Uni-Pixel: Carclo, Kodak, And Apple - Facts And Rumors

| About: Uni-Pixel, Inc. (UNXL)

Uni-Pixel (NASDAQ:UNXL) continues to be one of the most exciting stocks of the year, rising from $6 to $35 in the past 6 months or so, and potentially continuing higher to $100 by the end of 2013.

Institutional interest continues to rise as data is reported as of 3/31, with Wellington, FMR, Essex, Prescott Group, Eudaimonia, Emerald Advisors, and Clear Harbor making up the largest holders as of 3/31, ranging from 1% to 11.5%. Bank of America, Kevin Douglas, Columbus Capital, Goldberg Capital, and Whitebox Advisors are also major holders (2%-7.5%), but have yet to report as of 3/31. According to Bloomberg, as of 3/31, institutions owned 67% of Uni-Pixel's float. Furthermore, UNXL successfully raised $41M in a public offering in early April, inviting an additional 1.4M shares of institutional holders into its stock. Even in Barron's recent Big Money Poll, institutional investors stated that UNXL was their top pick for the next 6-12 months (the other winners were all mega caps such as Apple and National Oilwell Varco).

However, at the same time, short interest remains very high, currently sitting at 4.1M shares short as of 4/30. Shorts have relied on stories of shady pasts of some of the executives, yet these stories tend to be stretched, inaccurate, or simply irrelevant considering the facts around UniBoss, Uni-Pixel's unique embossing technology that enables high-speed, low-cost production of printed electronic devices.

In the past month or two, there have been numerous updates on the lawsuit with Carclo (OTCPK:CCEGF), the relationship with Kodak (EKDKQPK), and even rumors regarding Apple (NASDAQ:AAPL). I will focus this article on these updates, but for a more general understanding of the Uni-Pixel story, please read my March 4th article here. Many of these updates have been discussed in the form of Instablogs by various posters, however, I wanted to make sure that the facts were disseminated properly. Nevertheless, I will be sure to link to the relevant Instablog posts as necessary.

Carclo Lawsuit Update:

Shortly after Uni-Pixel announced its first deal with the PC Manufacturer back in December, Carclo (a British competitor) filed suit against Uni-Pixel for breaking certain terms in their previous NDA. The bearish standpoint can be read here in Xuhua Zhou's article, but the basic story is as follows: Uni-Pixel and Carclo signed multiple NDAs in 2005, 2006, and 2010 while working on a few projects related to TMOS. Nothing ever came of these projects, and they eventually separated. Carclo claims that the "secret sauce" used in the formulation of the metallic inks for creating metal mesh touch screens was developed during these projects, covered under the NDA, and is now used by Uni-Pixel. Uni-Pixel claims that they don't use any such "secret sauce," and that Carclo is just on a fishing expedition.

Carclo originally filed the suit in London, however, the 2010 NDA clearly stated that any disagreement would be settled in the Texas local court. Thusly, Uni-Pixel filed its own case in Texas suing Carclo for breaking the NDA. Carclo then elevated this to the U.S. Federal court. On April 30th, the federal judge ruled that Uni-Pixel is correct regarding the location of the lawsuit and has moved the court case back to Texas.

A more thorough analysis of why this is important can be found in Green River Asset's Instablog post here. Some SA contributors, such as Ivan Jimenez, believe that Carclo still has a "smoking gun" (here), but thankfully we have a very knowledgeable and successful lawyer, Al Podell, involved in Uni-Pixel that believes that Ivan is incorrect (here). Either way, Carclo did not want this case in Texas, Uni-Pixel did, and Uni-Pixel won that aspect of the case. There must be a reason why Carclo didn't want the lawsuit to take place in Texas (GRA and Al do a good job of summarizing this).

Kodak Update:

On April 16th, Uni-Pixel announced that it was entering into a manufacturing partnership with Kodak. At first, all we knew was that they were building out a 100k square foot facility in Rochester, NY to house a minimum of 2 printers and 15 platers by the end of 2013. They would each contribute some sum of money for a total of $24M.

