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TICKERS: WISA

LG Collaboration Could Mean 'Life for Summit Wireless (WISA) Is About to Get Very Good'
Contributed Opinion

Source:

Daniel Carlson of Tailwinds Research explains how LG Electronic's announcement on the WiSA standard this morning could be a major boost to a small-cap company that owns core patents on the technology.

This morning a major endorsement for the WiSA standard was issued when LG Electronics announced that all its high-end OLED and UHD televisions would have embedded support for the WiSA standard; they will be "WiSA Ready." From Tailwinds' perspective, this announcement is likely to precede a rapid adoption by others in the industry. Heading into the Consumer Electronics Show (CES), shares of Summit Wireless Inc. (WISA:NASDAQ), the owner of the core patents in the WiSA standard, appear poised to garner some major attention.

The television market is immense. In 2017, it is estimated by Statista that over 229 million units were shipped globally.

LG Electronics is the second largest manufacturer of televisions, with around 13% market share. It is known for being leaders in the industry, it is, for example, the largest producer of super high-end OLED monitors.

But, while its monitors are world class, LG, like everyone else that makes flat panel displays, doesn't necessarily offer a world-class audio experience. The space constraints of modern televisions have made internal speakers an afterthought on televisions and have left consumers looking for other products to enhance their home entertainment experience. Typically this has been reflected in purchases of sound bars or installation of an expensive hard-wired home surround sound system.

By making its products WiSA enabled, LG is looking to change this paradigm. "With WiSA Ready displays, we recognize the tremendous benefits that consumers will enjoy in taking advantage of truly immersive, wireless sound that complements all kinds of big screen home entertainment from movies and video to games, e-sports, and more."

With the endorsement of LG, the WiSA standard is poised to see big growth in 2019. There are several key takeaways from today's press releases. Below are my thoughts:

* We should expect to see more television manufacturers adopt the WiSA standard. The cost for adoption is minimal; it's really just a software coding issue on the TVs. But, the cost of not enabling the standard could be high as LG is going to be first to market and, if it's popular, could rapidly outdistance its rivals if they don't get on board.

* I expect to see WiSA make a big splash at CES this year. With nine speaker brands, in addition to LG TVs, introducing WiSA enabled speakers, this surround sound standard will likely be the biggest change to the home entertainment systems displayed at the world's largest Consumer Electronics Show in January.

* Big box retailers shouldn't be far behind. LG's list of authorized retailers is a "who's who" of the consumer electronics industry. Not only does LG (as well as Klipsch, Bang & Olufsen, etc.) have more than a little sway over the retailers, but that group is always looking for the next big thing. A WiSA enabled system could be massive for retailers as it opens a new market.

Sizing up the market potential for 2019 and beyond

It certainly sounds like that adoption is already well underway. In today's press release, the addressable market got sized for us. "Summit estimates that there will be up to 60 million units of WiSA Ready platforms in the market in 2019 providing for a total available market (TAM) of more than 300 million WiSA speakers."

With that forecast of 60 million units, and LG's market share of 13% equating to under 40 million units, it's obvious that other manufacturers are likely to be enabling their televisions with WiSA in the coming months.

However, we know there is a big difference between TAM and actual sales figures. Even with a big push from electronics manufacturers and retailers, WiSA will never hit its TAM. The WiSA solution, while outstanding, is not going to fit every room/household. Budget or space constraints will leave a number of TV purchasers either not buying additional any audio equipment, or choosing less expensive routes such as sound bars.

From my perspective, in fact, the best way to look at the WiSA opportunity is in regards to how many surround sound systems are installed each year, and how many soundbars are sold. Over time, WiSA will eat big chunks of these markets.

Getting a number of surround systems installed is not eas, partly because they are not sold as complete systems usually, but instead as someone buying speakers and an amp and setting up their own install. However, one data point that helps is we have heard that X-Box has a 15% attach rate on the 30 million units it sells being configured for surround sound. Safe to say, that's only a sliver of the market, so I'm going to guess the total install per annum is somewhere north of 20 million.

It's my belief that, within five years, due to ease of install, superior latency in the sound, and cost, WiSA systems will end up taking over the majority of installed surround sound systems. In order for this to happen, there will need to be more products at the high end of the market to compete with the Dolbys of the world. There also needs to be WiSA speakers developed that are able to be built into walls, ceilings, etc.

The good news is that speaker manufacturers will definitely develop this product if there's a market. I expect the range of WiSA speakers available to grow exponentially over the next few years.

With regards to sound bars, the WiSA system sounds vastly superior, but space and cost will keep them competitive. I would suggest WiSA takes up to 40% (I know, totally made up number, but it feels right) of this market over time. The good news is, in case you didn't know, sound bars are a big market with 15 million units sold annually.

The other good news is that the TAM of 300 million speakers, based on 60 million WiSA Ready televisions will expand dramatically. With 229 million total units in the television market, if WiSA Ready takes off, the other manufacturers will follow suit.

All of which means that the addressable market is huge. Going back to the two areas WiSA is going to impact, home surround systems and sound bars, I believe we can expect a rising share of the market climbing to a 2.5%share sales rate over the course of 2019. This would mean that they could achieve a run rate of almost 1 million WiSA systems annually by December of next year. With six speakers per system and a $10 cost for the setup per speaker, you're looking at a $50 million run rate by year end.

Is a $50 million run rate a year from now even possible for a small company like Summit? It sounds almost TGTBT (too good to be true). However, I believe it's not only possible it could be low balled. It all comes down to the standard. If major consumer electronics companies endorse this standard, it will take off. We all know retailers will jump on board and speaker companies would love to open a new market to sell new speakers.

It's all about the television manufacturers enabling the standard and we'll see it launch. LG supporting WiSA is a huge statement. If the others fall in line, the stage will be set for a big ramp in sales. Today's announcement is a big deal for Summit Technologies. With a road map towards a big splash at CES followed by big box retailers, 2019 looks like it could be the start of something very good.

Daniel Carlson is the founder and managing member of Tailwinds Research Group and its parent company DFC Advisory Services, which is a licensed registered investment advisor (CRD # 297209). Tailwinds is a microcap focused research company that provides research on and consults to over 20 emerging growth companies in the technology and life sciences arenas. DFC Advisory Services is an RIA that manages money dedicated to investing in the companies covered by Tailwinds. For more information on these two companies and their track record, please see www.tailwindsresearch.com. Prior to founding these two entities, Dan spent many years working with small public companies, having been CFO of two public companies and helping finance many others. A 1989 graduate from Tufts University with a degree in Economics, Danís formative years in business were spent as an equity trader, first on the Pacific Coast Stock Exchange then on the buyside at several multi-billion dollar firms.

This article was submitted by Tailwinds Research. For more information on Tailwinds Research or on Summit Wireless, please visit www.tailwindsresearch.com.

Tailwinds is engaged by Summit Wireless and owns stock in the company. For a complete list of disclosures, please click here.

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Disclosure:
1) Daniel Carlson: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Summit Wireless. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies referred to in this article: Summit Wireless. Additional disclosures and disclaimers are above. I determined which companies would be included in this article based on my research and understanding of the sector.
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