Weebit Nano (ASX: WBT) shares are up 25% in the two days since they announced a license deal. Given that the entire aim and purpose of Weebit is to sign license deals this should have an effect on the WBT share price - and it has. Think through the business model here. It’s as with ARM Holdings. Design something, something wondrous, that millions then want to use. License the use to them at pennies per piece and sit back and count the money as it rolls in. OK, that’s a little flippant but it is the base model here. Therefore it obviously depends upon being able to get people to sign licenses to pay the pennies per piece.
Back in March we talked of Weebit Nano: “The story here is of a change in sentiment about Weebit. It's inherent in fact in the manner in which it is currently revenue free. Yes, of course it's wondrous to be the possessor of a new technology that's going to sweep the world. Or may do, or perhaps might not of course. But when all of the value is in what might happen and absolutely none in what is currently happening then the share price is highly leveraged to even slight changes in that view of the future.” That was on the occasion of a 30% fall in WBT shares. But that same leverage also works the other way around: “Weebit Nano Limited (ASX:WBT, Weebit or Company), a leading developer of advanced memory technologies for the global semiconductor industry, and DB HiTek, one of the world’s largest foundries, have signed a commercial agreement whereby DB HiTek has licensed Weebit ReRAM for its customers to integrate as embedded non-volatile memory (NVM) in their systems on chips (SoCs).”
Weebit Nano share price from Google Finance
We’ve looked at Weebit Nano and WBT shares before. As we’ve said, they’re bound to be wholly volatile. There’s no revenue as yet, everything is based upon the hope that many of those licenses can be agreed. That many fabs and foundries make the tech available for inclusion in chips made there, so that designers incorporate it into their designs, which then leads to that pennies per each chip made.
It’s an obviously high risk strategy. And one that if it works will lead to a very high income in the future. But that if there needs to be tempered by the risk.