Sequans is getting “Money for Nothing” from Qualcomm, Roth says

“Hard to overstate” the validation.

That’s the take on a new deal from Roth MKM analyst Scott Searle in which Qualcomm said it would buy 4G technology from Sequans Communications (Sequans Communications Stock Quote, Chart, News, Analysts, Financials NYSE:SQNS).

On August 23, SQNS announced it had entered into an agreement to sell its 4G IoT solutions to Qualcomm.

“We are excited to announce this important transaction with Qualcomm. This agreement underscores the value of our 4G IoT technology and provides us with significant capital to continue to further invest in our IoT business ambitions,” said Georges Karam, CEO of Sequans. “We are dedicated to pushing the boundaries of innovation and providing cutting-edge 4G/5G semiconductor solutions that meet the advancing needs of AI-powered Internet of Things applications. This transaction is expected to provide us the resources and flexibility to enhance our product offerings and expand our market presence.

The analyst says this development remind him of a certain hit from the 1980s.

“As a huge Dire Straits fan I can hear Mark Knopfler crooning, as SQNS will receive $200M for its 4G IoT solutions from QCOM with limited concessions,” he wrote. “SQNS will continue to be able to produce 4G IoT solutions, for both new designs and to fulfill existing customers’ orders against its $400M design win opportunity pipeline. Additionally, the company will continue its planned development for RedCap/eRedCap, which is the natural evolution of IoT into 5G. The company also retains its 5G Taurus development and IP in its entirety which was targeted at non-Smartphone applications such as FWA, hotspot, IIoT, Satellite, etc. While Taurus development is currently suspended, SQNS remains in a position to monetize this through further investment (licensing), an outright sale, or continued development at some point in the future. And of course, the balance sheet is completely recapitalized with an expected $80M of net cash, which is more than adequate to reach profitability (estimated at mid-2026).”

In a research update to clients August 26, Searle maintained his “Buy” rating and price target of $3.00 on SQNS.

The analyst thinks SQNS will post an EPS loss of $0.48 on revenue of $25.9-million in fiscal 2024. He expects those numbers will improve to an EPS loss of $0.25 on a topline of $39.4-million in fiscal 2025.

“With $80M of net cash and a reduced burn, we see a conservative path to break-even results in mid-2026, on purely existing wins from 4G IoT solutions ($400M+ design win opportunity pipeline featuring IIoT designs from Itron, Honeywell, medical device OEMs, fleet solutions, Home security, etc.),” he added. “In 2026, we conservatively estimate SQNS can post 2H26 EPS of $0.10+. Additionally, 5G Taurus is highly monetizable given licensing opportunities or an outright sale. With extreme scarcity value (QCOM, Mediatek (no IoT focus), GCT Semi (GCTS-NC) still struggling for 5G), SQNS has unique value, in our opinion. We would conservatively value the Taurus at $150M+.”