|I queried Sequans IR based on a heads up from frmrVZguy.|
Hi Gary, Probably simplest to copy the comment from an analyst on this topic. The impact to Sequans seems modest. See below
Battery Issue Drives Jetpack Recall
Reason for Report:
Verizon announced a voluntary recall off up to 2.5M Ellipsis Jetpack mobile hotspots related to a lithium ion battery issue which has resulted in overheating devices. While a software patch has mitigated near-term concerns, Verizon will work with customers to exchange Jetpacks for an Orbic Speed device. As a low-end device, most of these units were used to service the booming distance learning market in 2020, in our opinion. We believe impacted parties include the manufacturer of the Jetpack device Franklin Wireless (FKWL-NC), baseband supplier Sequans (SQNS-Buy), and Inseego (INSG-Neutral) who could see some overflow replacement demand in the current quarter. Importantly, SQNS bears no responsibility in the faulty device and we estimate current 2Q21 Jetpack related sales in the range of ~$1M.
Battery issue related to recall: Yesterday, Verizon announced a voluntary recall up to 2.5M Ellipsis Jetpack mobile hotspots shipped over the 2017-2021 time period (roughly 1.3M still in active service). Apparently, a faulty lithium ion battery has resulted in overheating, posing a fire and burn hazard. This occurs when the device remains plugged in while operational for an extended period of time. A software upgrade has mitigated the near-term risk, but Verizon has indicated plans to exchange Ellipsis devices with a similar low-end Orbic Speed hotspot. We note that much of the 2020 demand for this product had been driven by work from home (WFH) and distance learning initiatives precipitated by the COVID pandemic.Impacted parties: Impacted vendors from this recall include the device OEM, vendors within its supply chain, and potential replacement device OEMs as beneficiaries.Franklin Wireless: Franklin Wireless is the manufacturer of the Ellipsis Jetpack MobileHotspot. Again, the current issue appears to be related to a lithium ion battery overheating with extended use while plugged into an outlet. It is not clear if Franklin Wireless will provide replacement units. However, initial communications have indicated that the Jetpack device will be replaced by a similar model from private supplier Orbic. It is unclear if other low-end Franklin devices supplied to T-Mobile have been similarly impacted.
Sequans: Sequans is the baseband supplier to FKWL. We estimate that 2Q21 sales to FKWL for Verizon are ~$1M+ (Note: We estimate that sales via this channel peaked at $4-5M in the 3-4Q time frame). Importantly, after a huge run related to distance learning initiatives in 2020, our model reflects a return to more normalized levels going forward. Additionally, SQNS bears no responsibility related to the overheating issue. Furthermore, rapidly increasingly demand (sales pipeline and design wins) grew 20% from early Jan to mid-March is driven entirely by massive IoT demand (Cat M, Cat 1. Design wins up from $200M to $246M), not legacy Broadband.Inseego: While Verizon has specifically named Orbic as the device replacement for the Ellipsis Jetpack, we believe overflow volume could go to Inseego who offers a higher-end LTE mobile hotspot certified on the Verizon network.