrade:

   • Frontgrade's willingness to offer 10–15% underscores the value and confidence in Akida’s technology, particularly after ESA's evaluation and the competitive alternatives like FPGAs and GPUs.

Factors That Could Influence the Deal’s Value

1. Space Sector's Low Volumes:

   • Space applications are typically low volume but high value. Even with a higher royalty percentage, the absolute revenue may not match what BrainChip could achieve in mass-market industries like automotive or consumer electronics.

2. Potential Upside with Scalability:

   • If Frontgrade successfully integrates Akida into a line of products beyond space (e.g., defense or industrial), the recurring royalties could grow significantly.

3. Maintenance Fees Add a Cushion:

   • In addition to royalties, the $125,000/year maintenance fee for software support provides predictable income, reducing dependence on immediate product success.

4. Strategic Prestige:

   • Beyond the financials, this deal builds BrainChip’s reputation in a high-stakes industry, opening doors to more lucrative markets. A high-profile validation like this often has intangible benefits that outweigh immediate revenue.

How It Compares to Other Deals in the Space Sector

• In space and aerospace, companies typically aim for long-term, recurring revenue rather than high upfront payments, as projects often have long cycles (development, testing, deployment).
• Royalty rates in sectors like semiconductors and aerospace IP licensing are often around 7–12%, making this deal better than average.
• High Margins: BrainChip incurs no manufacturing or distribution costs, making royalties a direct and scalable revenue source.
• Premium Space Sector Pricing: Space-grade components are high-value, meaning even modest sales volumes could generate substantial revenue.

Revenue Potential Scenarios

• Short-Term (1–3 years): BrainChip earns modest revenue from upfront licensing fees (€150,000 per product) and maintenance contracts ($125,000/year).
• Medium to Long-Term (3–10 years): If Frontgrade’s Akida-based products gain traction:
  • Annual royalties (10–15%) on space-grade chip sales could provide millions in recurring revenue if Akida becomes a standard in satellites and spacecraft.
  • Expansion into related aerospace and defense markets could multiply revenue streams.

Conclusion: A Strong Deal

The 10–15% royalty rate is favorable for BrainChip in this sector, especially given the validation it provides for Akida’s neuromorphic technology. While the space industry may not generate massive volumes, the high-value products, recurring maintenance fees, and strategic positioning make this deal highly advantageous.

It sets the stage for potential expansion into higher-volume industries like automotive, IoT, and defense, where BrainChip could command similar or even better royalty rates on larger sales volumes.
GPT4o