Sequans Communications S.A. (SQNS)

Executive Summary / Key Takeaways

• Strategic Transformation and Financial Stability: Sequans Communications has undergone a significant transformation, notably with the $200 million Qualcomm transaction in 2024, which eliminated substantial debt and validated its technological leadership in cellular IoT. This has stabilized its financial footing and enabled a focused pivot towards next-generation 5G solutions.
• Robust and Accelerating Design-Win Pipeline: The company boasts a substantial design-win pipeline of $250 million, part of a larger $480 million total pipeline, with a clear roadmap for projects to transition into mass production, driving anticipated product revenue growth through 2025 and 2026.
• Technological Leadership in 5G IoT: Sequans is strategically positioned at the forefront of the 5G IoT transition with its accelerated RedCap and eRedCap roadmap, enhanced by the ACP acquisition, aiming for first-to-market advantage and future-proofing customer networks.
• Diversified Revenue Streams and Disciplined Operations: Beyond product sales, new licensing deals leveraging 5G IP and expansion into vertical markets with RF transceiver chips are expected to contribute high-margin revenue, while disciplined expense management targets operating income break-even by 2026.
• Unique Competitive Positioning: As one of the few comprehensive cellular IoT providers outside of China, Sequans benefits from geopolitical trends and industry consolidation, offering a crucial alternative for customers seeking reliable Western-designed technology.

Sequans' IoT Foundation and Strategic Reinvention

Sequans Communications S.A., incorporated in 2003, has established itself as a fabless designer and supplier of cellular semiconductor solutions, primarily serving the massive and broadband Internet of Things (IoT) markets. The company's journey has been marked by a commitment to developing power-efficient and high-performance 4G IoT platforms, including the LTE-M/NB-IoT Monarch 2 and Cat 1bis Calliope 2. These platforms have been foundational to its product revenue, enabling a wide array of applications from smart metering to asset tracking.

The year 2024 marked a pivotal moment for Sequans with the successful completion of a $200 million transaction with Qualcomm (QCOM). This deal, while involving the sale of certain 4G assets, crucially allowed Sequans to retain perpetual licensing rights to its core 4G IoT technology. The financial injection from this transaction was transformative, enabling the company to repay all mature debt and clear overdue payables, effectively rendering its balance sheet nearly debt-free. This newfound financial stability has been a catalyst, bolstering customer confidence and validating Sequans' technological leadership in the cellular IoT space. Georges Karam, CEO and Chairman, emphasized that the Qualcomm deal "ensures the future of our 4G IoT business and advancement of our 5G RedCap and eRedCap solutions, while also significantly improving our financial position".

In the highly competitive semiconductor industry, Sequans occupies a unique and increasingly strategic position. The company is recognized as one of the "few comprehensive cellular IoT providers outside of China". This distinction has become a meaningful differentiator in the current geopolitical environment, contributing to new opportunities and design wins as customers, particularly in North America, Europe, and Japan, seek reliable Western-designed technology to address sovereign challenges and diversify their supply chains. Furthermore, the pressure on OEM module makers to consolidate or exit the market, exemplified by announcements from Ublox (UBXN), validates Sequans' business model, which offers both chips and modules, providing differentiated customer support. Sequans' Cat 1bis product, Calliope 2, is considered a "unique chip outside of China" with limited competition beyond Qualcomm, further strengthening its market traction.

Technological Edge: The Heart of Sequans' Moat

Sequans' core competitive advantage lies in its specialized, low-power cellular IoT technology, meticulously designed for the unique demands of massive IoT deployments. The company's Monarch 2 (LTE-M/NB-IoT) platform remains a key driver of revenue growth, with new momentum in metering projects entering pilot rollout phases and an expanding pipeline across tracking, e-health, and industrial segments. The Calliope 2 (Cat 1bis) platform, designed for mid-range IoT applications, began shipping to its first design-win customers in Q1 2025, with shipments expected to ramp through the second half of 2025 and accelerate in 2026, particularly in telematics and security markets. Calliope 2 is also an ideal solution for smart home applications due to its Voice-over-LTE feature.

