Tuesday, May 24, 2011

Battery Brouhaha

Attitudes toward the privileges of the wealthy are not the only discrepancy brewing between the France and the U.S. these days.  Johnson Controls, Inc. (JCI:  NYSE) recently served notice to dissolve its joint venture to develop and market lithium ion batteries with Saft Advanced Power Solutions, a subsidiary of French technology developer Saft Groupe SA (SAFT: Euronext; SGPEF:  PK).  The French are crying foul and want the partnership to continue.

This story might not replace "DSK" on the front pages of the tabloids, but it will still be played out in the public for all investors to follow.  Earlier this month U.S.-based Johnson Controls filed its petition to dissolve the joint venture with the Delaware Chancery Court.  Johnson Controls cites its interest in expanding the joint venture into new markets for lithium ion technologies and Saft’s unwillingness to get on the bandwagon.  Saft promptly fired back with a press release advising shareholders of its view that the joint venture was just fine the way it was and that Johnson Control’s has its sights set on markets Saft is already serving with Saft's own battery technologies.

Nothing like a squabble over market share to get partners into a court room!  It may also be an indication that the advanced battery market has matured past the early adopters and is now serving the broader base industrial and commercial customers around the world.

Saft reported 5.7% top-line growth in the year 2010, largely on strengthening demand from developing countries for its various battery products.  Strict cost control measures helped expanded profit margins year-over-year despite raw materials price increases.  Future growth is expected to come from distributed energy projects around the world, particularly in the U.S. and Europe.  The wider the moat it can build around its proprietary products the faster it may grow.

By contrast Johnson Controls is riding a big wave of growth, expanding sales 20.4% in 2010 over the prior year.  A comparatively larger company, Johnson Controls needs large market size to keep that growth engine humming.  What better way to get a bigger piece of the pie than by expanding the scope of its joint venture.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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