If you have been following the Uni-Pixel (UNXL) story, you know management has implied they will ramp up production of UniBoss from nothing to 1,000,000 square feet (or units) per month of electrolessly-plated grids made of 5 micron copper wire. You can also do the math that this translates into revenue going from zero to $20 million per month based on management's $20 ft2 price point. Partly as a result of management projections, the stock has rocketed from 6 to a current price of 17 over the last three months. Assuming an average sales of 500,000 square foot per month in 2013, earnings will be $120 million, or roughly $2 in after tax earnings per share. This EPS estimate makes the stock look cheap even given the recent price rise, if one believes the projections.
But could the projections perhaps be too good to be true? Independent market data bring to mind the old adage that if something sounds too good to be true, it probably is.
What is UniBoss?
If you have followed the Uni-Pixel story like I have, you might believe, as I did, that UniBoss is a touch sensor. But UniBoss is not a touch sensor. If you refer to the company's latest annual report, you will see that UniBoss is a "manufacturing process for high volume roll-to-roll printing of flexible thin-film conductor patterns." UniBoss is a metal grid, not a touch sensor. Uni-Pixel must deliver these metal grids to OEMs to be made into touch sensors. To convert this conductive grid into the touch sensor, the OEM must, for example, laminate the transparent conductor to a protective cover glass or film with optically clear adhesive, and connect the input and output buss with conductive paste. These manufacturing processes must be done in a clean room, which makes them fairly expensive. According to a leading capacitive touchscreen manufacturer, touch international, "one of the most important cost drivers in touchscreen design is the border area," which contains the 40 or more electrical connections to the touchscreen. I've included a picture of a cross section of a capacitive sensor from a patent to give the reader an understanding of its greater complexity relative to a metal grid.
Why is this distinction between a patterned grid and touch sensor important? Because the price of the patterned transparent conductor is a fraction of the price of the touch sensor. This means that the market size for UniBoss is a fraction of what has been implied by the focus on touch sensor market data.
What is the size of the market for UniBoss in square feet?
To size the market for UniBoss, I started with a report that in turn took its information from display bank. This report estimates total touchscreen panel revenue will be $8 billion in 2013. But UniBoss is not a touchscreen, and it is not a touch sensor, it is a patterned metal grid. To start to get at the market for UniBoss, let's focus on the area of touchscreens that goes into "smartbooks," i.e., tablets & e-readers. I focus on smartbooks at the expense of mobile phones because it is at larger sizes that the UniBoss design has its most important performance advantages over ITO. This fact has been stated by CEO Reed Killion. At mobile phone sizes, ITO performance is good enough, and the material does not represent a significant cost of the device. In actuality, UniBoss's real market is the even smaller market for large touchscreens (>23"), like the one Cambrios recently came out with in collaboration with LG (see cambrios.com). However, let's ignore this fact for now and say UniBoss's primary potential market is smartbooks.
Based on the information from display bank, the area of all the smartbook touchscreens produced in 2013 is estimated to be 2.2 million m2, or 24 million ft2. This means that if UniBoss were to meet its projection of 6 million square feet in 2013, it would capture 25% of the market. For reference, a Morgan Stanley report indicates Samsung has 11-14% of this market, and Dell, the rumored OEM partner, has 2-4%. An aggressive market share of 5% would lead to 1.2 million units sold, or $24 million in revenue if one believes the $20/ft2 price point supplied by management. This price point only makes sense if you compare it to an ITO touch sensor. According to another presentation by walker mobile, the price of a 10" ITO-based projected capacitive sensor runs about $25 (see slide 60). However, data in independent market reports suggests that the current price for a patterned transparent conductor like UniBoss is significantly less.
What is the size of the market for UniBoss in dollars?
UniBoss is essentially a patterned, double-sided transparent conductive film. ITO film used in projective capacitive displays costs about $50/m2 ($5/ft2). Based on the total smartbook volume of 2.2 million square meters above, this corresponds to $110 million of ITO film used in smartbooks, or $200 million if one includes smartphones. These numbers are similar to those outlined by a nanomarkets presentation at FlexTech 2012, shown in the graph pasted below. Note that the use of ITO in touchscreens is a small sliver of the total ITO market. The high conductivity of UniBoss could also potentially apply to OLEDs, but this market is currently nonexistent.
As another point of reference, nanomarkets estimates that the total touchscreen market for silver-based transparent conductors will reach only $32 million in 2014, which "is really not enough of a market for most of the firms in this space to build a substantial business." This number is perhaps a bit smaller due to the smaller expected volumes of the large touchscreens in which silver nanowires will best compete. UniBoss aims to compete with silver nanowires for the same market.
However, these are all numbers for ITO film or silver nanowire film, whereas UniBoss is a patterned film. Data from the following paper estimates that patterning ITO can cost as much as $50/m2. This brings the price of patterned transparent conducting film up to $100/m2 ($9/ft2) and the value of smartbook market for UniBoss up to about $220 million. These numbers should concern potential investors in Uni-Pixel because (1) a very aggressive 5% market share corresponds to $11 million in revenue, which is not enough revenue to break even given a 50% margin, and (2) the $9/ft2 price point is about half of the $20 price point stated by Uni-Pixel, suggesting the price of UniBoss must drop by 50% to be competitive in the marketplace (erasing any margin).
In this article, I have gathered and analyzed data from independent, publicly-available market reports in order to build a clear, quantitative picture of the potential market for patterned metal grids such as UniBoss. The conclusion I came to was that if UniBoss is extraordinarily successful and captures 5% of the smartbook touchscreen market with 50% margin, Uni-PixeI will still lose money in 2013. I welcome readers to read these independent market reports, point out other independent reports, and share their own conclusions. I have purposefully ignored the significant challenges presented by competition, and by the difficulties inherent in going from a prototype to a product in this technology space. These issues are irrelevant to the consideration of an immediate investment in Uni-Pixel if the market for UniBoss is too small for the business to be profitable in 2013.
Disclosure: I am short UNXL.