Tuesday, September 04, 2007

Back-to-School Power Boost

The Labor Day holiday is over and the kiddies are going back to school. This year more than ever before it takes a strong power boost to start the school year. Children of all ages are heading off to the bus stop and the dorm room with more electronic gear than ever - laps tops, MP3 players, personal video players, PDAs.

Functionality keeps moving forward, but power solutions seem to lag.
Apple (AAPL: Nasdaq) launched the iPhone with not new innovation in power supply. They even sent it out with the same “return to factory” instructions for changing the lithium ion battery on which the iPhone runs.

I have been watching early stage companies with new battery technologies for the last few years. Most are working on tweaking the lithium ion battery, such as
A123 Systems, Inc., a privately held company based in Massachusetts. A123 developed a proprietary phosphate technology for battery cathodes that increases power output. So far its batteries are headed toward DeWalt power tools and General Motors’ hybrid electric cars.

Altair Nanotechnology (ALTI: Nasdaq) is featured in our Small Cap SEARCH newsletter. Altair is using its titanium dioxide nanotechnology to alter the chemistry of lithium ion batteries at the anode. However, so far Altair’s NanoSafe battery has been adopted for an all-electric fleet-truck produced by Phoenix MotorCars.

Valence Technology (VLNC: Nasdaq) produces an external battery, N-Charge, that provides up to ten hours of extra runtime for a laptop. It is portable, but practical only for road warriors who are willing to carry around the extra weight and bulk.

Another privately-held technology innovator is NanoeXa, based in California, which produces lithium ion and lithium polymer batters. Most of its polymer batteries are for small form-factor applications, like BlueTooth headsets, PDA memory backup, MP3 players and digital cameras. The company made a major move toward commercialization of its technologies with the acquisition of
Decktron (053070: KOSDAQ), a Korean manufacturer of flat panel displays and lithium batteries.

Majority ownership in Decktron gives NanoeXa a critical mass not found in the other three technology start-ups. Decktron’s flat panel display business gives it operating cash flow as well as manufacturing experience. To provide a battery solution for consumers, high volume manufacturing capacity and know-how will be critical.

Of course, the other three, Altair Nanotechnology in particular, are poised to license their technologies to battery manufacturers such as
Sony (SNE: NYSE) or Hitachi (HIT: NYSE). The license arrangement would allow them to eliminate the capital requirements and learning curve associated with manufacturing and marketing. The trade-off of some of the profit margin to a manufacturing partner may be worthwhile in order to get a foot in the door of the $8 billion lithium ion battery market.

That market is likely to double in the next two years. Converged mobile devices such as the iPhone numbered about 250 million units in 2006. That number is expected to double by 2008. All of those devices use lithium ion batteries. For investors, it is difficult to find a play on the battery market. The choices fall into two categories - the huge, fully integrated electronics producers such as Sony or Hitachi or the small, highly speculative start-ups mentioned above.

My bet has been on publicly-traded Altair, which has yet to record substantial sales let alone profits. Altair is pursing multiple markets, with the battery application just one of several applications for its titanium dioxide nanomaterials. I am also watching for an initial public offering from A123 Systems, which appears so far has won considerable support from powerful venture capital firms.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Altair Nanotechnology is profiled in Small Cap SEARCH newsletter published by Crystal Equity Research with generally favorable commentary.

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