Uni-Pixel (UNXL) has been one of the more volatile stocks during the fast half of 2013, having traded as high as $41 just around two months ago before crashing down over 60% to the current price range of $14-$15. However, many of my colleagues and I still see significant downside and risks ahead for the company. We feel the stock rose on nothing but hype from over-promotion of the stock and over-bullish statements from the company's management and longs which do not truly reflect the business fundamentals. Even at the current prices the stock is still drastically overvalued and has much further room to fall since UniBoss may not be a viable product for commercial production. There are signs that history may repeat itself and UniBoss will just be another failure like past Uni-Pixel products.
Uni-Pixel - A History of Failures
We feel investors should take a closer look at the company's past and see why the company and its management should definitely not be given the benefit of the doubt. Nor should investors put much faith in any current claims made by the company.
Uni-Pixel initially became publicly traded on the OTC board through a reverse merger with a company called Real-estateforlease.com in 2006. The documents for the merger plan can be found here. Uni-Pixel itself had nothing to do with the online real estate business. Real-estateforlease.com has long been a defunct company ever since 2002 with no operations and assets. It was a just a shell company trading over the counter. The reverse merger was solely done so Uni-Pixel can become publicly traded and later move to the Nasdaq in 2010.
The reverse merger is the same backdoor technique used by many of the fraudulent Chinese stocks to go public in the US. This is due to the fact that they cannot become public through a traditional IPO. A simple due diligence from the investment banks during the IPO process would have shown their operations to be fraudulent and/or highly questionable. Therefore they use the reverse merger technique which requires no scrutiny from any outside parties to become public and then later they can sell shares through secondaries to con money from US investors.
Even ignoring the reverse merger, looking at the past main products that resulted in massive failures for Uni-Pixel should be a warning to current investors.
First there was TMOS (Time multiplexed optical shutter), a display panel technology which Uni-Pixel claimed provided superior brightness and image quality than LCD, LED and OLED technology but was cheaper and easier to manufacture. The company in numerous occasions has touted that it "believes TMOS displays will be able to capture a share of the growing $100+ billion flat panel display market due to the significant advantages it has the potential to provide over competing display technologies ..." in press releases and presentations. One of which is an investor presentation for TMOS in 2008.
In 2007 Uni-Pixel started to collaborate and develop prototypes using TMOS technology with Philips. In February of 2009 Uni-Pixel was also able to sign a Joint Development Agreement with Samsung. However nothing ever came out of these collaborations for TMOS. No real revenue was generated through TMOS and Uni-Pixel ultimately sold the majority of the patents for TMOS to Rambus in May of 2010. By then the company had given up on the "$100 billion plus flat panel display market" and moved on to promoting its next product offering.
An excuse often cited by the company regarding the failure of TMOS is that its partners "never delivered functional backplanes" and the company did not have enough financial resources on its own to develop TMOS. But what about Rambus, who purchased the TMOS patents and had much more resources than Uni-Pixel? After purchasing the patents, TMOS was pretty much never heard about again.
Seeing how Philips, Samsung, and Rambus all gave up on TMOS, it would suggest that it may not be a superior and cheaper technology as Uni-Pixel claims or there were other issues with commercializing it.
Opcuity Fingerprint-resistant Films - Another smudge for Uni-Pixel
While TMOS was going nowhere, Uni-Pixel also started promoting its fingerprint-resistant films it called Opcuity. These films could be used as screen protectors for phones and tablets. In many press releases and interviews, such as this one, Uni-Pixel's CEO Reed Killion often touted that "the touch screen protector market is well over $250 million annually and that it will continue to grow rapidly" and the opportunities for its fingerprint-resistant films.
Later in a press release in August of 2009, Killion claimed that "By bringing our fingerprint-resistant film to market, Uni-Pixel transitions from a development stage company to a commercial manufacturing business. We are currently preparing volume production of Opcuity film and expect to ship products in the fourth quarter." The company forecasts revenue in 2009, and cash-flow positive by the second half of 2010."
However total revenue for Uni-Pixel was almost $0 in 2009 and for 2010 it was $240,000. By the end of 2010 Uni-Pixel was running out of cash and needed to conduct a $15 million secondary offering in December. Needless to say Opcuity did not sell as well in the "$250 million touch screen protector market" as it believed and its projections for orders and being cash flow positive were dead wrong.
