from Clay November 13, 2015: The Age of Quantum
Post# of 22456
Posted On: 11/13/2015 11:48:12 PM
from Clay November 13, 2015:
The Age of Quantum Dots is Now Officially Here - Part II
Quantum Materials Posts First Revenue from Joint Development Funding of $225K from Nitto Denko Group
Welcome to the revolution! It's been about three weeks since our last Quantum Materials Corp/quantum dot market update - so as we approach the Thanksgiving Holiday season thought it would be a good time to put a few recent events/observations to paper and send along to all invested in and following Quantum Materials Corp. While it might not seem like it's been an active time for Quantum Materials Corp. over the past month or so, I am happy to report that things are moving ahead quite nicely indeed as the market continues to advance down a path towards large scale quantum dot adoption in several key arenas, especially in the market of flat panel displays.
Due to a number of key performance/cost advantages over legacy technologies such as colored phosphors for generating the RGB (red, green, blue) color spectrum in flat panel displays, quantum dot based technology continues to move into the marketplace experiencing accelerated commercialization levels that are now disrupting several existing designs and product formats. The most obvious evidence of this "paradigm shift" trend is consumer electronics giant Samsung's aggressive product launch of their SUHD line of flat panel displays powered by a combination of Ultra High Definition (UHD or 4K) screen resolution and quantum dots (to produce wide color gamut viewing qualities). Initially Samsung brought this new Super LCD out in a 65" version which was quickly followed up by a 55" version, and priced this line at levels that were roughly 60% to 65% lower than the existing "gold standard" OLED (organic light emitting diode) display pricing levels, which are manufactured primarily by fellow S. Korea based competitor LG.
We can only imagine the massive shock wave this disruptive new entrant and pricing metric caused LG and their OLED based display product line (LG recently downgraded guidance numbers for large format OLED panels sold in 2015 by a material amount. Was this downgrade due to OLED fab capacity restraints - or did it have more to do with the rapid and possibly unexpected rapid uptake in SUHD displays at the retail level? Hard to say for sure but it's certainly possible that SUHD sales contributed to this new guidance figure). Well, after taking a direct hit to the hull, LG countered with their own price drop for 4K OLED pricing, setting their displays at price points that are still roughly 2X similarly sized SUHD displays. Well, we certainly don’t claim to be marketing guru's here, but when you look at these two display formats side-by-side, we can see why LG's pricing/marketing strategy for OLED seems to be starting to buckle a bit here. Sure, if you’re a Prince or oil oligarch outfitting your new mega yacht or Austrian castle with a fleet of the most expensive displays on the planet and cost is no object - well yes it’s likely going to be OLED, but for rest of us 99%'ers that are just looking to stay current with next generation technology, we believe that opting for an SUHD (or other QD powered set) at roughly half the price is a pretty easy decision.
Is Samsung's strategy to move away from OLED based technology and focus almost exclusively on next generation based LCD technology powered by quantum dots working? Well it sure seems to be the case as over the past couple of months Samsung has expanded the QD powered line across 3 additional format sizes (48", 50" and 60"
and is now selling nine (4K) sku's at BestBuy (including what is now 3 each of the 55" and 65" sets) - with prices ranging from a low of $1,000 to a high of $3,000 for the flagship 65 incher. We don't have sales numbers but to get a sense of sales delta's we have analyzed the "customer review" numbers and when normalized for number of sets (sku's) and days on the shelf we estimate that the SUHD sets are getting about 9 reviews for each OLED review! This is an amazing statistic and if reviews actually do in some way track sales numbers (and we're not saying here that they do, but suspect that they do at least correlate in some meaningful way) the raw data is even more revealing in terms of QD technology uptake with total SUHD reviews of 1,390 vs. only 84 OLED reviews for a 16.5X advantage to SUHD (first SUHD review in mid-March with first OLED review in mid-April, so SUHD did get a small head start here and yes we realize we are comparing aggregate numbers for four (4K) OLED sku's vs nine (4K) SUHD sku's but remember, this is a zero sum game and if you make a sale in the 48" and over category for one format you essentially take that sale away from the other side) and when you multiply each (categorized) review X display price point you get a number of $3M for SUHD vs. only $350K for OLED from mid March 2015 thru November 10th giving the SUHD an aggregate gross sales advantage of 8.5X (bear in mind that the standard "purchase to customer review" ratio has been estimated across several formats to range from a low of about 0.5% to a high of around 2% - so total sales will be a significant multiple to these numbers for both formats).
The key takeaway here is that SUHD looks to be cutting HEAVILY into the OLED market with no additional capex or tooling costs (OLED fabs require major new CAPEX spending to add capacity whereas QD panels are built in existing LCD fabs by simply change out the film adding a QD based layer while removing a phosphor layer).
