Oculus Rift teardown a key catalyst for Spectra7, says M Partners

Preliminary results that fell a little short of his expectations aren’t moving M Partners analyst Steve Salz’s eyes from what he feel is the real target for Spectra7 Microsystems (Spectra7 Microsystems Stock Quote, Chart, News: TSXV:SEV).

Yesterday, Spectra7 announced preliminary unaudited results. The company said it expects to report revenue of approximately $2.5-million for the first quarter of 2016.

“The first quarter’s expected record revenues, design-ins and strong bookings is a triple play for the company, and I commend the relentless efforts of our team for these major achievements,” said CEO Tony Stelliga. “To have all three occur in the same quarter underlines the strength of our team, our business model and our unique technology.”

Salz notes that Spectra7’s preliminary results bested the street consensus of $2.4-million in revenue, but fell short of his estimates of $2.9-million. The analyst says he is focused on what he feels is the real catalyst for Spectra7: a teardown that he expects will reveal that SEV is the sole chip provider for the Oculus Rift.

“We are frustrated by the lack of teardown (Oculus) to date, however still believe it represents an important near-term catalyst,” says Salz. “The key teardown website in question, iFixit, posted an incomplete Oculus teardown on March 29th and hinted toward future iterations which could include opening the cable. SEV’s presence in Oculus is critical to our estimates and the market’s view on the stock. We expect SEV to be the sole chip provider for the Oculus, and it represents the greatest proportion of our VR estimates for this year, at ~2.0M of ~3.8M chips expected.”

In a research update to clients today, Salz maintained his “Buy” rating and one-year target price of $0.95 on Spectra7 Microsystems, implying a return of 76 per cent at the time of publication.