Just like with TMOS, Uni-Pixel was also able to sign partnership agreements with bigger names such as Avery Dennison and Targus. Unfortunately just like TMOS nothing ever came out these partnerships either. The only instance where we found Opcuity available in a commercial product was when Uni-Pixel sold it under its own brand Clearly Superior on Amazon.com. Alas the product has been out of stock for a while now and can no longer be purchased. While we don't know if its product is "clearly superior" as the name would suggest, it clearly did not sell very well.
Diamond Guard - Scratch that too
While no business was coming for its screen protectors, Uni-Pixel started to move onto Diamond Guard. Diamond Guard is a cover glass material which can be used in touch screen devices such as smart phones and tablets. The product was being promoted as a competitor to Corning's Gorilla Glass since it is also more scratch resistance and shatterproof than regular glass. The upside though is that it claims it is much cheaper to produce than Gorilla Glass. In presentations Uni-Pixel was again saying the potential opportunity is huge with the $1 billion plus annual cover glass replacement market.
In its Q1 of 2011 earnings release on May 09, 2011 CEO Reed Killion stated that it had "advanced to late stage discussions with a major national electronics retailer. Initial orders are anticipated in the second quarter 2011, with products on the shelf by the third quarter 2011." However Diamond Guard failed to deliver any real revenue for the company in 2011. Total revenue for the year was only around $ 195,000 and the "major national electronics retailer" was not heard from again.
But in 2012 the company continued to claim shipments and orders for Diamond Guard would be arriving soon. When announcing its Q4 and 2011 year end results on March 8, 2012, Reed Killion, Uni-Pixel's CEO, was quoted as saying, "We anticipate shipping initial commercial quantities of Diamond Guard by the end of the first quarter with a production and distribution partner, and foresee multiple design wins for Diamond Guard in the second quarter."
Just a few days later on March 12 of 2012, Uni-Pixel then also announced a distribution agreement with Carestream Tollcoating for Diamond Guard and stated it would be shipping pilot production orders for OEMs soon. Killion In the press release claimed that "Several dozen major electronic OEMs and ODMs are currently evaluating and testing Diamond Guard film using product produced both in-house and during the Carestream Tollcoating certification production runs."
Four months later in July the company had another press release stating it had established enough production capacity with Carestream to produce more than 100 million square feet of Diamond Guard per year.
It would seem if you believed the company, 2012 would be the year for Diamond Guard. But once again it turned out it would be another major disappointment as total revenue for 2012 decreased to only $76,000 and nothing came out of the "several dozen major electronic OEMs and ODMs" who were supposedly testing Diamond Guard for commercial use or the "multiple design wins" it predicted.
What is also extremely curious is that the Mohs rating of Diamond Guard has changed over time. The Mohs scale is used to measure hardness and scratch resistance. Initially the company claimed that Diamond Guard was a 9 on the Mohs Scale (9H), such as in the Carestream manufacturing partnership announcement. At 9H Diamond Guard would be rated at the same level as Gorilla Glass. However at some point it was reduced down to 6H as you can see from the recent datasheets of Diamond Guard on Uni-Pixel's website. For those not familiar with the Mohs Scale, it is not a linear scale. This means a Mohs rating of 9 isn't 50% harder than a 6, rather the difference should be over 4 times.
Why is this important? Regular glass by itself usually has a Mohs rating between 5 and 7. With a Mohs rating of 6, Diamond Guard is not any more scratch resistant than many forms of regular glass. Since we see no reason for Uni-Pixel to purposely reduce the hardness level of Diamond Guard to make it more easily scratched, it would appear it had drastically overstated the specifications in the past. It may be why no real orders for Diamond Guard were actually placed.
Either way by the end of the year in 2012, Uni-Pixel had moved away from touting its Diamond Guard solution and changed the story. Now the company claims Diamond Guard will realize sales together along with its supposedly latest and greatest offering, UniBoss.
