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Technology Stocks : VALENCE TECHNOLOGY (VLNC) -- Ignore unavailable to you. Want to Upgrade?

To: Robert Cohen who wrote (18258)	2/11/2000 3:45:00 PM
From: Dennis V.	Respond to of 27311

Bob, not to second guess, but Lev alluded to Valence's policy of patenting "everything". I believe this refers to clustering and bracketing of processes, procedures, architecture and chemistry. Taking the Belcore process to the production floor is one hell of a leap(now they tell us),heh! Valence's patents, taken together, represent far more than any single one with possible exception of the patent covering phosphate electrodes.

To: Robert Cohen who wrote (18258)	2/12/2000 4:39:00 AM
From: P. Ramamoorthy	Read Replies (8) \| Respond to of 27311

Feb 11 VLNC Conf Call Notes - Ram (2/11/00) (1) Lev envisions VLNC to become a licensing company with a strong technology leadership. He does not want VLNC to be a manufacturing company. To become a licensing company, two things must happen: (a) patents (that VLNC has already filed) have to be issued. It takes 2-2.5 years for patents to issue. Potential licensors do not know the scope and breadth of VLNC patents filed so far. VLNC has been filing everything about their commercial production and battery technology. (b) VLNC must produce batteries (large commercial volume) that customers (OEM's) accept. This is happening just now. Lev wants to license the whole technology as a complete package and generate royalty revenues. He does not want to keep any part of the technology "under the wraps" viz. the laminate production. The suppliers of Manganese dioxide (raw material) are anxious to get a license from VLNC to supply their material to other battery manufacturers. Lev does not want to license parts of the technology at this time. (2) Positives and Negatives of being the only manufacturer of large cells (12"x12" and 1 to 6 mm thick). Lev has not seen any large Li polymer cells in the market, from Sony or Sanyo or anyone so far. He referred to Sony's plans to drop the production of Size D Li ion cells. VLNC is the only game in town for large Li Poly batteries, for computer applications (PC's or PDA's). Lev thinks the VLNC battery might last 8 hours compared to 1.5 hours of today's laptop batteries. VLNC batteries might enable laptop PC's to become portable multimedia devices: watch a movie or listen to music while working on the PC. But the "product designing in" takes more time because current PC configurations have to be changed into simpler and thinner shapes. VLNC cells can fit on the back of a printed circuit board of any shape. Beta testing with one or two OEM's has been going well so far. Bill Battison gave an account of positive beta testing results. Negatives - OEM's do not like to rely on a single source for their batteries. Cell phone orders were given to VLNC since OEM's could find a second source of supply for these batteries. Lev hopes VLNC credibility and reliability will improve with time and customers would find comfortable dealing with a single source. VLNC may start an ad campaign to promote the brand name. (3) Gen I cells are almost phased out. VLNC is producing mainly the Gen II cells, (manganese) based technology. The phosphate technology is under development. Cost decreases from cobalt to manganese to phosphate. Manganese is much safer than cobalt and their Mn based cell carries much higher energy density that OEM's like. Competitors do not have rights to the manganese technology due to VLNC patent position. VLNC will continue with R&D spending, in order to maintain their technology leadership. (4) Gross Margins - Lev WILL NOT REVEAL his profit margins or price structure to ANYONE. Customers and competitors could be listening in. Obviously, margins are better with larger size cell manufacture. Raw material cost (Cobalt at $65/kg and is going up, whereas manganese dioxide used by VLNC is $22/kg and its price is going down.) VLNC has definitely a competitive edge. (5) Production facility - 2 lines in operation, 2 more will be in operation. The last of the four lines just installed will make the larger size cells (12"x12") or any smaller size. Lev will not operate the lines without the incoming orders, proper quality control, training, etc. He envisions operating all four lines up to capacity, three shifts, soon. He did not give specific schedules. Battery demand for cell phones is exploding! It is a demand-pull situation. Orders are concentrated to a few OEM's (as people could guess their names). But Lev does not want to commit 100% of the production facility to cell phones. He wants to produce large size cells for computer applications. He talked several times about the 12"x12" cells and the new line that is being set up to produce this large cell. (did anyone sense an element of excitement in his voice?) Lev wants to ramp up production very conservatively, to match the incoming orders. (6) Life cycle testing - VLNC life cycle test stops after 1000 cycles since they need to make room for testing the incoming batch. 1000 cycles test is considered sufficient. (7) Temperature cycles - High temperature cycles are relevant to computer applications since the batteries get hot during use. Low temperature cycles apply to cell phones. By proper selection of cell materials and chemistry, VLNC has been successfully meeting both of OEMs' requirements. (8) Hannil and Alliant JV's - Hanil helped VLNC get a PO. Hanil is not ready to produce cells since VLNC has not yet qualified Hanil for production. Lev placed much emphasis on Quality Control (his usual:"VLNC will not fail for lack of capital, or lack of technology, but it will fail if they shipped bad batteries") VLNC is instituting a STRICT QC structure at Hanil. (9) Beta testing - 50 OEM's so far. 4500 samples shipped so far. About 115 applications. Successful beta testing does not guarantee PO's. Have been shipping batteries for a year or so. It took about 5 months for the current cell phone PO's. Companies reviewed both NI plant and VLNC's corporate viability (Note: an important reason for getting rid of the law suit.) Corporate viability is important to long term business. VLNC can make extremely thin cells (1 mm) whereas the thinnest cell for cell phone available today from Li ion battery manufacturers is 6 mm. OEM's like the good energy density that VLNC achieved at 1 mm thickness. Large battery consisting of cobalt cells (for computer use) has problems: not all cells perform the same, so overcharging one of them could to lead explosion. VLNC claims consistent performance for all cells and safety of the manganese technology. Consistent performance of cells makes it easy for the "design in" by OEM's (10) VLNC Brand Name - Continuing discussion with OEM's about branding VLNC batteries. Lev hopes some day OEM's will agree. Currently VLNC needs to focus on reliability, credibilty as quality battery supplier. (licensing might help create a second source of supply to OEM's.) (11) Customer names - By agreement VLNC can not reveal their names. VLNC does work with potential customers via Moltech and other repackagers. Eventually, Lev wants to make the VLNC brand name known and hopes customers will, at some point, accept VLNC brand name. (12) Accounting - They are transitioning from R&D to regular accounting. The law suit settlement will be written off in the March 2000 qtr. Their auditors have given a set of acceptable accounting standards that VLNC must comply. In a quarter or two, they expect to have regular accounting. (13) IDB grants - a maximum of 32Million, given to VLNC in stages as VLNC spends capital (machinery). VLNC has ordered $11Million worth of machinery to expand the NI plant, so did Hanil about the same amount. VLNC has stipulated that the machinery manufacturers (agreement within the law) should not sell similar machinery to competitors. (14) Expansion to other locations or other JV's - Currently, Lev's focus is on utilizing NI plant's full capacity and expand production gradually to match incoming orders. He does not want to "blow this thing" at the execution stage. (If I recall more, I'll add later. Ram)