COMPANY ANALYSIS 12 September 2016
Summary
Neonode
(NEON.OQ)
List:
Market Cap:
Industry:
CEO:
Chairman:
The Midas Touch

Neonode (NEON.US) is a human interaction
technology company, up until now mostly known for
licensing its optical touch solutions to customers with
an installed base of in total over 38 million units.

However, Neonode has conducted a major strategic
change as it gradually will shift from selling licenses to
hardware modules. This new strategy will enlarge the
addressable market for Neonode’s products fivefold as
well as dramatically increase the revenue and profit
per sold unit. We believe this is not fully understood by
investors but coming quarters will show the results of
this new strategy.

NASDAQ
67 $M
Human Interaction
Thomas Eriksson
Per Bystedt
OMXS 30
Neonode
3.5
3
2.5
2
1.5
1
0.5
0
14-Sep
13-Dec
12-Mar
10-Jun
We initiate coverage with a long-term base case
valuation of $3.7 per share, compared to today’s share
price levels of $1.3. Our fair value range in a bear- and
bull case is $1.2 – 6.2.
Redeye Rating (0 – 10 points)
Management
Ownership
7.0 points
5.0 points
Profit outlook
Profitability
7.5 points
0.0 points
Financial strength
2.0 points
Key Financials
Revenue, MUSD
Growth
EBITDA
2015
11
2016E
14
2017E
40
2018E
75
28%
134%
22%
194%
88%
-14
EBITDA margin
-295%
EBIT
-14
EBIT margin
Pre-tax earnings
Net earnings
Net margin
2014
-7
-66%
-8
-3
-25%
-4
7
19%
7
22
30%
22
-299%
-69%
-26%
18%
29%
-14
-14
-8
-8
-4
-3
7
7
22
22
-300%
2014
Dividend/Share
EPS adj.
P/E adj.
EV/S
EV/EBITDA
2014
5
2015
0.00
-0.36
0.0
-1.3
0.4
2015
-69%
2016E
0.00
-0.19
0.0
-0.3
0.4
2016E
-25%
2017E
0.00
-0.06
-19.9
4.3
-17.2
2017E
18%
2018E
1.3
52.4
67
-7
Free float (%)
Daily turnover (’000)
87 %
29
29%
2018E
0.00
0.13
10.0
1.3
6.7
Share information
Share price ($)
N.o. shares 16E (m)
Market Cap ($M)
Net debt 16E ($M)
0.00
0.38
3.3
0.4
1.5
Analysts:
Viktor Westman
[email protected]
Havan Hanna
[email protected]
Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report.
Redeye, Mäster Samuelsgatan 42, 10tr, Box 7141, 103 87 Stockholm. Tel +46 8-545 013 30. E-post: [email protected]
Neonode
Redeye Rating: Background and definitions
The aim of a Redeye Rating is to help investors identify high-quality companies with attractive valuation.
Company Qualities
The aim of Company Qualities is to provide a well-structured and clear profile of a company’s qualities (or
operating risk) – its chances of surviving and its potential for achieving long-term stable profit growth.
We categorize a company’s qualities on a ten-point scale based on five valuation keys; 1 – Management, 2 –
Ownership, 3 – Profit Outlook, 4 – Profitability and 5 – Financial Strength.
Each valuation key is assessed based a number of quantitative and qualitative key factors that are weighted
differently according to how important they are deemed to be. Each key factor is allocated a number of points
based on its rating. The assessment of each valuation key is based on the total number of points for these
individual factors. The rating scale ranges from 0 to +10 points.
The overall rating for each valuation key is indicated by the size of the bar shown in the chart. The relative size of
the bars therefore reflects the rating distribution between the different valuation keys.
Management
Our Management rating represents an assessment of the ability of the board of directors and management to
manage the company in the best interests of the shareholders. A good board and management can make a
mediocre business concept profitable, while a poor board and management can even lead a strong company into
crisis. The factors used to assess a company’s management are: 1 – Execution, 2 – Capital allocation, 3 –
Communication, 4 – Experience, 5 – Leadership and 6 – Integrity.
Ownership
Our Ownership rating represents an assessment of the ownership exercised for longer-term value creation. Owner
commitment and expertise are key to a company’s stability and the board’s ability to take action. Companies with
a dispersed ownership structure without a clear controlling shareholder have historically performed worse than
the market index over time. The factors used to assess Ownership are: 1 – Ownership structure, 2 – Owner
commitment, 3 – Institutional ownership, 4 – Abuse of power, 5 – Reputation, and 6 – Financial sustainability.
Profit Outlook
Our Profit Outlook rating represents an assessment of a company’s potential to achieve long-term stable profit
growth. Over the long-term, the share price roughly mirrors the company’s earnings trend. A company that does
not grow may be a good short-term investment, but is usually unwise in the long term. The factors used to
assess Profit Outlook are: 1 – Business model, 2 – Sale potential, 3 – Market growth, 4 – Market position, and 5 –
Competitiveness.
Profitability
Our Profitability rating represents an assessment of how effective a company has historically utilised its capital to
generate profit. Companies cannot survive if they are not profitable. The assessment of how profitable a company
has been is based on a number of key ratios and criteria over a period of up to the past five years: 1 – Return on
total assets (ROA), 2 – Return on equity (ROE), 3 – Net profit margin, 4 – Free cash flow, and 5 – Operating
profit margin or EBIT.
Financial Strength
Our Financial Strength rating represents an assessment of a company’s ability to pay in the short and long term.
The core of a company’s financial strength is its balance sheet and cash flow. Even the greatest potential is of no
benefit unless the balance sheet can cope with funding growth. The assessment of a company’s financial strength
is based on a number of key ratios and criteria: 1 – Times-interest-coverage ratio, 2 – Debt-to-equity ratio, 3 –
Quick ratio, 4 – Current ratio, 5 – Sales turnover, 6 – Capital needs, 7 – Cyclicality, and 8 – Forthcoming binary
events.
Company analysis
2
Neonode
Table of contents
Table of contents ...................................................................................... 3
Investment case summary ....................................................................... 4
New business model multiplies addressable market........................................ 4
A disruptive technology leader ..................................................................... 4
Hitting the point of inflection ....................................................................... 4
Valuation summary .................................................................................... 5
Company profile ....................................................................................... 6
Background............................................................................................... 6
Products and Services ................................................................................ 6
Business model ......................................................................................... 7
Team ....................................................................................................... 8
Ownership .............................................................................................. 10
Market and opportunity .......................................................................... 11
Automotive ............................................................................................. 11
Printers .................................................................................................. 15
Neonode AirBar – touch enable any PC or laptop ......................................... 16
Many other possible applications ................................................................ 17
Competitive landscape............................................................................ 18
Competing technologies............................................................................ 18
Competitive advantages in Neonode’s technology ........................................ 18
Disadvantages in Neonode’s technology...................................................... 19
A diverse competitive landscape ................................................................ 20
Sustainable competitive advantages & entry barriers.................................... 20
Financial projections .............................................................................. 21
Sales estimates ....................................................................................... 21
Margins and cost estimates ....................................................................... 23
Quarterly estimates ................................................................................. 24
Valuation ................................................................................................ 25
Base Case Scenario .................................................................................. 26
Bear Case scenario .................................................................................. 26
Bull case scenario .................................................................................... 27
Key catalysts........................................................................................... 27
Appendix ................................................................................................ 28
Main competitors ..................................................................................... 28
Contenders ............................................................................................. 30
Board ..................................................................................................... 32
Summary Redeye Rating ........................................................................ 33
Rating changes in the report ..................................................................... 33
Company analysis
3
Neonode
Investment case summary
New business model multiplies addressable market
Neonode is a human interaction technology company with over 15 years of
focused R&D in advanced optics. It is known for licensing its optical touch
solutions operating in the infrared spectrum. However, the business model
is now being pivoted from licenses to hardware modules, which will
increase the addressable market more than fivefold. Neonode is ready to
capture a major part of this growing market and the associated change in
investor perception will have major effects on the share, as outlined below.
A disruptive technology leader
Neonode’s patented technology has key competitive advantages against
today’s dominating technologies (projected capacitive & resistive) when it
comes to performance features as low cost, power consumption, best image
quality and extreme adaptability. It works on all surfaces and in all
temperatures and environments. These features indicate that Neonode is a
perfect match for automotive - its key growth area. In automotive, there are
substantial barriers to entry as car manufacturers don’t accept even a 3 ppm
defective rate. A supplier therefore has to pass up to 5 years of demanding
tests to qualify as a part of a platform. Neonode has passed these tests for
customers deploying new automotive platforms and thus its modules will be
installed in every new model for the next decade. The stock market,
however, does not fully grasp the implications of Neonode’s success in
achieving qualified vendor status of the global automotive OEMs, the new
technology acceptance or the ramp-up process of Neonode’s customers.
Hitting the point of inflection
It is important to note that Neonode is not a high risk, high expectations
play as it already has the customers, the traction and the ramp-up in
existing and coming models to support a substantial growth. Approximately
one third of the 30 car models where Neonode’s technology is installed are
currently shipping. This will increase significantly in the coming years as
new customer car models incorporate Neonode’s technology and the
existing customers’ Neonode based touch platforms expand across their
entire model line-ups. In addition, Neonode's clients in the printer industry
currently have a total market share of over 80 percent, whereof HP holds
around 50 percent. When Neonode's other clients, Samsung, Lexmark and
the two Japanese OEMs (which we believe to be Canon & Epson) roll out
their next generation printers, we expect them to include Neonode’s
technology, as HP in 51 of its printer models. All in all, Neonode, with its
new hardware module-based business model as a critical factor, is
positioned to hit the point of inflection, i.e. a noticeable, positive turning
point in the investment case and the stock market’s appreciation.
Company analysis
4
Neonode
Valuation summary
Our Base Case Scenario relies on the following assumptions:
-
A CAGR total sales growth of 44% during 2017-2021
-
This will be achieved by increasing the module revenue and
volumes of total sales during 2017-2021 from o% to 97% and 78%
in Automotive and 86% and 60% in Printers, respectively
-
Volume and sales estimates respectively for the segments are;
Automotive CAGR 2017-2021; 37% and 44%
Printers CAGR 2017-2021; 14% and 43%
AirBar CAGR 2017-2021; 16% and 6%
-
Gross margin contracts by 6% per year from 62% to 47% during
2017-2021 due to increasing module revenue
-
OPEX as a percentage of sales shrinks from 43% to 17% during
2017-2021, implying an OPEX CAGR of 13%
-
Average EBIT margin of 31% during 2017-2021
This results in a fair value of $3.7 per share.
