Latest Results

Chairman and CEO’s Statement

Introduction and overview

The market conditions have become increasingly challenging for the Company, as Sondrel has had to manage the combined impacts of an unexpectedly long downturn in the semiconductor market, a collapse in private equity and venture capital funding for semiconductor companies, continuing geopolitical uncertainty, and delays in customer investments.  Despite these near-term challenges, the fundamental strengths of the Group’s business model remain unchanged.  We were pleased with Sondrel’s performance in the first half year of the year and to have made substantial progress in the key areas which will grow our business in the medium term. 

Whilst not having a substantial impact on the first half year results, the Company has already announced that the challenges mentioned above will impact our H2 2023 revenue, profitability and cash position.  Sondrel’s flexible business model, and strong supplier partnerships. are allowing us to take the decisions needed to manage the situation as we continue to hit multiple key milestones and ensure that we will be well positioned as we move into 2024. The Board remains confident that the Company will deliver performance in the FY23 full year in line with current market expectations as revised on 31 August 2023. 

Looking in more detail at H1 2023, the Group delivered ASIC projects to plan and completed the second milestone of a material ASIC engagement for a Tier 1 automotive customer, generating milestone payments. As a result of this and other work, H1 2023 unaudited revenues rose to £9.3m, representing a 17% increase from H1 2022, with an adjusted EBITDA of £0.4m during the period (H1 2022: £0.1m)¹.

Sondrel has made some excellent new appointments to the management and silicon operations teams, we have established an office in Santa Clara, California, in the heart of Silicon Valley, and we have delivered our first ASIC devices to our lead customers (who themselves are increasingly optimistic about their end market production opportunities). In particular, our sales penetration into the US is progressing well as we start to develop this large market opportunity.

To support the Group’s future growth in line with its capability to fulfil new orders for its full-service ASIC offering of design and supply, we announced the appointment of Anthony Fernandez as Chief Operating Officer post period end in July 2023. Anthony has joined us from Refeyn where he was CEO and, before that, was VP of Asia Pacific for Teledyne Technologies, the US-based provider of sophisticated digital imaging products and software, instrumentation, aerospace and defence electronics, and engineered systems. 

The semiconductor market overall is now moving into recovery with SEMI forecasting 10% quarter-on-quarter growth in Q3 2023.²  The ASIC segment that the Group operates in continues to grow as customers seek competitive advantage by including customised ASIC devices that enable differentiation of their end products while managing unit costs and power consumption, and addressing fast growth technology megatrends including AI, Automotive, 8k video, Smart Home devices, Wearables and next gen. Consumer Devices.

¹Adjusted EBITDA is EBITDA before deduction of exceptional items (see note 9 for reconciliation)

²https://www.semi.org/en/news-media-press-releases/semi-press-releases/global-semiconductor-industry-on-track-for-2024-recovery-but-near-term-headwinds-remain-semi-reports

Turnkey ASIC business model

Sondrel has successfully transitioned its business model to provide a full turnkey ASIC design and supply service for its customers. This includes contracting for the manufacture, testing and production of ASICs as well as previously offered design and production consulting. Although the testing, packaging, and other capital-intensive engineering functions necessary for production of an ASIC will continue to be outsourced to third parties, Sondrel will provide the product engineering and manage the complex manufacturing process by engaging third parties directly.

Clear progress has been made in the first half of 2023 with three designs taping out in the period delivering the initial NRE (non-recurring engineering) revenues. Previously, as the design is complete at this stage, this is where Sondrel’s engagement with the customer would have ended, but the Group now stands to benefit from the significant revenues associated with the production of the ASIC. Further details on the three tapeouts completed in the period can be found in the Customer Activity section of this report.

The full turnkey offering continues to be attractive to both potential and existing customers and the pipeline of opportunities remains strong, with the customers with whom we are engaged being increasingly optimistic about their sales prospects, and their volume forecasts are strengthening as we get closer to the start of production.

Continued progress in the US

The Company is pleased to report that good progress has been made in the first half in expanding the Group’s presence in the US with the opening of an office in Santa Clara, California and the hiring of several key personnel across both sales and engineering. With one customer already in the US, momentum has continued to build both during the Period and post the Period end, and the Group now has 15 potential customers in the pipeline, representing substantial design and prototype revenues over the next few years, with the potential for significant production revenues thereafter.

With the passing of the CHIPS Act in the US and subsequent push towards near-shoring, Sondrel’s position as the only advanced ASIC company able to offer an independent and localised supply chain to Western customers represents a significant opportunity for the Group and we look forward to updating on further positive progress in the US market.