This admittedly "unscientific study" was further backed up by information in Samsung's most recent quarterly financial report wherein they cited a big upswing in revenues from their display division due to increased sales of "premium UHD displays". Here is a link to Samsung Electronics Q3-2015 which clearly shows increased revenues from these next generation panels (in relation to Q3-2014): http://www.samsung.com/us/aboutsamsung/ir/ire...ce_eng.pdf
Compelling numbers indeed so we were not a bit surprised to see that an SUHD display took 1st place honors in Consumer Reports recent flat panel shootout with a Sony Bravia set coming in a close second followed in third place by an LG OLED set. Here is a link to that report: http://www.koreatimesus.com/samsungs-suhd-tv-...er-review/ (OK, for all the die hard OLED fans that read this, we are going to concede right here that we agree that OLED displays have "otherwordly black levels" and superior "off angle viewing" characteristics compared to LCD tech - but when OLED OEM's are asking for twice as much dough, they just can't compete head-to-head on a broad consumer level until they get much closer to price parity, and we really don’t see that date coming soon, if ever).
Well about now you're probably wondering what the heck does all this market data mean for Quantum Materials Corp and their shareholders? Well, we include this information to support our thesis that the QD Revolution is now in full swing and you can be sure that this information is not being missed by the key decision makers/executives at the other major consumer electronics OEM's (that already have plenty of LCD fab capacity but do not have OLED fab capacity) that have seen firsthand what is happening in the trenches (read shopping aisles and online distribution channels) and are mounting "Manhattan Project" intensity level initiatives of their own to: design, manufacture, ship and shelve high quality display panels that can compete head-to-head quality wise and be price competitive with Samsung's SUHD line - and that my friends is going to create high demand levels for quantum dots going forward which is QTMM's core product line. This demand spike is being seen on the front line with numerous OEM's looking to source both QD's and QD film from the small hand full of advanced level quantum dot suppliers in the market at this time and we have seen direct evidence of that fact with just how busy the San Marcos team has been of late.
Further to this ramp up in demand we can't help but notice that one of these advanced level suppliers has yet to commission their Cheonan, South Korea quantum dot processing facility (Nanoco partnered with Dow). In fact, we have seen numerous reports from a number of sources including analysts that cover this company (as well as newsletter/IR sources) that continue to state in no uncertain terms that "Nanoco is the only quantum dot supplier that can produce commercial quantities of cadmium-free quantum dots". Well we know this to be a patently false statement based on the many public press releases reported by Quantum Materials Corp. that clearly state their CURRENT capability to produce up to 2.25 metric tons per year of high performance, quantum dots (cadmium based or cadmium free, and we have seen that capacity with our own eyes). From internet sources it is our understanding that WHEN the Nanoco/Dow facility is finally commissioned (it is now running around six months or so late from earlier estimated commercial readiness dates) it will open with an annual capacity of just 800Kg/year, an amount which is roughly one third QMC's present capacity. We also understand from reading industry press reports that at least one of the privately held companies in the space also possess the capability to produce commercial quantities of high performance cad free quantum dots - a fact which seems to be overlooked by Nanoco's supporters as well. In the grand scheme of things we bring this up to highlight that their really looks to be a limited supply of quantum dots available to supply what looks to be a rapidly expanding market demand. What we do know for sure is that the OEM's are looking for quantum dot suppliers that can produce large volumes of low cost quantum dots and have the ability to scale quickly to support rapid commercial uptake - and based on Quantum Materials IP protected continuous flow processing technology they look to be very well positioned to support this type of industry growth going forward - and possibly are either presently at, or near the top of a very short list of companies that can do this.
Quantum's Q3-2015 financials came out today and we are very pleased to see $225,000 in (deferred) revenue generated from their recent JDA partnership with Nitto Denko, a leading film and optoelectronic component supplier with a significant market share among the many OEM display manufacturers (we have included a footnote below which further describes this revenue). Nitto Denko and Quantum Materials Corp. are jointly developing quantum dot film substrates to power these next generation panels and we expect that once this film is completed - we will see Nitto Denko/Quantum Materials products start showing up in displays to power wide color gamut in next generation panels and the Company will start reporting revenue based on sales of quantum dot products - the Rubicon event that all shareholders have been looking forward to. Based on everything we see, that event draws nearer every week.
