Company Overview: BrainChip Holdings Limited, formerly Aziana Limited, is an Australia-based company, which is engaged in the development of neural computing technology. The Company focuses on its spiking neuron adaptive processor (SNAP) technology and licensing the SNAP technology with technology partners. The Company operates through the technological development of designs segment. The Company's SNAP offer a complete development solution for companies entering the neuromorphic semiconductor chip market. SNAP is a core enabling technology in Neuromorphic semiconductor chips that possesses various applications, such as gaming, cyber security, robotic technology and stock market forecasting, among others. SNAP also implements learning rules in hardware, enabling autonomous features extraction (AFE) directly from input data without the need for any software processing. Its subsidiaries include BrainChip Inc., AZK Merger Subsidiary Inc., Aziana Exploration Corporation and Eternal Resources Pty Ltd.
 

BRN Details

Implementation of Measures to Control Expenses: BrainChip Holdings Ltd (ASX: BRN) happens to be a leading provider of the neuromorphic computing solutions, a type of artificial intelligence which is inspired by the biology of the human neuron. As on June 14, 2019, the market capitalisation of BrainChip Holdings stood at ~$72.44 million. The company had recently released its report for the quarter ended March 2019, at the end of which, it reported a cash balance of US$5.1 million. The company had witnessed total cash outflows amounting to US$2.6 million in the quarter ended March 2019. The company stated that its total cash receipts amounted to US$136,000. This amount does not include invoices which were issued in the March 2019 quarter that will be paid at a future date. In the report for the March 2019 quarter, the company had stated that they have implemented measures to control the expenses which includes headcount reduction associated with the BrainChip Studio End-User sales as well as a temporary reduction in the salary for certain executives.

In the quarter ended March 31, 2019, the company’s net cash used in operating activities amounted to US$2.22 million and it has witnessed receipts from customers of US$0.114 million. However, during the same period, the company has incurred US$0.954 million towards research and development while US$0.594 million was incurred towards administration and corporate costs. On March 8, 2019, BrainChip had executed a Memorandum of Understanding (or MOU) with Socionext Americas to collaborate on the development of Akida NSoC and manufacture the device. With respect to Akida Engagement Plan, the company had stated that they have established early discussions with vision sensor manufacturers, automobile manufacturers for Advanced Driver Assistance Systems (or ADAS) as well as Autonomous Vehicles (or AV). The company had also started discussions with Tier-One module suppliers to the automotive industry in Europe as well as North America, Vision Guided Robotics, Surveillance Camera, Smart Transducer, and Vision Sensor manufacturers.

Moving forward, the company is expected to be benefited by lower Assets/Equity ratio as compared to the industry median, decent liquidity levels, and improving the top-line number. Also, the organizational realignment might also act a tailwind for BrainChip Holdings. 


Operating Cashflow Statement (Source: Company Reports)

Top 10 Shareholders: The following table provides a broader picture of the top 10 shareholders of BrainChip Holdings:

Top 10 Shareholders (Source: Thomson Reuters)

Improvement in Key Metrics Builds Confidence in BRN’s Capabilities: BrainChip Holdings had witnessed an improvement in its key financial ratios in FY 2018 on a YoY basis, which reflects an improvement in its key business activities. Coming to the liquidity position, the company’s current ratio stood at 8.57x, which is significantly higher than the industry median of 1.64x that reflects that the company is having sound liquidity standing as compared to the broader industry. However, it looks like that the company can make deployments towards the execution of business activities because of strong liquidity levels which might help in witnessing growth in the long-term. 

Also, the company’s Assets/Equity stood at 1.14x in FY 2018, which is lower than the industry median of 1.53x and, thus, it looks like that the company is financing the large portion of its assets mainly with the help of equity and it has a lower reliance on debt. Debt-to-Equity ratio stood at 0.03x in FY18. Over the past four years, the company has substantially reduced its cash conversion cycle from 15,256 days (FY15) to 207.6 days in FY18.


Key Metrics (Thomson Reuters)

Announcement of Organizational Realignment: BrainChip Holdings Ltd had earlier made an announcement about the reorganization that further dedicates resources to Akida product development and commercial introduction. As per the release, all Sales, Marketing and Business Development functions would now be reporting to Chief Operating Officer named Roger Levinson. The company’s CEO named Louis DiNardo had stated that the consolidation of sales, marketing and business development functions within operations team might advance the development of strong product marketing, marketing communication, and sales organization under the leadership of Roger. Also, this would have added the advantage of providing additional cost containment.