Looking ahead, Sequans is aggressively executing its 5G roadmap, focusing on RedCap and eRedCap technologies. The acquisition of ACP in Zurich significantly accelerated Sequans' 5G eRedCap roadmap by approximately 18 months, providing a "first-to-market advantage". These next-generation chips, including Monarch 3 and Calliope 3, are planned for launch by the end of 2026. They are designed to "further improve cost structure, power consumption, and radio performance, while supporting 5G eRedCap modem category to help customers future-proof the network's transition from 4G to 5G IoT". Revenue contributions from these advanced chips are anticipated in late 2027. The company also plans to sample its 5G RedCap platform, TORUS-LD, to early customers by year-end 2025, targeting high-bandwidth IoT applications such as cameras and edge routers with speeds exceeding 100 megabits per second.

This technological foresight is crucial for investors because it positions Sequans to capture the growing demand for future-proof cellular connectivity solutions as networks transition to pure 5G standalone deployments. Customers deploying long-lifecycle IoT devices, such as meters, are increasingly seeking eRedCap-capable solutions to ensure longevity, even if immediate 5G usage isn't required. Furthermore, the ACP acquisition also brought advanced RF transceiver chips, serving vertical markets like defense and public safety. An advanced 22-nanometer RF transceiver is already shipping to one customer, with broader commercial launch plans. Management projects this new product line could "generate, maybe $5 million" in 2026 and "do $10 million per year easily" in subsequent years, representing a significant new opportunity.

Financial Resilience and Growth Trajectory

Sequans' financial performance in recent periods reflects its strategic pivot and the positive impact of the Qualcomm transaction. For the full year 2024, total revenue increased 9% to $36.8 million from $33.6 million in 2023. Critically, the company achieved an IFRS operating profit of $69.5 million in 2024, a substantial improvement from an operating loss of $29.8 million in 2023, primarily driven by a $152.9 million gain from the Qualcomm transaction.

In the first quarter of 2025, Sequans reported total revenue of $8.1 million, slightly above the high end of its guidance. Product revenue reached $3.5 million, marking a 42% increase compared to Q1 2024, largely driven by the Monarch 2 rollout. Licensing and services revenue also grew 28% year-over-year to $4.5 million, including $3.9 million from the Qualcomm 5G TORUS license. While Q1 2025 saw a sequential decline in total revenue, attributed to the timing of Qualcomm license deliveries and product shipment variability, the underlying product growth remains robust. Gross margin in Q1 2025 was 64.5%, with product gross margin at 31%, reflecting a higher mix of module sales and initial, higher-cost Calliope 2 shipments. Management indicates that chip business gross margins typically hover around 50-55%, module business around 30-35%, and licensing/services around 70%.

The company is demonstrating disciplined financial management. Non-IFRS operating expenses in Q1 2025 declined to $11 million from $12.5 million in Q4 2024, even with the inclusion of ACP operating expenses. Sequans aims to reduce its cash operating expenses to below $10 million per quarter on average in 2025 and expects to lower its cash burn rate to below $5 million per quarter by the end of 2025 as revenue increases. This disciplined approach, combined with anticipated revenue growth, underpins the company's target to achieve operating income break-even in 2026.

Pipeline to Profitability: Converting Design Wins

A cornerstone of Sequans' investment thesis is its substantial and accelerating design-win pipeline. The company's total pipeline, encompassing both advanced customer engagements (design-ins) and secured design-wins, stands at approximately $480 million in potential revenue over the first three years of sales for each product. More than half of this, $250 million, is already in the design-win phase, with the remaining $230 million covering design-in projects.

In Q1 2025 alone, Sequans was awarded 90 new projects from six customers, including four new ones, representing over $10 million in expected annual revenue at full production. Some of these are "high-velocity targets" expected to contribute to revenue in 2026, with a few projects anticipated to generate revenue in less than 12 months. Currently, about 18 design-win projects are in production, contributing approximately 20% of the design-win revenue pipeline. This number is projected to grow to over 30 projects by the end of 2025, with around 50% of the design-win pipeline generating revenue, and most remaining projects expected to reach production by the end of 2026.