In our Bull Case Scenario, we end up with a fair value of $6.2 per
share. In this scenario we assume management execute in line with its
strategy, meaning a CAGR sales growth of 58 percent and an average EBIT
margin of 34 percent during 2017-2021.
In our Bear Case Scenario, we end up with a fair value of $1.2 per
share as we assume a CAGR sales growth of 3 percent and an average EBIT
margin of 23 percent during 2017-2021. This is, in short, due to a failure in
the module strategy and an associated retreat back to licenses, which would
imply decent margins but severely hampered growth possibilities.
Key catalysts and risks
We expect break-even figures in Q4’16 to move the Neonode share closer to
our base case but the major release will come from the gradually and
rapidly increasing profits in the 2017 financial reports. If these numbers
also start a short squeeze we could be looking at a double whammy effect as
11 percent of the free float is currently shorted and days to cover amount to
as much as 14 days. One of the risks is that the new module strategy will not
work due to tier-1 automotive suppliers launching their own competing
solutions. In addition, the incentives and possible rewards in inventing new
technologies should be massive due to pro cap’s disadvantages paired with
the market growth. It is also possible that pro cap proponents finally find a
suitable ITO-replacement such as e.g. metal mesh1, meaning pro cap’s
dominance would prevail over a distant future.
1
At SID 2016 DisplayWeek 3M launched a 55-inch touch table … (Continued on next page)
Company analysis
5
Neonode
Company profile
Background
Neonode works with
human interaction - not
(solely) touch displays
First and foremost, Neonode, in a broader perspective, not only works with
technology for touch displays but with human interaction in numerous
ways. It is therefore important not to pigeonhole Neonode into solely touch
display applications. Neonode pursues a multimodal approach where the
idea is to make room on its platform for others. Neonode will integrate
different types of sensors and use its own production technology and
distribution network to be the front end.2 In addition, Neonode is surface
independent, meaning it does not even need displays or glass.
Products and Services
Neonode’s technology was designed to overcome many of the setbacks in
the conventional technologies used in touchscreens, as we will dig further
into in the competition section. But what exactly is the infrared (IR) optics
technology and how does it work? Neonode’s patented, third generation
zForce technology, in short, uses light or rather the absence of light to
determine the position of an object, e.g. a hand or a pen, to register a touch
or the movement in a gesture. The zForce solution uses plastic optical
elements together with a proprietary scanning chip, IR emitters and
receivers that are bonded to a circuit board. Together these components
produce an illuminated plane on which reflections from the hand or the
object can be detected. These objects are then triangulated to pinpoint their
exact location.
The basic principles of the technology are fairly straightforward to
understand and the components needed are few. However, Neonode has
invested many years since inception in 2001, in developing advanced optics
and lenses that enable their technology to meet the high performance
standards required to commercialize the technology. Neonode’s competitive
advantage lies in years of expertise in advanced optics and lens
manufacturing required to flawlessly mass-produce this technology in the
millions. The final products based on Neonode’s touch technology ends up
in especially (but not exclusively) the following applications:
-
Touch displays in printers
-
E-readers
-
Infotainment systems in cars
-
AirBar products
… (Continued from the previous page) with a metal mesh touchscreen. C3Nano demonstrated
a 55-inch silver nanowire transparent conductor touch display. In addition, Microsoft
advocated its 55-inch and 84-inch Perceptive Pixel-based Surface Hub. These are just some
examples of the intensive R&D out there.
2
One example of the multimodal approach of Neonode is the integration of Smart Eye’s eye
tracking sensors in automotive applications (as eye tracking beast Tobii is not focusing on
automotive). Smart Eye is just one example though.
Company analysis
6
Neonode
See the images below of, from the left, the Volvo XC90, an HP printer and
the Neonode AirBar that can touch-enable every non-touch PC or notebook
out there (see further the market section).
The end products: Neonode-based infotainment systems, printers & the AirBar
Source: Redeye Research, Volvo, Neonode
Business model
The customer base (see the graph below) has, as a result of Neonode’s new
strategy, shifted over the last years from e-reader vendors to automotive
and printer companies.
Some examples of Neonode’s prominent customers
Source: Redeye Research, Neonode
Neonode moves up the
value chain to capture a
substantially larger part
of the market
The traditional business model is license based. Neonode has previously
sold non-exclusive licenses to OEMs (Original Equipment Manufacturers)
and ODMs (Original Design Manufacturers) for a few dollars a piece with a
close to 100 percent gross margin. While keeping this old model, Neonode
is looking to add selling hardware modules. This will enable Neonode to
capture a much larger part of the overall value chain. Lower costs from
bypassing the intermediaries provide value for the end customers and
according to us explains the great interest in shifting to Neonode modules.
We have not (yet) found any detailed, useful data on how gross profits are
divided by the different agents in the touch display value chain but module
prices indicate that Neonode’s addressable market will multiply by more
than five times in total. One example where a company has made a similar
move up the value chain is Mobileye. Israeli Mobileye went from producing
camera sensors for $3 to manufacturing and selling complete modules at a
Company analysis
7
Neonode
price of $30. Needless to say, the share price of Mobileye has skyrocketed as
a result of this strategic shift.
Neonode has since long integrated and designed modules for its customers
so it should have a deep understanding of the processes. The new modules
in automotive and printers will be built on the same, already up and
running module platform and the same production process that are used for
Neonode’s AirBar product. With the standardized modules, there is no
longer any need for customized design and extensive education of the sales
force or the customers. Consequently, the modules will also be easier to sell,
which leads to decreasing selling costs.
IP strategy
Intellectual Property (IP) is, as always for any licensing company, a
fundamental part of Neonode’s strategy. At the end of 2015, Neonode had
in total 106 patents and 101 patents pending. The patents cover the full
range of the company’s business: user interfaces, optics, controller
integrated circuits, drivers, mechanicals and applications. We believe this is
a major part of all touch-related patents on file, since there according to
competitor Touch International, a few years ago were some 1 200 touchrelated patents in total. In the Q2’15 conference call Neonode discussed the
patent portfolio and mentioned that some of its major customers’ solutions
are covered by up to 17 patents. The portfolio also includes a family of
patents with priority dating back to 2001 that cover sweep gestures, a user
interface Neonode developed for mobile phones.
Strong IP in the highly
automatized production
process
The Neonode production line in Gothenburg, Sweden, is not using the old
method to solder circuits but is instead so high tech that it only requires two
people to manage the production process from beginning to end. The IP
strategy is to have all IP and manufacturing in Sweden instead of China.
This is not only due to IP risks but also because the historical advantages
with production in China is eroding. Close to 20 percent of Neonode’s R&D
is at the moment related to production technology, implying a considerable
know-how in the production process.
Team
Thomas Eriksson, co-founder & CEO (since 2011)
Thomas Eriksson is a computer programmer, engineer, entrepreneur, and
venture capitalist. He is the co-founder and CEO of Neonode. In 2004
Neonode launched the world’s first gesture based touch mobile phone, the
N1, followed by the N2, the world’s smallest touch and gesture based mobile
phone. Prior to Neonode, Thomas founded TE Industrielektronik AB in
1997. The company developed car diagnostic equipment to help workshops
to find and trace intermittent or static errors in the cars electronic systems.
In 1999 Thomas founded DriveIT Systems AB together with 4 other
Company analysis
8
Neonode
software engineers. DriveIT successfully launched a car pool system with
mobile GPS enabled terminals connected to the cars network (CAN) and the
Internet (GPRS). The system also included a full WEB based IT system to
make bookings for the cars included in the pool.
Lars Lindqvist, CFO (since 2014)
Mr Lindqvist holds a Master´s Degree in Finance from Uppsala University.
Lindqvist previously served as a director of Neonode since 2011. He has
held the role as CFO for more than +25 years in different companies.
Among others Lindqvist served as CFO for Mankato Investments AG Group
(2005-2011), Microcell OY (2002-2205), a Finnish ODM of mobile phones
and Ericsson Mobile Phones (1995-2002). At Ericsson, Mr Lindqvist was
directly involved in the divestment of the Ericsson Information Systems to
Nokia 1991 and he actively participated in customer financing and
negotiations.
Remo Behdasht, SVP AirBar Devices and Business Development
(since 2011)
Mr Behdasht holds a Bachelor Degree in Marketing and Commerce from
Australian Catholic University. Prior to joining Neonode, Behdasht spent a
decade working with TomTom and Livescribe. Most notably in 2002, when
TomTom was in start-up mode, Behdasht was responsible for establishing
TomTom’s business in key European markets and was part of the
company´s initial success. At Livescribe he held the position as the Director
of International Sales with prime focus on the Australia and European
markets.
Ulf Mårtensson, VP Operations (since 2012)
Mr Mårtensson holds a Bachelor of Science in Chemistry from Umeå
University. Mårtensson has over 30 years of experience in Director, VP and
C-roles from companies like Ericsson (1996-2003), Perten Instruments
(2003-2006) and Boliden (1980-1996). He focused on product and
technology development as well as supply management with the goal to
bring new solutions to the market.
Gunnar Fröjdh, VP Global Sales Automotive (since 2011)
Gunnar Fröjdh has established Neonode as a leading supplier for
innovation and quality within the automotive industry. Fröjdh joined
Neonode in 2011 and brings more than 25 years of experience within the
mobile phone industry in executive roles at Siemens (1989-1997) and
Philips (1998-2000). Mr Fröjdh also served as Business Development
Director at Magic4 Ltd (2000-2004).
Company analysis
9
Neonode
Bengt Edlund, VP Global Sales Consumer (since 2014)
Mr Edlund has worked for +30 years in various European director roles at
Hewlett Packard (1981-1985) and National Semiconductor (1985-2012). He
also held the role as Director of Sales and Marketing at Elsip (2012-2014)
and has worked with IP start-up companies in the field of Solar Power,
Laser (VCSEL), Multicore processors and IoT Biosensors at KTH.
Carl Bergendal, VP Global Engineering (since 2015)
Prior to joining Neonode Bergendal served as Manager at KnowIT (20122015) and Softronic (1997-2012). In 1989 he co-founded Adveca
Datakonsulter which Softronic acquired 1997. Mr Bergendal has 30 years of
experience in the technology- and IT industry.
Alexander Jubner, VP Research & New Technology (since 2013)
Mr Jubner holds a M.Sc. in Mechanical engineering from KTH Royal
Institute of Technology. For the last 10 years Jubner has worked in different
roles in product management, product development and sales. Jubner is
responsible for Neonode’s technology roadmap and manages the
development of new technology and applications to further improve and
broaden its product offering.
