Does anyone have an opinion on this proposed addition to the Russel 3000?
I recently wrote a summary and, as you can tell, am rather bullish on the Company. Thanks in advance
Valence Technology is making the transition from R&D to commercial production of Lithium-ion, solid polymer rechargeable batteries for cellphones and laptop computers. A Valence board member and its CEO worked together during Seagate's first 7 years as CEO and director of operations.
Several laptop mfrs are now offering Li-ion batteries in their high end models or as an approx $200 adder because they will store about twice the energy as Nickel metal hydride. Currently, these batteries are configured as series-parallel combinations of liquid-electrolyte LiIon cells enclosed in a battery pack. According to a study by Compaq, about 25% more energy storage can be gained with the solid polymer version(Valence appears to be the first large-scale source) because the cells are rectangular (prismatic) in shape and do not require a metal can to contain the electrolyte.
The company's first production line(low speed, multiproduct new design) is now producing cellphone cells being inventoried and being held for testing. It is likely that they will convert this line to the larger laptop cells (4"x4" footprint) that store about 4 times the energy as the smaller cellphone cells.
Their 2nd line(high speed), thoroughly tested at another location, will be bolted to the plant floor in Northern Ireland next week and is already set up for the smaller cellphone cells and expected to be in full production around Sept 1. It is my understanding that Motorola has been patiently waiting for the product.
Their 3rd line(identical, high speed but likely intended for laptop cells) is expected to be in production by yearend. It is my understanding that Hewlett Packard has introduced a new laptop model with the capability of "hot swapping" an auxiliary battery pack with a cd-rom or floppy. The companies have an associative history and it is believed that the new design is for Valence's battery.
Their 4th line(also high speed, identical) is expected to be in production by February/March '98.
The Ireland plant has room for 10 lines and it is planned to add 1 line/quarter. The market is such that they should be able to sell all they can produce for several years. The company has some joint ventures in place that require zero cash outlay but pay Valence 50% of the profits as a payback for all their R&D.
Their first 4 production lines combined appear to have the capability of earning about $6 per share if run at full capacity. The stock, presently trading at around $8, has a tremendous upside potential($6 x a PE of 20 = $120/sh). They will likely ramp up a little more slowly but there is a consensus that $25/sh by yearend is likely.
There is a dearth of information about the company through normal channels because they have been maintaining a very low profile - there was a lawsuit based on their having to back out of a $100 million contract with Motorola about 4 1/2 years ago when stock price was in the high 20's. With their previous technology, some of the cells would eventually short after many recharge cycles because of a plating-out effect of lithium metal. They have been a long time in R&D since and their new technology prevents this from recurring.
Fred M. Kellett |
