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Personal investor focused on small/micro cap stocks, often tech based, with a 6 to 18 month holding period.
  • My Email To Barron's Regarding Uni-Pixel 5 comments
    May 13, 2013 6:44 PM | about stocks: UNXL

    Hello Barrons,

    Firstly, thank you for taking the time to read my email. I understand that you have been receiving a deluge of hate mail from some upset Uni-Pixel longs, but I hope to hold a more sincere and mature conversation.

    To be clear, I am referring to the article by Avi Salzman that was in both the print and online editions of May 11th's Barrons, and the blog video posted by Sam Mamudi featuring Jack Otter that was posted today, May 13th. I will refer to these two publications as the 'article' and the 'video', respectively.

    I am currently long Uni-Pixel stock and have been for the past year or so. I have also written several articles about Uni-Pixel on the website SeekingAlpha.com, held conversations with Citron and various Hedge Funds (both long and short), as well as other institutional and retail investors. I have also spoken with the majority of the executives at Uni-Pixel and the four analysts that currently cover Uni-Pixel (Ladenburg Thalmann, Williams Financial Group, Craig-Hallum, and Cowen). I state all of this so that you know that I have done significant Due Diligence on this little company and feel as though I understand both arguments (long and short) better than most.

    I was pleasantly surprised to see that Uni-Pixel was recommended in Barron's Big Money Poll about a month ago, and actually wrote the editors then to dig in to this little company featured amongst all the behemoths and perhaps write a follow-up article. I'm not sure if Mr. Salzman's article had anything to do with my recommendation, but thank you nonetheless.

    When I read this weekend's article about Uni-Pixel I was, as you can imagine, quite upset that Barron's had decided to take a negative stance. However, there is nothing wrong with that, and there are many risks associated with Uni-Pixel. It could even be argued that it makes sense to write a bearish article to help balance out the bullish poll results. However, what really bothered me was not the concept of the article itself, but its actual contents (or lack thereof).

    Had I been tasked with such an article, I would have mentioned very early on that Uni-Pixel was featured in the poll, however there are many reasons to still be cautious. You could have even given yourself a pat on the back by saying 'we conducted this poll in the middle of March when the stock was around $26 and so far the stock is up 35%! These institutions clearly know what they're doing. But has it gone too far?...'

    Nevertheless, failure to mention the Big Money Poll is not misleading in and of itself, just a small piece in the picture. The article continues, and we move on to the 6th paragraph that discusses cash. At this point Mr. Salzman inaccurately states that the current cash is $15.7 million. This is the cash number as of 3/31, and if Mr. Salzman had referenced this, it would have helped. Furthermore, if he had ended the subject, it would have been fine. But he then continues to write that the amount of cash is "due to a series of secondary stock offerings. Last month it sold 1,374,250 shares for $32 apiece, bringing its total share count to 12 million.". This very obviously implies that the $15.7M in cash is AFTER the secondary, not before. Uni-Pixel has stated that they netted approximately $41M in cash from the secondary, which would bring the proper cash amount to around $56M. I do have an issue with this blatant misrepresentation, but, again, not a major issue as everybody makes mistakes.

    Moving on to the 9th paragraph, Mr. Salzman discusses the partnership with the PC Manufacturer, and quotes CEO Reed Killion as saying "If you want to speculate [on the size of the deal], one million square feet costs us about $11 million." I honestly don't know what the purpose of this quote is without further context. As an investor who has performed extensive Due Diligence on Uni-Pixel, I know that Mr. Killion was stating that they have received an upfront payment as a part of the deal (in exchange for the limited, and exclusive licensing) that amounts to millions of dollars. He is saying that it will cost Uni-Pixel approximately $11 million to build out enough capacity for 1 million units per month, and therefore it is reasonable for analysts to speculate that the upfront payment (a Non-Recurring Engineering fee) is around $11 million. Please, editors, read this section of the article again and let me know if you grasped any of this. As the article currently stands, I don't know if it costs Uni-Pixel $11 million to produce 1 million square feet, or maybe they will earn $11 million in revenues? It is confusing at best, manipulative at worst, and most likely just poorly written.

    This is where the various 'minor' errors begin to form a larger picture, as the errors and misconceptions do not end there. Moving forward, there are some minor grievances, such as the paragraph spent on describing the lawsuit with Carclo/CIT, but the failure to mention Uni-pixel's first 'win' in the case as CIT attempted to move it out of Texas and into federal court, but Uni-Pixel was able to get a judge to strike it back to Texas, which has a 'loser pays' law, putting a significantly heavier onus on CIT to proceed. Furthermore, Mr. Salzman quotes an analyst at FBR who covers Atmel (and recently upgraded it) as saying that Uni-Pixel does not have any competitive advantage. This is one man's opinion, and there is absolutely zero evidence to support it. If you are going to include opinions, please support them with at least rudimentary analysis.