Since this agreement occurred, there have been numerous rumors spread around that part of the deal involves a 50/50 profit share for all shipments of UniBoss originating from the Kodak facility. While neither Uni-Pixel nor Kodak has since confirmed this arrangement, I think it is conservatively honest to assume this in future models (see below). Investors might wonder what on earth Kodak could bring to this relationship to warrant receiving 50% of the profits (if that is the true amount), and thankfully Reed Killion (Uni-Pixel CEO) spoke to this briefly during the recent Q1 conference call (transcipt has some errors, but the idea is easy enough to follow):

Given the capacity commitments we have made it became obvious that we needed to rapidly scale up our UniBoss production capacity. To this end a couple of weeks ago, we entered into a manufacturing and supply agreement with Eastman Kodak with a hundred year history in film innovation and manufacturing Kodak brings to the table unparalleled expertise and core competencies and material science, deposition technologies and large scale manufacturing and commercialization. In addition to ramping up capacity, the Kodak infrastructure allows us to vertically integrate the use of various base materials with chemistry groups PET films informulation gliding and mastering all in one location for the end-to-end manufacturing process. The entire UniBoss roll-to-role flexible printed electronics manufacturing process is vertically integrated from materials to finish product including final test under this relationship. The combined strength of Uni-Pixel and Kodak are creating one of the most synergistic and aligned infrastructures in the worlds as it relates to flexible printed electronics and alternative touch sensor solutions along with Kodak we began construction on a state-of-the-art manufacturing and testing facility at their Eastman Business Park in Rochester, New York.

Not only is Kodak an expert in the fine-line printing space, but it will also allow Uni-Pixel to become vertically integrated. This was further clarified during the Q&A session:

So, we are very excited about the opportunity with them and we believe that from a synergy standpoint being able to vertically integrate, where we have the PET film manufacturer basically onsite. PET film plays a big role on what we are doing. It's actually what we print on and it is the most costly material used in our technology. Having that in-house and being able to ensure quality a film is really key to us yielding good production results.

So Kodak will be able to produce the PET film itself (the most expensive part in the process, and a key aspect to yields), and vertically integrate that process with the production of UniBoss. This gives Uni-Pixel a huge advantage over competitors and will allow it to vastly improve yields.

For more information on the Kodak deal, I suggest reading the rest of the Q1 CC transcript here.

Apple Rumors:

A few days ago, RanSquawk posted the following rumor stating that UniBoss was going to be used in the new iteration of the MacBook Pro.

There are two parts to this rumor:

1. Apple is putting touch screens into the new Macbook Pros
2. It chose Uni-Pixel.

I think that it is quite interesting that the rumor even exists given that many people seemingly have no idea who Uni-Pixel is.

Here is my simple analysis:

1. Macbook Pro is expected to be ANNOUNCED on June 10th at the annual WWDC meeting. It might be released 2 weeks later, or 2 months later... I don't know, but we can probably assume a launch around July 1st. Note that the above link points out that certain models of the MacBook Pro might be delayed beyond an end of Q2 release. Perhaps this is the model that Uni-Pixel will be involved with?

2. The Macbook Pro is rumored (see above link) to be using INTEL's (NASDAQ:INTC) Haswell processors. This is important for two reasons: 1. Intel is rumored to be the ecosystem partner working with Uni-Pixel and 2. Intel has mandated that all devices using Haswell MUST be touch... so if this rumor is true, than the Macbook Pro is most likely touch (but not definitely UniBoss). According to this report, it seems as though Intel is giving some nice subsidies to Haswell devices IF they utilize touch.

3. On an earlier call (it may have been Q4 earnings CC), Reed mentioned that the company had a potential customer that wanted delivery by June, but it had to turn it down since Uni-Pixel wouldn't have capacity ramped up in time, particularly with the PC Manufacturer (rumored to be Dell) already eating its capacity. (might this have been Apple?)

4. Uni-Pixel's original ramp schedule was 200k by end of June, 700k by end of September. Therefore, we can assume that Dell (NASDAQ:DELL) will not be using more than these numbers. Based on various throughput efficiency improvements, Reed stated on an earlier call with Williams Financial Group that each plating line would actually support around 200k units per month, instead of only 100k units per month. He also stated that they would be receiving shipment of 4 plating lines in June, which would imply a capacity of over 800k by the end of June or early July and well over a million by the end of September. If this is true, then Apple (or whoever) could easily make use of that excess capacity, which is more than enough for the Macbook Pro. Approximately 3 million Mac laptops are sold each quarter, split between Macbooks, Pros, and Airs. If we assume that half are from Pros (probably less than this realistically), that is 1.5M per quarter, or 500k per month, which could be doable for Uni-Pixel.

