Why Google Should Acquire Ascent Solar

| About: Ascent Solar (ASTI)

While Google (NASDAQ:GOOG) is best known as a search engine and the creator of Android OS, it is becoming more and more of a player in the hardware space. Ascent Solar Technologies (NASDAQ:ASTI) was until last year just another struggling solar company trying to survive in an extremely challenging market environment, as oversupply caused solar panel prices to plummet low enough to put several companies out of business, the latest casualty appearing to be Suntech (NYSE:STP). Ascent made the decision to curtail much of its operations in the mainstream panel market (large panels designed for rooftops or utility-scale installations), instead opting to do contract research and, of late, to enter the consumer electronics market. It seems like a good bet as the margins for consumer gadgets can be quite good, while the margins for the more traditional solar business consisting of panels intended for rooftop or large power plants are currently almost impossibly poor.

Thus far Ascent has focused on smartphone charging cases and a larger portable charging unit. Their technology is particularly well suited for this application as it is much lighter and thinner than traditional polysilicon panels while offering excellent power efficiency. As a result of extensive research and compelling innovation, their technology was recognized by Time magazine as one of the 50 best inventions of 2011. In 2010 they received an award from R&D Magazine and were included in their list of the 100 Most Innovative Technologies based on their process of monolithic integration on polyimide substrate.

Ascent has managed to stay remarkably lean and mean while other solar panel makers (particularly the big Chinese ones) have accumulated bewildering amounts of debt. Currently they have enough cash to get them though Q3 2013. While this is of some concern,the fact seems to be reflected fairly in the company's stock price, which gives them a market cap of just around $25M. But Ascent is worth far more than this based on future potential. All it needs is to be infused with more cash in order to implement its growth strategy. While there are certainly risks, the potential reward is huge.

There should be a demand for their products, it's just a matter of having enough cash to 1) scale its operations such that the products can be produced at a low cost and sold for a good profit 2) marketing the products and getting them into enough solid supply channels. Furthermore, the possibilities for more products of this nature are wide open. This is where Google comes in.

Why Google?

I think it would be a brilliant move for Google because it would be a way to help differentiate itself in a crowded consumer electronics market (namely smartphones and tablets). Google's operating motto is "do no evil" - and renewable energy such as solar is certainly of that ilk. They also place high value on innovation and cutting edge revolutionary products, as evidenced by Google Glass. A lineup of solar chargers (and perhaps eventually panels built right into their phones and tablets) would be a sustainable and cutting edge offering. While shopping cell phones at a t-mobile store recently, the salesman actually brought up the idea of putting solar panels on phones because the devices always seem to be lacking and the processors and displays just keep getting bigger and more power hungry. It almost seems odd that no cell phone or tablet maker has done it yet.

There are something like a billion smartphones in the world right now, which is a huge market for accessories and only getting bigger. Solar charging products would appeal to campers and hikers, world travelers, inhabitants of the developing world (in some places people have access to cell phone service but not electricity), people who work outdoors, for various sports like golf and of course green-minded tech geeks who just want one for the high-tech factor.

Annual sales of $100M+ seems well within reach and could greatly exceed this. Margins for this type of product are potentially quite excellent as the barrier to entry is great enough to keep copy cats from doing it cheaper. Ascent has invested millions of dollars and many years on R&D to develop their cutting edge solar panels to be much lighter than polysilicon with similar efficiency.

Ascent will need to significantly expand its operations in order to take advantage of cost reductions through economies of scale. Currently their products are produced in their Thornton, Colorado facility. Google already has a mature supply chain in place in Asia, as it has now been selling its own line of smartphones and tablets for some time now with the help of manufacturers like Samsung, Asus and LG. If it chose to do so it could also keep production in the US and avoid some seemingly growing problems of production in China. This could also add to some of the appeal of their products vs. competing cheaply made and cheap-looking solar charging products.

Even though it is relatively new to making smartphone cases and consumer charging products, Ascent has done a remarkable job so far. Every product in their lineup is very well executed, especially for first generation designs. Each charging case is designed to match the style of the phone it fits - currently either the iPhone 4 or the Samsung Galaxy 3. In the last 10-K filing, Ascent says it is currently working on an iPhone 5 case, so that will be interesting to see and will be another catalyst going forward. I've looked at Ascent's competition and it seems that nothing even comes close to the polished design, thinness and functionality of these devices. I'm expecting more great things from this company.

How much would Google have to pay for Ascent?

In the past approximately 3 years Ascent has spent $75 Million on R&D. A business like this has a fairly high barrier to entry. It's not just a matter of building a brand and outsourcing to a Chinese factory - it's a matter of doing a lot of research and having a staff of dedicated, highly educated engineers who have continued to build upon their engineering progress in order to keep advancing the core of the product: the solar panel technology. While Google could certainly start up a similar operation itself, it would end up costing them the same as if they just bought an established operation like Ascent. I'd estimate that at a minimum Google would have to pay $75 Million to acquire them, but probably more like $150-$250 Million. Therefore my price target range for the stock is $1.50 to $3.00. So at a current price around $0.50, the stock seems extremely cheap. And furthermore, in addition to the possibility of a buyout, there are other catalysts on the horizon. They are ramping up their sales and marketing effort so we may be hearing about new distribution deals being reached. And they may announce the next iPhone charger soon, which has caused a lot of excitement in the past.

Risks and Uncertainties

Ascent is a micro-cap and developmental company and as such it a riskier investment than more established companies. Risks include possible delisting from the NASDAQ exchange if it fails to meet listing requirements, failure to raise enough capital to continue operations, failure to generate adequate profit margins and competition from other solar panel makers who may be better positioned and better capitalized. Investors should consider all these risks and read the companies SEC filings in order to see if risk/reward equation is right for them.

Disclosure: I am long ASTI. 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.

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