    The article then discusses TMOS and FPR and even Diamond Guard, which are all legitimate concerns, but quickly deteriorates from there. Mr. Salzman decides to end his article by discussing three people: a current employee, a board member, and a former employee (who hasn't worked with Uni-Pixel for four years). This is valid, because employees are a major part of any company, particularly small, development stage companies. But there are glaring holes in the story that Mr. Salzman decides to paint that make the entire article quite embarrassing. He first describes CTO Robert Petcavich and simply states that that his previous operation, Planet Polymer, failed. Which is true. But Mr. Salzman clearly is trying to string together the failed products with a failed employee. Which is a very valid argument, if it were true. If you actually do research into Mr. Petcavich, you will see that he has numerous patents in his name, many of which are still in use today and generate millions of dollars annually. In my opinion, this makes him a resounding success. Mr. Salzman attempts to balance his story with the simple statement of: "Petcavich says shortsellers who criticize his past performance "fail to mention all the successes, which have been dozens," including innovations in stealth airplanes and microwave popcorn." Thank you for telling us that Mr. Petcavich claims to have success. That is a hard-hitting story. Given that I know for a fact that Mr. Petcavich sent Mr. Salzman a personal email describing in detail the multiple successes that he has earned, shouldn't the article spend at least a fair amount of space describing the failure of Planet Polymer and the success of his previous operations? It is these seemingly small transgressions that, when taken together, reveal the true purpose of this article.

    Mr. Salzman continues by attacking Chairmen Bernard Marren in a similar style. The man has a long list of resounding successes and a few failures, but the article focuses 100% on the failures without even a grain of balance. Finally, the article ends on the glorious note of Former chief science officer Martin Selbrede, who is a brilliant man with some eccentric theories involving geocentrism. While I certainly do not agree with the geocentric theologies, they do not detract at all from Mr. Sebrede's feats as an engineer and scientist. But to make it worse, Mr. Salzman then misquotes Mr. Killion in a way that would lead the reader to infer that Mr. Killion agrees with these geocentric theories, which is completely untrue. Furthermore, Mr. Salzman completely ignores the fact that Uni-Pixel recently hired Marketing VP Bob Berg and VP of Manufacturing Robert Rusenko, who both have stellar backgrounds.

    It is because of these numerous errors, misconceptions, and blatant propaganda that you have received such hate mail today. And you did the right thing by following up on the story with the video later in the day. However, once again, you slapped Uni-Pixel and its investors in the face with more lies. In this video, Barron's Editor Jack Otter clearly states: "right now, there is one promise and [that is] a deal with Eastman Kodak, and the rumor is that they may be making screens for Dell... but none of it is actually happening, there is a lot of discussion... show me the beef". This is, essentially, the entire piece on UNXL and it couldn't be more wrong. Uni-Pixel has a manufacturing partnership with Kodak (which you mention is the 'one promise'), but here are some other promises:

    A preferred partnership with a PC Manufacturer (as is rumored to be Dell). The partnership is real, not a rumor (as you mention), the only rumor is the name of the PC Manufacturer.

    A preferred partnership with an Ecosystem partner (rumored to be Intel).

    A partnership with Texas Instruments

    A partnership with N-Trig

    Qualified with various other controller companies, including Synaptics. Some researchers claim to have proof that Uni-Pixel is working with Synaptics on a specific project (see here - http://techandinnovationdaily.com/2013/05/10/tech-stocks-synaptics/) but I, personally, am just relying on the fact that Synaptics mentioned Uni-Pixel by name during its conference call and Uni-Pixel mentioned Synaptics by name during its own conference call.

    Now, if you wanted to discuss rumors, there are also rumors that they are working with Apple (http://ransquawk.com/!#/headlines/market-talk-that-apple-aapl-is-incorporating-unipixel-s-unxl-uniboss-touch-screen-technology-in-next-gen-thunderbolt-macbook-pro-unconfirmed-07-05-2013) and potentially Lenovo.

    In summary, both the article and the video have factually incorrect statements and attempt to deceive readers with half-truths and false implications. I am honestly shocked that Barron's would allow this to happen. As I stated earlier, I know both the bull and bear cases very well, and there are many many risks to Uni-Pixel. You touched on past failures (TMOS, and FPR), but that was the only valid part of the entire article. There are risks to manufacturing. There are risks to testing. There are risks to sales. There is even some risk from the competition, which you brushed up against, but this topic would require a more technical discussion. Instead of discussing these TRUE risks, Mr. Salzman slandered a company and its employees in a completely biased and unbalanced article.

    I expect more from Barrons.

    Your subscriber,

    Chris Hofmann

    Disclosure: I am long UNXL.

    Stocks: UNXL
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Comments (5)
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  • bengman007
    , contributor
    Comments (8) | Send Message
     
    I cancelled my Barrons account today.
    13 May 2013, 09:38 PM Reply Like
  • kpcapitalpartners
    , contributor
    Comments (110) | Send Message
     
    Chris:
    Phenomenal job on this letter. Extremely well-written, clear, and concise. I have to believe that if anyone in a Barron's leadership/management position bothers to read both your and Al's correspondence, they will be compelled to address the blatant lies contained in Salzman's article. However, the fact that Barron's chose to publish this garbage in the first place, I have my doubts...

     

    Thanks much for all of your work and for continuing to post it. It has been valuable to me!
    14 May 2013, 04:12 PM Reply Like
  • Chris Hofmann
    , contributor
    Comments (755) | Send Message
     
    Author’s reply » Thank you for your kind comments.
    14 May 2013, 04:37 PM Reply Like
  • VWG1976
    , contributor
    Comment (1) | Send Message
     
    bravo...good job!
    15 May 2013, 09:54 AM Reply Like
  • Tom Shaughnessy
    , contributor
    Comments (1104) | Send Message
     
    Wow, going above and beyond great work chris
    9 Jul 2013, 02:55 PM Reply Like
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