Earnings Call Transcript - ATOM Q3 2021

Mike Bishop, Investor Relations

Hello, everyone, and welcome to Atomera's Third Quarter Fiscal Year 2021 Update Call. I'd like to remind everyone that this call and webinar are being recorded, and a replay will be available on Atomera's IR website for one year. I'm Mike Bishop with the company's Investor Relations. As in prior quarters, we’re using Zoom and we will follow a similar format with participants in a listen-only mode. We will open up with prepared comments from Scott Bibaud, Atomera's President and CEO; and Frank Laurencio, Atomera's CFO. Then we will open the call to questions. If you are joining by telephone, you may follow a slide presentation to accompany our remarks on the Events and Presentations section of our Investor Relations page on our website. Before we begin, I would like to remind everyone that during today's call, we will make forward-looking statements. These forward-looking statements, whether in prepared remarks or during the Q&A session, are subject to inherent risks and uncertainties. These risks and uncertainties are detailed in the Risk Factors section of our filings with the Securities and Exchange Commission, specifically in the company's annual report on Form 10-K filed with the SEC on February 19, 2021. Except as otherwise required by Federal Securities Laws, Atomera disclaims any obligation to update or make revisions to such forward-looking statements contained herein or elsewhere to reflect changes in expectations with regards to those events, conditions, and circumstances. Also, please note that during this call, we will be discussing non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in today's press release, which is posted on our website. Now with that, I would like to turn the call over to our President and CEO, Scott Bibaud. Go ahead, Scott.