UniBoss: The latest Uni-Pixel pitch
Much of the current hype regarding Uni-Pixel is based on its UniBoss technology, a copper-based metal mesh film for touch panels. At present the majority of touch panels sensors uses Indium Tin Oxide (ITO). While ITO sensors work fine, many companies have been developing cheaper alternatives and alternatives which work better on flexible electronic devices. Uni-Pixel claims UniBoss is more responsive than the current ITO sensors, uses less power, is easier produce, and can be done at half the cost. You can't help but notice this once again sounds awfully similar to the pitch for TMOS and Diamond Guard. A product that allegedly performs better than what is currently used in the market but can be produced at a much lower price.
Also once again Uni-Pixel is proclaiming how huge the market size is for the UniBoss like it did with TMOS and Diamond Guard. In its Q2 of 2012 earnings release on July 30, 2012 and numerous other occasions, Killion talks about UniBoss and the "touch sensor market, which Display Search estimates will reach $19 billion by 2017".
It seems Uni-Pixel is sure fond of stating how large the market size is for all its products. The big numbers may sound attractive to some retail investors. However if your company's market share is 0% and stays that way, it is rather a moot point. But seeing how there were never any real orders and revenue for its products, the large market size is the only numbers it can proudly state.
In addition to the market size, Uni-Pixel also regularly proclaims how it is building up production capacity with UniBoss like it had done with Diamond Guard. But having production capacity by itself is meaningless if there are no actual orders like we have seen with Diamond Guard.
Numerous delays and excuses for UniBoss rollout
Delays in actual orders and production for UniBoss are actually not a recent development. In fact as early as 2011, the company has been hinting revenue for UniBoss could be occurring soon. One of the earlier suggestions seems to be during its Q1 2011 earnings conference call where Killion hinted that production orders may arrive in Q4 2011 to Q1 2012 for UniBoss. On subsequent earnings conference calls a date for actual revenue for UniBoss was pushed back to Q2 of 2012, then to the second half of 2012. But seeing how total revenue for 2012 was $76,000 there weren't any real orders.
In July of 2012 in its Q2 of 2012 press release, Reed Killion also stated "we've received our first reference design for UniBoss as an 'e-sensor,' which makes possible a revolutionary touchless interface that uses hand gestures, and takes advantage of the latest advances in computer hardware and operating systems. We anticipate the 'e-senor' to be introduced to the notebook market in the second quarter of 2013 or sooner."
The second quarter of 2013 or sooner date turned out to be another dud. The so called "e-sensor" and possible "touchless interface that uses hand gestures" was not mentioned again. But later the company claimed UniBoss would be available in a commercial product on store shelves in Q3 of 2013. That is until a May 20, 2013 press release when once again it disclosed yet another delay. This time the excuse was, "while we had expected their build-out to be completed in the second quarter, our PC partner recently reported delays with associated operating system software. Given our understanding of their updated timeline, our expectations for products utilizing UniBoss touch sensors to be on the shelves has been shifted from the third quarter into the fourth quarter of this year."
The operating system software delay is more than likely referring to the supposed delay of Windows 8.1, an upgrade to the somewhat unpopular Windows 8 operating system. Except just this past week Windows 8.1 Preview has been made available to the public. Various tech media outlets have also been reporting that the RTM date for Windows 8.1 is actually on track for around August or September of 2013 and isn't delayed until Q4 of 2013.
What is also interesting is a contact of our claims that Killion later said in a conference that the delay was due to a "design issue" and the test units originally shipped to its PC OEM partner had to be "discarded". This seems to be in contrast to its statement that the delay was due to a push a back in the operating system release date.
UniBoss strongly resembles past failures from Uni-Pixel where design wins and orders where originally promised at some future time frame but the dates were then pushed back further and further.
Do not believe the fairy tale story being sold
While Uni-Pixel's management never provided any actual numbers in revenue guidance for UniBoss, many bulls of the stock have no such qualms. They often tout that at a quoted rate of $20 per square feet for UniBoss, annual revenue will be exceeding well over $1 billion soon enough.
The story they are trying to sell is that Uni-Pixel is currently ramping up production capacity to 1.3 million square feet of UniBoss a month by January 2014 and to 10 million square feet a month by the end of 2014 as stated by the company because they expect to use up most that production capacity by the time frame. They would have investors believe the orders are already there and just waiting for Uni-Pixel to build up its production line. However, we have seen Uni-Pixel build up production capacity in the past with the Diamond Guard manufacturing partnership with Carestream. Enough capacity for 100 million square feet per year was built up but no real orders ever arrived.