Team conclusion
In general, Management and Board hold large amounts of shares and have
been around in the company, the industry or adjacent segments for a long
time. The CEO, Thomas Eriksson, is one of the two founders and inventors
behind the technology and has a long entrepreneurship experience within
electronics manufacturing. Eriksson was previously the CTO of Neonode
but given the importance of R&D in this innovative industry, we believe that
Eriksson, once again as a CEO of Neonode, definitely is the right man in the
right place. Eriksson has a big thrust for innovation and we see him as the
company´s visionary. For the board members see appendix.
Ownership
The largest shareholder is AWM Investment Company, a US based
investment fund with over $1 billion of assets under management. The
Chairman of Board and the CEO of Neonode are the second and third
largest owners of the company. The renowned institution Vanguard is
placed number four in the ownership structure. For the holdings of the ten
largest shareholders (before the recent private placement of $8.7 million)
see the summary at the end of this report (third last page).
Company analysis
10
Neonode
Market and opportunity
We divide Neonode’s market into three segments: Automotive (modules),
Printers (modules) and AirBar (products). We exclude the former bread and
butter business in the e-reader segment from our research since it is not a
strategic area anymore even though business is recovering following
Amazon’s return.3
Below is a graph on the general market growth expectations, implying a
CAGR of 10 percent during 2015-2018. Competitor Synaptics is a bit more
pessimistic and expects the market to grow to 1 800 million units.
Touch controller IC market (million units)
2500
2000
1500
1000
500
0
2012
2013
2014
2015
2016
2017
2018
Source: Himax, IHS, Redeye Research
Automotive
Neonode has built a strong position in automotive where the expected 1.3
million cars shipped with Neonode technology in 2016 would indicate a
market share of 4 percent, judging from Statista data.
Significant barriers to
entry within automotive
as it takes up to 5 years to
become qualified
The automotive industry has a platform based approach. This means that if
a supplier is approved for a platform, the suppliers’ products will be
installed in all models released on that platform. As competitor Cypress
says, “It puts you in the driver seat for a whole generation of car models for
10-15 years”. For instance, Neonode is in all Volvo models built on the SPA
platform for large cars – one of Volvo’s two platforms. The aforementioned
implies very sticky revenue. The work before the first models are being
3
There is a misunderstanding that Neonode lost market shares in e-readers due to inferior
technology when in reality the problem was market related. Neonode was designed-out for one
Amazon lowend model but Amazon swiftly re-engaged Neonode for all high-volume devices
making Neonode number one in the e-reader space as Amazon basically controls the whole
market. The major issue with the e-reader market was unrealistic expectations from analysts
beliving that the market would go from $5-10 million to $100 million. Neonode itslef also
estimated a significant growth. Instead, Amazon and its competitors started manufacturing
tablets, which cannibalized on the e-readers segment, meaning the total market did not exceed
$10 million. In addition, the e-reader popularity did not, as opposed to the expetcations,
spread from USA and Germany to other geographies. Barnes & Noble and Sony (47 % of
Neonode’s 2011 sales) have consequently left the e-reader market.
Company analysis
11
Neonode
released is not seldom 2-3 years but it can take up to 5 years for the
suppliers to qualify depending on the platform. The reason is the
complexity of requirements regarding logistics, hardware, software, quality
assurance and so on (the software should e.g. be AQ and MISRA
compatible). If something goes wrong huge lawsuits await and
requirements are therefore high (see the entry barriers in the competitive
landscape section).
The market size and growth
Statista assumes about 30 percent touch penetration in cars for 2016 and
expects a CAGR growth of 8 percent in touch penetration in automotive
until year 2019. In addition, there is still underlying volume automotive
growth as total cars sold is expected to hit 100 million in 2017. Volume
growth in cars will not necessarily be negative during the next years as a lot
of electric, self-driving cars and small busses are expected to be sold. In
addition, we believe it is possible for Neonode to retrofit the installed base
of 1 billion cars with products similar to AirBar. Neonode believes that the
automotive market in total could be larger than the smartphones market.
So how big is the automotive market in USD then? Synaptics estimates a
total touch market within automotive of around $170-180 million during
the next years, which would imply an ASP of $6.0 to $6.5 per car.
Research institute IHS does not recognize the optical technologies as
players in automotive, which we feel is wrong given Neonode’s 4 percent
market share. The graph below on total touch panel shipments could still be
relevant in terms of total market size, in the absence of other market data.
Automotive infotaiment touch panels (million units)
120
Rapid growth in
automotive
100
80
60
40
20
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: IHS, Redeye Research
This graph, despite its 2016-2022 CAGR of 13 percent underestimates the
growth by only including infotainment systems and ignoring all other
coming applications. The infotainment segment currently grows 8 percent
according to competitor Cypress but pro cap is on its way out of the
infotainment systems, in the words of Neonode. We note that e.g.
automotive supplier Continental is developing IR touch solutions for
Company analysis
12
Neonode
automotive. Neonode’s technology is extra suitable for automotive where it
possess several competitive advantages over pro cap (as we will more
thoroughly outline in the competition section). The no-glare characteristic
is important in automotive as drivers should not be dazzled by sunlight. Pro
cap will therefore, in our opinion, especially have a hard time due to the
special film on the glass that it requires for automotive qualification. We
also expect performance in a gloved environment, a Neonode specialty, to
be standard, although some pro cap players actually claim that they can
now have good performance even with thick gloves on.
With Neonode’s cost
advantages replacing
buttons with touch
displays is a cheaper
solution
One important growth driver, in our mind, is cost efficiency. Replacing
switches and buttons with touch displays would actually be cheaper. All
buttons except a handful of regulatory ones like the warning lamp can be
replaced. It is therefore not surprising that Neonode, as we will show in the
next paragraph, is in several low end cars as well. Increasing automotive
touch penetration is thus a matter of overall growth and not a movement
from high- to low end.
The customers and the ramp-up in car models
Neonode’s 30 car models with 12 different brands is summarized in the
table below. It is worth noting that these are all only infotainment systems
and nothing else, implying great so called upsell potential.
Launched car models with Neonode based infotainment systems
Car manufacturer
Model
Car manufacturer
Model
JAC
M6
Suzuki
Vitara
JAC
M5
Suzuki
Ciaz
JAC
A60
Suzuki
S-Cross
MG
GT
Suzuki
Baleno
MG
GS
Volvo
XC90
MG
MG6
Volvo
S90
Chevrolet
New Cruze
Volvo
V90
Chevrolet
Sail
Volvo
all models with 7 from 2011
Buick
Excelle
BaoJun
Buick
Hideo
Haval (Great Wall)
H6 Coupe
Buick
Regal
Koeningsegg
Regera
Buick
Envision
Geely
NL3
Buick
GM 858
Arash
AF10
Ssangyong
Tivoli/Tivolan
GM
n/a
Ssangyong
Korando
GM
n/a
Ssangyong
XLV
560
Source: Neonode, Redeye Research
Out of Neonode’s 30 car models in the table above, only about a third are
currently shipping. It is not just a numbers game when it comes to the car
models though as the cars also need to be popular. Neonode is included in
the best-selling SUVs in China and in the award winning Volvo XC90 to
mention a few. Following the success with these just mentioned car models
we believe Neonode is on the map and in discussion with every major
player.
Neonode indeed has relations with all tier-1 automotive suppliers. Its
Company analysis
13
Neonode
customers and end customers include e.g. Autoliv, GM, Volvo, Honda,
Harman, Denso, Bosch, Alpine, Kia/Hyundai, BYD, Delphi (via Daesung)
and Suzuki. Besides this long list and the launched models Neonode are
working with traditional players like Mercedes, BMW, Opel, Ford and
Chrysler. In addition, Neonode is cooperating with new, disruptive players
like Tesla, although it seems as if Cypress is preferred by Tesla at the
moment. In Q1’15 Neonode said it is working with two self-driving cars.
The Autoliv steering wheel deal
Autoliv has partnered with Neonode for a new human machine interface for
steering wheels. Selling 17 million steering wheels, Autoliv has some 20
percent of the steering wheel market. Autoliv’s investment of $3 million
worth of non-recurring engineering fees (NRE) in the Neonode partnership
indicates that it is not out to gain only a few percent market share. Autoliv’s
target is to double its market share, i.e. over 34 million steering wheels.
The steering wheel is a critical part of the safety. Still, today’s dumb steering
wheels are not very interactive and there has up until now not been much
technology in the steering wheel, except for the airbag. For Autoliv this is
not an additional features play but a part of its core safety business. The
idea with the interactive steering wheel is that it will be what the mouse is
for a PC. The driver is connected and the steering wheel can sense the
position of the driver and the driver’s hands so that the computers know
what the driver is doing. For example when the driver releases the wheel to
the car, it can start to drive by itself and vice versa. The steering wheel will
also help the driver to focus on keeping eyes on the road. Neonode’s vision
is to move the functionality to the driver’s wheel so that he or she can
maintain the attention on the road instead of reaching out towards the
infotainment system. The Autoliv deal is therefore a perfect match where
Autoliv combines its safety knowledge with Neonode technology expertise.
We have found one similar project at Toyota where the steering wheel also
can sense heart rates.
Many more potential areas of use
Infotainment systems and the Autoliv steering wheel is not all of the
potential applications but merely a few various non-glass surface use cases.
Think about side windows and tailgate sensors or perhaps door handles
with keyless entry so that the door handle opens when the hand
approaches. Sensors on the back can help the user with groceries and
shopping bags to open the trunk by waving the hand. The hands of children
that are put in between the rear door and the car can be sensed and
protected. These examples are not just dreams as a concept car from
Mercedes already has 28 Neonode sensors. The ASP per car could obviously
therefore be a lot higher than today’s $3 for only one touch display (see our
estimates section). The first OEM with the tailgate sensor was recently
announced and as it shows in the press release, Neonode here goes straight
to automotive qualified modules. The module will be mounted next to the
Company analysis
14
Neonode
license plate and sense 1 meter behind the car.
Printers
Another key volume market where Neonode rapidly has built a strong
position is touch solutions for printers. The large volume market of printers
shipped has been rather stable the last years, totalling just over 100 million
printers sold per year. During 2015 the number of printers using Neonode’s
touch increased a fair amount by over 200 percent from 1.7 million to 5.6
million, although not as good as Neonode’s expectations of 8 million.
Neonode’s 2015 market share of all printers would therefore be just below 6
percent. In Q3’15 Neonode stated that 40 million printers use touch, which
would imply a 14 percent penetration for Neonode.
Printer customers
HP has around 50 percent of the printer market and together with a few
other players totally controls the market, according to IDC. In September
2015, Neonode announced that its customers combined sell more than 80
out of the estimated 106 million printers per year. Besides Neonode
customers HP, Samsung and Lexmark there are a few other players: Epson,
Canon, Fuji Xerox, OKI, Ricoh, Roland, Mimaki and Konica Minolta. 5 of
the 6 largest printer companies are customers to Neonode, of which the top
3 makes up for 80-85% of the total market. In addition, we believe that all
larger printer companies are working with Neonode in one way or another.
