11-05-2013 06:08 Barron's: Out Of Touch?

   (FROM BARRON'S 5/13/13) 
   By Avi Salzman 

Touch-screen technology is one of the hottest areas in computing, and multiple companies are racing to make screens bigger, smarter, and more responsive. Little Uni-Pixel has made especially big waves in this arena lately, even though its products aren't yet commercial. Its key product, UniBoss, is a copper-mesh film that sits under glass in touch-sensitive devices. The company says it is cheaper and more responsive than current sensors, most of which rely on a competing technology involving indium-tin oxide, or ITO, conductors.

Bullish investors say Uni-Pixel's technology will become an integral part of the touch-screen supply chain, and are betting accordingly. The company's stock (ticker: UNXL), which traded in the single digits for more than four years, suddenly took off in December and has rallied feverishly since, to a recent $34.48. At least one brokerage firm has a price target of $60, which implies a market value of $720 million, up from $415 million last week.

Bears have also set their sights on Uni-Pixel, which they contend is better at promoting products to investors than bringing them to market. As of April 15, they had borrowed 45% of the public float to place short bets against the shares. So far, the naysayers have taken a painful licking, or "gotten our heads ripped off," as one short seller graphically put it to Barron's. But much of their skepticism seems well placed.

Uni-Pixel is entering a crowded field and aiming to compete against far more experienced producers. Its failure to commercialize products in the past, despite striking deals with deep-pocketed partners, also concerns the bears. Then there is management's record at other companies. Several insiders have a history of technological innovation, but a poor one of making money for public investors.

Formed in 1998, Uni-Pixel was taken public in 2006 following a reverse-merger with a company called Realestateforlease.com. The company is based in The Woodlands, Texas, and employs 28 people. It reported a total of $515,000 in revenue from 2007 through 2012, while racking up nearly $50 million in losses. Last year it lost $9 million on revenue of $76,154.

Uni-Pixel has $15.7 million in cash, however, partly 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. In August 2012, it sold 3.1 million shares, for a considerably less lofty $5.25.

CEO Reed Killion says the market for touch-screen sensors like UniBoss could exceed $10 billion. Analysts expect the film to sell for $20 or more per square foot, and Killion says profit margins could be "north of 50%". Cody Acree, an analyst at Williams Financial Group in Dallas, predicted in a recent report that Uni-Pixel could have "one of the best earnings leverage models in the electronics components industry."

Uni-Pixel has capacity to make 60,000 square feet of film per month in Texas, and it signed a deal last month with Kodak that will allow it to ramp up production at Kodak headquarters in Rochester, N.Y. A spokesman for Kodak, which is operating under bankruptcy protection, says the deal is "not an exclusive arrangement", and would permit Kodak to sign similar deals with other companies. As for revenue-sharing, Killion says, "if you want to model 50/50, you can model 50/50. That would probably be a worst-case scenario as far as the most we would give up."

Uni-Pixel also entered into an agreement late last year with an unnamed computer maker, giving it a limited, exclusive license to make notebook computers with UniBoss. Uni-Pixel plans to build capacity of a million square feet a month for the computer concern. "If you want to speculate [on the size of the deal], one million square feet costs us about $11 million," Killion says.

Uni-Pixel recognized $5 million in revenue from the deal in the first quarter, which accounted for almost all its revenue. It posted a profit of $947,000. The company says its hardware partner is testing the film, and laptops with Uni-Pixel film could be on store shelves by September. Another licensing pact with an "ecosystem partner" could bring in more cash, Killion says.

Some analysts and investors have speculated that the laptop maker is Dell (DELL). Uni-Pixel "said it to people privately, but they won't say it publicly," says one analyst who requested to be quoted anonymously. Killion says he consistently tells investors who mention Dell that the computer company's identity is secret.

A Dell spokesman said the company doesn't discuss partnerships on future projects.

Uni-Pixel is one of many companies working to replace ITO technology. According to the research firm Display Search, more than a dozen competitors are trying to develop alternatives, including Atmel (ATML), which also makes chips for touch screens. Its XSense copper-mesh film has been built into Asus tablet computers. FujiFilm Holdings (4901.Japan) also is shipping touch-screen film.

Atmel licenses its film from CIT, a British company that filed suit against Uni-Pixel in December in the U.K., charging Uni-Pixel had seen confidential CIT documents and later filed patents that were similar to CIT's technology. Uni-Pixel countersued in Texas in January, claiming it didn't break a non-disclosure agreement with CIT. "We adamantly deny" the claims against Uni-Pixel, Killion says.

Uni-Pixel says its process is cheaper and potentially more reliable than Atmel's, but Christopher Rolland, a technology analyst at FBR, is doubtful. "I don't see any competitive advantage for Uni-Pixel over Atmel, even though Uni-Pixel is getting media attention," he says.

Prior to UniBoss, Uni-Pixel promoted as potentially game-changing another product called TMOS, a display panel that it said would be brighter, cheaper to manufacture, and more efficient than conventional LCD and LED screens. The company signed a joint development agreement with Samsung Electronics (5930.Korea) but things didn't pan out, Killion says, because Uni-Pixel's partners "never delivered functional backplanes."

A Samsung spokesman says the companies collaborated on TMOS, "but the joint effort was later halted after the two sides explicitly agreed to go their separate ways." Uni-Pixel sold TMOS patents to Rambus (RMBS) in 2010 for $2.25 million in 2010.

Uni-Pixel also developed fingerprint-resistant films to protect touch screens. Killion predicted in 2010 that the film would become the "gold standard" in a $250 million market, and that sales would "increase dramatically" in 2011. He now says that product failed because "the market started to drift and we didn't spend any dollars on marketing."

Diamond Guard, a lower-cost substitute for glass used in touch screens and other applications, likewise was expected to take the tech world by storm. Killion said in 2011 there was "immediate demand" for the product. Diamond Guard is still around, but few if any analysts use revenue from it in their estimates.

These aren't the only technologies developed by people associated with Uni-Pixel. Chief Technology Officer Robert Petcavich, who led the effort to develop UniBoss, has applied for patents in a wide array of fields. He previously founded and served as CEO of Planet Polymer Technologies, which developed biodegradable plastic. The company incurred millions of dollars in losses before a reverse merger in 2005 with Allergy Control Products, and was later delisted. 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.

Uni-Pixel chairman Bernard Marren was the first president of the Semiconductor Industry Association. He is now CEO of Opti (Opti), which no longer produces anything but owns patents for computer chips files lawsuits against other companies, alleging patent infringement. It is liquidating, and its shares, once, $7.60, trade for 70 cents.

Uni-Pixel's former chief science officer, Martin Selbrede, has been associated with geocentrism, or the belief the sun revolves around the earth. Killion notes Selbrede left the company about four years ago and "doesn't really have any impact on what we're doing today with UniBoss."

He adds, "If you can find somebody to look through the math associated with what he has said about geocentricity . . . the assumptions might be a little off, but the math will be dead on."