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Monday, September 20, 2021

Netlist, Inc. (OTCMKTS: NLST) Powerful Run Brewing as Holder of the (912) Seminal Patent Reports Record Q2 Financial Results

Netlist, Inc. (OTCMKTS: NLST) is moving northbound with power continuing its transformation from a thinly traded penny stock to master of the OTC clearly headed for much bigger things. NLST is ex Nasdaq having been delisted on January 3, 2018 and we have been reporting on the Company for years. OTC speculators love ex big board stocks for their ready liquidity and proven ability to make spectacular moves once on the bb’s and NLST is proving to be no exception as investors look ahead to a return to a higher exchange. Microcapdaily first reported on NLST on November 9, 2018 back when NLST traded for less than $0.25 per share and the boards were filled with long suffering longs many of them who had bought in the $1 to $2 range.  But everything changed quickly in July of last year when the U.S. Court of Appeals for the Federal Circuit affirmed the U.S. Patent Trial and Appeal Board’s decision upholding the validity of Netlist’s U.S. 7,619,912 (‘912) patent that applies to DDR server memory modules.  

On August 3 Netlist reported record financial results for the second quarter ended July 3, 2021. Revenue for the second quarter ended July 3, 2021 was $64.4 million with $40 million in licensing fees and $24.4 million in product revenue which was up 123% quarter over quarter and up 64% consecutively. Net income for the second quarter ended July 3, 2021 was $27.8 million, or earnings per basic share of $0.13, compared to a net loss in the prior year period of ($1.8) million, or a loss per basic share of ($0.01). While management could not give out too much information the infringement case against Google looks strong and the question isn’t really IF there is patent infringement, but what the scope is. Any settlement with Google would result in a significant pay day for Netlist and its shareholders. There are multiple very significant catalysts in play for Q3 including Samsung, Micron and Inphi as well as the continued success of the SK Hynix supply deal 

Netlist, Inc. (OTCMKTS: NLST) headquartered in Irvine, California, is a provider of high-performance SSDs and modular memory subsystems to enterprise customers in diverse industries. The Company’s NVMe™ SSD portfolio provides industry-leading performance offered in multiple capacities and form factors. HybriDIMM™, Netlist’s next-generation storage class memory product, addresses the growing need for real-time analytics in Big Data applications, in-memory databases, high-performance computing and advanced data storage solutions. Netlist also manufactures a line of specialty and legacy memory products to storage customers, appliance customers, system builders and cloud and datacenter customers. Netlist holds a portfolio of patents in the areas of server memory, hybrid memory, storage class memory, rank multiplication and load reduction.  

Netlist owns a valuable intellectual patent portfolio, many seminal, in the areas of hybrid memory, storage class memory, rank multiplication and load reduction, among others. The strength of Netlist’s patent portfolio reflects its many years of research and development and track record of bringing disruptive new products to market. The Company has over 130 issued and pending U.S. and foreign patents. Netlist has been monetizing its intellectual property through a combination of product sales and licensing, royalty and other revenue-producing arrangements. With state-of-the-art, wholly owned, ISO- and OSHAS-certified manufacturing and testing facilities in Suzhou, China, Netlist’s strategy is to marry its unique board-level intellectual property with a thorough understanding of semiconductor building blocks and system-level applications to deliver performance, cost, and time-to-market advantages to OEMs.  

The netlist story really took off in July when the US Court of Appeals for the Federal Circuit affirmed the U.S. Patent Trial and Appeal Board’s decision upholding the validity of Netlist’s U.S. 7,619,912 (‘912) patent that applies to DDR server memory modules. The decision is final and binding on future cases and represents a resounding win for Netlist. The (‘912) patent is a seminal patent; an invention so impactful that it creates or shifts the technology space. This ruling has much larger implications than just GOOG which will more than likely set the tone for other settlements long overdue here. Since last year the case has been progressing forward and today is the day for the joint letter to the court on discovery if the parties did not come to terms! If they could not come to terms the letter explaining both parties’ position on discovery process no longer than 10 pages is to be submitted today! Once the letter is submitted Judge Spero will decide the discovery process going forward. CA courts favor broad Discovery! The Judge already told Google they would probably not like the result if he had to decide.  

The Company is led by founder and CEO high level executive Chun K. Hong. Mr. Hong fired his BOD giving him full control of the Company and the ability to make big decisions quickly. Chun K. Hong stated at the time of the U.S. Court of Appeals decision: “For ten years Netlist has steadfastly opposed Google’s misguided campaign to invalidate the ‘912 patent,” said Netlist’s CEO, C.K. Hong. “We are very pleased that in the end the appellate court made it clear that the claims of this seminal patent are indeed valid and in so doing, further vindicate our decade-long defense of the company’s strategic intellectual property. We will now move to lift the stay in the patent infringement lawsuit against Google in the U.S. District Court for the Northern District of CA., in order to recover current and past damages related to the ‘912 patent.”  

