Candescent News...
As I work at Candescent, I am not free to answer all of your questions, but here are some recent articles from the San Jose newspaper. The first article is mostly fluff. The second article has some interesting implications for investors as well as employees.
-bob
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Candescent Looks To Flatten Competitors --
Plans fab for new display technology
Karen Rodriguez Business Journal Staff Writer
Armed with a $125 million cash infusion, Candescent Technologies Corp. aims to take on giants such as Motorola Inc. and IBM in the $14 billion flat-panel display market.
After seven years of research and development, the company plans to build a 250,000-square-foot manufacturing facility in South San Jose for its breakthrough screen technology. Harry Marshall, chairman, president and CEO of Candescent, said a little creative financing put the San Jose-based company in a position to introduce a whole new technology in flat-panel displays. (See related story, right.)
With 230 employees, the company currently occupies 80,000 square feet in an old IBM facility in San Jose's Edenvale area.
It will pick a new site from among several nearby locations before breaking ground, which it expects to do within 90 days.
The new plant will require up to 1,000 workers.
In all, the company will need $400 million in financial backing to build and operate the new plant. Some of that money has come from partners Hewlett-Packard Co. and Compaq Computer Corp., and it expects to generate the rest when it goes public within a year.
It was HP's desire for a more advanced display technology for its notebook-size-computer business that started Candescent down its current path.
HP was frustrated with existing active-matrix screens, which are slow to draw images and don't offer much contrast or brightness. Also, images and data displayed on them blur when viewed from an angle, Marshall said.
Candescent believes it has found the answer in the simple television monitor. The company took TV's traditional cathode-ray tube and flattened it to 3 millimeters in thickness so it can be used in the computer and electronic-device market.
The CRT disperses light beams across the entire screen and delivers high contrast and brightness at low power.
Candescent's "Thin CRT" technology seems ideal for multimedia and video applications coming to new devices, such as camcorders, hand-held computers, digital video devices and video phones--and eventually for larger notebook and desktop computer applications, Marshall said.
Candescent has applied for 130 patents on all elements of the display technology and has been issued about half of them.
Although the company has not yet delivered any of its displays, it has built a prototype of a 4-inch screen that's suitable for hand-held devices found on manufacturing floors and inside automobiles to aid in navigation.
"What excites me the most is we can manufacture something that is high performing at lower cost [than active-matrix development]. The prospects of building a sound business here are very large," Mr. Marshall said. "When you talk about strategic components, the display is the single most expensive component in a notebook computer; it's two times the processor."
About 17 million notebook units with flat-panel displays were shipped worldwide in 1997, compared with 75 million desktop units, according to the latest figures from Dataquest Inc., a research firm in San Jose. By 2002 those numbers are expected to nearly double, to 32 million units for notebooks and 134 million for desktops.
Because notebook and desktop systems generate far more revenue than the smaller consumer devices, Candescent wants to diversify its line of displays to cater to those markets. But the company has not yet developed a prototype for the larger screens--starting at 12 inches--used in notebook systems, and that makes analysts skeptical about Candescent's ability to meet its expectations.
"The technology is just starting to mature; it's unclear how far it can be pushed. No one has demonstrated a display suitable for a notebook," said David Mentley, vice president at Stanford Resources Inc., a San Jose based research company that follows display technology. "[Candescent's] displays look really good and the technology is intriguing, but the market is heavily competitive and it's an expensive game to get into."
Not only does Candescent have to compete with players in the active-matrix market, but a half dozen companies, including Motorola, are developing technology similar to Candescent's Thin CRT.
Last year, Motorola built a 275,000-square-foot facility in Tempe, Ariz., to produce its own advanced flat-panel displays, also using reengineered CRT technology. It, too, is starting out with smaller screens of 5 inches or less that are used in handheld systems, marine instruments and autos for navigation. It also hopes to produce displays for the larger market of laptops and desktops.
"We are competing with the [active-matrix] companies. We think our technology is superior because it's lower power and offers better color and clarity, said Barry Moehring, manager of marketing and communications for Motorola's flat-panel display division. "This is regarded as a hot, up-and-coming technology. We've invested over $100 million in this and hired 300 people. We are committed to delivering a prototype later this year."
Motorola plans to go into full production early next year, the same time Candescent said it will deliver its Thin CRT displays for industrial and automotive devices.
For now, each welcomes the other's entry because it lends credence to a newly emerging market.
The real battle won't occur for at least another year, when both companies hope to inch their way into the more lucrative big-screen market.
c 1998, The Business Journal
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Taking A Unique Tack With Bonds ... Convertible Bonds
Dennis Taylor Business Journal Staff Writer
Candescent Technologies Corp. just wrapped up a novel $125 million offering.
The San Jose-based startup sold convertible bonds, which can be converted into common stock when there is a public offering--a first among Silicon Valley technology firms.
The bonds were sold in $1,000 blocks. They can be converted to $13 per share when the company holds a public stock offering, which executives hope will happen within a year.
Until then, the bonds are paying 7 percent--much lower than more traditional bond yields of 8.5 percent.
"They can afford to pay a little less, since the upside involves the sale of the stock," said Doug Clack, a bond trader at Van Kasper & Co.
"What's different about this: The underlying common stock is not public," said David White, Candescent's CFO and senior vice president of finance and administration. "Candescent is the first company in the high-tech arena to do this."
Joe Morford, an equities analyst at Van Kasper, said a convertible bond offering by a private company was new to him, but it may have been done before.
Last year, UBS Securities (an arm of the Bank of Switzerland) underwrote Global Telesystems, an Eastern European telecommunications company, in a similar offering.
UBS--along with SBC Warburg Dillon Read Inc., BancAmerica Robertson Stephens, and Solomon Smith Barney Inc.--underwrote the Candescent offering.
Mr. White said the company is planning an initial public stock offering later this year or early in 1999.
Investors are banking on the company's IPO being priced at or above $13 a share. If the stock falls below $13, investors lose, at least in the short term; if it rises above $13, they're in the money.
If the bull market continues through the end of the year and into 1999, it seems like a fairly safe bet investors will see a profit when the bonds are converted, based on the performance of IPOs launched since the first of the year.
The average offering price of the 30 Silicon Valley IPOs since Jan. 1, as tracked by IPO Monitor, was just under $11 a share.
But the closing price of those same shares as of May 22 was above $15 a share--a 36 percent increase.
The bond offering comes with restrictions for both the company and its investors.
The U.S. Securities and Exchange Commission says institutional buyers can buy convertible bonds from a private company.
And individual investors must meet stringent income criteria before being allowed to purchase the bonds from those buyers.
"This isn't the general buying public," Mr. White said. "If you are selling to someone with these guidelines, the assumption is they know what they are doing; you assume they do their own due diligence."
Mr. Clack said investors must know the risks involved. "They must be very savvy individuals and institutions."
Still, Candescent has built some strong incentives built into the offering.
If the company doesn't go public within one year of the offering, the interest rate jumps a full percentage point.
What's more, the per-share price drops $1 a share, costing investors less. These "ratchet" provisions become more severe the longer it takes Candescent to hold a public stock offering.
But as Mr. White points out, there's even a greater pressure to perform: The company needs $400 million to start manufacturing, which it plans to generate through a stock offering. If it doesn't achieve that, it may be finished in the flat-panel display market.
c 1998, The Business Journal |
