NYSE:VLN
Advancing Connectivity Solutions Across Multiple Industries
Valens Semiconductor (NYSE:VLN), based in Hod Hasharon, Israel, provides high-performance connectivity solutions for the automotive, audio-video, industrial, medical and other sectors. The company specializes in developing semiconductor products that enable high-speed, long-reach connectivity. Valens’ solutions are designed to transmit data with high reliability and low latency. The company believes that its solutions and digital signal processing (DSP) technology, based on its proprietary connectivity technology, offers unmatched speed, low latency and error free performance. By leveraging simple wiring infrastructure, the company is also able to lower the weight and space of its system and minimize its total system cost to customers.
With hundreds of customers across the globe, the company maintaining offices in seven markets and believes it has a multi-billion dollar addressable market opportunity as demand for connectivity continues to rise. Its technology is already deployed across a broad spectrum of industries and interfaces.
Leveraging Strategic M&A to Strengthen / Expand Market Position
To-date, Valens has sold more than 30 million chipsets globally. Valens remains focused on expanding its product portfolio, partnerships, and market penetration, particularly in the automotive and audio-video sectors organically and through selective strategic M&A opportunities.
On May 31, 2024, Valens completed the strategic acquisition of Acroname Inc., a leader in advanced automation technologies for industrial and audio-video applications, for $7.8 million. Prior to this transaction, the company’s growth had come from organic measures and its growing traction. The Acroname deal marks Valens’ initial use of strategic M&A to expand its footprint and opportunities. The acquisition enhances Valens’ ability to deliver comprehensive solutions across multiple verticals, including robotics, machine vision, and video conferencing.
Market Opportunities and Strategic Growth
As data-intensive applications proliferate across multiple industries, the need for high-performance connectivity is expected to continue to grow. VLN’s connectivity solutions are being applied in a broad range of sectors. Valens’ VS6320 chipset, a key component in the company’s product portfolio that provides entry into the sizable machine vision space, which continues to gain traction, according to management.
More than 50 customers are currently integrating the VS6320 chipset into their products, which range from USB extenders to video conferencing solutions. Valens expects its recent momentum (see below) to accelerate in 2025 and beyond. Moreover, Valens is optimistic about the prospective response to its portfolio at next month’s Vision Show in Stuttgart, Germany.
Various industries within the company’s near-term target market include the automotive sector, entertainment, including supports immersive experiences in museums, sports events, and home theaters and other entertainment venues, healthcare, medical imaging and factory automation, among others.
Automotive Sector Key Target Market
The automotive space is a focus target market and the company believes it has a sizable and growing opportunity in this area.
Valens is making significant progress in the automotive industry, particularly with its VA7000 chipset for Advanced Driver-Assistance Systems (ADAS) and autonomous driving. The addressable market is large and expanding as the ‘connected’ car base continues to rise, driven by an increasing number of ADAS sensors and rising demand for autonomous applications and next-generation connectivity solutions, including high-resolution cameras, centralized radar, and LiDAR systems, among other in-automobile opportunities that require high-bandwidth connectivity.
According to S&P Global, in-vehicle technology is evolving at a rapid pace and includes features such as artificial intelligence (AI)-powered personal assistants, ADAS and vehicle-to-everything (V2X) communication, among others, with innovation and improvements expected to continue. Valens has indicated that it is participating in several automotive OEM evaluation processes and, in fact, this month the company announced that it has garnered three automotive design wins for its VA7000 MIPI A-PHY chipsets from leading European OEMs.
Management believes this supports its view that its technology is positioned to be an industry standard and play a leading role in supplying ADAS connectivity solutions for next-generation sensor connectivity. These OEMs intend to embed Valens’ MIPI A-PHY chipsets in certain vehicle models beginning in the 2026 Start of Production (SoP). The production volume is estimated at an aggregate roughly 500k vehicles per annum, which Valens estimates will result in more than $10 million in annual revenue once commercialization ramps for some 5-7 years. Moreover, the company is optimistic that these relationships could also lead to further opportunities for its A-PHY chipsets down the road and enable Valens to garner additional market share within the automotive industry. As the automotive market is projected to grow into a $4.5 billion opportunity by 2029, Valens’ technology is well-positioned to capture a significant share.
In addition to the automotive sector, the company also targets opportunities in multiple other areas including:
➢ Communication & Collaboration
o Video Conferencing: Supports multi-camera setups and high-resolution displays for seamless virtual collaboration.
o Education: Enables hybrid classrooms, interactive whiteboards, and advanced projector systems.
o Visual Technologies
➢ Digital Signage: Powers video walls, outdoor displays, and interactive kiosks.
