I have extracted the section relating to royalties. As you know this report was written in 2018 when the AKD1000 chip was expected by end 2019 before they went back to the drawing board and completely redesigned it to meet early access customers wish lists and developed the CNN2SNN convertor.
The following section though as a general guide to how to generate revenue in the semiconductor industry for a company like Brainchip is still of interest in my opinion:
"Commercialization of Akida in various steps
While the core development of the Akida NSoC is largely completed, a finished sample product in silicon, i.e. a chip, is not expected to be available before the second half of 2019. However, in July 2018, BRN launched the Akida Development Environment (ADE), which can be used for creation, training and testing of the Akida NSoC as well as to run inference (outcome-based processing) on Akida.
The ADE is a software simulation of the Akida chipset. Users can run various training methodologies, including unsupervised learning, using different datasets, such as CIFAR-10, MNIST and GoogLeNet. Data-to spike-converters are also included so users can feed pixel, audio and Big Data into the development environment.
By the time Akida becomes available in sample chips, in the second half of 2019, customers and prospects should already have a solid understanding of how they may implement Akida in their respective end-applications. It is expected that this will speed up the subsequent step in commercializing Akida, i.e. designing Akida into customers’ system and chip architectures. Once this design-in phase and subsequent testing are completed, sales of actual Akida NSoCs and third-party chips with embedded Akida technology can commence.
Akida to generate three separate revenue streams
Given the enormous costs to build computer chip factories, BRN itself will not be manufacturing Akida chips. Rather, the company will be using a partner, SocioNext, to manufacture the devices for BRN.
In addition, BrainChip will selectively license its Akida IP to other providers in the semiconductor industry. These IP licensing revenues from Akida are likely to take the form of Non-Recurring Engineering (NRE) work, license income and royalties from each chip sold by BRN’s customers (Figure 13).
The purpose of ADE is to provide prospective Akida customers and current BrainChip Studio customers (see below) the opportunity to familiarize themselves with the Akida architecture and its specifications as well as to illustrate the possibilities and opportunities that Akida presents . Non Recurring Engineering work Revenues from NRE Revenues from technology license fee Akida IP in commercial production Ongoing royalty revenues based on unit sales BrainChip Holdings Ltd 17
Revenues from Non-Recurring Engineering work
NRE work conducted by BRN on behalf of the customer will typically be focused on integrating the Akida chip architecture into the customer’s proprietary chipset (design-in) to create a complete NSoC. Revenues from NRE are one-off while the NRE work itself can take anywhere from 6 to 18 months. The NRE fees vary widely across the industry, from several hundreds of thousands of dollars to several millions of dollars.
One-off license fees
Once the NRE work is completed and customers want to move into commercial production, they typically pay a one-off license fee for use of the technology. License fees can range quite broadly and will be different from one customer to another, depending on the intended application areas, the amount of IP to be used, expected volumes to be manufactured etc.
Recurring royalties from every unit sold by a customer
We believe the most lucrative future revenue stream for BRN will be royalties paid by customers for each chip they sell that includes Akida IP. These royalties are usually a percentage of the customer’s selling price and typically range from 2% to 15%, again depending on intended application areas, the amount of IP used and expected volumes to be manufactured. However, royalty percentages also depend on the uniqueness of the IP that is being licensed. We would argue that Akida’s specifications and features are quite unique when compared to other technologies, such as Intel’s Loihi and IBM’s True North, which may result in BRN being able to charge above average royalty percentages for Akida. Other royalty revenue models simply use a fixed dollar amount per chip sold, for instance if the customer only uses a limited IP stack. In our view, the example above clearly illustrates the scalability of BRN’s revenue model as well as the revenue potential for Akida. We believe there are likely to be multiple prospective customers in each addressable industry vertical, such as mobile phones, security cameras, visual inspection, IoT devices, cloud/server usage, cyber security, financial markets etc.
Selling direct and through third-parties
BRN is in discussions with various Akida prospects in different markets (see below), which may result in commercial agreements in due time. However, in addition to these potential direct sales, we believe future sales through third parties may potentially become a lot bigger than BRN’s direct sales. Firstly, should semiconductor foundries license BRN’s technology, Akida may find its way into products from many different end-customers. Foundries such as TSMC (TPE:2330) and Global Foundries manufacture computer chips for third parties, including cell phone manufacturers, electronics companies and other chip manufacturers. Over the last 15 years foundries have evolved from “simply” manufacturing chips according to customers’ chip designs into valueExample: Assume a BRN customer agrees to pay a 5% royalty on sales from each of its chips that incorporates Akida. Further assume that this customer will sell 1M, 5M and 10M of these chips in years 1 through 3 respectively at US$ 25 each. Royalty income for BRN from this customer would amount to US$ 1.25M, US$ 6.25M and US$ 12.5M respectively in the first three years of production.
BrainChip Holdings Ltd 18 added chip manufacturers that can add their own IP to customers’ designs.
Foundries develop this additional IP themselves, but also source third-party IP to complement their own offerings. Secondly, BRN could potentially license Akida IP to providers of IP building blocks, like Lattice Semiconductor (NSDQ:LSCC), Cadence (NSDQ:CDNS) and Mentor (NSDQ:MENT). These companies provide core IP as well as separate IP blocks to their customers and we believe Akida IP could be a welcome addition to their offering. In both channel partnership models, BRN would likely earn license fees and royalties, either a fixed amount or a percentage of revenues."
My opinion only DYOR.
BRN Price at posting:
44.5¢ Sentiment: Hold Disclosure: Held
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