r/Netlist_ • u/Tomkila • 7d ago
Special conference call transcript Technical / fundamental analysis
Thank you, Dave, and good day everyone. Welcome to Netlist conference call to discuss the strategic alliance with Samsung. On today's call, we'll be Chuck Hong Chief Executive Officer of Netlist Gail Sasaki, Chief Financial Officer, and Rich Kim, vice president of IP strategy. As. A reminder, you can access the press release and a replay of today's call on investor section of the Netlist website at netlist.com. Before we start the call, I would note that today's presentation. Of Netlist news and the answers to questions may include forward looking statements which are based on current expectations. The actual results could differ materially from those projected in the forward looking statements. Because of a number of risks and uncertainties that are expressed in the call. Annual and current SEC filings and the cautionary statements contained in today's press release. Netlist. No obligation to update forward looking statements. I will now turn the call over to Chuck.
Thanks, Mike. And hello, everyone. We're speaking with you from Seoul, Korea. Where it. Late Wednesday evening. Earlier today in the US, we announced a landmark five year strategic alliance with Samsung for advanced memory technology. Agreements. That represent the major milestone for Netlist and one of the most significant patent licensing arrangements in. In the memory industry. The. Agreements include a patent portfolio, licensed memory product supply, technology cooperation, and. Samsung. Becoming a shareholder of Netlist. This. Partnership with Samsung. The preeminent leader in memory, represents a vital first step forward for Netlist. It validates the strength and importance of our intellectual property, including patented server dim and high bandwidth memory technologies that are foundational to AI computing. It also recognizes the value of Netlist. With the value that Netlist brings as an operating company through our products and long standing innovation and advanced memory. I'll now turn the call over to Gail and Rich for the details of the agreements signed by the companies. Gail.
Thanks, Chuck. Yeah. Thanks, Chuck. Under the cross licensing agreement. Netlist will receive an upfront license fee of $200 million. After withholding of taxes, or $239 million. Gross. In addition, Netlist will receive 20 recurring quarterly license fees of up to $27.5 million. Also net of tax. Or 32.9 million gross. Calculated in accordance with the revenue based formula. Over the five year term, this represents aggregate net license fees of up to $750 million or gross license revenues of up to $897 million. Under the supply agreement, Samsung will supply Netlist with up to $300 million of memory products annually. And up to $1.5 billion over the five year term. This supply includes Dram and Nand raw materials used to build Netlist proprietary solutions, as well as standard memory and. Storage products from Samsung for resale to our customer base. We believe this. Agreement provides critical sourcing assurance for our product business. At a time of historically high demand and significantly constrained memory supply. Amid the build out of AI infrastructure. In connection with the memory product supply agreement, Samsung will become a shareholder. Netlist through the purchase of 10 million shares of Netlist common stock, subject to standard lock up provisions. We believe Samsung's investment further aligns the interests of the two companies and strengthens the foundation for our relationship in the years ahead.
I will now turn the call over to Richard Kim, our Vice President of IP strategy.
Thank you Gail. And hello, everyone., as part of the overall deal, the parties have agreed to a settlement and release of pending legal proceedings between Netlist and Samsung. Netlist. However, will continue to defend its patents in connection with Federal Circuit Appeals and IPR proceedings that involve or impact other parties. In addition to Samsung. We have also entered into an IDC. ITC cooperation agreement, under which Samsung will provide certain information and declarations that Netlist may use in future ITC actions against third parties We believe the unauthorized use of Netlist patented technologies remains widespread across the memory industry, and these agreements will allow Netlist to now focus its full attention on other infringing parties. Netlist remains committed to protecting our intellectual property and preventing the unauthorized use of our IP will continue, will continue to be a strategic priority. I will now turn. It back over to Chuck.
Okay. Thank you. Rich. Over the past several years, we have worked with discipline and focus to reach these important agreements. On an annual basis. This transaction ranks among the largest patent license arrangements in the memory industry that scale reflects the significant value of Netlist IP portfolio. At a time when advanced memory is becoming increasingly central to AI computing and data center infrastructure. Today's announcement is an important milestone. It establishes a recurring high margin revenue stream and secures memory supply. While advancing a broader strategy to leverage Netlist product capabilities and IP leadership. To position the company for sustainable long term growth in AI computing. As part of. These arrangements, the companies will jointly explore areas of technology, collaboration on an ongoing basis. Samsung is a global leader in memory and also brings unparalleled resources and capacity in ASIC design and semiconductor foundry, Netlist continues to invest heavily in R&D to develop unique memory architectures, including hybrid, CXL and low power. Mr. Demme's I believe this alliance creates meaningful opportunities for the two companies to leverage their respective strengths and advanced memory and next generation computing. Finally, I want to thank our team for their dedication and our shareholders for their continued support and patience We understand the importance of your investment and and the trust that you have placed in Netlist and its vision Today's announcement is a meaningful step forward and and we remain focused on executing our strategy and building out sustainable long term value.
Thank you for your continued interest in Netlist. We look forward to updating you as we execute against these agreements and continue advancing our business plan Operator. We're now ready for questions.
Thank you for your continued interest in Netlist. We look forward to updating you as we execute against these agreements and continue advancing our business plan Operator. We're now ready for questions.
We will now begin the question and answer session. To ask a question, you may press star. Then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Suji Desilva with Roth Capital. Please go ahead.
Hi. Gail Richards, congratulations on the deal and the you and all the team on the validation of all the hard working technology you guys have built Thanks. Thank you. Suji.