Scott Bibaud, President and CEO

Thanks Mike. Good afternoon and welcome everyone to our Q3 update call. The semiconductor industry is in a very unusual period, which we believe provides a tailwind for compelling new technologies and is creating the type of long-term opportunities that will benefit Atomera's MST technology and our licensing business model. So, before I go into the details of our last quarter, I'd like to take a few moments to share with you how the macro environment will affect Atomera's strategy. Much has been made of the acute supply shortages plaguing our industry, particularly in automotive components. In reality, these challenges cut across the spectrum of electronic products and most predictions are that those shortages continue at least into 2022. As a result, fabs have been focused on solving near-term capacity constraints rather than executing on product costs and performance improvements. Of course, they understand that when times change, they'll need to react quickly with new technology, not only to help avoid a repeat of this situation in the future, but also to maintain or grow market share and protect profit margins as supply normalizes. In a dramatic departure from industry norms, foundries are announcing wafer price increases. Suppliers are demanding 12 months non-cancelable orders, and those with the capacity are stealing share from those without, leading to record industry revenues and profitability. Supplier power is at its peak. The total IC market is forecast to grow 24% this year alone. So, our customers have built up significant cash reserves to invest in their future. The semiconductor industry is also being affected by geopolitical forces like never before. U.S.-China trade tensions are driving governments around the world to look at building or shoring up self-sufficient semiconductor infrastructure to enhance their own security. The result of those three unusual macro factors is an unprecedented upcoming period of CapEx growth. It seems that every week we hear more announcements of new fabs and higher CapEx forecasts from the big industry players, including TSMC, Samsung, Intel, TI, Sony, UMC, ST, Renaissance, and Infineon. According to IC Insights, industry CapEx growth in the next five years will be 60% higher than the last five years. So how does all this affect Atomera? Well, clearly, we will benefit from the focus on R&D from companies flush with resources. Big CapEx budgets offer the best opportunity to adopt MST for production since it's easier to add MST deposition tools to a new fab than to squeeze them into a legacy fab that may be running out of floor space. Those focused on the bleeding edge have the money to investigate how MST can help them bring the newest nodes to market faster. Some market players are spending big to add capacity and legacy nodes. But they have to be sure that when they build those new fabs, they can fill them, and MST will allow them to differentiate, grow market share, and drive higher volumes, which will certainly help. For the intermediate players who don't have the resources to build giant fabs, they will be looking at a strategy of high-volume specialty processes and what might otherwise be commoditized nodes, a perfect fit with what MST can deliver to their product portfolio. Finally, some parts of the industry are in a CapEx arms race, that requires they spend at least at parity with their competitors. For them, the path to winning will involve better manufacturing efficiencies, higher yield, and better performance—all places where MST can add value. It's clear that our potential customers also see these opportunities with MST and want to take advantage. In summary, we see the industry entering into a massive round of investment, which we expect will benefit MST in many ways. Consistent with much of the pandemic, our customer pipeline is unchanged. As we said in the past, some of our customers have been so distracted by managing this supply shortage that we've experienced slow down our progress, especially at foundry partners. Whereas some of our other customers, especially IBM partners, seem to be more consistently staying on track and even looking at ways to allocate more resources to MST despite their supply constraints. For the first time in more than a year, we've been able to get out on the road, see customers at their facilities, and have the type of detailed discussions necessary to generate new business. I'm pleased to tell you that every single one of our customer visits over the last quarter was positive and was focused on either advancing existing work or starting new engagements. For many of our customers who are in the thick of the capacity crisis, the focus is on starting work with MST early, even before we can get access to R&D wafer runs, by designing with MSTcad, doing early Epi deposition work, and planning the details of future wafer runs. So we are well-positioned to slingshot into product development as soon as the shortage period subsides. Work with our JDA partner is well underway with strong progress being made towards the objectives set out at the beginning of the JDA. In particular, a partner has been depositing high-quality MST on wafers built in their fab and conducting tests called out in the JDA. In addition, our pipeline of potential new JDAs has expanded this past quarter beyond what we were working on in Q2. The reason why we are seeing expanded JDA opportunities is because of the very compelling data we can show customers in our key technology focus areas. In the last quarter, Atomera has met with a lot of potential customers about MST SP and its use in viable power devices. Almost universally, the feedback is that we are reaching performance levels that are the best available in the industry. But it's important for our customers and investors to understand that MST SP is just an example of how MST can both be applied to almost any technology node or application area to achieve significant performance advantages. Many of our customers absorb the data in these meetings and start investigating whether they can use MST to enhance other critical product areas. Of course, our team is always very enthusiastic about helping them take on those challenges. During our travels, we were also able to verify that the breakthrough performance we've identified using MST on RF-SOI wafers is indeed solving an intractable industry problem. For the first time this quarter, we've been able to show our own measured data to potential customers for proving that using MST on RF-SOI wafers will provide significantly higher performance, enabling more advanced and efficient implementations of the next generation of 5G cellular RF chips. We have also continued to work internally and with customers on the use of MST in the most advanced nodes. Even beyond our key technology focus areas, MST is exhibiting other technical benefits that will also provide a significant commercial opportunity. As an example, recently, we identified some additional high potential MST benefits for use on High-K metal gate products, which are used at 28-nanometers and in virtually all the FinFET and gate-all-around nodes. Atomera has been working with Professor Suman Datta's group at Notre Dame to verify the performance benefits for MST on gate last High-K metal gate devices. Professor Datta was previously recognized by Intel for the development of Intel's High-K metal gate process. A recent finding has shown that MST reduces stress induced leakage current or SILC, which is a key parameter in reliability improvement, reducing bias temperature instability. One of the known issues with High-K metal gate is that bias temperature instability limits the tolerance for voltage overdrive and hence the current of High-K metal gate CMOS devices. This new discovery of a two to three times reduction in stress induced leakage current is on top of the already demonstrated benefits of MST and High-K metal gate devices, namely 23% higher electromobility and up to a 2.7 times lower gate leakage. So manufacturing using MST and High-K metal gate devices can see significantly improved performance by higher electromobility and by using overdrive on their circuits without impairing reliability. All of this can be achieved while lowering the devices' power consumption through the improved gate leakage MST provides. Because this is brand new information, we're just starting to share it with potential customers today. As you know, Atomera has been working with a vendor to bring up a new 200 and 300 millimeter applied materials Centura Epi deposition tool in a state-of-the-art research facility. For most of the quarter, we've been successfully depositing MST film on both types of wafers and in parallel have been in discussions with the vendor concerning expectations of ongoing quality levels enabled by the addition of some further equipment. I'm pleased to let you know that as of this week we have finalized our agreement and have taken formal acceptance of the tool. Therefore, this month we'll be able to commence delivering MST wafers to customers in addition to conducting the development work on 300 millimeter wafers necessary to support efforts in the most advanced nodes. We are very excited to have this new state-of-the-art Epi tool along with its sophisticated cleaning, inspection, and metrology equipment. There's no doubt that it will help us to develop a wider set of markets for MST technology and accelerate our turnaround time for customers and for internal R&D. Finally, I'd just like to point out the excellent progress being made by our team in building our patent portfolio. As of the end of Q3, we're now up to 298 patents issued and pending worldwide, which represents growth of over 20% year-on-year. Our portfolio comprehensively covers MST in method device and enabling architectures and is made more valuable by the fact that it is discoverable and therefore, defensible. The licensing life of our technology is also longer because in addition to our patents, we licensed know-how, which does not have an expiration date. In summary, this quarter, we have continued to make great technical progress, which we believe will be translated into licenses in the near future. As we found in our recent travels, face-to-face interactions accelerate the market to embrace MST. And as we get on the road more extensively, we are optimistic that we will continue to drive adoption by customers to meet the strategic imperatives coming out of today's capacity crunch. We are working with customers who are sitting on abundant cash resources, and we'll spend it on technologies that will give them a long-term competitive advantage providing a superb opportunity for them to adopt MST and propel it to broad penetration. Between the macro of this market and the micro of our technology, Atomera is positioned extremely well to take advantage of this remarkable period in the semiconductor market. Now, I'll turn the call over to Frank to review our financials.