Oh, and by the way, we also want to share with you a recent article that covers another very important topic to all Quantum Materials Corp investors, and that topic is which path is Apple going to take the next generation iPhone display screen down? Will they stay the course of an LCD based screen or will they adopt an OLED strategy like several of their competitors. Well this article (link below) dives into that question pretty deeply and while the jury will be out until we get the official word from Cupertino down the road, this article seems to spell out pretty clearly that they will be continuing to utilize LCD technology for the foreseeable future and that means that once cad-free QD's get fully entrenched in the large format display realm, there remains a very good opportunity we just might someday see an iPhone with QD film onboard to produce eye popping color gamuts AND extend battery life! As you will see by reading the article, Apple has been reluctant to utilize quantum dots in the iPhone due to the cadmium issue. With cadmium free alternatives now coming into the market, that could open the door for this technology to move into the handheld realm - and by the way, did we mention that Nitto Denko just happens to be an existing supplier of film substrates to Apple? Well they are.
Here's a link to that article: http://www.fool.com/investing/general/2015/11...ays-f.aspx
We will be heading to CES in early January 2016 with the QMC team to reprise our "2015 CES Travel Digest" and we will be sure to forward that report along once completed. Quantum dots made a big splash at last year's show and we expect that with the rapid advancement in display uptake of this highly efficient new technology that this year they are going to be a really big deal!!
The next couple of months looks to be a pivotal time for both quantum dot technology and Quantum Materials Corp, and we will be sure to keep you up to speed on all breaking news as it happens.
Wishing everyone a great weekend and safe Thanksgiving Holiday!
Regards,
Clay Chase
SD Torrey Hills Capital
858 456-7300
cc@sdthc.com
Excerpt from the 10-Q
NOTE 6 — DEFERRED REVENUE
During the three months ended September 30, 2015, the Company recorded $225,000 of deferred revenue. This represents full payment pursuant to the previously announced funded development agreement with Nitto Denko Corporation (the “Agreement”). The Agreement does not require specific deliverables by the Company, however it does place certain restrictions on the Company’s ability to communicate with a limited number of specifically named businesses during the four month term of the Agreement. Management does not believe that the restrictions have a material negative affect on the Company’s business prospects.
The Age of Quantum Dots is Now Officially Here - Part II
Quantum Materials Posts First Revenue from Joint Development Funding of $225K from Nitto Denko Group
Welcome to the revolution! It's been about three weeks since our last Quantum Materials Corp/quantum dot market update - so as we approach the Thanksgiving Holiday season thought it would be a good time to put a few recent events/observations to paper and send along to all invested in and following Quantum Materials Corp. While it might not seem like it's been an active time for Quantum Materials Corp. over the past month or so, I am happy to report that things are moving ahead quite nicely indeed as the market continues to advance down a path towards large scale quantum dot adoption in several key arenas, especially in the market of flat panel displays.
Due to a number of key performance/cost advantages over legacy technologies such as colored phosphors for generating the RGB (red, green, blue) color spectrum in flat panel displays, quantum dot based technology continues to move into the marketplace experiencing accelerated commercialization levels that are now disrupting several existing designs and product formats. The most obvious evidence of this "paradigm shift" trend is consumer electronics giant Samsung's aggressive product launch of their SUHD line of flat panel displays powered by a combination of Ultra High Definition (UHD or 4K) screen resolution and quantum dots (to produce wide color gamut viewing qualities). Initially Samsung brought this new Super LCD out in a 65" version which was quickly followed up by a 55" version, and priced this line at levels that were roughly 60% to 65% lower than the existing "gold standard" OLED (organic light emitting diode) display pricing levels, which are manufactured primarily by fellow S. Korea based competitor LG.
We can only imagine the massive shock wave this disruptive new entrant and pricing metric caused LG and their OLED based display product line (LG recently downgraded guidance numbers for large format OLED panels sold in 2015 by a material amount. Was this downgrade due to OLED fab capacity restraints - or did it have more to do with the rapid and possibly unexpected rapid uptake in SUHD displays at the retail level? Hard to say for sure but it's certainly possible that SUHD sales contributed to this new guidance figure). Well, after taking a direct hit to the hull, LG countered with their own price drop for 4K OLED pricing, setting their displays at price points that are still roughly 2X similarly sized SUHD displays. Well, we certainly don’t claim to be marketing guru's here, but when you look at these two display formats side-by-side, we can see why LG's pricing/marketing strategy for OLED seems to be starting to buckle a bit here. Sure, if you’re a Prince or oil oligarch outfitting your new mega yacht or Austrian castle with a fleet of the most expensive displays on the planet and cost is no object - well yes it’s likely going to be OLED, but for rest of us 99%'ers that are just looking to stay current with next generation technology, we believe that opting for an SUHD (or other QD powered set) at roughly half the price is a pretty easy decision.