Strong relationships with key industry participants

Sondrel has established highly valuable relationships with many participants in the semiconductor industry and has continued to build upon these in the period.

In March 2023, the Group signed a multi-year partnership extension with Synopsys, the American electronic design automation company, for its state-of-the-art EDA tools. These tools are vital to the process of designing ASICs down to 3 nanometres and the partnership extension will allow Sondrel to continue to provide its leading design services to customers.

An additional software contract extension was also signed with Siemens in April 2023 for the continued use of its Electronic Design Automation (EDA) software. EDA software is also vital to designing the ultracomplex chips that form the core of Sondrel’s offering to customers and it was very pleasing to sign this multi-year contract extension.

Sondrel’s key strengths and advantages

We believe that Sondrel has several key strengths and advantages that are important to the success of the business:

1. Sondrel has already delivered designs at 5 nanometres and is now working on 3 nanometre process nodes. This level of engineering capability is limited to Sondrel and a small number of Asian direct competitors and positions Sondrel to benefit from the megatrends driving the increasing use of ASICs globally and the production of system solutions utilising increasingly complex design geometries.
    
2. Sondrel provides leading edge ASIC designs to a global customer base in advanced end markets with significant structural growth drivers including high performance computing, automotive, artificial intelligence, VR/AR, video analytics, image processing mobile networking and data centres.
    
3. Sondrel has a team of over 140 engineers that are located in design centres globally. This enables Sondrel to be one of only a handful of companies worldwide with the scale, capability and strength of industry relationships to deliver projects in leading technologies.
    
4. From concept to delivered ASICs, Sondrel is able to act as a single counterparty to its customers as a provider of a full turnkey service in the design, prototyping, testing, packaging and production of ASICs. Sondrel is able to provide customers with the ability to de-risk the design of ASICs through the use of Sondrel’s Architecting the Future intellectual property.
    
5. Sondrel has a clear organic growth strategy focused on increasing its engineering headcount and investing in IP development to further enhance its competitive position, accelerating its growth in key geographies including the US and Europe.
    
6. Sondrel has a proven and experienced founder-led management team.

Customer Activity

The Group continues to have a strong pipeline of revenue opportunities providing good visibility of future growth. Customers cover multiple growth markets, including major industrial OEMs, automotive suppliers, AI and satellite communication services.

The Group made good progress with customer projects in the first half of 2023, with three designs taping out in the period. These three designs, for a provider of Edge AI Hardware Accelerator solutions, a controller for a smartphone camera and a provider of home network solutions, highlight the strength of Sondrel’s design capabilities and attraction of the full turnkey offering, as customers can use Sondrel as a single touchpoint throughout the whole process, providing security in a complex market.  In addition to these three projects, good progress has been made on the Group’s engagement for a Tier 1 OEM Automotive customer with key milestones being achieved during the year to date.

Sondrel continues to deliver for its customers and the completion of these three tapeouts in the period highlights the high quality of work that Sondrel does for its customers and the Group is already having positive discussions with customers about designing their next generation chips.

Summary and Outlook

As the year has progressed conditions have proven to be increasingly challenging. However, H1 2023 was a period of significant progress, achieving multiple material project milestones as well as operational expansion that will, combined, deliver profitable and sustainable growth for shareholders. The Company is taking the steps necessary to manage the current difficulties and continues to develop a strong customer pipeline in multiple end markets and build a reputation as a premium designer and supplier capable of fulfilling complex ASIC turnkey solutions across the globe.

Notwithstanding H2 2023 delays and the consequential impact on previously anticipated ramp up as we enter FY24, our increasing traction in the important US market, strong sales pipeline and positive ongoing relationships with our existing ASIC customers provides us with continued confidence in our medium-term targets and we will ensure that we keep updating shareholders as we make progress towards this goal.

The Group is also pleased to announce alongside results today the successful delivery of silicon prototypes for three ASIC projects. The three projects, detailed in the Customer Activity section of this statement, will now proceed to validation and qualification and remain on track for release to production.

Investing for growth has delivered promising results, evidenced by particular progress in the important US market. The onboarding of an experienced sales and engineering team in Santa Clara, California, has been swift, and a sizeable sales pipeline is now in place. In addition to this, customer production volume forecasts for the Group's live ASIC projects in Europe have increased, further endorsing the Company’s strategy.

Nigel Vaughan and Graham Curren
Chairman and Chief Executive Officer
21^st September 2023