Frank Laurencio, CFO

Thanks, Scott. At the close of the market today, we issued a press release announcing our third quarter 2021 results. This slide shows our summary financials, which I will discuss in more detail. Our GAAP net loss for the three months ended September 30th, 2021 was $4.2 million or $0.19 per share. In the third quarter of 2020, our GAAP net loss was $3.6 million, which was also $0.19 per share. Net loss per share was the same in both periods because our weighted average shares outstanding increased to 22.6 million in Q3, 2021 compared to 19.3 million in Q3, 2020. Sequentially, GAAP net loss increased to $4.2 million in Q3 from $3.7 million in Q2, reflecting a $424,000 quarter-on-quarter increase in operating expenses and $52,000 of interest expense in Q3. Net loss per share increased to $0.19 per share in Q3 compared to $0.17 in Q2 due to the higher net loss, while weighted average shares outstanding increased only slightly from 22.5 million to 22.6 million. At this point, I'd like to talk in a little bit more detail about the accounting and release of our new Epi tool, which as Scott said in his remarks, we have now officially accepted. Acceptance is a key term because none of the lease contract formal acceptance triggers our monthly payment obligation. Although we've been able to deposit MST using the new tool for several months now, we waited to tender our acceptance until we were comfortable that the supporting equipment around the tool could consistently ensure high quality wafers for delivery to customers even at the more advanced nodes. The lease has a five-year term and is considered a finance lease under GAAP, which means we account for it like an asset purchased with vendor financing. We recognize both amortization and interest expense. The amortization, which is recognized in R&D expense, will be a constant $319,000 per quarter for the term of the lease. The cash payments on the lease are a fixed $150,000 per month or $450,000 per quarter. But over the term of the lease, the mix between paying down principal and interest will change, with the interest portion declining each month. Total Operating Expenses went up by $557,000 in Q3, 2021 as compared to Q3 of 2020. G&A increased by $315,000 between those periods, mainly due to higher legal expenses for patent filings and higher directors and officers insurance fees. R&D expense increased by $182,000, primarily due to $212,000 of amortization expense in Q3 related to the tools. Sales and marketing expenses were $267,000 in Q3 of 2021, an increase of less than $100,000 over the same period in 2020. Comparing expenses in Q3 over Q2 of 2021, R&D expenses of $2.2 million in Q3 were up by $163,000 over Q2, also reflecting the amortization expense from tools. G&A expense increased by $131,000 quarter-over-quarter due to the timing of IP legal expenses. And finally, sales and marketing increased by $130,000 sequentially due to bringing on board a new SVP of Marketing and Business Development and retaining a new PR firm. Our press release and this slide contained a reconciliation between GAAP and non-GAAP results. But one item I'd like to point out is that while we exclude the interest expense on the tool lease from our non-GAAP loss, we don't back out the amortization expense associated with the lease. Non-GAAP net loss in Q3, 2021 was $3.4 million compared to $2.7 million in Q3 of 2020, reflecting a $606,000 increase in non-GAAP operating expenses. In Q2 of 2021, non-GAAP loss was $2.9 million. Lastly, stock compensation expense, which is non-cash and continues to be the biggest difference between GAAP and non-GAAP results, was $756,000 in Q3 of 2021, $847,000 in Q2 of this year, and $829,000 in Q3 of 2020. Cash balance at September 30th, 2021 was $31.8 million compared to $34.3 million at June 30th. The $2.5 million decline reflects $2.8 million of cash used in operating activities, offset by cash inflow of $241,000 from financing activities. As of September 30th, 2021, we had 23.2 million shares outstanding. As Scott mentioned in his remarks, we're optimistic about the progress we're making with our first JDA customer, and we see a bigger pipeline of new JDAs that could help accelerate commercialization of MST-enabled products. For the ongoing JDA, we continue to expect to reach the milestones remaining in that contract in the next several quarters, but we cannot give guidance on the amount or timing of revenue recognition from those milestones. So, our guidance is for zero revenue in Q4. Consistent with past practice, we are not providing revenue guidance beyond the current quarter. Our operating expenses through the first three quarters of this year totaled $9.5 million. So I'm comfortable saying that we expect our full year of non-GAAP operating expenses will come in toward the lower end of the guidance range of $13.25 million to $13.75 million. In our next earnings call, I will provide more specific color on our 2022 spending plans. But over the coming year, we are expecting to increase our R&D expenses as we add engineering headcount, and our marketing expenses will go up as we continue to expand our efforts with fabless customers. With that, I will turn the call back over to Scott for a few summary remarks before we open the call up for questions.

