5 Points
Category: Other Parent Post

Finally - Good News for Netlist Shareholders


As always, what follows is not financial advice and you must do your own due diligence, etc, but I'm excited because I think this once $12 per share stock is going to start moving back towards the $5-7 range in the next year or two! Or be bought out!
In 2012, and past quarters Netlist really didn't deliver. As evidence you can chart their stock price down to around .76 cents! 
The most recent article on Netlist has a positive headline but is open to paying SA subscribers only. I've also written, and will write more, free material on Netlist here
The main point from tonight's earnings call: finally better than expected revenues from Netlist (NLST)! My understanding is the Street knows they are tied up in litigation with infringing rivals and expected them to have far worse numbers. Yet, through winning these suits, and having superior performing products, tiny little Netlist (32M market cap?) is INCREASING SALES in the multi-billion dollar and growing semiconductor industry. Plus MORE revenue will be coming from their patent monetization via ongoing suits against bigger rivals:
"...we've had pending litigation with a number of bodies in the high performance memory space, Google N5 smart modular, so forth...So I think as we get this kind of definitive ruling out of the government, it allows us and take those validated patents back to the courts in the litigation, and reengaged, reopen the litigation..." [per Netlist CEO Chuck Hong on 2/3/14 conference call, transcript provided by www.seekingalpha.com / http://bit.ly/89UJPz]
I'm surprised that 1) both Netlist and Inphi (IPHI) had their conference calls on same evening and more or less at the same time; 2) yet neither of them announced that a deal, such as a payout or a merger, is being discussed or might be considered between the two of them. Maybe a merger / buyout will never happen, but if not then Inphi should pay a big settlement award, plus royalties for future use, to Netlist.
Netlist CEO Chuck Hong paid $4.29 per share for Netlist shares LESS THAN ONE YEAR AGO, and he's a veteran of the industry. So, whether via merger or cash settlement etc, I think we can have faith that he will not sell his shares cheap now that Netlist is kicking Inphi and other bigger rivals around in the court ring. In these David versus Golaith battles, Netlist's kicks and punches hurt$ Goliath after Goliath. 
All Netlist shareholders should realize that it now appears Netlist's past decline is partly because Inphi (and other lawsuit defendants) infringed on Netlist's patents and made big profits doing so. 
Now, not just Dell, but Cisco and more and more companies are seeing the value of Netlist's superior technology. Why order second best and then suffer a problem, or limit, with your server memory?
Intel is often the industry standard for server customers. But Netlist is making more and more sales even though it is not "Intel compliant" / "Intel certified". As best I can tell the reason is because Inphi which is "Intel compliant" appears to have gained a sweetheart relationship with Intel by paying Intel big testing fees to get Intel's endorsement PLUS paid Intel to certify devices that infringed on Netlist's patents. In other words, more customers can probably see that Netlist is the real deal and Inphi and others are copy cats or second rate. Why would you put second rate chips in your server when you could get first rate likely for around the same price? Either way, when the dust from the patent litigation settles, Netlist will be paid by customers of Netlist's technology PLUS rival's technology that relied on Netlist patents. For Netlist it's win-win whether you buy their chip or an infringing rivals. 
In the past Netlist was bullied and left for dead by it's bigger rivals. You can still see the wounds from the fact that Netlist was recently almost delisted from NASDAQ! 
Now Netlist has loaded it's sling shot with a rock. Netlist is aiming to hit Inphi (and other rivals) to generate a stockpile of revenue arguably taken from it during the last several years when it struggled. Netlist is re-opening the CA state patent suits that were put on hold while the federal / USPTO Examination Board checked to see whether Netlist's patents were better than Inphi's. Inphi can drag things out for awhile, but we recently saw a Judge penalize Google for delaying a settlement with Vringo. You want to delay the court and waste tax payer's time and money? Okay - you are now ordered to pay the maximum amount in dispute! The gavel was slammed down on Google pretty hard. 
If Inphi and other infringers want to play games, there is no reason why the courts should accommodate them. In fact, Judges have a pretty lot of discretion when penalties are issued for delays, contempt of court, etc. This is why many infringers have already settled with Netlist. Inphi can delay, but the more unreasonable its delays, the more likely it is to be penalized by the Judge, just like Google was.
Speaking of Google's court loss to Vringo (VRNG), Netlist CEO Hong mentioned Netlist still has a pending suit against Google! 
You can see from my past comments that I had rarely mentioned the fact that Google was a defendant of Netlist. This is because I think it will may be harder for Netlist to win against such a multi-billion dollar adversary like the GOOG. Plus I wasn't sure if this claim was still active...and even if it wasn't Netlist is still undervalued.
However, Hong still has the GOOG on his mind! And while knocking out the GOOG may be harder than knocking out Inphi, this fight should be on investor's minds too. 
Google is one of the largest server manufacturers / consumers / users in the world! Even without a win against Google, Google might need Netlist's technology in the future. Anyway you slice it, Netlist is in a growing market and doing great. 
If the GOOG is found to have infringed on Netlist's patents, Netlist shares might be worth as much or more than the $3-$4 that Vringo shares trade at today (full disclosure I hold both Vringo and Netlist and was buying up more Netlist as it dropped to 1.42 yesterday :)). 
IF you read all the above and you are still not sure if Netlist shares are deeply undervalued, please note that the shares are rising on higher than usual volume. 
Eg - in the last month it appears 7M shares were traded on one day and the price shot up to around $1.40! Somehow the smart money is buying NOT selling. On many days while the Dow and S&P have dropped, Netlist rose! I think that's because Netlist IPO'd around $12 and now is just too too undervalued.
So, yeah, maybe 2014 is going to be bumpier than expected...Even great stocks do not go straight up every day, so buy on the dips! And expect some volatility stocks that are currently under $5. Just because you did your research and found a great buy for $2 doesn't mean you have to sell to a hedge fund manager or day trader who created volatility such that you felt relieved selling for $4. Be patient, and stand your ground. Don't look at this one every day if it scares you. 
As Netlist revenue just beat, and is likely to continue to beat earnings forecasts, adding more IP monetization revenue means it could easily go to $5 in the next year. That's when to start to look at this stock's movements. Because once it clearly goes over $5, more and more institutional buyers will find it meets their trading requirements. It may still appear cheap and so they will snatch it up as a value stock in the multi-billion dollar server industry. Then we're in the $7 range that I mentioned earlier. 
Yes, I think that analysts will have to revise their $4 price targets as Netlists revenues improve. One analyst has a price target of $2.25 and that will have to be revised soon too. I know some investors might also buy and sell the volatility up to $7. But especially for longer term buyers, especially if we see revenues continue to improve as they did last quarter, it's really up to you. Will you buy this at $2, ignore the improving fundamentals, and sell out at $4, or will you hold it till it returns to $7 or so, which is still cheaper than the price it IPO'd at... GLTA!
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