The promise of significant revenue coming soon always seems to be there with Uni-Pixel, except it never really happens. We've seen it with Opcuity, Diamond Guard, and now we are once again seeing it with UniBoss. The company would announce partnerships with well known companies and it would suggest orders are arriving in the near future. However these actual orders never materialize and eventually the company moves onto another product to repeat the process again.
On the topic of partnerships, it has been used by the bulls of Uni-Pixel to justify the legitimacy and upcoming revenue for UniBoss. Uni-Pixel has announced a partnership with a PC OEM partner and an eco-system partner. The company itself never named those partners but it hasn't stopped some saying it is without a doubt Dell and Intel. There have also been articles from financial media outlets stating that Uni-Pixel management has told analysts and investors in private that the PC partner is Dell.
However signing license agreements and partnerships is nothing new for Uni-Pixel. There was Philips and Samsung with TMOS. For its fingerprint-resistant films it was Avery Dennison and Targus. There was Carestream for Diamond Guard. In addition, Uni-Pixel also regularly seems to state there are OEMs and ODMs evaluating and testing its products or that they are in discussion for additional deals. Except none of them ever actually pans out and leads to real production orders.
Kodak is now also partnering with Kingsbury for touch screen sensors
Another one of the partnerships Uni-Pixel has recently announced is a manufacturing and supply agreement with Kodak. However we saw that the Kodak announcement is not as important as some would claim. For one we were told this was not an exclusive deal for Kodak.
This was validated on June 27, 2013 when Kodak announced a partnership with Kingsbury, a Optimation Company, to produce touch sensors using silver halide technologies. Silver halide is another ITO alternative solution which is a competitor to UniBoss and its copper mesh. It is also the same technology being used by Fujifilm in its Exclear touch screen film.
In 2011, long before the Uni-Pixel and Kingsbury partnership, Kodak had already started partnering with other companies working on ITO alternatives. This includes Heraues where it announced developing a new touch panel display using transparent conductive film back on December 08, 2011. Kodak has been looking to partner with many different companies for its printed electronics business as it is getting closer towards exiting bankruptcy and is trying to reposition itself.
The partnership between Uni-Pixel and Kodak in no way insures the commercial success or orders for UniBoss. The manufacturing agreement could very well end up being just like the Diamond Guard and Carestream production agreement. The production capacity was built but real orders were never actually received. Instead with Kodak also partnering with another UniBoss competitor using another ITO alternative technology, it is showing that it is not picking any one company or technology to be a clear winner. It could also be a sign that Kodak is starting to have second doubts about Uni-Pixel like many of Uni-Pixel's partners in the past did with its other products.
Is UniBoss actually using stolen technology?
Based on the over bullish statements, potential orders, and revenue time frames given by Uni-Pixel in the past that never came true, some may conclude that its management are liars. And if you are to believe Carclo (CCEGF.PK) and its subsidiary Conductive Inkjet Technology (CIT) then Uni-Pixel are thieves as well, which would make Uni-Pixel a liar and a thief.
On December 20, 2012 CIT failed a lawsuit against Uni-Pixel claiming that it had illegally stolen know-how from CIT through a previous partnership and used this knowledge in creating Uni-Boss. Carclo/CIT is currently partnered with Atmel (ATML) with its copper mesh solution called XSense. Unlike UniBoss though, XSense is already being massed produced and can currently be found in ASUS products. While the lawsuit itself should take a while to play out as it makes its way through the legal system, it is still an important event to monitor since the outcome can drastically impact Uni-Pixel and UniBoss.
There are numerous companies developing ITO alternative solutions competing with Uni-Pixel
You could easily find bulls of Uni-Pixel and analysts whose firms helped Uni-Pixel conduct secondary offerings claim UniBoss is one of if not the best ITO alternative solutions with few or no real competitors. However it would be much harder to find any engineers working in the touch screen industry who will make these claims. In fact since UniBoss hasn't even started mass production yet, we do not know if it is even possible without any major issues or problems. What we do know is there we've seen only demo units and samples so far while there have been delay after delay for actual orders and excuses.