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NLSTEarlier this year NLST reported the availability and shipment of its N1962 Gen4 Enterprise NVMe™ Solid State Drives (SSDs) to server and storage users. This next generation SSD utilizes the PCIe Gen4 protocol with backward compatibility to Gen3, best-in-class firmware, and a wide array of enterprise feature sets. Netlist’s N1962 delivers ultra-fast performance and superior reliability to handle the toughest computational & read / write intensive enterprise application workloads, including high-frequency trading, artificial intelligence, content delivery, and database acceleration. The use of Gen4 NVMe server and storage systems continues to expand, and has resulted in increased demand for high-performance enterprise SSDs. This has caused a tight supply environment for Gen4 SSDs and resulted in supply chain and operational disruptions in the marketplace. With availability in 8TB and 16TB, and a robust feature set, Netlist’s N1962 SSDs provide the high performance and supply requirements demanded by enterprise customers.  

Also, in April Netlist and SK hynix Inc. formed an agreement for a patent cross license covering memory technologies of both companies and an agreement for the supply of SK hynix products and technical cooperation on Netlist’s CXL HybriDIMM technology. The agreements provide SK hynix with access to Netlist’s portfolio of U.S. and foreign patents. Netlist will receive a royalty from SK hynix, a cross license to SK hynix’s patent portfolio and supply of SK hynix’s memory and storage products. The companies also plan to collaborate on Netlist’s HD CXL technology for future commercialization. 

On August 3 NLST reported financial results for the second quarter ended July 3, 2021. Revenue for the second quarter ended July 3, 2021 was $64.4 million with $40 million in licensing fees and $24.4 million in product revenue which was up 123% quarter over quarter and up 64% consecutively. Net income for the second quarter ended July 3, 2021 was $27.8 million, or earnings per basic share of $0.13, compared to a net loss in the prior year period of ($1.8) million, or a loss per basic share of ($0.01). These results include stock-based compensation expense of $0.4 million for the quarter ended July 3, 2021 and $0.2 million for the quarter ended June 27, 2020. 

As of July 3, 2021, cash, cash equivalents and restricted cash was $54.4 million, total assets were $72.9 million, working capital was $35.2 million, total debt and accrued interest, net of debt discount, was $17.4 million, and stockholders’ equity was $35.9 million. Netlist CEO C.K. Hong stated: “During the quarter, we delivered record financial results from strong product sales and the execution of a comprehensive licensing agreement with SK hynix. With this renewed momentum, we’re excited to ramp investments in strategic areas of the business while remaining focused on the intellectual property enforcement actions against infringing parties.” 

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Netlist is moving northbound with power continuing its transformation from a thinly traded penny stock to master of the OTC clearly headed for much bigger things. NLST is ex Nasdaq having been delisted on January 3, 2018 and we have been reporting on the Company for years. OTC speculators love ex big board stocks for their ready liquidity and proven ability to make spectacular moves once on the bb’s and NLST is proving to be no exception as investors look ahead to a return to a higher exchange. Microcapdaily first reported on NLST on November 9, 2018 back when NLST traded for less than $0.25 per share and the boards were filled with long suffering longs many of them who had bought in the $1 to $2 range.  But everything changed quickly in July of last year when the U.S. Court of Appeals for the Federal Circuit affirmed the U.S. Patent Trial and Appeal Board’s decision upholding the validity of Netlist’s U.S. 7,619,912 (‘912) patent that applies to DDR server memory modules. On August 3 Netlist reported record financial results for the second quarter ended July 3, 2021. Revenue for the second quarter ended July 3, 2021 was $64.4 million with $40 million in licensing fees and $24.4 million in product revenue which was up 123% quarter over quarter and up 64% consecutively. Net income for the second quarter ended July 3, 2021 was $27.8 million, or earnings per basic share of $0.13, compared to a net loss in the prior year period of ($1.8) million, or a loss per basic share of ($0.01). While management could not give out too much information the infringement case against Google looks strong and the question isn’t really IF there is patent infringement, but what the scope is. Any settlement with Google would result in a significant pay day for Netlist and its shareholders. There are multiple very significant catalysts in play for Q3 including Samsung, Micron and Inphi as well as the continued success of the SK Hynix supply deal  We will be updating on Netlist when more details emerge so make sure you are subscribed to Microcapdaily so you know what’s going on with Netlist.

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Disclosure: we hold no position in NLST either long or short and we have not been compensated for this article.

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