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Maxwell Technologies – an alternative energy and SSD play

|Includes:INTC, MU, Maxwell Technologies, Inc. (MXWL), STX, WDC, WDC

Maxwell Technologies (NASDAQ:MXWL) grew its revenue 22% YOY to $26 million and improved its gross margin to 38% in their latest third quarter financial results.  BOOSTCAP ultracapacitor account for $10.5 million, an increase of 38% YOY.  Maxwell has been supplying ultracapacitors to three leading Chinese bus producers and been selected by Continental AG to supply ultracapacitors for a voltage stabilization and start-stop fuel efficiency system.  The future looks bright for Maxwell in the alternative energy market as it continuously work to incorporate ultracapacitors into as many different applications as possible.  Investors definitely see the potential in Maxwell as the stock rise ~200% in 2009 to $17.84.  At this price, the stock is a bit expensive for a company that has yet to turn in a profitable quarter.  However, I also believe the best has yet to come from Maxwell.  The Chinese bus market could potentially be a pretty big market and Continental AG has yet to ramp up production.

Recently Maxwell also announced that they are increasing production for small cell ultracapacitors to be used by several leading producers of SSD (solid sate drive).  Ultracapacitors are being used as a sort of integrated backup power supply on the drive itself in case of sudden loss of power.  This will provide enough power for SSD controller to safely write the cached data to memory and prevent data loss.  A very important feature I would say, especially in the enterprise market.  According to the press release, each SSD incorporates several cells and the demand could reach millions of cells in 2010.  We saw how fast the SSD market grew in 2009.  Almost every ultra thin laptop these days come equipped with SSD.  Almost every memory maker are getting into the market, Micron, Intel, SanDisk, Samsung, Western Digital, Seagate.  Then you have some promising startups such as Indilinx and FusionIO.  There is no question regarding the benefits SSD has over traditional Hard Drives.  Speed, no moving parts, energy efficiency, and SPEED.  The only problem at the moment is cost and even that is coming down significantly.  You can buy a 64Gb SSD drive these days for less than $250, expensive yes, but not prohibitively so.  There is no doubt SSD will continue to grow rapidly in 2010.

I recently read an article on about OCZ’s Vertex 2 and the SandForce SSD controller that convinced me why ultracapacitors will be an important part of a SSD drive.  A crucial component that determine the overall performance of a SSD drive is the controller.  The kind of flash memory chip used is of less importance.  In this case, the SandForce controller is doing some data compression algorithm before writing it to memory and therefore reducing the amount of data written.  SSD controller are getting more sophisticated in order to maximize the performance of the SSD drive and with the increased complexity, you also need a reliable power source to ensure the controller can finish whatever it’s doing.  Ultracapacitor is perfect for this because it can be small enough to fit inside the drive and reliable enough so you don’t ever have to change it during the life of the SSD drive.

Maxwell is going to be a beneficiary of the alternative energy and SSD growth trend.  I probably won’t get into it at $17 but keep this name in your radar.

Disclosure: long mxwl, long sndk