Gradual ramp-up in printers – misunderstood by the market
At the end of 2015, Neonode was integrated in 51 printer models, not
including the 15 latest models from HP. Lexmark, launched 7 models in
Q1’16 and Samsung launched the first MX7 printer series models in May
2016 using Neonode’s touch technology. A majority of HP’s interactive
printers are using Neonode and we have no reason to believe that the
rollout to other customers would not be similar (see the estimates section).
Neonode has quickly
became the market leader
in printers
Similar to automotive, printer models are built on platforms. HP e.g. has
many different printer platforms so it is not unlikely that Neonode will
enter additional HP printer platforms as well. HP’s high end printers with
low volumes are using pro cap technology. We believe Neonode has chosen
to focus on entry and mid-level printers due to the higher volumes as
customizing every printer model is time consuming. However, the module
strategy will facilitate the customization process, meaning the modules
could be the key to access high end printers and lower volumes as well. In
addition, most of the work is done when finishing the platform.4
It is important to remember that Neonode is actually new in the printer
segment, as it officially entered the printer market in March 2014. Given
4
Neonode initially had 3-4 HP projects, then 2-3 projects after 2014 and hereafter no project.
The models on the other hand, has gone from 10 to 51 during the same period, meaning that
HP independently has continued to develop the platform without the help from Neonode.
Company analysis
15
Neonode
this short amount of time its strong position and market share have evolved
in a rapid way. The best should be yet to come as many of the printer
models are still not shipping yet. The product life cycles within printers are
relatively short (2-3 years) and ramp-up usually takes 6-12 months. In
Q1’16 Neonode mentioned that following HP and Lexmark, three other
players, including Samsung, are finalizing their development phases and
expect rollout in 2016-2017. In other words, these are projects that take a
good while. The Samsung deal was e.g. press released in early June 2015
and 11 months later it was announced that Neonode technology is included
in Samsung’s new generation MX7 colour printer series.
The printer modules opportunity
Neonode’s cost advantages against pro cap varies a fair amount due to
different display sizes. We believe that the cost advantages will be even
more visible for the customer with the module strategy, as there are no
longer an intermediary picking up a major part of the gross profit.
The printer ASP has previously been around $0.50-1.00 per unit but with
the modules, ASP will multiply fivefold (see further our estimates section).
Assuming 50 percent touch penetration in the total printer market would
mean a $40-50 million market with the old ASP. With the new ASP based
on sensor modules, we believe the market will reach $150-200 million.
Neonode AirBar – touch enable any PC or laptop
Neonode’s AirBar can, as the title above suggest, touch enable any nontouch PC or laptop out there, simply by plugging in the AirBar in the USB
port. There are greater than 500 million notebook PCs in use globally of
which more than 95 percent do not have touch. In addition, around 140
million new PCs are shipped each year, of which only 15 percent include
touch. This results in a large 600 million unit market that Neonode can
address with AirBar. In notebooks there are over a hundred models and low
volumes in each, meaning a strategy from Neonode of pursuing an
integration of touch inside these devices is futile as the integration would
require several hundreds of people.
The AirBar has a strong
and unique value
proposition in a 600
million units market
High cost of capacitive touch technology, increased glare, and massive
battery consumption all leading to a bad user experience, are all
contributors to why there is such a low touch penetration today. Neonode
believes that addressing this with an aftermarket solution not only
addresses those concerns, but also allows for many more functions which
no other technology can offer. These include: use with gloves, trackpad and
air-gesture functionality. In Neonode’s own words, “this makes AirBar the
only true MultiSensing(tm) device of its kind anywhere in the market and a
true innovation in every sense of the word." The Company consequently,
with AirBar, will be the first mover in a field with so far basically non-
Company analysis
16
Neonode
existing competition5.
The PC market is a peripherals business and the whole profit is built on
selling accessories and warranties. In addition, people want touch but do
not want to pay the extra $100 that pro cap costs. These two factors
combined make it a powerful incentive for retailers and distributors to sell
an AirBar sensor for the customers to touch enable their non-touch PC
device themselves. Neonode has partnered up with Ingram Micro, world’s
largest technology distributor, following a thorough examination of
Neonode from Ingram. Along with Ingram Neonode will have BestBuy,
Walmart, Amazon, CDW and more. We also believe that some of the OEMs
would like to sell a rebranded version of AirBar when the hype picks up the
pace. AirBar represents the first product on the module strategy and more
products will be built using the same platform.
The interest for AirBar has so far exceeded ours and Neonode’s
expectations. In Q1, pre orders had already reached 18 000 following 10
000 at year end 2015, meaning over $1.2 million with a price of $69.
Neonode’s production capacity is 150 000 units per month but the
production line only requires two operators so when demand picks up
Neonode can go from two to three shifts. It can also easily double or even
multiply the capacity by adding one or several more production lines. The
reason why the high scalability is that the manufacturing process is fairly
simple requiring a few components, a controller, chip, microprocessor,
sensor and small pieces of plastic. These are glued with conductive glue, not
soldered, to the circuit board, which shortens cycle time and reduces high
temperature problems with mixed plastic parts and electronic components.
Many other possible applications
Many new opportunities
from the module strategy
As Neonode’s technology is low cost and does not require a specific display
or a display at all it has a good fit for many various applications.6 The most
interesting opportunity at the moment is perhaps the many segments where
too many different models with low volumes in each no longer is an
obstacle due to Neonode’s standardized modules strategy. We are especially
thinking about household appliances/white goods such as washing
machines, dryers, air conditioners, stoves, refrigerators, freezers, etc.
5
Leap Motion has since 2009 a similar product that projects an IR field but it is designed as a
box and targets a virtual reality niche. There are no apps and the box is not intuitive and
therefore needs to be learned.
6
Examples of opportunities are display-less touch products (mouse pads, keyboards,
dashboard locks), tablets, cameras and gaming consoles. Speaking of gaming there are no
gaming notebook today due to display glare, which is a distinct opportunity for Neonode. One
other possible not-too-distant area is GPS as Neonode already has the market leader Garmin
as a customer. In our opinion, it is also not impossible that Neonode will return to the phones
business again given the new phone designs that are making it increasingly harder for p-cap to
keep up, although this is probably not something it wish to proceed during the next few years.
A new standard in touch with Samsung’s new flexible phone could evolve if Apple follows suit.
Then we would perhaps see a rollable phone similar to a papyrus roll.
Company analysis
17
Neonode
Competitive landscape
Competing technologies
The two dominating competing technologies used in touch displays today
are projected capacitive (pro cap or p-cap) and resistive technology. We will
not go into detail on pro cap here7 but in short the projected capacitive
technology recognizes touch by sensing the conductivity in the human body
and the change of capacitance when the sensor surface is touched. A
resistive touchscreen, on the other hand, is based on sensing pressure.
When the finger is pushed on the sensors, typically on a display, the top
layer (normally made of a thin plastic sheet) of the sensor flexes and is
pushed back onto the bottom layer of the sensor creating a resistance that
can be measured and converted to an x and y touch coordinate by a touch
controller IC. The resistive technology is cheaper than pro cap but does
typically not allow multi touch like pinching the display to zoom.
Furthermore, soft touch like swiping does not work well as pressure is
needed for detection. Due to these shortcomings, poor display clarity (less
than 83 % light transmission) from film overlays and limitations in
industrial design the usage of resistive technology is in steady decline.
Neonode has several
competitive advantages
against the two
traditional technologies
Many other touch technologies as well
There are lots and lots of other different touch technologies, such as
namely: acoustic and ultrasound (acoustic pulse recognition, dispersive
signal touch technology and surface acoustic wave), optical (camera-based
optical, planar scatter detection and vision-based). Our conclusion in
general is that these technologies have so far not been able to match the
price/performance of the traditional technologies for various good reasons
and the outlooks for these technologies are thus generally not that exciting.
Competitive advantages in Neonode’s technology
Neonode’s technology has, as shown in the matrix below, several key
advantages that we will now further elaborate on.
Summarizing comparison of key features
Neonode
Pro cap
Low cost
Yes
No
Yes
Multi-touch
Yes
Yes
Not good
Pen support
Yes
Not good
Yes
Gestures
Yes
Yes
Not good
Low power consumption
Yes
Not good
Yes
No
Yes
Yes
25 g
>250 g
>150 g
Flush
Additional layers
Low weight (10'' tablet)
Bezel height
Resistive
0.4 mm
Flush
Need for calibration
No
Not good
Yes
Sunlight viewability
Yes
Not good
Not good
Electromagnetic interference
No
Yes
Yes
Accidental touch
Yes
No
No
Source: Neonode, Redeye Research
7
For an extensive research report on the pro cap technology see e.g.
http://beta.redeye.se/company/fingerprint-cards/481400/fingerprint-cards-china-your-hand.
Company analysis
18
Neonode
1. No additional layers needed
Neonode’s tech has the
best image quality
Neonode does not need any extra layers of plastic or glass
substrates, meaning a 100 percent optical transparency, i.e. the best
possible image quality. Pro cap in comparison suffers from glare
and unwanted reflections from the overlays, which gives Neonode
advantages, in particular during outside usage in sunlight.
2. More responsive…
…and therefore quicker and less prone to misread
3. No pressure required
(as opposed to resistive technology). It can even be used for
gestures in the free space around the product
4. Cost efficiency
Neonode has both lower cost of materials plus a simpler
manufacturing process, equal to a higher yield. Neonode has earlier
mentioned a $0.25-0.5 cost compared to pro cap’s $0.5-2, which
can make up for savings of $20 or e.g. the whole profit on a
notebook. In automotive, pro cap can exceed $10 per inch per car
due to special melt-free adhesives and anti-glare solutions.
5. Enables multiple methods of input…
… such as “continuous tracking of fingers, tap to hit keys on the
display, sweeping to zoom in or out, and gestures to write text or
symbols directly on the touch surface.”
6. Works in all temperatures and environments
Neonode can cope with dirt and temperatures of -40 – 125 Celsius
degrees without special properties required from the object user. It
also works in the air and in water, actually even underwater.
In addition, Neonode’s technology has many other advantages: As it e.g.
does not require special overlay films it has lower power consumption and
weight than pro cap. There is no risk for disturbance from electric engines,
like in pro cap. In addition, Neonode can handle flexible and rollable
displays as opposed to the metal in pro cap, which normally (so far) breaks
when it is bent. Lastly, infrared optical has the best scalability in size.