We can also see that the market is filled with many firms developing ITO alternatives which are competing with UniBoss. According to a recent Touch Display Research report, there are currently over 180 companies working on ITO replacements in various stages of development. Some companies such as Atmel's and CIT's Xsense is already being mass produced and used in devices sold on the market. FujiFilm, with their Exclear using silver halide, is increasing their production capacity. There are also many Chinese and Taiwanese companies such as J Touch, O-Film Tech, Mutto Optronics, and Young Fast Optoelectronics who are already producing and selling metal mesh solutions or getting close to it. On top of that numerous other companies in China and Taiwan are also working on other ITO alternative products too. There well be more and more companies getting closer to actual production later in 2013 and 2014.
Anyone declaring a clear winner now for ITO replacement solutions this early as the market is still being developed tends to have a financial interest in one of the companies involved. In addition ITO itself is not being phased out or dead by any stretch of the imagination. Rather it is still expected to account for an overwhelming majority of the market share in touch screen devices for at least the next few years. Improvements in ITO touch sensors are still being developed as we speak.
Is Uni-Pixel really trying to sell Performance Engineered Films or stock?
While you can say Uni-Pixel has a decent job of creating hype for most of its products and getting bigger and well know companies into partnerships, one does have to question why Uni-Pixel continually fails to sell any of those products in meaningful quantities. Why did the majority of projections given on potential orders and revenue never materialize? Is it because its products do not perform as well as the company claims, its solutions cannot be viably mass produced, or simply bad luck? Either way the total revenue each year for the company does not lie.
The one thing Uni-Pixel is good as selling throughout its years as a public company is additional stock via secondary offerings. In December 2010 it had a $15 million secondary. In August 2012 it held a $12.3 million offering. And just recently in April 2013 there was a $44 million secondary. Considering the company was able to raise over $70 million from secondaries when in the 6 year period from 2007 to the end of 2012 it only had total combined revenue of $0.51 million, it is fairly impressive.
We do have to give credit when credit is due. The last secondary at $32 a share for 1.38 million shares was masterfully timed by Uni-Pixel and its underwriters. The $32 secondary price is almost 120% higher than the stock price of $14.66 as of June, 28, 2013. This is only 2 months after the secondary had taken place. We fully expect Uni-Pixel's stock to never see anything close to the $32 per share price ever again. While the investors who purchased the 1.38 million shares at $32 a share might not be too happy, the dilution for raising $44 million was minimized for existing shareholders as they were able to get such an inflated price. With the cash on hand even when UniBoss fails like Uni-Pixel's past products, it should have enough money to continue operating for at least a few more years. So management will still have jobs as the company transitions to its next product and whatever large market size it offers.
Large institutional investors are selling in droves
Uni-Pixel isn't the only ones that have been selling the company's stock lately either. Quite a few major institutional holders of company have also sold very large positions recently as well. Bank of America's recent 13G filed on June 6, 2013 showed it sold all but 3,100 shares of Uni-Pixel. On March 31, 2013 it owned 645,339 shares, meaning it sold 642,239 shares during the period between April 1, 2013 and May 31, 2013. This is after dumping 254,185 shares between January 1, 2013 and March 31, 2013.
FMR's (Fidelity Management and Research) 13G filed on June 10, 2013 showed it sold its entire position in Uni-Pixel, which was 230,000 shares as of much March 31, 2013. Between January 1, 2013 and March 31, 2013 FMR also sold 365,030 shares of Uni-Pixel.
Wellington Management's 13G filed on June 10, 2013 showed it has reduced its position down to only 460,000 shares. Previously it had owned 1,385,540 shares on March 31, 2013. This means it had sold 925,540 shares between April 1, 2013 and May 31, 2013.
Putting trust into Uni-Pixel and the fairy tale story from bulls requires a huge leap of faith given all the past failures and broken promises by the company. Unlike fairy tales we do not see a happy ending here. Once again UniBoss is experiencing delays and excuses for actual commercial adoption just like with past Uni-Pixel products. Even in the rare instance the company actually succeeds this time, receives actual orders, and can mass produce UniBoss without issues, the landscape for the touch sensor market is still highly competitive and it is uncertain if it can actually gain any meaningful market share.
Based on all the past statements given by the company on potential orders and revenues that never came true, investors should not place much if any faith on recent statements made by the company. Due to the risks we feel that even after falling to the current price range of between $14 to $15 the stock is still drastically overvalued. We would place current fair value closer to the $5 to $6 a share and that is being somewhat generous.