Would an Unbreakable iPhone Help Terminate Competition?

Includes: AAPL, LQMT, SYMM
by: Daniel Long

In an 8-K filed on August 9, 2010, it was disclosed that Apple (NASDAQ:AAPL) secured specific intellectual property rights from Liquidmetal Technologies (LQMT.) in exchange for a licence fee. This gives Apple exclusive rights to commercialize the product in the field of consumer electronics, while Liquidmetal will retain the right to market it in all other fields. The product is Liquidmetal, and it could help make an extremely sleek and aesthetically pleasing IPhone that is virtually indestructible.

The product is currently being used in several forms, including coatings, powders and alloys. The specific technology that Apple will use is a bulk liquid Alloy that can be molded into casing components for electronic devices. When the molds dry, the result is an extremely hard glasslike substance. It is not transparent, but very glossy and shiny, and does not require polishing. The Liquidmetal is also scratch and dent resistant, and thanks to improvements made to the product over the past eight years, is virtually shatterproof.

Liquidmetal is currently being used in a variety of applications, including medical devices, tooling, defense and in high-end watches and phones. The most popular use, however is likely in sporting goods where the alloy has been used successfully in skis, tennis rackets and baseball bats.

Although no details were disclosed, IPhones, MacBooks and all of their devices would benefit from the use of the product. The question remains when, where, and some wonder, why? Apple has always looked for superior products to make their devices from the inside out, it's part of their reputation. Apple is known for using solid pieces of Aluminum hollowed out for its Mac casings, a far superior design over its peers, but still inferior to what Liquidmetal could do.

Cost is the major factor prohibiting widely accepted use of Liquidmetal, both from a production standpoint and a raw materials standpoint, which is why they have only been successful marketing products to the affluent. Apple, however, like Microsoft and Wal-Mart, has the ability to corner a seemingly expensive niche market, ramp up production and bring down costs in it's own sort of self fulfilling prophecy.

It is unclear whether their ability to bring production costs down will offset the higher cost of raw material. Apple will certainly save on labor and time to market as liquid metal castings require little or no machining and polishing after they dry, and are more uniform. Also, castings will require a lot less work and energy than hollowing out a solid piece of metal. Liquid metal is made from hard to find and expensive elements, like platinum and beryllium. Concentrations of these substances vary by application, however, and it is unknown exactly what end of the spectrum Apple's uses will end up at. The cheapest baseball bat coated in Liquidmetal sells for around $60, while Pure Platinum sells for about $1,500 an ounce. Apple could start with higher end devices and work their way down. IPhones make up almost 50% of Apples sales, so inclusion to that product would likely take time and perhaps a much cheaper version of Liquidmetal. They could also just park the technology for a while, preventing others from getting it. After all, they are sitting on almost $10 billion in cash.

What was paid to Liquidmetal Technologies is unknown, but that company did disclose that they paid off $10 million in debt from the proceeds, and they also hired a new CEO, Thomas Steipp, who has some robust experience in Technology including serving various roles at Symmetricom, Inc. (NASDAQ:SYMM). The company's stock has been on a roller coaster ride as traders struggle to put a value on the deal, and a value on LQMT for that matter. Being a Pink Sheet, the company is not currently required to file financial statements with the SEC, and it has been about nine months since they have done so. The company had about 50 million shares out at that time and 100 million shares authorized. Around the same time the board was trying to get an increase in shares authorized, but it is unclear as to exactly how that worked out. Several filings since then have indicated that people have been paid with shares, so dilution is certainly on the table. An 8K from April of 2010 indicated that their 10K would be late, and that is the last that has been heard.

The new CEO and deal with Apple will likely clear up a lot of Liquidmetal's problems, including a high debt load, but the extent of such improvements is unknown. In the 8-K describing the Apple deal, the company indicated that full details will be available in the next quarterly filing. I guess the final question is whether it will be LQMT's 10Q, or AAPL's.

Disclosure: No positions