You know what I hate? Glare. I hate when I'm watching a movie on an iPad with my wife and she can look into it and see my ugly face. For one second can we take a break from my face please?
Believe it or not, this is what initially attracted me to Neonode (NEON), which makes glass for tablets, phones, cars, and all sorts of devices. NEON glass does not have glare. Why else is NEON's glass so special? I explain in my earlier article.. Well, so far so good. It's gone from $4.50 to about $5. More than a 10% gain.
However, I expect it to go much further. What's happened since my first article came out?
A) They have announced 58 new design wins according to their Q3 filing in 2012. NEON was originally very much tied to the ereader space, but 12 of the design wins were in auto, 13 in office equipment, just 9 were in the eReader space, 4 were in handsets, 8 were in tablets and 5 were in toys/gaming. This is extremely important. 100% of NEON's revenues has previously come from the eReader space. The auto space and office equipment sectors are much bigger. How important are these design wins? See the next point.
B) NEON announced a deal with Alpine, which makes electronics in the auto industry. The auto space is obviously immense and NEON had never announced a deal in that sector before.
C) I was going to ignore the NEON announcement with Alpine actually, figuring it was just a wait-and-see. Well, I waited, and I saw. NEON technology was displayed in the Volvo XC60 on the floor of CES. NEON has also stated that they have design wins with every major automobile brand. This is a completely new development for the company that could be worth billions.
Can't you use any glass to make a dashboard? No, of course not. No glare, for one thing. Touch sensitive (NEON makes swipe technology and was used as evidence in the Samsung Apple case as an example where a swipe phone was made by NEON before the iPhone was released). And if you are touch sensitive you have to be able to handle gloves in the cold (or extreme temperatures for hot or cold). NEON can do that.
D) So guess what? This is where the office equipment wins come in. If everyone is using buttons but you are using an optical touch sensor, you can build your interfaces more cheaply than the competitors. Hence, the design wins. Will they translate into revenues? I don't know. But the design win is the first step.
E) Same with smartphones. Who needs buttons when you can do it cheaper with touch? NEON announced 4 design wins in the smartphone industry including one "tier one" although we don't know who yet. This is a billion dollar industry.
F) I recommend listening in on NEON's last two conference calls (here and here). Two things. One, NEON has started "shipping in volume" because of their deal with Texas Instruments (TXN). This is the biggest factor for their design wins in other markets outside the eReader space. Basically, everywhere that TI is, NEON will be. Second, NEON management describes in detail their patent strategy with their swipe-to-start. At first glance, I thought it was bad that Samsung lost to Apple on the swipe to start patent battle in the US. But I'm wrong. The NEON industrial design is different enough (and early enough…2002 versus the 2005 iphone) that Apple can't touch it. So if you are a handset manufacturer that wants to use swipe-to-start like the iphone, do you copy the iphone and get sued? Or do you use (or buy) NEON?
I think NEON is an acquisition target over this next year. At what price? As autos, handsets, office equipment, and toys kick in, I think we get closer to the price I initially predicted. The stock is already higher. But, that said, any acquisition offers could result in a bidding war.
So what are the numbers? Craig-Hallum goes through all of their design wins in a recent research report. Conservatively they assume only 10% of the design wins turn into revenues. From that they come up with 61 cents in earnings per share for 2015. What multiple do you put on that? 20? 30? Discount that back however you want to today's prices. That can easily get you to a $10-$15 target. All I can say is, I'm a holder and I think the company is doing well by branching into every sector possible. The good thing about NEON also is that they license their technology so costs will remain low.
Other updates on stocks I've written about: Trovagene (TROV) has gone from $3.70 to $7 since I first wrote about it, reaching a high of 8.96 before regrouping. The same investors behind TROV were behind INHX. I wrote about INHX at $1.80 and it was bought less than a year later by Bristol-Myers (BMY) for $26. I think TROV follows the exact same path for the same reasons I first described. Since I wrote that article TROV has signed significant agreements with MD Anderson, a licensing deal with Genoptix, and Aegis has put a target of $11-$12, a target I think TROV will easily exceed.
Modernist mentioned I recently joined the board of a public company, Corporate Resources (CRRS). Because I'm on the board I'm not going to talk about the company. But in a recent post on my blog I explain why I think the middle class is declining and how we are moving into a world dominated by either entrepreneurs or temp-staffers.
Vringo (VRNG) - As I initially predicted, VRNG defeated Google (GOOG) in its patent case. But VRNG continues to trade for less than the cash owed to it by Google. It clearly knows how to allocate cash in an accretive manner. The stock is up from when I initially wrote about it but I have no idea why it's not up even more. The market erroneously believes that Google can wear out Vringo in appeals but as I explained in further articles, this is not possible. All the signs are positive and my thoughts stay the same on VRNG.
Additional disclosure: I have no intention of selling any of the stocks I own at any time.