Quantenna’s Q1 results highlight why ON Semi is paying $1.1bn to buy it

Quantenna has shown why ON Semiconductor just paid $1.1bn to buy the business, in its first financial report since the surprise acquisition was announced six weeks ago. Revenue was up by 27.8% year-on-year to $57.7m in the first quarter of 2019, largely because of the WiFi chip firm’s 802.11ac Wave 3 10G strategy.

The company added over $12m worth of business across Asia-Pacific and the region now accounts for 92% of its total revenue, up from 90% a year earlier.

Quantenna lists three mystery OEM customers as contributing 10% or more of revenue during the first quarter. The biggest grew from 18% to 26% of its total revenues in a year, while the other two unnamed customers contributed 16% and 10% respectively.

Despite being a US company, in the process of being bought by another US company, Quantenna expects the majority of its business to continue to be delivered outside the country, mainly to Asian OEMs – many of which sell their WiFi access points, gateways, set-tops and repeaters to north American and European service providers such as Comcast, Cox Communications and Telefonica.

An additional $12.6m in revenue for Quantenna’s first quarter helped reduce its net loss by 66% year-on-year to $1.1m, while gross profit jumped 30% to $29.5m, with a gross margin of 51.2%.

Higher unit volumes of 11ac product shipments spearheaded an increase in WiFi solutions sales. WiFi 6 (802.11ax) product sales were cited as another healthy growth area, as well as Quantenna’s 8×8 QSR-10G chipset, one of the first to market in this category, in September 2015.

However, the company warned that competitors are coming in thick and fast. “In February 2017, Qualcomm announced a new 8×8 product based on the draft WiFi 6 standard that may compete with our product. In addition, in August 2017, Broadcom announced new 4×4 WiFi connectivity solutions based on the draft WiFi 6 standard, and in January 2018, Intel announced new chipsets based on the draft WiFi 6 standard for mainstream 2×2 and 4×4 home routers and gateways. We expect our competitors will also introduce new products based on new standards and other next generation technologies in the future,” it said in the earnings report.

The WiFi silicon specialist also provided an update on the takeover. On Semi plans to merge Quantenna with an existing but shadowy subsidiary called Raptor Operations Sub.

Quantenna also issued a warning to investors about the impending merger. “There is potential uncertainty about the direction of our product offerings and the support and service of our products after the merger is consummated. For example, the announcement or pendency of the merger could have an adverse effect on our revenue and business if our customers delay, defer or cancel purchases or design win opportunities pending completion of the merger,” it said – one example being a potential termination fee of $32.2m if the process falls apart.