Alphawave IP Group IPO: Everything you need to know about Alphawave

Alphawave IP Group, which designs tech used in semiconductor chips, plans to launch an IPO in London before the end of the month in what could be one of the hottest listings of 2021. We explain everything you need to know about the company.

Tech (2)

When is the Alphawave IPO?

Alphawave IP Group confirmed in April that it intends to launch an initial public offering to list on the Main Market of the London Stock Exchange sometime in May 2021. A specific date has not yet been confirmed.

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Alphawave share price: how much is Alphawave IP worth?

Alphawave said it plans to raise around $500 million through the IPO by selling shares to institutional investors. The final price of the IPO is yet to be decided, but Alphawave has already signed up cornerstone investors BlackRock and Janus Henderson that have agreed to buy shares at a price that values the company at $4.5 billion, equal to about £3.2 billion at current exchange rates.

Existing shareholders will also be selling additional shares as part of the listing. Alphawave said it will have a free float of at least 25% of its shares upon admission.

What is Alphawave IP?

Alphawave is a Canadian-British company that was founded in 2017 and operates out of its new R&D headquarters in Cambridge. It researches and develops connectivity solutions that are used in semiconductor chips to allow data to travel faster while using less power.

Essentially, Alphawave’s solutions is what allows chips in all sorts of devices – from smartphones  and computers to data centres and autonomous vehicles – to communicate with one another and handle an ever-increasing amount of data.

Importantly, Alphawave is not in the business of manufacturing anything. It licenses out its designs to a wide range of top tier clients, including the likes of Samsung and Taiwan Semiconductor, which integrate Alphawave’s solutions into their chips and products.

And that makes it unique. In fact, the company is the only non-US company licensing this sort of technology to customers globally, including key hubs for chip production like North America, China and South Korea.

The reason for this is that most competition comes from larger companies like semiconductor designers and software firms that count connectivity IP as a small proportion of overall income. Alphawave believes its sole focus on this specific area means it is more driven and dedicated to a key element of chip design compared to rivals that focus on a broader range of products.

Alphawave’s business may resonate with those that remember companies like ARM and Imagination Technologies, both of which were once regarded as bastions of the UK tech industry and leaders in the semiconductor market before both were bought by overseas firms, with ARM being bought by US outfit NVIDIA and Imagination falling into the hands of Chinese private equity firm Canyon Bridge. 

Alphawave said it believes UK investors ‘understand the value of licencing semiconductor IP’ and this is why it chose London for its IPO.

How does Alphawave make money?

Alphawave’s technology and designs are embedded in semiconductors produced by chip manufacturers, original equipment manufacturers and a growing number of companies that operate hyperscale data centres that need faster connectivity to handle the vast amounts of data being processed.

In return, these companies pay Alphawave money in licensing fees and royalties. It also makes money by providing support and maintenance services.

Alphawave has a high level of revenue visibility as the orders sitting in its backlog are not able to be cancelled. Plus, its focus on providing solutions for chips used in networks means income benefits from a longer life-cycle compared to chips used in consumer electronics like phones or tablets.

Is Alphawave profitable?

Alphawave represents a tantalising opportunity. It is fast-growing. It secured more bookings in the first three months of 2021 than it did in the entirety of 2020. It is profitable and has been since its first full year in operation, thanks to its high-margin R&D-focused business that requires low capex. Its gross margin was over 95% and its Ebitda margin was just under 54% in 2020.

Alphawave has adjusted its financial year to align with the calendar year, which means direct comparisons of its financial performance are difficult to make. However, it is evident that Alphawave’s top and bottom lines have grown exponentially in the few short years since the company was established.

(CAD, thousands)

Yr to May 31, 2018

Yr to May 31, 2019

7 months to Dec 31, 2019

Yr to Dec 31, 2020

Revenue

3,488

6,912

9,313

44,197

Operating Profit

1,233

678

3,255

23,911

Profit After Tax

944

512

2,136

16,373

The rapid growth has continued in 2021. It booked $82.2 million in bookings during the first three months of the year compared to just $75 million in the whole of 2020 and just $27 million in 2019. Plus, it has another $400 million worth of potential contracts lined up with some of the largest technology companies in the world, including those looking into new areas like self-driving cars and 5G, although negotiations tend to take 12 to 18 months to finalise.

What is Alphawave’s strategy?

Alphawave believes a listing in London can generate cash it needs to grow and raise its profile as a leading tech player. There is no doubt that the need for better connectivity solutions will be needed as technology progresses and Alphawave’s unique position means it stands to reap the rewards.

The company believes its market was worth around $500 million in 2020 and that it will grow to $1.5 billion by 2025. The fact Alphawave partners the two largest third-party makers of semiconductors in the world means it gains an insight into what the industry needs for new devices and gets a head start in spearheading the next generation of chips, allowing it to set the benchmark for faster connectivity. This also means it wins a large amount of new business from existing customers, with about half of all the contracts it has ever signed coming from clients already on the books.

The IPO proceeds will be used to fuel further growth. Around 20% will be used to scale its workforce so it can win new customers. About 40% will be spent on expanding its global offering to drive more licensing and royalty revenue, and the remaining 40% will go towards meeting growing demand for Alphawave’s technology in chiplets – which are a system of smaller chips that work together to power larger, more complex chips.

Alphawave wants to adjust its model so it can enjoy the benefits of having more recurring revenue. The first step toward that has been the introduction of a subscription model for its IP that allows customers to have unfettered access to its entire portfolio of designs or a particular sub-set in return for a flat annual fee. This was a model that was successfully employed by ARM. It is also ensuring that royalties play a bigger part in the contracts it signs.

Alphawave board of directors

Alphawave was founded by Jonathan Rogers, Raj Mahadevan and Tony Pialis, but only the last of the three still holds a formal position on the board today. The trio, as well as executive chairman John Lofton, have worked together for over 20 years in chip connectivity for the likes of Intel and Gennum.

Below is a list of the full board of directors of Alphawave IP Group:

  • Executive Chairman – John Lofton
  • President and CEO – Tony Pialis
  • Chief Financial Officer – Daniel Aharoni
  • Executive Director – Seat Sutardja
  • Senior Independent Non-Exec – Jan Frykhammar
  • Independent Non-Execs – Michelle Senecal de Fonseca, Victoria Hull, Susan Buttsworth, Rosalind Singleton and Paul Bourdre

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