Scott Bibaud, President and CEO

Thanks, Frank. I'm glad we were able to share with you the highlights of this last quarter. As we get out on the road, it's clear that our customers appreciate both the benefits of MST and our engineering execution to showcase its potential. We believe customers will take advantage of the upcoming industry investment cycle to incorporate Atomera's technology and expand their competitive advantage in the market. Our team is excited to support this challenge and the resultant licenses will establish Atomera as a leader in the semiconductor industry. Mike, we will now take questions.

Operator, Operator

Thank you.

Mike Bishop, Investor Relations

Thank you, Scott. If you wish to ask a question, please click on the Q&A button and type in a question, and we will attempt to answer as many as we can. Alternatively, you can click the raise of hand button and we'll call on you live. Right now, our first question comes from Richard Shannon of Craig-Hallum. Richard?

Richard Shannon, Analyst

Thanks, Mike. I appreciate Scott and Frank as well. There are many topics to discuss, Scott. To start, I would like to ask about your expanded pipeline in JDAs. From the graph, I noticed that there hasn’t been any change in the profile of engagements. It seems you're bringing in customers who were previously in the pipeline into JDA. Can you explain what is driving this, whether it's due to applications or other factors that have created this situation?

Scott Bibaud, President and CEO

Yeah. I think the reason why we're seeing more expanded JDAs is based on those two key technologies I was talking about with the RF-SOI and the MST SP. And what we're seeing is customers who are interested and starting to do work on that ahead of this capacity crunch ending. And so, we have to structure kind of a program that includes some TCAD, includes some joint R&D work upfront, and then to be ready for when wafers will become available for us to start moving forward. At least one of our JDAs is also with customers who we believe can run wafers much more quickly than others. Because as I mentioned in my remarks, I would say this isn't a perfect statement, but I would say the foundries are more impacted by the capacity constraints than some of the IDMs. And so some of the IDMs have a little more ability to continue to run R&D wafers today even in the capacity crunch.

Richard Shannon, Analyst

That's helpful, Scott. Maybe just kind of quick detail on the topic of these new JDAs and the pipeline here. Are these customers that are like in Phase 3 or Phase 1, or kind of a mix, how would you characterize where they are as a whole?

