Ann: Frontgrade Gaisler Licenses Brainchip's Akida IP, page-23

This announcement by BrainChip Holdings Ltd (ASX: BRN) regarding Frontgrade Gaisler's licensing of Akida IP for deployment in space-based AI systems is a positive development for several reasons, both technically and financially. Here is a detailed breakdown of the announcement and its implications:

Key Highlights

1. Partnership with Frontgrade Gaisler:

   • Frontgrade Gaisler is a leading provider of radiation-hardened microprocessors for space applications.
   • The agreement involves licensing BrainChip's Akida 1.0 Neuromorphic AI IP for use in space-grade, fault-tolerant System-on-Chip (SoC) solutions.
   • This collaboration builds on a prior evaluation agreement (May 2024) between BrainChip, Frontgrade, and the European Space Agency (ESA).

2. Technological Superiority:

   • Akida was selected due to its ability to process real-time data with high resiliency, accuracy, and autonomy while consuming extremely low power. This makes it ideal for space applications where weight, power efficiency, and durability are paramount.
   • ESA has confirmed the superiority of neuromorphic technology over existing FPGA or GPU-based solutions, particularly for computer vision applications.

3. Financial Aspects:

   • BrainChip will receive:
     • A 10% royalty on the Net Sale Price of Frontgrade’s first licensed product.
     • €150,000 for licensing the first product.
   • After 24 months, Frontgrade can pay $125,000 annually for software maintenance.
   • Option for Frontgrade to license an additional Akida IP product for:
     • €150,000 (upfront fee) OR
     • 15% royalty on the Net Sale Price of the second licensed product.

4. Revenue Potential:

   • BrainChip’s revenue stream includes:
     • Immediate fees: €150,000 upfront.
     • Recurring revenue: 10-15% royalties on product sales.
     • Optional fees: $125,000/year in maintenance for long-term support.
   • Royalties tied to the Net Sale Price create a significant upside if Frontgrade’s products gain traction in the space-based AI market.

Analysis: Positive Implications

1. Strategic Validation:

   • This agreement confirms the viability and real-world applicability of Akida’s neuromorphic IP.
   • Space applications represent one of the most demanding environments for AI, validating Akida’s superior power efficiency, fault tolerance, and processing capabilities.

2. Market Penetration:

   • By collaborating with Frontgrade Gaisler and ESA, BrainChip positions itself as a leading AI provider in the aerospace industry, a niche yet lucrative market.

3. Revenue Visibility:

   • Immediate income from upfront fees (€150,000) adds short-term cash flow.
   • Royalties (10-15% on Net Sale Prices) provide recurring revenue as Frontgrade scales its sales of licensed products.

4. Scalability:

   • Frontgrade’s option to license a second Akida product signals confidence in Akida’s performance and potential demand.
   • Additional royalties or licensing fees from future products further increase BrainChip’s long-term revenue prospects.

Risks and Considerations

• Uncertainty on Product Sales:

  • Revenue from royalties is contingent on the commercial success of Frontgrade’s AI products in the market.
  • Space-based AI is a growing market but remains relatively niche compared to larger AI industries.

• Timing of Revenue:

  • While licensing and upfront fees are immediate, substantial royalty income may take time as Frontgrade completes development, manufacturing, and sales of its SoCs.

• Competitive Environment:

  • Although ESA recognized neuromorphic AI's superiority, competition from established FPGA and GPU providers could pose challenges for widespread adoption.

Conclusion: Positive Development

This agreement marks a strategic win for BrainChip, both technically and financially:

1. Technological validation in a demanding sector.
2. Immediate revenue (upfront fees) and potential for long-term, recurring royalties.
3. Opportunity to expand BrainChip’s influence in aerospace and other fault-tolerant AI markets.

Potential Revenue Outlook

• Immediate: €150,000 for the first license.
• Recurring: 10% royalty on Frontgrade’s first licensed product sales.
• Optional: Second product licensing (€150,000 or 15% royalties) + $125,000/year for software maintenance.

If Frontgrade’s products succeed, BrainChip could establish a steady, high-margin royalty revenue stream, enhancing cash flow and long-term growth prospects. This positions BrainChip well for future partnerships in similar high-reliability sectors such as automotive, industrial IoT, and defense.

*GPT4o