Dialog Doubles Down on Energous

Recently Dialog Semiconductor (DLG:  DE) invested $15 million in new equity capital in wireless charging technology developer Energous (WATT:  Nasdaq).  Dialog is signed on to supply Energous with components in its WattUp wireless charging solution for electronic devices like our cell phones and tablets.  The $15 million check brings to $25 million the total common stock investment Dialog has made in Energous. 

What has got Dialog Semiconductor so enthusiastic about Energous?

Full power free of wireless is a beguiling concept.  There has been considerable discussion about the benefits of ‘untethered’ devices.  However, the closest device owners have come to wireless charging is a charging pad.  This solution may not have wires but it is far from making the device owner ‘untethered’. 

Inductive charging is one of the technologies that has been proposed for wireless charging.  It relies on an electromagnetic field to transfer energy between two objects through electromagnetic induction.  This is usually done with a charging station, so there is still the need for a piece of hardware to which the device must remain in close proximity.  In 2013 Samsung launched the Samsung Galaxy S4 with an inductive charging feature in the back of the device.  Likewise Nokia and Microsoft’s Lumia devices rely on inductive charging.

Energous has taken another track, using radio frequency (RF) technology coupled with BlueTooth and eliminate wires between the energy source and the electronic device.  Bluetooth connectivity helps the device locate charging mechanism.  Once connected, however, radio frequencies take over, sending focused RF signals on the same bands as the electronic standard IEEE 802.11x otherwise known as WiFi.  The RF signals are then absorbed and converted into direct current power by a tiny chip embedded in the device.  Device owners are truly untethered as they can walk around some distance from the charging source.  The WattUp wireless charging solution under development by Energous is beguiling in its simplicity.

Dialog's SmartBond Bluetooth low energy solution is being used by Energous for the communications channel between the wireless transmitter and receiver.  Dialog's power management technology is also used to distribute power from the WattUp receiver integrated circuit to the rest of the device while Dialog's AC/DC Rapid Charge power conversion technology efficiently delivers power to the wireless transmitter.  It would appear the two companies are highly dependent upon each other, making it no surprise that Dialog would want to support Energous’ efforts to reach its end markets.

Investors have responded with enthusiasm to the news that Dialog has invested more capital in Energous, bidding the shares higher in the first days following the announcement of the deal.  The price move took the shares into overbought territory, where we recently suggested investors take profits.Just how high should investors chase the shares is an important question.  Unfortunately, determining value for WATT is somewhat challenging. 

The company is not yet reporting revenue from its technology.   However, the total number of customers with active testing and design activity is now sixty-eight.  Continued expansion of potential customers bodes well for long-term growth.  However, what bedevils valuation of Energous shares is not the pipeline breadth as much as it is speed.  So far Energous management has engaged in considerable priming of that pipeline, but no flow has emerged to the disappointment of investors.

When reporting financial results for the first quarter ending March 2017, Energous management provided new color on the Company’s business pipeline.  The willingness of management to specify at least by quarter the timing of orders, production and sales served as a long-awaited catalyst for the stock.  On the other hand the Dialog investment injected considerable risk of dilution into the shares.  The company issued 976,139 shares of common stock to Dialog along with another 654,013 warrants to purchase WATT shares at the price of $19.98. 

Taking a long position in WATT at the current price level could be risky given that the timing of sales and cash flows for the Company are not certain.  Nonetheless, the stock is an interesting play in the alternative energy sphere. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Crystal Equity Research has a Trim rating on WATT.