Scott Bibaud, President and CEO

Well, some are in Phase 3, some are in Phase 1. We have some discussions with other people that we hope will turn into JDAs that aren't in Phase 1 yet.

Richard Shannon, Analyst

Okay. Great. That's helpful perspective. Let's see here, with your current JDA partner, I think you've given some timeframes that you generally expect to see them move to Phase 5 and then eventually Phase 6 how much you know, and have seen so far in the past quarter, those timeframes still fit.

Scott Bibaud, President and CEO

Remember the timeframe for the JDA from last quarter. I provided some insights about Phase 4, which is being managed by a central engineering team within the company. They will then transmit the technology to other groups that need to carry out some integration work at a Phase 3 level before advancing to Phase 5 for production. The timing is somewhat challenging to predict, but once they enter Phase 5, we believe the timeline will become clearer. It’s approximately nine months until they reach volume production.

Richard Shannon, Analyst

Okay. That is helpful. You've talked a little about the activity in advanced nodes. The paper you published was interesting, although it was a bit complex for me. In the last two conference calls, you've noted some progress in this area. With the recent earnings releases and analyst events from fabless suppliers and equipment makers, there seems to be a lot of discussion in the industry. Could you elaborate on how your technology applies to these approaches, such as extended FinFETs versus gate-all-around nanowires? It would also be helpful to understand where you don't see your technology fitting in.

Scott Bibaud, President and CEO

I think our paper hinted at this, and we are presenting much more to potential customers with the most advanced nodes. We believe that MST offers significant advantages for both FinFETs and gate-all-around structures due to its dopant diffusion blocking capabilities, which become increasingly important at smaller process nodes. Additionally, there are several other aspects we believe can aid in constructing gate-all-around and FinFET devices. Unfortunately, we cannot create our own FinFET devices to validate these claims due to the high costs involved. Our goal is to collaborate with one or two leading suppliers, but when we obtain data from these partnerships, the suppliers likely won’t permit us to share it with the industry or investors, as they consider it proprietary information. Therefore, we must speak at a very high level for now without providing many specifics.

Richard Shannon, Analyst

Okay. Regarding customers, it's important to note that there are essentially only three companies capable of investing at the forefront of technology. Are we essentially looking at a customer base limited to those three companies, or do we also engage with fabless companies that want to collaborate with those foundries? How should we evaluate the potential customer base?

Scott Bibaud, President and CEO

Yeah. So, far we haven't really worked with fabless guys in that area, but we're trying to work with those top three, obviously, without giving any details about who we are working with. But also I would say we see the memory makers as other folks who're not necessarily making gate-all-around or FinFETs, but they are making very advanced architectures to try to move to the next level of memory technology. And we also see a really great viability for MST there.

Richard Shannon, Analyst

That's a great perspective. I have two last quick questions before I step back and see if there are other questions. Scott, you've mentioned this isn't just a single conference call, but do you genuinely believe that when you start production, you will likely be aligned with a new fabrication process and node? Or is there a chance you might begin with an existing node, and if so, which one would come first? We're very keen on the first one that successfully completes the process. What are your thoughts on that?

Scott Bibaud, President and CEO

I would say, and I think I've said in the past, we're doing a lot of work on RF-SOI and on the power products, they tend to be in older nodes and we definitely could intersect one of those in an existing fab. Or what's interesting about some of the CapEx growth that I talked about is that a lot of those players have announced they're adding a lot of capacity into those older nodes. And obviously, it's very easy to throw in an extra Epi tool when you're building a $2.5 billion fab out there, that would be able to implement MST. So, we see great opportunity with existing fabs and with the buildout of the newer ones that people are talking about.

Richard Shannon, Analyst

That's helpful. Last question from me, I'll step out of line. Scott, I've asked you this question before, at least once in the last few years. I'm curious about the various activities that IDMs and fabless companies are pursuing to improve cost performance and power efficiency. They've been making advancements through their internal R&D teams, equipment providers, and industry groups. How do you gauge where you stand in relation to all the other initiatives underway, and how confident are you that the companies you are working with, especially the JDA customer at Phase 4, will consider MST as part of their future plans?