As industry-first Neuromorphic System-on-Chip (NSoC), Akida addresses the requirements in high-volume, high-growth Artificial Intelligence Edge applications. The company has made great strides in the Akida design, creating a device which is very compact, flexible, provides low-latency as well as low-power for AI Edge applications. Akida could deliver up to 1.2 million neurons and 10 billion synapses in the low-power chip, expandable to a far greater capacity by utilizing off-chip memory or chip-to-chip interconnect.

Announcement of Availability of Advanced AI Intellectual Property: BrainChip Holdings Ltd had made an announcement about the availability of Akida Neural Processing Core as intellectual property available for the purposes of licensing. The introduction marks the major development in BrainChip’s market presence. The Akida NPC is available to license as an IP block for incorporation into ASICs provided by the semiconductor suppliers developing Artificial Intelligence enabled “Edge” devices. The Akida NPC happens to be a first-in-kind solution for ASIC integration and provides unprecedented performance, configurability, low power and small size.

The Akida NPC IP is modular, flexible, small as well as operates at unprecedented power levels depending on processing demands of the application.

Key Takeaways From BRN’s Annual General Meeting 2019: BrainChip Holdings had recently released the annual general meeting 2019 presentation in which it had provided information on its financial update. In 2018, the company’s operating cash outflow amounted to US$7.1 million as compared to US$6.7 million in 2017. The company had stated that it had cash of US$7.5 million at 2018 year-end. It also added that the capital requirements in 2019 are supported from the increased cash receipts or fund raising. The following picture gives key information about the Akida competition:


Akida Competition (Source: Company Reports)

The presentation also threw light on the major advantages of Akida which includes ease of use, multiple learning modes as well as high performance, etc.

Introduction of Powerful Neural Network Converter: BrainChip Holdings Ltd had made an announcement about the availability of powerful neural network converter that enables the users to easily convert existing convolutional neural networks (or CNNs) to an Akida compatible event-based spiking neural network (SNN). The converter is integrated with Akida Development Environment (or ADE) to provide network conversion and simulation. The users could achieve higher performance with native SNN and faster time-to-market by using the CNN to SNN converter and the ADE.    

The new CNN to SNN conversion flow is designed for the ease of use and utilizes the standard text files. The users can implement many CNN architectures targeted at edge applications like image processing, anomaly detection, ADAS, robotics, and key word spotting. In order to optimize the performance, ADE supports programmable multiple bit-widths including binary, ternary and 4-bit for both weights and activations in each network layer.

What To Expect From BrainChip Holdings: With respect to Akida^TM Market Focus, BrainChip Holdings had stated that the AI Acceleration Chip Set market is expected to grow from roughly US$5 billion in 2018 to more than US$60 billion in 2025. This expectation includes Server Central Processing Unit Implementations (or CPUs), Server Graphics Unit Processors (or GPUs), Server Accelerators with Field Programmable Gate Array (or FPGAs), and dedicated neuromorphic integrated circuits.


AI Acceleration Chipset Forecast (Source: Company Reports)

As highly integrated NSoC, Akida device addresses training, inference and general-purpose requirements in high-growth and high-volume “Edge” applications. The company stated that Akida NSoC enables AI Edge solutions for the high-growth, high-volume applications that have been difficult to achieve with the existing AI architectures. BrainChip Holdings is in the competition in a large and growing market with the other well-financed private companies where time-to-market and performance are important for success. The company added that Akida device for AI Edge applications happens to be a major technology advancement.

Stock Recommendation: The top line of BrainChip Holdings has been witnessing an increase from the past few years, which reflects its strong revenue-generation capabilities. In the time span from FY 2016-FY 2018, the company’s top line had witnessed a strong CAGR of 152.0%. During the same period, the company’s cash receipts have also witnessed an increase. These improvements in the company’s key financial parameters from the past few years might help in gaining traction among the market players. The company had stated that, in order to support the primary goal of leading neuromorphic industry, it is expected to raise additional capital moving forward to assist to finalize development of Akida product.

An important factor which might help the company in attracting the interests of the market players is the improving financial position which is evident in their YoY improvement in key financial ratios to FY 2018 as well as improvement in the top line number and cash receipts (as mentioned above). On the other hand, the company had developed a robust strategic plan with regards to the market selection, product definition, technology development and building a team designed for the commercialization and growth which could act as a tailwind for growth moving forward. However, the company’s stock has delivered the return of -42.50% in the span of previous 6 months while in the past one month, the stock posted the return of 68.29% which reflects that the stock is quite volatile. Hence, considering the above-stated factors and current trading level, we give a “Speculative Buy” rating on the company’s stock at the current market price of A$0.069 per share.  

 
BRN Daily Chart (Source: Thomson Reuters)

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