Invest in Metal Mesh Touch Screens with Uni-Pixel?

The the most common transparent conductive material used in touch screens, Indium Tin Oxide (ITO), is likely to be replaced soon because the raw material is expensive, it is mainly produced by China and is possibly being hoarded, it is difficult and expensive to apply to screens, and it is very brittle.

report last year by BCC Research, stated that the global market for transparent conductive coatings used in touch screens is expected to grow to nearly $7.1 billion by 2018 from $4.8 billion in 2013, registering a compound annual growth rate (CAGR) of +8% between 2013 and 2018. So a competing technology for ITO could achieve rapid adoption in a growth market that is dominated by a single technology. There are at least six possible replacement candidates for ITO including “metal mesh”, “silver nanowires”, “carbon nanotubes“, and “graphene”. The below table shows just how many companies are researching various types of ITO replacement technologies:

ITO_Replacement_Research

One of these technologies, “metal mesh”, has provided a few publicly traded plays for investors. We previously highlighted Atmel (NASDAQ:ATML), a $3.5 billion microcontroller company. In 2012 Atmel announced a “metal mesh” product called XSense that was expected to quickly displace ITO. One problem for potential investors was that there was no revenue breakdown for XSense making it difficult to determine the impact XSense sales could potentially have to the Ateml’s bottom line. But there was another way we could get a glimpse into how the “metal mesh” technology was progressing, and that was through looking at Carclo (LON:CAR).

In a previous article on Carclo, we discussed how Atmel and Carclo had entered a partnership through which Carclo would produce the XSense “metal mesh” product. This saw Carclo investing $5.4 million in a new high-speed coating line which was operational by September 2013 and could produce in excess of 3.0 million square meters of coated film per year. Atmel also provided a prepayment to Carclo of $10 million and two commercial products were shipped in December of 2012 using XSense which was also to be used on the new 7” ASUS Memo Pad. Fast forward to today and it seems the technology failed to be lucrative for both Atmel and Carclo. Carclo’s share price has plummeted:

Carclo_5_Year_Chart

The red dot represents a point in time where Carclo was claiming to expect revenues for their CIT division in the range of $12-18 million for the current financial year, most of which was to be related to XSense. The problem was, that revenue growth never transpired with Carclo’s last half-year trading update showing weak revenue growth for the CIT division and an increasing drain on profits:

Carclo_Revenue_Breakdown

In October 2014, Carclo began a strategic review of their  “CIT Technology business”, a majority of which was the XSense opportunity, and then just this month in their yearly report stated that:

The Board intends that the Group will exit the CIT Touch and Printed Electronics businesses.

In February of 2015, Atmel also completed a strategic review and decided to exit the business. The shutdown was expected to save Atmel $15 million a year in operating expenses. Just several days ago, both Carclo and Atmel exited the “metal mesh” opportunity by licensing the Xsense technology to another company who has failed to monetize their own touch screen product, Uni-Pixel (NASDAQ:UNXL). The terms of the transaction taken from the Atmel website state that Atmel:

Licensed to UniPixel its XSense patent portfolio and other intellectual property, which Atmel is retaining.  The intellectual property licenses have an initial five year term, renewable by UniPixel for an additional ten years.  Atmel will receive minimum royalties during the initial five year term equal to $16.25 million, of which $9.33 million is being prepaid in cash at close.

The terms for Carclo were as follows:

In consideration for the grant of an initial five year FLT Patent License (“Patent License”) to Unipixel, CIT will receive per annum payments of the greater of US$1.65 million or 1.67% of annual net product sales. An initial  cash prepayment of US$4.67 million has been received by CIT at completion and this is non-refundable.

So Atmel will have received at least $16.25 million and Carclo will receive at least $8.25 million bringing the total consideration to $24.5 million. So Uni-Pixel (NASDAQ:UNXL) has purchased a production line which produces XSense film that was expected to generate $100 million in yearly revenues and didn’t, therefore causing both stakeholders to exit the business. Following this announcement, both Atmel and Carclo exit the XSense business with a cash payment and potential upside with royalties if the technology is a success. Given Uni-Pixel’s track record of broken promises, propensity to issue shares, and their legal problems, the likelihood of any potential upside for Atmel (NASDAQ:ATML) and Carclo (LON:CAR) relating to their sale of the XSense technology seems quite low. It will be easy to see how this impacts Uni-Pixel since they had zero revenues in 2014.

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