Why Tekna Should Be Viewed As An AI Play
Tekna is a world-leading provider of advanced materials and plasma systems. Tekna has developed an IP-protected plasma technology that can transform metal materials such as titanium, aluminum, nickel and silicon into extremely fine powders, which are used in mega secular growth applications, such as 3D printing, consumer electronics, medical implants and aerospace. The company was founded in 1990 and is headquartered in Sherbrooke, Canada. Tekna is traded on the Oslo Exchange under ticker TEKNA:NO.
AI To Drive Massive Apple Product Cycle: Over the last couple of weeks, multiple different stories have emerged around Apple’s AI initiatives where they are planning to take a split approach relying on cloud infrastructure (potential partnership with Google’s Gemini) for some features and running other AI features completely on device or commonly known as edge AI computing. We believe to accommodate these on-device AI applications, consumers will need iPhones with much higher compute power that are NOT currently incorporated in most iPhones available today. For example, Apple is rumored to be in talks to implement Baidu's AI solution in China, but highlighted this will only be available in iPhone 16. In turn, we believe AI will ignite a robust iPhone upgrade cycle and demand for these next gen iPhones and other Apple devices. In 2023, we believe Tekna was one of two suppliers providing Apple with titanium for the casing on the iPhone 15 Pro and Pro Max, as well as the digital crown, side button and action button on the Apple Watch Ultra (see below). We expect Apple to continue to adopt titanium into an increasing number of new iPhones, wearables, and other devices in the coming years. Although titanium powder has no impact on the AI functionality of the device, we expect AI to drive meaningful demand for these new products which will positively impact Tekna.Â
Source: Tekna 3Q23 Earnings Presentation
So how big could Apple be for Tekna? In 2023, Tekna received 2 orders totaling 4.6M CAD or ~50 tons of titanium from a leading consumer electronics company (aka Apple). Based on this article from Benziga (here), there is an estimated ~18 grams of titanium per iPhone 15 Pro casing. Given there is ~907k grams per ton, we estimate Tekna supplied Apple with enough titanium for ~2.5M iPhones. Keep in mind the 15 Pro is smaller than the 15 Pro Max, which likely requires more titanium and we believe some of this titanium was used in the Apple Watch Utra. However, Apple sold ~235M iPhones in 2023. Although Apple’s second titanium supplier was likely supplying a higher portion of the titanium, we believe there is incredible upside for Tekna, which only generated 40.8M CAD in total revenues in 2023. Last year on Tekna’s Q3 earnings call, Management highlighted their large consumer electronics customer (aka Apple) had indicated the need for 2,500 tons of titanium over the next 5 years.
Don’t Forget About Samsung: While upbeat about the opportunity with Apple’s AI upgrade cycle, we believe the same could play out for other smartphone OEMs. On the 4Q23 earnings call, we were very encouraged to hear that Tekna has secured a second win with another mega consumer electronics OEM, which we believe is Samsung. Samsung announced late last year that their Galaxy S24 Series will be using a frame case made out of titanium. We expect Samsung to emphasize AI features in upcoming devices, which will drive a similar product cycle for Android users.Â
Our latest financial model and key takeaways from Tekna’s 4Q23 earnings call can be seen here.
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