Scott Bibaud, President and CEO

Yeah. It's a great question, because every one of these big companies has got a big pipeline of R&D things that they're working on and where do we fit with those? And I can only say that the fact that we continue to get new engagements and new wafer runs with those guys says that they consider us in the top tier of R&D projects they would consider. It's very normal for kind of a CTO office to be looking at 30 potential things they can do in the next year. And maybe they're only going to fund the top 10 or the top eight, but in many cases, we find that we're among those top eight or 10. It's not true in all cases. And we believe that in the cases that we aren't included in the top 10, it's because the customer doesn't quite understand exactly how much benefit that we can bring to them. And we hope that we can help sell it to them more effectively.

Richard Shannon, Analyst

Okay. That's excellent perspective. Thanks for that. All that detail, Scott, I will jump out of the line. Thank you.

Mike Bishop, Investor Relations

Okay. Hey, thanks Richard for the questions. We have a number of questions coming in, on the Q&A window here. And so, I'll just go ahead and summarize them. A number of the questions are obviously overlapping from the audience here. So, I'll just categorize them and ask a few. The first question with the buildout of a number of fabs industry wide, does that buildout will it hurt Atomera because once those are all active, the supply of semiconductors will greatly increase. So the question is, what's the impact to Atomera once the fab build out? Is this underway?

Scott Bibaud, President and CEO

I believe this presents a significant opportunity for us. Looking back at the semiconductor industry, especially during the 1990s and early 2000s, we saw frequent boom and bust cycles where many fabs were built simultaneously, leading to excess capacity and a notable decline in profitability for many companies. We might see a similar scenario unfolding in the future, as discussed in various articles. When a company builds a fab and struggles to fill it, their primary goal becomes maximizing capacity utilization, which is crucial given the high operating costs. They might respond by lowering prices to sell quicker, which could lead to opportunities for us. For instance, MST could assist in manufacturing certain products, such as power management chips, allowing firms to reduce size and costs significantly. This scenario could favor those with expanded wafer capacity, while competitors will need to find ways to differentiate themselves to gain market share. As we analyze what happens after the fabs are built, numerous opportunities for MST emerge. We're actively engaging with customers, and they recognize these trends, expressing a desire to collaborate with us sooner rather than later.

Mike Bishop, Investor Relations

Great. A number of questions here. We put out a blog a while back on hiring a PR firm, and folks are wondering what the motivation there for hiring a PR firm.

Scott Bibaud, President and CEO

Okay. Yeah. Great question. So as you know, we brought on a new Head of Marketing. He has lots of great ideas about how we expand our reach. One of the things that we're going to be trying to do, especially with these new technologies, like MST SP and RF-SOI is to more aggressively expand our reach beyond foundries and IDMs to the fabless players. Now, when you're talking about foundries and IDMs, you're probably talking about really 50 or 60 customers who really matter. So, it's an amount of people that with our team here, we can get our hands around and we know, but when you start adding in fabless customers, there's probably hundreds, hundreds more that you need to be concerned with. So one of the ways to get our word out to them is to start doing it through targeted media advertising, like with trade journals. And so that's one of the reasons that we brought on the PR firm. And I know that we brought them on in August and you haven't seen much from them yet, but I can tell you that they're working on things and you'll start to see much more activity from us in the near future.

Mike Bishop, Investor Relations

Thanks, Scott. We have received several questions regarding the timeline. Specifically, there are inquiries about the duration until Phase 5 and when we can expect to see royalties. Could you provide an overview of your anticipated timeline for both the production rollout of the JDA and the timing for the royalty phase?

Scott Bibaud, President and CEO

It's tough to predict exact timelines, and we prefer not to provide specific forecasts. However, I can share my best estimate. Regarding the JDA customer, they've successfully installed the technology in their factory, which is a significant advancement that will speed up operations. Once they finish with the JDA, they will inform other divisions within the company, allowing them to begin working with MST. Those teams will need to integrate MST into their products, which we view as a Phase 3 task. Fortunately, they can skip Phase 4 since that part is complete, moving directly to Phase 5 and then to production. The adoption and integration timeline for their products could be shorter than in the past since they now have the necessary tools in their facility, enabling rapid wafer production and experimentation. However, it's difficult to determine an exact timeframe until the JDA concludes and we see which divisions adopt the technology and the level of integration required. Ideally, it could take around nine months for the Phase 3 integration before moving to production qualification, but it might take longer. I can't provide a definitive answer.