While smart metering projects, which account for over 50% of the current design-win pipeline, typically have longer times to revenue due to their complexity, Sequans is strategically focusing on high-velocity IoT market segments like security, fleet management, and asset tracking. These segments are expected to translate new project wins into revenue within two years, a faster turnaround than metering projects. This diversified approach to pipeline conversion is critical for accelerating revenue growth and achieving the 2026 break-even target.

Strategic Expansion: Licensing and Vertical Markets

Beyond its core product sales, Sequans is actively cultivating additional, high-margin revenue streams through strategic licensing and expansion into new vertical markets. The company expects to begin receiving royalty revenue from its Chinese partner, who licensed the 5G TORUS broadband platform, in 2026. This partnership could generate "a few million dollars" per year in royalties, providing an upside to current forecasts.

Furthermore, Sequans is engaged in discussions on three new strategic deals, all leveraging its 5G RedCap and eRedCap IP, with management anticipating the closure of "one or more of these deals by year-end 2025". This licensing strategy allows Sequans to address new market segments or regions through partnerships, securing new business opportunities with limited investment and generating incremental, high-margin licensing and service revenue. The company's extensive IP and product portfolio also enables it to offer advanced radio solutions for satellite communication, public safety, and defense, leveraging the RF chip opportunities acquired with ACP.

Capital Allocation and Shareholder Confidence

Sequans' commitment to long-term shareholder value is further underscored by its recently launched Bitcoin Treasury Program. In July 2025, the company acquired 370 bitcoin as part of a strategic plan to accumulate over 3,000 BTC, funded by equity and debt financing. This initiative reflects management's confidence in Bitcoin as a long-term store of value.

Adding to this sentiment, members of Sequans' Board of Directors have voluntarily reported recent open-market purchases of American Depositary Shares (ADS). These include Zvi Slonimsky purchasing 75,000 ADS on August 5, 2025, at an average price of $1.32 and an additional 110,000 ADS on August 25, 2025, at $0.93. Jason Cohenour purchased 50,000 ADS on September 12, 2025, at $0.95, and Wes Cummins purchased 200,000 ADS on the same day at $0.97. These insider purchases reflect the Board's confidence in both the Bitcoin-focused treasury strategy and the core cellular IoT semiconductor business.

From a liquidity standpoint, Sequans ended Q1 2025 with $45.9 million in cash and short-term deposits. The company anticipates finishing 2025 with over $25 million in cash and does not foresee the need for an equity raise in 2025 or 2026, supported by an expected $10 million escrow release from the Qualcomm deal by September 30, 2025, and approximately $5.5 million in government grants in the second half of 2025.

Risks and Challenges

While Sequans has made significant strides in its transformation, certain risks warrant investor attention. Macroeconomic conditions remain uncertain, and while the company is managing what it can control, broader economic headwinds could impact customer demand and project timelines. Additionally, potential new U.S. tariffs are being monitored, though no direct impact on Sequans' business has been observed to date. The successful conversion of the extensive design-win pipeline into revenue, particularly the transition of metering projects from pilot to mass production, remains a critical operational challenge that could influence the pace of revenue growth.

Conclusion

Sequans Communications stands at a compelling inflection point, having successfully navigated a period of significant transformation to emerge as a financially stable and technologically advanced player in the cellular IoT market. The strategic Qualcomm transaction has not only fortified its balance sheet but also sharpened its focus on next-generation 5G RedCap and eRedCap solutions, where it aims for a first-to-market advantage. With a robust $480 million pipeline, a clear roadmap for converting design wins into product revenue, and expanding opportunities in high-margin licensing and vertical markets, Sequans is well-positioned for sustained growth.

The company's unique competitive standing as a non-Chinese provider, coupled with its disciplined financial management targeting operating income break-even by 2026, underpins a strong investment thesis. While macroeconomic uncertainties and the complexities of project ramp-ups present ongoing challenges, Sequans' technological leadership, diversified revenue strategy, and demonstrated commitment to shareholder value, as evidenced by its Bitcoin treasury program and insider purchases, suggest a promising trajectory for long-term value creation. The company's ability to execute on its 5G roadmap and convert its substantial pipeline will be key determinants of its future success in the evolving IoT landscape.