Disadvantages in Neonode’s technology
There are some disadvantages as well. The flipside of Neonode’s rather
unique technology is that it needs to build all the market hype and create all
the buzz itself, without much help from competitors. The technology
requires extra bezel and profile height as the IR transceivers project above
the touch surface and the bezel needs to be designed to include an IRtransparent window. This could be troublesome in consumer electronics
applications but there is no need for black space or borders on the sides of
the display, which gives designers other opportunities to create neat
devices. In addition, Neonode has strong IP on methods of minimizing
border width and profile height. Surface obstruction or hover can cause
accidental touch (although hover might also be an advantage). Then there is
Company analysis
19
Neonode
the ghosting problem, i.e. when the shadow of a first object obscures a
second object and prevents the second object from being detected.
However, a recent patent from Neonode in 2015 claims to have a solution
for ghost points.
A diverse competitive landscape
Neonode’s main competitors Synaptics, Atmel, Cypress, Maxim, ELO Touch
and Touch International are all, to various extent, in pro cap. They compete
primarily on price along with many others. A common trait for these firms
is that they are in general like Neonode especially targeting automotive (for
details on competitors and the fierce pro cap competition see appendix).
As we expect Neonode’s infrared technology to gain in popularity we also
studied players with similar technologies and here we observe many
contenders rising in or around Neonode’s market.8 However, we see no
other optical/infrared technology company targeting the same segments as
Neonode with the same concentrated approach. These companies are in
general diversified and not even that much focused on touch technology
and if they are they are providing several different technologies (for more
details see appendix). In addition, we do not find much IP related to them.
Sustainable competitive advantages & entry barriers
Major barriers to entry in
automotive due to
draconic standards
Neonode has some important technology advantages, for now. However,
technology cannot be considered a sustainable, long-term barrier to entry.9
Neonode has a strong patent portfolio but these patents rely on the axiom
that the technology is still relevant and will not protect Neonode if it
becomes obsolete and the same goes for its cost advantages over p-cap. In
addition, patents need to be defended, which Neonode currently has and for
a while will have a hard time to do due to its cash position.
However, Neonode’s technology is suitable for the demanding automotive
customers where switching costs are high and screwing up results in
massive lawsuits. Competitor Cypress says that getting into the automotive
business takes several years of qualification as customers get “angry about 3
ppm defective”. The quality requirements and standards require many
years of experience according to e.g. Maxim, who also believes infotainment
standards will actually increase even further as this market grows.
8
There are e.g. optical camera sensor technology from NextWindow (SMART) and FlatFrog of
Sweden with its planar scatter detection where Intel among others has invested about $60
million. Microsoft should also not be excluded following its acquisitions of N-trig and
Perceptive Pixel. 3M has discontinued all new development in its dispersive signal touch but
acoustic technologies from e.g. RPO (optical waveguide) and ELO Touch (surface wave) might
possibly be able to compete sometime in the distant future.
9
Make no mistake, a good technology is crucial but it typically will require constant
investments to perfect the technology in order to keep up with competing technologies.
Competitive advantages solely based on technology starts eroding rapidly the very second
another technology is considered better and they might even in worst case disappear
overnight.
Company analysis
20
Neonode
Financial projections
Here we present our financial projections and revenue breakdown. Detailed
balance sheet and cash flow estimates are presented on the third last page.
The point of inflection is illustrated by the graph showing EBIT and sales
below.
Sales & EBIT ( USD million)
150
125
100
75
50
25
0
-25
2015
2016
2017
Sales
2018
2019
EBIT
Source: Redeye Research, Neonode
Sales estimates
Our sales estimates per segment is summarized in the graph below. The
major release in 2018 is mainly due to Neonode’s modules gaining ground.
Sales per segment (MUSD)
140
120
100
80
60
40
20
0
2015
2016E
Automotive
2017E
E-readers & other
2018E
AirBar (PC)
2019E
Printers
Source: Redeye Research, Neonode
Below, we present our assumptions for the different segments in more
detail.
Company analysis
21
Neonode
Automotive
We see a rapidly growing modules penetration as we besides Autoliv expect
customers in tailgate and door handle sensors to go straight to modules,
meaning about 78 percent revenue from modules in 2018 and 92 percent in
2019.
Sales assumptions: Automotive
(MUSD)
2016E
2017E
2018E
3.3
5.7
20.1
100%
93%
46%
whereof Autoliv steering wheels (%)
0%
0%
43%
whereof tailgate (%)
0%
7%
10%
whereof door handles (%)
0%
0%
2%
228%
76%
250%
1.2
1.7
2.5
0%
5%
32%
Total sales
whereof infotainment (%)
Sales growth (%)
Total Neonode units shipped (mil)
whereof modules (%)
whereof licensing (%)
Volume growth (%)
Blended ASP (USD)
100%
95%
68%
253%
45%
43%
2.7
3.3
8.1
Source: Redeye Research, Neonode
We assume the start of the Autoliv rollout in 2018 with a low single digit
penetration in the beginning, gradually growing to 8 percent by 2019.
Printers
In our printer assumptions, in the table below, we do not expect a large
amount of modules before 2018 as existing printer models live 2-3 years,
explaining why 2018 sales will be much better than 2017.
Sales assumptions: Printers
(MUSD)
Total sales
whereof HP (%)
whereof others (%)
2016E
2017E
2018E
4.9
12.6
25.4
95%
74%
69%
5%
26%
31%
Sales growth (%)
80%
161%
101%
Total Neonode units shipped (mil)
10.3
14.0
18.7
15%
whereof modules (%)
0%
2%
whereof licensing (%)
100%
98%
85%
84%
36%
33%
0.5
0.9
1.4
Volume growth (%)
Blended ASP (USD)
Source: Redeye Research, Neonode
We do however estimate an increasing licensing ASP to on average $0.9
from newer printer models with larger displays. We estimate the same
touch penetration as with HP for Samsung, Lexmark and the other tier-1
printer companies. We also assume a ramp-up in models and volumes
similar to HP for the other printer companies as well as the same
penetration rate expansion.
Company analysis
22
Neonode
AirBar & PC
Our AirBar assumptions are the following:
Sales assumptions: AirBar (PC)
(MUSD)
2016E
2017E
2018E
1.9
18.4
26.2
whereof own sales (%)
80%
5%
8%
whereof Ingram (%)
20%
95%
92%
0%
0%
0%
n/a
883%
43%
30
500
700
n/a
1567%
40%
62
37
37
Total sales
whereof OEM bundled (%)
Sales growth (%)
Total Neonode units shipped (')
Volume growth (%)
Blended ASP (USD)
Source: Redeye Research, Neonode
We believe there is a good margin of safety in our AirBar estimates as our
expected 2018 volumes represents only about 0.1 percent of total PCs
shipped.
E-readers & other
Our sales assumptions for the non-strategic e-reader segment and other
sales are the following (incl. the decreasing NRE revenue as general focus
shift to modules):
Sales assumptions: E-readers & other
(MUSD)
2016E
2017E
3.6
3.1
3.0
whereof E-readers
52%
64%
73%
whereof NRE
48%
36%
27%
-52%
-14%
-3%
2.0
2.2
2.5
10%
14%
0.9
0.9
Total sales
Sales growth (%)
Total Neonode units shipped (mil)
Volume growth (%)
ASP excl. NRE (USD)
0.9
2018E
Source: Redeye Research, Neonode
Margins and cost estimates
On the next page we have summarized our cost and margin assumptions:
Company analysis
23
Neonode
Short term sales & earnings assumptions 2016-2018E
(USD million)
2016E
2017E
2018E
Total sales
13.6
39.8
74.7
Sales growth (%)
22%
194%
88%
Gross margins
Group gross margin
75%
62%
58%
Automotive
90%
79%
55%
Printers
90%
86%
72%
AirBar
40%
40%
45%
E-readers & other
59%
58%
66%
-14.0
-17.3
-21.4
OPEX
EBIT
-3.6
7.2
21.6
EBIT margin
-26%
18%
29%
Pre-tax profit
-3.5
7.2
21.6
Net earnings
-3.8
7.2
21.6
-0.07
0.14
0.41
EPS
Source: Redeye Research, Neonode
In December 2015, Neonode used 17 consultants compared to its employees
of around 60 people. Consultants have been phased out recently and
Neonode has consequently communicated a quarterly $3 million OPEX run
rate from Q3’16. We expect the lower OPEX to come in Q4 instead as a
margin of safety. We also calculate with increasing OPEX ahead as we
expect that the tailwind in sales will make Neonode willing to gradually
intensify R&D within other exciting areas. We do, however, see strong
scalability in fixed costs, especially as selling modules is easier than
projects, resulting in decreasing sales costs. In addition, Neonode is
working on standardizing the modules, meaning educating the customers
will also be easier.
We expect gradually sinking gross margins (in percent) due to the
breakthrough for Neonode’s modules in 2018 but higher gross profit. For
AirBar we expect gradually increasing gross margins as the cost per inch
(including material costs) is estimated to $0.8 but only two operators are
needed to run the production line.
Quarterly estimates
Our quarterly estimates in the table below indicate break-even levels in
Q4’16 driven by lower OPEX and the ramp-up of customers in automotive
and printers.
Quarterly estimates (million USD)
SEKm
2014
Sales
Q1'15
Q2'15
Q3'15
Q4'15
2015
Q1'16
Q2'16 Q3'16E
Q4'16E
2016E
4.7
2.3
2.8
3.1
3.0
11.1
3.1
2.6
3.3
4.5
13.6
28%
123%
221%
176%
71%
134%
38%
-7%
7%
52%
22%
-14.2
-2.1
-1.7
-1.3
-2.5
-7.7
-1.3
-1.3
-0.9
0.0
-3.6
PTP
-14.2
-2.1
-1.8
-1.4
-2.6
-7.7
-1.3
-1.3
-0.9
0.0
-3.6
EPS (USD)
-0.36
-0.05
-0.04
-0.03
-0.07
-0.19
-0.03
-0.03
-0.02
0.00
-0.08
-349%
-91%
-63%
-43%
-86%
-299%
-41%
-50%
-28%
-1%
-69%
68%
85%
73%
71%
39%
66%
81%
85%
73%
72%
77%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Sales growth (%)
EBIT
EBIT margin (%)
Gross margin (%)
EPS growth (%)
Source: Redeye Research, Neonode
Company analysis
24
Neonode
Valuation
As we found no similar, relevant peers we are using solely a discounted cash
flow valuation (DCF) with a base scenario and a reasonably pessimistic and
optimistic case respectively. Using our Redeye Rating, we have applied a
discount rate of 15.0 percent, which to some extent is a reflection of the
Company’s history. We use an average effective tax rate of 30 percent longterm but expect no tax before 2020 due to the large deferred tax assets.
