Uni-Pixel (NASDAQ:UNXL) Chief Technology Officer Robert Petcavich presented Wednesday at the Craig-Hallum conference in Minneapolis.
During the group presentation, when asked by Craig-Hallum analyst Mike Malouf (who has a buy rating on UNXL) to comment on UniBoss production, Petcavich began by first discussing the company's massive capacity build-out, rather than their production abilities. Of course, it's not unusual for a UNXL executive to dwell on its capacity ramp, along with a laundry list of the theoretical advantages of its future product, but Petcavich's body language seemed to betray some discomfort. Immediately following Malouf's question, Petcavich subtly cleared his throat, paused, and pushed both hands against the table edge, tilting his chair back, as if subconsciously trying to create more distance between him and the audience.
When he did eventually turn to the status of production, UNXL shareholders likely shared his discomfort. Petcavich noted that "our goal is to achieve yields of 70% in three to six months."
Recall that one month ago, on Uni-Pixel's last conference call, CEO Reed Killion stated "So, we have focused a lot on the PET film. We went from yields of 20% to 70% just by changing out the film… that's where we are today, yields of about 70%..." Either Killion overstated the case last month, Petcavich understated progress today (we would argue that is unlikely), or else UNXL has made negative 3-6 months of progress in the last month. (What is the proper discount rate for that?)
In addition to the implicit backtracking on yields, Petcavich's other comments implied that re-shaping the display supply chain to bring UNXL's product to market may be a longer process than investors are currently prepared for. One prominent UNXL bull on Seeking Alpha has previously argued that the company's PC OEM partner, Dell (NASDAQ:DELL), would be of immense value in encouraging the display supply chain to cooperate with UNXL. To the contrary, Petcavich said today that the PC OEM partner "does not have any interest" in helping the company to navigate the ecosystem. He added, "They just want a finished product." Petcavich noted that their "ecosystem friend" [Intel (NASDAQ:INTC)] does have interest in helping navigate supply chain issues.
During the Q&A portion, when pressed by an audience member as to when purchase orders for production quantities will materialize, Petcavich eventually admitted that there is "no timeline on any purchase orders."
Our main concern with UNXL is, first and foremost, management's propensity to over-promise and under-deliver. In the course of past projects, CEO Reed Killion made broad claims about a product [TMOS] that had numerous advantages over existing technology, a world-class partner (Samsung (OTC:SSNLF)), and would revolutionize the display industry. Of course, after tens of millions of dollars of expenses, TMOS was abandoned, and the TMOS patents were eventually sold to Rambus for $1 million. Later, promises of "$6 million in revenue" and being "cash flow positive" from fingerprint resistant film never came to fruition; annual product revenue maxed out at $240,000, in spite of contracting with two of the best manufacturers in the industry. It's not surprising, therefore, that some, like us, in the hedge fund community have taken management's current claims about UniBoss with a grain, if not an entire mine, of salt.
The few sell-side analysts who cover UNXL have, in contrast, been less restrained. In spite of falling by $20 million in the past four weeks, the consensus revenue estimate for 2014 still stands at nearly $138 million. After today, it's clear these numbers are ridiculously aggressive for a company with no production-level purchase orders and massive logistical and technology challenges that still need to be addressed.
Whether UNXL will eventually get a mass-produced product to market (our bet is no) is still an open question, but between technological complications ahead, a history of broken promises, and emerging competition from Fuji Film and others, things don't seem to be headed in the right direction for Uni-Pixel.
Disclosure: I am short UNXL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: As managing member of the General Partner of a hedge fund, I do not hold any securities positions for my own account, other than an interest in the fund. The fund is effectively short UNXL via various bearish options positions.