The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK version of the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

28 March 2024

ETHERNITY NETWORKS LTD

("Ethernity" or the "Company")

Business update

Ethernity Networks (AIM: ENET.L, OTCMKTS: ENETF), a leading supplier of networking processing semiconductor technology ported on field programmable gate arrays ("FPGA") for virtualised networking appliances, announces a business update.

In the year to date, the Company has had positive engagement with a number of potential new customers, including two OEM vendors which, following an extensive evaluation of Ethernity's Universal Edge Platform ("UEP") have indicated an interest to adopt and launch the product to their customer base and the Company is in negotiations with these two vendors on potential contracts that could lead to significant business for Ethernity. In addition, two further OEM vendors have indicated an interest to contract the Company for delivery of a UEP based design.

Based on the scopes of work being discussed with these potential new customers, should they lead to contracts, they could contribute between $2.2 million and $3 million to the Company's revenues in 2024. Given the commitment of each customer to adopt the products, this would likely lead to significantly higher revenues in 2025 and beyond. Whilst there can be no guarantee that the discussions summarised above will all lead to contracts at all or on the terms currently being discussed, the Board considers that this significant interest in the Company's products demonstrates the potential for future growth in sales of a complete system offering combining Ethernity's chip and software stack that is expected to be the main driver of the future growth of the Company.

Ethernity's products are available to OEM vendors either via the sale of complete systems or through the licencing of the Company's IP. The preferred business model is defined by the customer, depending on whether it is looking for a complete product or would like to embed Ethernity's technology within its own product, resulting in one of the two following revenue models:

System sales

In this business model Ethernity sells a complete UEP product. The typical product sales price ranges from $500 to $1,600, depending on the specific ordering options. Some variants are equipped with Ethernity's Carrier Ethernet engine (and optional bonding). Other product variants provide PON/XGS-PON OLT with optional Carrier Ethernet Switching capabilities, where such engagement requires a volume commitment from the customer and includes non-recurring engineering ("NRE") costs to allow Ethernity to support integration of the complete product within the customer's management platform.

Licensing model

In this business model, Ethernity customizes the ENET engine to fit into the customer's product and preferred FPGA. The customer pays a one time, milestone based NRE, and enters into a license agreement for the use of Ethernity's code in its product under one of two licensing options: either the customer buys the FPGA hardware from Ethernity (which comes with integrated Ethernity code); or the customer sources the FPGA itself, and pays a royalty to Ethernity for using the ENET FPGA code (with the size of such royalty depending on the OEM deal size). 

Ethernity is offering to its customers a path to significantly reduce their costs by converting the FPGA into a significantly lower cost and higher performance eASIC. Customers typically start with an FPGA and when annual volumes get to 10,000 units, converting to eASIC becomes a viable financial alternative. By opting for this alternative, the Company estimates that the OEM company will be able to reduce its product cost by up to 50%, allowing the vendor to be more competitive and take more market share. At the same time, the higher production volumes enable Ethernity to enjoy higher gross margins for the complete product.

David Levi, CEO, commented: "Ethernity is seeing promising progress with current OEM vendor engagements, including several new ones. Such OEMs value Ethernity's Programmable UEP, based on our semiconductor technology for Ethernet Access and Passive Optical Network (PON) fibre access technology. Ethernity's Technology is offered to its OEM customers via various business models from IP licensing, conversion to eASIC or ASIC, through to delivery of a complete customised system."    

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About Ethernity (www.ethernitynet.com)

Ethernity Networks (AIM: ENET.L, OTCMKTS: ENETF) provides innovative, comprehensive networking and security solutions on programmable hardware for accelerating telco/cloud networks. Ethernity's semiconductor logic offers complete Carrier Ethernet Switch Router data plane processing and control software with a rich set of networking features, robust security, and a wide range of virtual function accelerations to optimize telecommunications networks. Ethernity's complete solutions quickly adapt to customers' changing needs, improving time-to-market, and facilitating the deployment of 5G, edge computing, and NFV.