Time to take a look at Netlist (NLST)?
  • Bullish Take – Netlist Poised to Recover following Second Major Customer Win in 2010
  • Stock Alert for Netlist Inc. (NLST)
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    Hot Stock Alert – Netlist climbs on 3 Patents Award

    Shares of Netlist Inc. (Nasdaq: NLST) surged 9.1% in the afterhours session on March 29, after the company reported that it received three patents related to its HyperCloud Memory technology. The stock closed the regular session at $2.42 and reached $2.64 during the extended trading. With a 52-week range of $1.81-$3.90, the March 29 trade is in the middle of that range.

    NLST reported that the U.S. Patent and Trademark Office issued patents for a “Memory Module Decoder,” and a “Circuit Providing Load Isolation and Memory Domain Translation for Memory Module.” The third patent is a continuation of the second awarded patent. Accordingly, the company has 20 patents issued and 21 patent applications pending. The solid intellectual property strengthens the company’s leadership position in memory technologies and protects its offering against infringement disputes.

    The stock, which has bounced up and down lately, lost 34% in the past year as the company was involved in patent infringement disputes, faced supply shortages and longer-than-expected testing times with its potential customers. Besides, NLST continued reporting heavy losses from operations, despite the growing revenue.

    The company designs, manufactures and sells high-performance, logic-based memory subsystems for the server, storage and communications equipment markets. Its memory subsystems consist of combinations of dynamic random access memory integrated circuits, NAND flash memory, application-specific integrated circuits and other components assembled on printed circuit boards.

    During 2010, NLST commenced the transition into high value, more customized products targeting the servers and data center customers. The company introduced two new products: HyperCloud DDR3 memory technology in November 2009 and NVvault battery-free, a non-volatile cache memory subsystem, in February 2010. While the company expects that its original equipment manufacturer customers would start using extensively these products, NLST is still pretty much involved in demonstrating and testing of new offerings.

    The company primarily distributes its products to leading OEMs in the server, storage and communications markets. Revenues for 2010 were $37.9 million, up 105% from revenues of $18.5 million for 2009.  Gross margin increased to 26.3% in 2010 from 16% in 2009. Net loss was $15.1 million, or $0.64 loss per share, compared to a net loss of $12.9 million, or $0.65 loss per share in 2009.

    During 2010 NLST succeeded to qualify NVvault with Dell Inc. (Nasdaq: DELL), Compellent Technologies Inc. ( NYSE: CML) and other OEMs. Both companies selected NVvault to use with their server and data center offering helping to cut the total cost of ownership and ensure system uptime for weeks. The company expects the NVvault sales, which made up $4.8 million or 13% of its total sales for 2010, to ramp up next year with other clients and get additional boost from the commercial launch of HyperCloud.

    The exponential growth continued in Q4 2010, with revenues hitting $10.1 million, up 51% from revenues of $6.7 million Q4 2009.  Gross profit was $3.3 million, or 32.6% of revenues, up 94% from a gross profit of $1.7 million, or 25.1% of revenues, for the same quarter of 2009. Net loss for Q4 2010 was $3.2 million, or $0.13 loss per share, compared to a net loss in the prior year period of $3.0 million or $0.15 loss per share.

    The solid growth of memory chip industry, which, according to iSupply, increased by nearly 80% in 2010, was responsible for stellar growth the company experienced last year. Going forward, NLST anticipates strong growth in 2011 as well, since challenges in memory capacity and performance continue to emerge across all industry segments.

    Analysts polled by Thompson Reuters, expect NLST to post a growth of 44% in 2011 and reach $54.6 million in revenues. The company is also expected to narrow its losses from $0.64 a share in 2010 to $0.47 a share in 2011.

    The longer-than-expected qualification of the company’s offering with its key customers have significantly discount NLST’s valuation in 2010, however, the company is well positioned to capture the market and maintain a comparable to 2010 growth rate going forward. In addition, the new product introduction and qualification with different OEMs are indicative of the company’s potential and strong likelihood of upcoming customer wins.

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