➢ Entertainment
o Venues: Supports immersive experiences in museums, sports events, and home theaters.
➢ Healthcare
o Medical Imaging and Procedures: Enables transmission of detailed scans, high-resolution video feeds for procedures, and integrated digital operating rooms.
➢ Industrial
o Factory Automation: Supports remote industrial PCs, machine vision systems, and seamless data distribution across production lines.
Strong IP Position
The company has more than 120 patents, as of February 1, 2024. In addition, Valens has ten pending patent applications in the U.S., China, Japan, South Korea and with the European Patent Office (EPO). The company’s patents cover a broad range of areas relevant to its product portfolio, including its innovation in the areas of convergence of multiple-data types/multi-stream over the same wires and robust operation under severe electromagnetic interference (EMI), among others.
Financial Highlights
For Q2 2024, Valens achieved revenues of $13.6 million, which reflects a year-over-year decrease from $24.2 million in Q2 2023 but which exceeded guidance. The company attributed the decline primarily to lower demand for legacy products, combined with general market softness in the face of economic uncertainty and weakness in several markets that, in turn, caused many customers to delay new orders. Organic revenues at $13.2 million exceeded the top end of Valens’ guidance, while Acroname contributed $0.4 million in million. Acroname was only consolidated beginning on May 31 and its contribution therefore represented only one month of revenue.
• Audio-Video Connectivity: This segment accounted for 60% of total revenue in Q2 2024, generating $8.1 million, down from $15.5 million in Q2 2023 due to inventory adjustments. Despite short-term challenges, Valens sees long-term growth potential in this segment, which is driven by demand for video conferencing, industrial automation, and medical solutions.
• Automotive Connectivity: The automotive segment contributed $5.5 million, or 40% of total revenue, in Q2 2024. This represents a decline from $8.7 million in the same quarter last year, primarily due to lower demand of legacy products such as first generation VA6000 chipsets from key clients such as Mercedes-Benz, given the expanded functionality of next-gen technology.
• General macroeconomic weakness, lower demand for legacy products: Valens recorded significantly lower audio video revenue compared to the same period of 2023. The company believes this primarily reflects general macroeconomic weakness and uncertainty, and to customers continuing to hold high levels of inventory, which constrained new, replacement and upgrade orders. Nevertheless, the company remain bullish for the medium- and longer-term. In addition, the VS6320, based products are set to become significant new revenue growth drivers, as well as in the new industry, machine vision vertical.
• Valens delivered a gross margin of 61.4% or 64.5% adjusted for non-recurring items), maintaining profitability in a tough market environment. However, the company reported a net loss of $8.9 million, compared to $4.6 million in Q2 2023, and an adjusted EBITDA loss of $5.2 million.
• Strong balance sheet Valens maintains a strong balance sheet, with $130.6 million in cash and no debt as of June 30, 2024. This financial strength supports its ongoing growth strategies, including selective acquisitions to complement its organic initiatives. The company reduced its inventory to $14.1 million, compared to $12.5 million at the end of Q1 2024, with $2.5 million attributed to Acroname.
Outlook and Guidance
In Q3 2024, Valens expects revenue between $14.7 million and $15.4 million, with a gross margin forecasted at 52%-53%. The company anticipates an adjusted EBITDA loss between $6.8 million and $6.3 million.
Potential risks include:
• Competition: While Valens demonstrates strong potential in high-performance connectivity markets, it faces competition from established semiconductor companies and emerging startups. The company’s ability to maintain technological advantages and secure design wins in key industries will be crucial for long-term success.
• Dependence on key customers, particularly in the automotive sector
• Rapid technological changes in semiconductor and connectivity solutions
• Global supply chain disruptions affecting production and delivery
• Regulatory changes in target industries, especially automotive and healthcare
Conclusion
Valens Semiconductor is positioning itself as a key player in the high-performance connectivity market across various industries. While facing short-term financial challenges, the company’s diverse application portfolio and strategic acquisitions indicate potential for long-term growth. As industries increasingly demand advanced connectivity solutions, Valens’ innovative technologies may significantly drive technological advancements in data transmission and communication. The coming quarters will be critical in demonstrating Valens’ ability to capitalize on its technological advantages and expand its market presence.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.Â
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives quarterly payments totaling a maximum fee of up to $40,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.