In the tables below we present a summary of our estimates and highlight
the key differing assumptions in the different scenarios, the main swinging
factor being the success of the module strategy.
Valuation scenarios: Estimates summary (USD million)
(USDm)
2017E
2021E
CAGR (%), per years
Weighted avr. Long-term (%)
17-21E
17-21E
17-24E
Total sales
Bear
40
46
3%
4%
54
3.5%
Base
40
169
44%
33%
112
3.5%
Bull
42
264
58%
33%
155
3.5%
EBIT
Bear
8
8
0%
4%
12
-
Base
7
51
63%
32%
34
-
Bull
9
91
79%
38%
53
-
Bear
20%
18%
-
-
23%
15%
Base
18%
30%
-
-
31%
20%
Bull
21%
34%
-
-
34%
25%
EBIT (%)
Source: Redeye, Neonode
Valuation scenarios: Differing key assumptions
2017E
(USD million)
Bear
Base
2021E
Bull
Bear
Base
CAGR yr 17-21E
Bull
Bear
Base
Bull
Automotive
Total volumes (mil.)
2
2
2
2
6
6
4%
37%
38%
Blended ASP (USD)
3.3
3.3
3.7
3.7
14.9
24.9
3%
46%
62%
Total sales
40
40
42
46
169
264
3%
44%
58%
Printers
Total volumes (mil.)
14
14
15
17
24
32
4%
14%
20%
Blended ASP (USD)
0.9
0.9
0.9
0.8
2.2
2.6
-5%
25%
29%
Total sales
13
13
14
13
53
82
0%
43%
55%
AirBar
Total volumes (mil.)
0.5
0.5
0.5
0.9
0.9
0.9
16%
16%
16%
Blended ASP (USD)
36.7
36.7
36.7
25.3
25.3
25.3
-9%
-9%
-9%
18
18
18
23
23
23
6%
6%
6%
Total sales
E-readers & other
Total volumes (mil.)
2
2
2
3
3
3
3%
3%
3%
0.9
0.9
0.9
0.8
0.8
0.8
-4%
-4%
-4%
3
3
3
3
2
3
-2%
-6%
-2%
63%
62%
62%
61%
47%
46%
-1%
-6%
-7%
Automotive
79%
79%
75%
68%
47%
46%
-4%
-12%
-12%
Printers
86%
86%
84%
90%
49%
46%
1%
-13%
-14%
AirBar
40%
40%
40%
42%
42%
42%
1%
1%
1%
E-readers & other
69%
58%
69%
69%
71%
69%
0%
5%
0%
43%
43%
41%
44%
17%
11%
0%
-21%
-28%
Blended ASP (e-readers)
Total sales
Gross margins (%)
Blended gross margin
Gross margins per segment
Operating expenses
OPEX (% of sales)
Source: Redeye, Neonode
Company analysis
25
Neonode
Base Case Scenario
In our base case we expect Neonode to be able to pivot from licenses to
modules although it would take a little bit longer than the company itself
believes. We expect modules to account for about 92 and 65 percent of
automotive and printers sales respectively, in 2019, which will more than
offset the license ASP erosion of on average -3-4 percent a year. We
estimate a 95 percent CAGR automotive volume growth during 2017-2021
where infotainment volumes continue to grow in line with the market
estimates and Neonode here keeps it market share. The remaining growth is
divided by door handle sensors, tailgate and steering wheels to about the
same proportions. As for printers we assume a growing touch penetration
from 2015 levels of 50 percent to around 65 percent in 2021, equal to 65
million printers of which Neonode would capture 37 percent. We expect
around 40 percent of these printers to come from HP. The assumed
growing module penetration with 86 percent module revenue in 2021
means blended ASP could be $2.2, implying a 36 percent CAGR from
today’s levels. We expect AirBar volumes reaching around 1 million in 2021,
meaning slightly below 1 percent of all PCs and notebooks sold. With a mix
of 13 percent own sales, 82 percent Ingram and partners and 5 percent
OEM sales we estimate a blended ASP of $30 for 2020.
We assume average module gross margins of 43 percent during 2017-2021,
decreasing to 42 percent. Our 17 percent OPEX of sales in 2021 implies
scalability as it expects a CAGR growth of only 13 percent during 2017-2021,
considerably less than the sales growth. From the assumptions mentioned
we derive a CAGR sales growth of 44 percent during years 2017-2021 with
an average EBIT margin of 31 percent. Following this high margins stage,
margins will start to approach the long-term EBIT margin of 20 percent.
Together the assumptions result in a base case of $3.7 per share.
Bear Case scenario
Our investment case relies to a great extent on the assumption that
Neonode will succeed in its business model transition to modules. However,
so far there is not much anecdotal evidence supporting that Neonode’s
modules will actually be preferred by the customers. We believe that the
greatest risk is automotive suppliers launching their own optical touch
modules. Our bear case therefore assumes a failure in the module strategy,
forcing Neonode to retreat to its old licensing. By lowering its ambitions
and laying off people Neonode could easily maintain high profit margins
but would then become a company of minor size with very limited growth
possibilities. Without the high profit growth from the modules Neonode
would also easily be subjected to further patent infringements, causing a
vicious circle of lower and lower sales, meaning lower and lower means to
defend the IP and even more companies infringing on Neonode's patents.
In our bear case we also apply a higher margin of safety when it comes to
the long-term technology risks as the many shortcomings of pro cap provide
a massive incentive for development of existing and new technologies to
Company analysis
26
Neonode
replace pro cap. However, we do believe that pro cap in a bear case would
prove to be more viable than expected due to suitable ITO replacements,
preventing Neonode from expanding short and mid-term.
With the assumptions above we expect a slower CAGR sales growth of 3
percent during 2017-2021. The average EBIT margin during the same
period would due to the high margins on licenses be relatively strong 23
percent before sinking to a long-term EBIT margin of 15 percent. In total,
this corresponds to a bear case valuation of $1.2 per share.
Bull case scenario
In bull case, as opposed to bear case, we instead assume that everything
runs smooth with the transition to modules. We also believe that the cars
would include around 30 percent more modules than our base case, partly
due to tailgate and door handle sensors but especially the steering wheel
where Neonode can maintain a double digit penetration as Autoliv
approaches its target of doubling its market share. For printers we expect
the same strong demand for modules as in automotive. Printer volumes
may have a zero-growth but we see a rapid surge in touch penetration from
todays’ 50 percent to 75 percent, whereof Neonode in bull case could
capture over 40 percent. In addition, the AirBar becomes a great success,
paving the way for many additional products and modules in high as well as
low volume segments.
From the assumptions above we estimate a CAGR sales growth of 58
percent during years 2017-2021 with an average EBIT margin of 34 percent.
Hereafter we expect that margins will go down to a sustainable, long-term
EBIT margin of solid 25 percent due to scalability and low investment
needs. Together all these assumptions result in a bull case valuation of
Neonode of $6.2 per share.
Key catalysts
We see the following catalysts that could move the Neonode share:
1.
We expect the reaching of break-even in Q4’16, which would be an
important milestone for the stock market to grasp that Neonode
has left the losses behind and hit the point of inflection.
2. Out of the outstanding shares over 11 percent of the free float are
currently shorted. If short sellers accounted for 100 percent of the
daily volumes it would take them over 14 days to cover, meaning a
short squeeze should move the share considerably.
3. Along with Neonode gradually strengthening its cash position it will
also have the opportunity to start capitalizing on its patent portfolio
and the patent violations, especially regarding its swipe patent.
Company analysis
27
Neonode
Appendix
Main competitors
In pro cap there are a myriad of players competing10, meaning price is a
major differentiation point. There is a race to the bottom in prices where
OEMs regularly change suppliers for best possible pricing. Synaptics was
for example replaced by ST Microelectronics in Samsung Galaxy S6 but in
Galaxy S7 Samsung used touchscreen IC developed by its System LSI
division instead. Focus among pro cap players has, besides reducing the
cost, been to tighten the integration for example by supplying controllers
for displays. Controllers are usually bundled with touch IC
Here are the main competitors that Neonode acknowledges and their
technologies followed by a few words on each competitor:
Main competitors
Company
Technology
Synaptics
Capacitive; In cell
ATMEL
Capacitive; In cell
Cypress
Capacitive; In cell
Maxim
Capacitive; In cell
ELO Touch
Capacitive, Resistive, Surface acoustic wave
Touch International
Resistive, Capacitive
Source: Neonode, Redeye Research
Synaptics
Synaptics has a 31 percent market share in touch controllers. Like Cypress
and the others, Synaptics also targets the automotive business as a key area.
Synaptics, in the beginning of 2016, announced an entry/broader entry in
automotive from previously only display drivers. Synaptics did not have a
footprint in automotive until the RSP acquisition in 2014 and consequently
states that automotive is a 2018 business for them. Synaptics recently
announced the new S 7880 family of feature rich touch screen controller
solutions “designed specifically for the durability requirements and safety
needs of the automotive market”. Synaptics also states that its solutions are
compatible with thick gloves. Synaptics seems to have reasonable traction
as it boasts BYD Automotive, one of China's largest companies, as a
customer. BYD has selected Synaptic’s controller solutions for its
automotive touch screen applications. BYD is the world's best-selling
manufacturer of electric vehicles and in the largest Chinese brand.
In addition, Synaptics has announced collaboration with Valeo, one of the
world's leading tier one automotive suppliers.
10
The vast majority of pro-cap touch controllers are sold by US companies Broadcom, Atmel,
Synaptics, TI, Cypress and Melfas (Korea) and FocalTech (China & Taiwan). The remaining
market shares are divided by Taiwanese ELAN, Mstar, EETI, SiS, Illitek, Sentelic, Weida,
Sitronix and Goodix (China) and Korean Zinitek and Imagis. The major touch module
suppliers is Samsung Display, TPK (who has provided the capacitive touch sensor to iPhone),
O-film, GIS, ECW EELY, Japan Display and Sharp. Most of the module manufacturers make
their own sensors. The remaining sensors comes from Japaneese, Taiwanese and Korean
companies: Nissha Printing, HannsTouch, Dongwoo Fine Chemical, Cando, Innolux, CSG,
Token, CPT, DNP, Young Fast Optoelectronics and AimCore.
Company analysis
28
Neonode
Cypress
Tesla selected Cypress’s TrueTouch Solution in 2012, which was world’s
first fully-integrated touchscreen infotainment system. Cypress now has a
major focus on automotive following divesting its phones touch business to
Parade in 2015 due to a “race to the bottom” in prices.
