Ethernity Net Regulatory News (ENET)

1 August 2023

ETHERNITY NETWORKS LTD.

("Ethernity" or the "Company")

Strategy and trading update

and update on $1.5 million order

Ethernity Networks (AIM: ENET.L; OTCQB: ENETF), a leading supplier of data processing semiconductor technology for networking appliances, announces an update on its recent $1.5 million purchase order and the following update on the Company's strategy and trading.

$1.5m purchase order

The Company is pleased to report that it has completed the delivery of the Company's data processing system-on-chip ("SoC") devices to its existing fixed wireless customer pursuant to the $1.5 million purchase order announced on 29 June 2023. The Company delivered c. 40% of the order in June 2023 and has received the payment for this portion, with the balance delivered in July 2023 and due for payment by the end of August 2023.

Strategy update

Ethernity's Passive Optical Network ("PON") controller technology can be used in different broadband network configurations and platforms including in fiber-to-the-premises ("FTTP"), fiber-to-the-building ("FTTB") and fiber-to-the-home/fiber-to-the-room ("FTTH"/"FTTR") (together, "FTTx"). This provides Ethernity with the opportunity to offer its PON solutions for a variety of different scenarios.

There is significant global investment in improving fiber connectivity, particularly in the EU, USA and India. FTTH Council Europe has estimated that by 2027 approximately 300 million homes will be connected to fiber. In the USA, $42.5 billion has been allocated to investment in broadband infrastructure projects pursuant to the "Broadband Equity, Access, and Deployment (BEAD) Program". With certain of those territories banning the use of products manufactured by Chinese system vendors, this has provided the opportunity for new vendors to enter the market. 

Ethernity's go to market strategy is to provide an alternative source of PON technology for system vendors, by offering the Company's PON controller both on Field Programmable Gate Arrays ("FPGAs") and in application specific integrated circuits ("ASICs"), whilst combining its PON technology and flow processor switch technology onto a single ASIC, thereby delivering a complete Optical Line Terminal ("OLT") on a chip.

The Company's customized PON solution on FPGAs will be offered on a licensing model which, the Directors believe, will provide a more cost-effective solution to prospective customers for certain PON applications, compared to the existing devices in the market. ASIC sales are expected to represent a larger portion of the total addressable market and will be targeted on a revenue sharing model with ASIC vendors. This new revenue sharing model, which the Company has already begun to discuss with certain customers, should improve the Company's gross margin compared to its existing product sales and would allow Ethernity to target larger scale PON platform contracts.

Trading update

As set out in the Company's annual report and the results for the year ended 31 December 2022 ("FY2022 Accounts"), the Company is taking careful steps towards generating positive cash flow from its operations during FY2023, which includes a combination of the modified business model to focus on licensing, as described above, and a reduction in costs. The delays in existing customer contracts, combined with the extended sales cycles being experienced by the Company, as set out in the FY2022 Accounts, place significant uncertainty over the Company's ability to achieve the revenues previously targeted for FY2023. Whilst revenue is therefore expected to be lower than previously anticipated, the focus on the higher margin licensing contracts is expected to contribute to an improved gross margin once licensing sales commence and, combined with the cost savings, an improved EBITDA.

David Levi, CEO of Ethernity Networks, commented: "With the PON licensing model that we are implementing, we anticipate that we will be able to generate positive cash flow from operations and build a profitable and growing business."

For further information, please contact: 

About Ethernity ( www.ethernitynet.com ) 

Ethernity Networks (AIM: ENET.L OTCQB: ENETF) provides innovative, comprehensive networking and security solutions on programmable hardware that increase telco/cloud network infrastructure capacity. Ethernity's semiconductor logic offers data processing functionality for different networking applications, innovative patented wireless access technology, and PON access media controllers, all equipped with control software with a rich set of networking features. Ethernity's solutions quickly adapt to customers' changing needs, improving time-to-market, and facilitating the deployment of 5G over wireless and fibre infrastructure.