Mike Bishop, Investor Relations

Okay. And then a question that just came in. With more customers moving phases, do you expect newer customers to move along faster, or is every customer unique on how they progress?

Scott Bibaud, President and CEO

Yeah. So every customer is certainly unique, but let me just say this one interesting phenomenon that's happening. I've talked about it in the prepared remarks. We're engaging with a lot of customers today, who want to do development work with us, but they can't get R&D wafer, so what they're doing is they're saying, okay, let's do a bunch of TCAD and then do whatever we can without a lot of wafers. And then, so the day that we get wafers, we have everything ready to go really fast towards product development and hopefully getting to production quickly. Now, the way that we've defined Phase 1 and Phase 2 and Phase 3, people who are doing that type of work, won't really progress. They won't look like they're progressing through those phases very fast, because Phase 2 is about processing wafers and Phase 3 is about processing more wafers. So even though we're doing a lot of work, it'll look like they're still in Phase 1. We haven't figured out how to give insight to our investors in that yet, but we'll try to do what we can in upcoming calls to give you more insight to where we're doing more of that early, technical work.

Mike Bishop, Investor Relations

Okay. After a customer enters the royalty phase, we received a question about how many years you expect the royalty stream to last.

Scott Bibaud, President and CEO

We believe that the royalty stream will be ongoing indefinitely. However, it’s likely that discussions will lead to a shorter timeframe. I anticipate that we will agree on a duration where we receive royalties for quite some time—maybe eight, nine, or even ten years or more. Considering the approach of ARM, there generally isn't an endpoint to the royalties as long as the device is in production. They typically negotiate licenses on an individual basis with customers, but in most situations, they continue to receive royalties as long as the chip is manufactured. This is the model we envision for our royalties as well.

Mike Bishop, Investor Relations

Okay. So, a question is that we referred to three areas for MST and MST SP, RF-SOI and advanced nodes. How much of the $450 billion market in percentage terms, do you think that these three areas cover?

Scott Bibaud, President and CEO

RF-SOI is a relatively small segment, but it’s experiencing rapid growth. Just three or four years ago, it wasn't a significant factor, but it has become very important, particularly in RF products. You can check Soitec, which is the primary supplier of those SOI wafers, for data on their revenue growth in this area. The MST SP market is enormous. While I don't have the exact figure off the top of my head, it’s in the range of several hundred billion dollars annually. There was an article in the Wall Street Journal today that mentioned ongoing supply shortages in this industry, highlighting power management chips as one product in short supply, which is precisely what MST SP aims to address. This would enable the production of higher performance power management chips at much larger volumes due to potential scaling with MST SP. From a financial standpoint, the leading edge is the most lucrative part of the industry. Although the wafer count isn’t as high, the selling price of each wafer is substantial, resulting in significant royalty opportunities. Overall, we are discussing very large teams and a significant market.

Mike Bishop, Investor Relations

Okay. Well, I think we covered most of the ground that was asked in the questions. So, I'll turn it back to you for closing comments.

Scott Bibaud, President and CEO

Well, okay. Great. I want to thank you all for attending today's presentation. We're very pleased to be able to share with you the results of the last three months and to provide a sense of the excitement we feel inside Atomera. Please continue to look for our news, articles, and blog posts to keep you up to date on our progress. You can sign up for them along with investor alerts on our website at atomera.com. We look forward to seeing some of you during our scheduled marketing activities, including the Craig-Hallum Alpha Select conference in November and the Needham Growth conference in January. Should you have additional questions, please contact Mike Bishop who will be happy to follow up. Thank you again for your support, and we look forward to our next update call.

Mike Bishop, Investor Relations

Thank you. And this concludes Atomera's third quarter fiscal 2021 conference call. Have a good evening.