Atmel (acquired by Microchip)
Atmel, similar to Cypress, has restructured out of the mobile touch
business. Following the divestment to Unipixel of the pro cap touch sensor
(metal mesh) business, Atmel targets the industry and automotive segments
(with only 5 percent and decreasing revenue from mobile), i.e. it has
become a more direct competitor to Neonode. It has received designs with
virtually every global automotive manufacturer and boasted over 125
programs in 2015. Atmel’s qualified maXTouch solution has been chosen by
BMW and Ford where the later will convert its entire fleet to Sync 3 using
Atmel's automotive maXTouch family. Some other new vehicles with
maXTouch are VW's Skoda Yeti, GM's Opel and Silverado, Kia's Soul,
Smart's Fortwo, Renault's Clio, Mazda's Axela, and all Jaguar Land Rovers.
Maxim
Maxim has since way back experienced its best growth in automotive and
this has also long-time been a strategic target area. Maxim has been
addressing automotive with various products since 2004 with revenue
streams and growth from 2007. Especially the battery management systems
products, which accounts for 50 percent of the automotive revenue has
been successful. Maxim used its strong position and high performance in
power management products to win a lot of sockets (platforms) in
infotainment systems. However, Maxim has hundreds of automotive
products within USB protection, LED lightning, video transmission and
infotainment systems. Its diversified automotive business is therefore in
many cases not a direct competitor to Neonode.
Touch International
Touch International of US, the largest touch manufacturer in the US and
the original producer of pro cap, was founded in 2002 by the current CEO
and CTO. The CEO has held top management positions in other touch
companies and the CTO has created and thereafter sold three other touch
development companies. Touch International is an OEM with fully owned
and vertically integrated manufacturing facilities. Following aggressive
expansion and several additions of cleanroom capacity etcetera during the
last years it employs in total over 1 200 people. Some 300 employees are
located in its Austin based engineering and design centre and the rest work
in its seven manufacturing sites in China, Japan and Indonesia. Touch
International began as a touch screen manufacturing facility within
resistive and pro cap sensors, glass filters used in touch screens and display
windows. However, during the recent years it has expanded its portfolio to
include displays and display customization such as sunlight readability,
night vision, extended temperature and ruggedization. Judging from this
Company analysis
29
Neonode
and recent year’s ISO certifications etcetera its focus definitely seems to be
on demanding applications for medical, military and aerospace purposes.
Hence, an important part of its development has been in EMI/RFI
solutions.
ELO Touch
TE Connectivity (formerly Tyco Electronics) recently divested ELO Touch of
USA for $380 million at a valuation of P/S 0,9x; a price that was probably
affected by the negative sales growth. ELO is now owned by a US private
equity firm and operates as an independent standalone entity with 500 plus
employees. ELO has over 40 years in the touch business and claims to be
the inventor of the touch screen. The patent portfolio is over 400 patents
big, including some in IR technology. This is perhaps not strange as it has a
broad technology approach as indicated in the table in the beginning of this
section. It states that its product portfolio “includes a broad selection of
interactive touchscreen displays from 10-70 inches, all-in-one touchscreen
computers, OEM touchscreens and touchscreen controllers, touchscreen
monitors and all-in-one touchscreen computers”. ELO has over 20 million
installations in more than 80 countries, especially for retail and hospitality
applications. In addition, its products can be found in interactive kiosks,
point of sales terminals, wayfinder displays and transportation. For a
private firm ELO has a rich news flow and there are a lot of news on
recently launched products.
Contenders
Below we have researched the companies within optical/infrared
technology, which we believe could be the most serious threats to Neonode.
IR Touch Systems
IR Touch Systems from China has been around since 1993 and went public
year 2011. It sells hardware frames to be connected by USB for applications
in other areas than Neonode, mainly in industrial control, point of sales,
gaming, medical and financial sectors. It claims its solutions are ideal for
kiosk, ATM, gaming, retail, financial, hospitality, photo and healthcare. In
2009 IR Touch Systems announced a capacity of 30 000 units per month.
According to Bloomberg it has around $250 million in sales and an EBITDA
margin of 10 percent. With all these characteristics we believe it could likely
make an AirBar copy. It became Windows 8 compatible in 2012 and can do
touch up to 32 points but there are no record on them passing the Windows
10 standards. It still markets its fifth generation of touch from early 2000
on its homepage but we cannot find any news on the homepage for the last
four years. IR Touch Systems calls its E/E2/IX-series touchscreen the
lowest profile infrared touchscreen overlay product with integrated touch
controller inside the bezel but the bezel is as much as 7-8 mm thick (i.e.
about twice the size of Neonode).
Company analysis
30
Neonode
Minato
Minato is a Japanese listed company that was formed in 1956. It
manufactures and sells testing instruments, develops network systems and,
via its subsidiary, designs computer graphics. Outside of touchscreens the
products include device programmers, testing devices for memory chips,
LCD testers, analysers and wafer inspection devices. The products are
widely used in banking ATMs, ticketing machines, information kiosks,
gaming/amusement machines, and also in large screen size display
applications, such as digital signage, broadcasting or education. It appears
to be close partners with pro cap player Zytronic, pushing pro cap solutions
since 2009. Given Minato’s latest acquisitions of an IT systems consulting
and development firm (EIT) and a manufacturer of memory modules and
system boards (SAnMax) it seems clear that touch is not a focus area.
Nexio
Nexio was founded in 2002 in Korea. It is a private company so several
years of absence of news does not necessarily mean it is a poor business.
Just like Minato and IR Touch Systems it states that its systems are suitable
for industrial control, kiosk, ATM, point of sales, gaming, advertising and
signage applications. Its technology is possible up to 103 inches, similar to
the other ones.
OneTouch
OneTouch was formed in Taiwan 1989. It has researched and sold various
technologies throughout the years, including resistive, surface capacitive,
surface acoustic wave and pro cap. It should reportedly also have infrared
tech but it is nowhere to be found on the homepage. Its technology is used
for kiosks, point of sales systems, medical, IPC, gaming and PDA
applications.
SMK
SMK of Japan is a listed, diversified company where the touch panel
division only makes up for 19 percent of total sales. Its business include
switches and connectors for electronic devices and information equipment.
The products are for example wireless keyboards, 10-key pads, touch panels
and remote control units. For its panels it is relying not only on optical but
on resistive and pro cap technology as well. Pro cap and resistive is its
selected technologies for automotive applications.
General Touch
General Touch of China, founded in year 2000, also advocates multiple
technologies. It has two factories. The solutions can, just like the ones from
the other IR players, be found in gaming and retail industries as well as in
kiosks, finance, healthcare and education application. The company
recently, this summer, announced a service partnership for its installed
base of touch panels.
Company analysis
31
Neonode
Board
The Board members and their track records are the following:
Thomas Eriksson and Lars Lindqvist (see the management team
section above)
Per Bystedt
Per Bystedt serves as Executive Chairman of Neonode since 2011 and was
during 2007-2011 the Chairman of the Company. He was also the interim
CEO of Neonode during 2005-2006 and CEO for the period 2008-2011.
Prior to joining Neonode, Bystedt was a pioneering entrepreneur in the
Swedish internet industry, serving as the CEO of Spray AB between 1997
and 2008. Bystedt has many years of experience from other board positions
including Axel Johnson AB, Eniro AB, Servera AB, and Ahlens AB. He was
previously the Chairman of AIK Fotboll AB and Razorhish AB.
Mats Dahlin
Mats Dahlin has been on Board since 2011. Dahlin held various positions in
Ericsson during 1998-2005, including President of Ericsson Enterprises AB
with responsibility for global operations, Group Executive Vice President,
President of Ericsson Radio Systems, Head of Segment Network Operators,
Head of Ericsson’s Mobile Systems Division, and Head of Market Area
EMEA. Dahlin, since 2005, is active as an independent investor, serving as
board member and advisor to the companies he invests in. Dahlin has
significant holdings in Neonode and is on the top 10 owners list (see the
ownership structure on the third last page).
John Reardon
John Reardon has been in Neonode’s Board since the first IPO. Reardon
currently is the CEO as well as the founder of RTC Group, Inc., a media
company within the embedded industrial computer market. He also serves
as Director at One Stop Systems, Inc., an industrial computer manufacturer
and Middle Canyon, Inc., a reseller/distributor of defence electronics.
Reardon was previously on the Board of SBE, Inc.
Per Löfgren
Per Löfgren has a long 30 years carrier at Ericsson, currently holding
operational positions as Vice President Global Sales and CFO for Segment
Global Services together with president at Ericsson AB. During 2011-2014
Löfgren was Executive Vice President and CFO of Ericsson North America
and during 2008-2011 he served as President of Ericsson Sweden AB from
2008. Prior to that, Löfgren held various position in Ericsson business units
globally as a division chief financial officer, controller, marketing as well as
other management positions.
Company analysis
32
Neonode
Summary Redeye Rating
The rating consists of five valuation keys, each constituting an overall
assessment of several factors that are rated on a scale of 0 to 2 points. The
maximum score for a valuation key is 10 points.
Rating changes in the report
This is our first rating of Neonode
Management 5.0p
The CEO is the co-founder of Neonode and inventor of the technology.
Overall, Management and Board have been long in the organization or
have extensive experience from adjacent industries. Compensation levels
are moderate but we feel that the exercise prices in the warrant programs
are a bit too generous. Management has earlier missed its guidance on
several occasions causing stock market mistrust but has managed to
successfully pivot from e-readers to automotive and printing,
demonstrating years of consistent hard work and correctly focused
efforts in order to be qualified. The large investments is thus now about
to pay off. All in all, the factors mentioned are reassuring regarding the
tough but sound business model shift from licenses to modules.
Ownership 7.0p
Both Board and Management are aboard, holding substantial amounts of
shares; in particular the CEO and COB who are among the five largest
owners. Reputable institutions also own significant positions. For a
higher ownership score we would like to see a major shareholder with an
even larger stake. At the moment no one holds a corner in Neonode.
Profit outlook 7.5p
Profitability 0.0p
Financial strength 2.0p
With the many competitive advantages of its unique, patented
technology, Neonode is poised to benefit from the growing touch
penetration. Following challenging qualification phases of up to 5 years
Neonode will now be on the platforms for an impressive list of tier-1
customers for 10+ years, meaning substantial barriers to entry as
Neonode will be included in all coming models on those platforms. Only
the ramp-up in already launched models, where a majority is not even yet
shipping, will together with the shift from licenses to modules support a
strong growth for the coming years. In addition, the modules open up a
world of new opportunities in segments with lower volumes.
As Neonode never before has been able to reach profitability our
retrospective profitability Redeye Rating can be no more than 0.
However, we believe that Neonode at the moment is around the point of
inflection. The scalability and the low costs together with the growing
existing customer relationships indicate that Neonode seems to have all
the ingredients it takes to make significant profits in a not so distant
future. At that point the rating would start to gradually increase.