I want to reiterate that there are a lot of "ifs" in this analysis, and I don't think that either Uni-Pixel or Apple would rely on everything moving along perfectly. Therefore, I still believe that the likelihood of this rumor being true is less than 50%. However, it must have spawned from somewhere, so it wouldn't surprise me at all if Uni-Pixel and Apple are in deep conversations for some sort of product.

Where Do We Go From Here:

During the Q1 conference call, Uni-Pixel stated that it has sent out 50 square feet of product to go through various external tests. This is the last major risk for Uni-Pixel, and I would expect the stock to increase rapidly if it passes all of the tests. Given the time of shipment and the lengths of time to complete these tests, I would expect to hear something anytime during the 2-6 weeks from the middle of May. Upon successful completion of these tests, it can be assumed that it will receive purchasing orders (and I would speculate an additional $5M from the PC Manufacturer).

Uni-Pixel has already done extensive internal testing, which they discussed in great detail during the ROTH conference (which is 100% necessary for proper Due Diligence). This testing has occurred over the past year or so, and I would assume that "Dell" has been involved quite closely the whole time. From an earlier call, Reed stated that Uni-Pixel has been working with the PC Manufacturer since May 2012 and Kodak for "over a year," working out any issues and making sure that both of these companies were completely comfortable and confident with Uni-Pixel.

Furthermore, in that same conference on slide 31, Uni-Pixel stated that it already has 8 design wins with multiple touch controllers -- including Texas Instruments (NYSE:TXN) and Synaptics (NASDAQ:SYNA) -- as well as multiple customers (which gives further credence to the Apple rumor or perhaps other new partnerships developing soon).

Four analysts currently cover Uni-Pixel (with Cowen picking up coverage in April) with price targets ranging from $58-$67 -- a significant increase to today's stock price. These targets are all quite conservative, utilizing P/E ratios in the low teens (odd for a company growing over 100% per year), conservative margin and utilization assumptions, and often conservatively assume that Uni-Pixel won't sign any new partnerships.

I expect that we will potentially learn more as DisplayWeek begins at the end of next week. Uni-Pixel and Cambrios will both be presenting, which is a huge opportunity for both of them since DisplayWeek is a huge conference that attracts "decision makers" from potential customers. They will also be speaking at FlexTech in July.

Finally, it is expected that Uni-Pixel will be inducted into the Russell 2000 Index in June, which should act as a huge boost to the stock price given the large short interest, large institutional ownership, and the tiny float. Given this expected jump in price, it is very possible that UNXL begins to climb much earlier than June as traders attempt to arbitrage this opportunity.


Given the Kodak deal and the increased capacity efficiencies, I am now modeling that Uni-Pixel will earn approximately $15 in EPS in 2014. This assumes that there will be some pricing competition, and therefore, an average selling price of only $18 per square foot, as opposed to $20 per square foot. Other assumptions are as follows:

1. Taxes will be 35%

2. Kodak will receive 50% of profits

3. In 2014, Uni-Pixel will sell an average of 3M units per month, ranging from 500k to 6.5M throughout the year.

4. Fully diluted 15M shares.

Going into 2015, as Uni-Pixel continues to utilize its capacity fully, this will double to over $30 in EPS.

2013 earnings will most likely remain in the low single digits ($1-$3) as much of the capacity isn't coming online until late 2013 and therefore, probably won't be used for production until early 2014. However, even $1-$3 in EPS for 2013 would translate to a stock price of $50-$150 given a (I believe well-warranted due to the significant growth) 50 P/E.

With over $50 million in cash and zero debt, Uni-Pixel is in an excellent opportunity to take advantage of this opportunity. Given all of this new information, I still believe that Uni-Pixel is one of the most interesting investments out there due to its huge leverage to the metal-mesh touch screen space, which continues to gain mainstream momentum.

Disclosure: I am long UNXL. 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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