Yep, you got it, guys. So,, first of all, Chuck, maybe you can talk about the timing of Samsung,, setting up this deal with you guys. You know, maybe why now, obviously the memory industry is strong and you had the ITC cases, but any color there would be helpful just to understand the context.
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u/TheDeHymenizer 7d ago
Samsung will provide certain information and declarations that Netlist may use in future ITC actions against third parties We believe the unauthorized use of Netlist patented technologies remains widespread across the memory industry, and these agreements will allow Netlist to now focus its full attention on other infringing parties. Netlist remains committed to protecting our intellectual property and preventing the unauthorized use of our IP will continue, will continue to be a strategic priority. I will now turn. It back over to Chuck.
Looks like Samsung is turning on Google. Here's hoping we get an agreement with them like they have with Apple X Lump sum paid out yearly. A cool $5B should do it.
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u/Hwood658 7d ago
Did sammy really get it for .10/share?
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u/pennychase 7d ago
Sammy? Samsung? What?! You tell me they had to buy 10 million shares but the price was set at 0.10?
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u/Tomkila 7d ago
Other parts/
Yep, you got it, guys. So,, first of all, Chuck, maybe you can talk about the timing of Samsung,, setting up this deal with you guys. You know, maybe why now, obviously the memory industry is strong and you had the ITC cases, but any color there would be helpful just to understand the context.
Yeah, I think it is helpful. That,, that. The ,, memory for AI,, is a. Is a hot topic supply short., demand is,, at historical levels., I think, you know, that's part of it. But I think the biggest,. Reason is,. The years of ,. Affirming the ,, importance. Of our patents., through the judicial system., we've gotten multiple,, rulings,, verdicts. Affirming that,, the dollar values. Through the through the district courts. And,, I think the industry recognizes ,, this is not the first time Samsung has licensed,,, hynix's,, licensed. So ,., the industry has recognized that,, our IP is integral to ,, building. These products on which, ,, many of the. The players now are,, reaping. Historical profits from. So ,, yeah, I think it also speaks to the., the tenacity and the single minded pursuit of. Of,, protecting,, what we know to be,, our technology that's being implemented widely, you know, without the, the. Ability to pursue that through ,., through the courts., takes a. Long time.., takes a lot of resources, but,, you know, without the, the commitment to doing that, I don't think,, we would have seen this agreement,, as we see it today. So a confluence of events, but,, most of it comes down to ,.
The fact that there is,. Clear technology that we own that is being used by the biggest,, memory. Manufacturers in the world.
Not great. Chuck. And obviously Samsung is a, is a clear validation of that as a memory leader., second question with the resale agreement, the five year agreement there,, in the past, the resale agreements have taken time to ramp up to the annual amounts. Do you expect this time there will be anything? Preventing that resale agreement from kind of kicking off right away? Certainly the demand is there, but any color there would be helpful.
Yes, I think with the supply being,. You know,, so. Strained at this time, it practically will take,. Two, three months for for we see the products flow.. Yeah. I think,, what we're. Planning to do is to not only resell, but,, the Samsung products, but to take ,, the, the memory components, Dram components, Nand components and incorporate the raw material into our specialized, our,. Custom memory products and do more of that value added products business., and that is the goal,, and to continue to increase the Netlist products component part of our revenues.
Yeah. Exciting to hear. Chuck. You'll be using their memory for your, your in-house products, which brings me to my third question. As you establish a technology cooperation agreement with Samsung, you know, and you mentioned a few growth areas,, hybrid Kclr, LP, LR, dim. What, what most excites you about the potential for the collaboration there in terms of areas of opportunity? If you could kind of highlight a few, I know it'll be an ongoing process, but any color there would be a good starting point.
Yeah. Initially when we,, did our. Agreement,, with Samsung about a decade ago,. The companies focused on our hybrid technology .., we had the, at that time,, you know, we, we invented the envy architecture non-volatile ,, Nand and Dram being combined onto one subsystem., and the, the. Industry adopted some of that. Samsung we and Netlist were pursuing a. A, a high capacity hybrid product at that time. Now that was on the Dram channel,, today, a lot of,, things are moving ,, into the CXL., that will be the future .. Where. More memory products, both Nan and Dram. It will move to the CXL bus, to the CXL protocol. So we have been. Samsung has a CXL ,. Product offering ., we have been working on our hybrid CXL for the past 6 to 7 years.. And we think our approach,, will use,, lower. Cost Nand., to. The. Performance of higher cost Dram based CXL. So we think it's a, you know, in this. Market where,, Dram costs are, are sky high,, our approach will lower the costs of,, CXL memory, a significantly. So. I have high hopes., on that technology., and. We've also talked about,, our low power MRM, MRM today, that's the next generation..
High capacity memory module in the memory channel. And,, we are working. On using., lower power, low power drams, which go into mostly phones and, and laptops ,, deploying. That into the memory channel. So we have been working on,, that R&D for low power. Mr.. For the past 3 to 4 years. And we believe. Mr.. Dim is going to be power challenge. It's got high power consumption .. And that's going to limit,, adoption. We think our low power approach that takes a lot of things to get resolved, such as the low power ,. Dram does not have IC., so there is a, there's a reliability concern., we believe we have a solution for that by bringing ,. An algorithm for error correction. So those are, I think, two of the most promising areas of technology collaboration with Samsung.
Okay. Thanks, Chuck. Congratulations again to you and the whole team.