Neonode has a lean balance sheet with no debt. We see the $8.7 million
private placement in fall 2016 as belt and suspenders with a substantial
margin of safety even if break-even would be delayed beyond Neonode's
expectations. Cash therefore seems more than sufficient but some rating
points are lost since the Company has so far not been able to reach
positive earnings. A rather small product portfolio and the major
dependence (for now) on a few customers also pose risks.
Company analysis
33
Neonode
Income statement
Net sales
Total operating costs
EBITDA
2014
5
-19
-14
2015
11
-18
-7
2016E
14
-17
-3
2017E
40
-32
7
2018E
75
-53
22
Depreciation
Amortization
Impairment charges
EBIT
0
0
0
-14
0
0
0
-8
0
0
0
-4
0
0
0
7
0
0
0
22
Share in profits
Net financial items
Exchange rate dif.
Pre-tax profit
0
0
0
-14
0
0
0
-8
0
0
0
-4
0
0
0
7
0
0
0
22
Tax
Net earnings
0
-14
0
-8
0
-3
0
7
0
22
2014
2015
2016E
2017E
2018E
6
1
0
1
8
3
1
0
1
5
7
2
0
2
11
16
5
2
3
26
34
10
4
5
53
1
0
0
0
0
0
0
1
0
1
0
0
0
0
0
0
1
0
1
0
0
0
0
0
0
1
0
2
0
0
0
0
1
0
3
0
4
0
0
0
0
2
0
6
0
9
6
12
29
60
Balance
Assets
Current assets
Cash in banks
Receivables
Inventories
Other current assets
Current assets
Fixed assets
Tangible assets
Associated comp.
Investments
Goodwill
Cap. exp. for dev.
O intangible rights
O non-current assets
Total fixed assets
Deferred tax assets
Total (assets)
Liabilities
Current liabilities
Short-term debt
Accounts payable
O current liabilities
Current liabilities
Long-term debt
O long-term liabilities
Convertibles
Total Liabilities
Deferred tax liab
Provisions
Shareholders' equity
Minority interest (BS)
Minority & equity
0
1
4
5
0
0
0
5
0
0
3
0
3
0
1
3
4
0
0
0
4
0
0
2
0
2
0
1
4
5
0
0
0
6
0
0
6
0
6
0
4
6
10
0
1
0
10
0
0
18
0
18
0
7
12
19
0
1
0
20
0
0
40
0
40
Total liab & SE
9
6
12
29
60
2014
5
-19
0
-14
0
-14
0
-14
0
-1
2015
11
-18
0
-8
0
-8
0
-7
-2
0
2016E
14
-17
0
-4
0
-4
0
-3
0
0
2017E
40
-32
0
7
0
7
0
7
-1
-2
2018E
75
-53
-1
22
0
22
1
22
0
-4
-14
-9
-4
4
18
Capital structure
Equity ratio
Debt/equity ratio
Net debt
Capital employed
Capital turnover rate
2014
38%
0%
-6
-3
0.6
2015
31%
0%
-3
-1
1.9
2016E
53%
0%
-7
-1
1.1
2017E
64%
0%
-16
2
1.4
2018E
67%
0%
-34
6
1.3
Growth
Sales growth
EPS growth (adj)
2014
28%
6%
2015
134%
-48%
2016E
22%
-66%
2017E
194%
-300%
2018E
88%
198%
Free cash flow
Net sales
Total operating costs
Depreciations total
EBIT
Taxes on EBIT
NOPLAT
Depreciation
Gross cash flow
Change in WC
Gross CAPEX
Free cash flow
DCF valuation
WACC (%)
15.0 %
Assumptions 2016-2022 (%)
Average sales growth
53.6 %
EBIT margin
21.2 %
Profitability
ROE
ROCE
ROIC
EBITDA margin
EBIT margin
Net margin
Cash flow, MUSD
NPV FCF (2016-2018)
NPV FCF (2019-2025)
NPV FCF (2026-)
Non-operating assets
Interest-bearing debt
Fair value estimate MUSD
13
106
69
4
0
192
Fair value e. per share, USD
Share price, USD
3.7
1.3
2014
-295%
-295%
n/a
-295%
-299%
-300%
2015
-299%
-302%
n/a
-66%
-69%
-69%
2016E
-82%
-88%
n/a
-25%
-26%
-25%
2017E
58%
59%
n/a
19%
18%
18%
2018E
74%
74%
n/a
30%
29%
29%
Data per share
EPS
EPS adj
Dividend
Net debt
Total shares
2014
-0.36
-0.36
0.00
-0.16
39.53
2015
-0.19
-0.19
0.00
-0.07
41.20
2016E
-0.06
-0.06
0.00
-0.14
52.44
2017E
0.13
0.13
0.00
-0.28
56.76
2018E
0.38
0.38
0.00
-0.60
56.76
Valuation
EV
P/E
P/E diluted
P/Sales
EV/Sales
EV/EBITDA
EV/EBIT
P/BV
2014
-6.1
0.0
0.0
0.0
-1.3
0.4
0.4
0.0
2015
-3.1
0.0
0.0
0.0
-0.3
0.4
0.4
0.0
2016E
58.4
-19.9
-19.9
4.9
4.3
-17.2
-16.4
10.5
2017E
50.2
10.0
10.0
1.8
1.3
6.7
6.9
3.6
2018E
32.6
3.3
3.3
1.0
0.4
1.5
1.5
1.7
Share performance
1 month
3 month
12 month
Since start of the year
2.4
-27.0
-57.1
-49.8
Shareholder structure %
AWM INVESTMENT COMPANY INC
BYSTEDT PER
ERIKSSON THOMAS
ROYCE AND ASSOCIATES LLC
FIDELITY MANAGEMENT & RESEARCH
VANGUARD GROUP
DAHLIN MATS
GOLDMAN SACHS GROUP INC
BLACKROCK
ROYCE & ASSOCIATES INC
Share information
Reuters code
List
Share price
Total shares, million
Market Cap, MUSD
Management & board
CEO
CFO
IR
Chairman
Analysts
Viktor Westman
[email protected]
Havan Hanna
[email protected]
Company analysis
34
%
%
%
%
Growth/year
Net sales
Operating profit adj
EPS, just
Equity
Capital
9.2 %
7.2 %
4.8 %
4.8 %
4.7 %
3.3 %
2.7 %
2.6 %
2.6 %
1.9 %
14/16e
69.1 %
-49.8 %
-57.9 %
38.3 %
Votes
9.2 %
7.2 %
4.8 %
4.8 %
4.7 %
3.3 %
2.7 %
2.6 %
2.6 %
1.9 %
NEON.OQ
NASDAQ
1.3
52.4
67
Thomas Eriksson
Lars Lindqvist
Lars Lindqvist
Per Bystedt
Redeye AB
Mäster Samuelsgatan 42, 10tr
111 57 Stockholm
Neonode
Revenue & Growth (%)
EBIT (adjusted) & Margin (%)
80
250.0%
70
200.0%
60
50
150.0%
40
100.0%
30
20
0
2014
2015
2016E
Net sales
2017E
2018E
2013
-50.0%
10
-100.0%
5
-150.0%
-200.0%
2013
2014
2015
2016E
2017E
2018E
-250.0%
-10
-300.0%
-15
-350.0%
-20
-400.0%
Net sales growth
EBIT adj
Earnings per share
0.5
0.4
0.3
0.2
0.1
0
-0.1
-0.2
-0.3
-0.4
-0.5
0.0%
15
-5
0.0%
2013
50.0%
20
0
50.0%
10
25
EBIT margin
Equity & debt-equity ratio (%)
2014
2015
EPS, unadjusted
2016E
2017E
2018E
0.5
0.4
0.3
0.2
0.1
0
-0.1
-0.2
-0.3
-0.4
-0.5
0.8
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2013
EPS, adjusted
2014
2015
Equity ratio
2016E
2017E
2018E
Debt-equity ratio
Conflict of interests
Company description
Viktor Westman owns shares in Neonode: No
Havan Hanna owns shares in Neonode: No
Neonode (Nasdaq:NEON) is a publicly traded company within human
interaction technology, headquartered in Stockholm. The proprietary
zForce technology is based on invisible light, which does not need the
fragile and expensive glass overlay, in contrast to the traditional
capacitive solutions. The result is competitive advantages for NEON in
e.g. cost, power consumption and user experience. The solutions are
used in e.g. consumer and industrial electronic devices like tablets, ereaders, toys, gaming consoles, printers and automotive.
Redeye performs/have performed services for the Company and
receives/have received compensation from the Company in connection
with this.
Company analysis
35
Neonode
DISCLAIMER
Important information
Redeye AB ("Redeye" or "the Company") is a specialist financial advisory boutique that focuses on small and mid-cap growth companies in the Nordic
region. We focus on the technology and life science sectors. We provide services within Corporate Broking, Corporate Finance, equity research and
investor relations. Our strengths are our award-winning research department, experienced advisers, a unique investor network, and the powerful
distribution channel redeye.se. Redeye was founded in 1999 and since 2007 has been subject to the supervision of the Swedish Financial Supervisory
Authority.
Redeye is licensed to; receive and transmit orders in financial instruments, provide investment advice to clients regarding financial instruments, prepare
and disseminate financial analyses/recommendations for trading in financial instruments, execute orders in financial instruments on behalf of clients,
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with the provision of guarantees regarding financial instruments and to operate as a Certified Advisory business (ancillary authorization).
Limitation of liability
This document was prepared for information purposes for general distribution and is not intended to be advisory. The information contained in this
analysis is based on sources deemed reliable by Redeye. However, Redeye cannot guarantee the accuracy of the information. The forward-looking
information in the analysis is based on subjective assessments about the future, which constitutes a factor of uncertainty. Redeye cannot guarantee that
forecasts and forward-looking statements will materialize. Investors shall conduct all investment decisions independently. This analysis is intended to be
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resulting from the use of this analysis.
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
For companies that are the subject of Redeye’s research analysis, the applicable rules include those established by the Swedish Financial
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
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Redeye does not issue any investment recommendations for fundamental analysis. However, Redeye has developed a proprietary analysis and rating
model, Redeye Rating, in which each company is analyzed and evaluated. This analysis aims to provide an independent assessment of the company in
question, its opportunities, risks, etc. The purpose is to provide an objective and professional set of data for owners and investors to use in their decisionmaking.
Redeye Rating (2016-09-12)
Rating
7,5p - 10,0p
3,5p - 7,0p
0,0p - 3,0p
Company N
Management
Ownership
42
70
6
118
42
62
14
118
Profit
outlook
20
91
7
118
Profitability
7
35
76
118
Financial
Strength
17
45
56
118
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Copyright Redeye AB.
Company analysis
36