Is Samsung's strategy to move away from OLED based technology and focus almost exclusively on next generation based LCD technology powered by quantum dots working? Well it sure seems to be the case as over the past couple of months Samsung has expanded the QD powered line across 3 additional format sizes (48", 50" and 60"
and is now selling nine (4K) sku's at BestBuy (including what is now 3 each of the 55" and 65" sets) - with prices ranging from a low of $1,000 to a high of $3,000 for the flagship 65 incher. We don't have sales numbers but to get a sense of sales delta's we have analyzed the "customer review" numbers and when normalized for number of sets (sku's) and days on the shelf we estimate that the SUHD sets are getting about 9 reviews for each OLED review! This is an amazing statistic and if reviews actually do in some way track sales numbers (and we're not saying here that they do, but suspect that they do at least correlate in some meaningful way) the raw data is even more revealing in terms of QD technology uptake with total SUHD reviews of 1,390 vs. only 84 OLED reviews for a 16.5X advantage to SUHD (first SUHD review in mid-March with first OLED review in mid-April, so SUHD did get a small head start here and yes we realize we are comparing aggregate numbers for four (4K) OLED sku's vs nine (4K) SUHD sku's but remember, this is a zero sum game and if you make a sale in the 48" and over category for one format you essentially take that sale away from the other side) and when you multiply each (categorized) review X display price point you get a number of $3M for SUHD vs. only $350K for OLED from mid March 2015 thru November 10th giving the SUHD an aggregate gross sales advantage of 8.5X (bear in mind that the standard "purchase to customer review" ratio has been estimated across several formats to range from a low of about 0.5% to a high of around 2% - so total sales will be a significant multiple to these numbers for both formats). The key takeaway here is that SUHD looks to be cutting HEAVILY into the OLED market with no additional capex or tooling costs (OLED fabs require major new CAPEX spending to add capacity whereas QD panels are built in existing LCD fabs by simply change out the film adding a QD based layer while removing a phosphor layer).
This admittedly "unscientific study" was further backed up by information in Samsung's most recent quarterly financial report wherein they cited a big upswing in revenues from their display division due to increased sales of "premium UHD displays". Here is a link to Samsung Electronics Q3-2015 which clearly shows increased revenues from these next generation panels (in relation to Q3-2014): http://www.samsung.com/us/aboutsamsung/ir/ire...ce_eng.pdf
Compelling numbers indeed so we were not a bit surprised to see that an SUHD display took 1st place honors in Consumer Reports recent flat panel shootout with a Sony Bravia set coming in a close second followed in third place by an LG OLED set. Here is a link to that report: http://www.koreatimesus.com/samsungs-suhd-tv-...er-review/ (OK, for all the die hard OLED fans that read this, we are going to concede right here that we agree that OLED displays have "otherwordly black levels" and superior "off angle viewing" characteristics compared to LCD tech - but when OLED OEM's are asking for twice as much dough, they just can't compete head-to-head on a broad consumer level until they get much closer to price parity, and we really don’t see that date coming soon, if ever).
Well about now you're probably wondering what the heck does all this market data mean for Quantum Materials Corp and their shareholders? Well, we include this information to support our thesis that the QD Revolution is now in full swing and you can be sure that this information is not being missed by the key decision makers/executives at the other major consumer electronics OEM's (that already have plenty of LCD fab capacity but do not have OLED fab capacity) that have seen firsthand what is happening in the trenches (read shopping aisles and online distribution channels) and are mounting "Manhattan Project" intensity level initiatives of their own to: design, manufacture, ship and shelve high quality display panels that can compete head-to-head quality wise and be price competitive with Samsung's SUHD line - and that my friends is going to create high demand levels for quantum dots going forward which is QTMM's core product line. This demand spike is being seen on the front line with numerous OEM's looking to source both QD's and QD film from the small hand full of advanced level quantum dot suppliers in the market at this time and we have seen direct evidence of that fact with just how busy the San Marcos team has been of late.
Further to this ramp up in demand we can't help but notice that one of these advanced level suppliers has yet to commission their Cheonan, South Korea quantum dot processing facility (Nanoco partnered with Dow). In fact, we have seen numerous reports from a number of sources including analysts that cover this company (as well as newsletter/IR sources) that continue to state in no uncertain terms that "Nanoco is the only quantum dot supplier that can produce commercial quantities of cadmium-free quantum dots". Well we know this to be a patently false statement based on the many public press releases reported by Quantum Materials Corp. that clearly state their CURRENT capability to produce up to 2.25 metric tons per year of high performance, quantum dots (cadmium based or cadmium free, and we have seen that capacity with our own eyes). From internet sources it is our understanding that WHEN the Nanoco/Dow facility is finally commissioned (it is now running around six months or so late from earlier estimated commercial readiness dates) it will open with an annual capacity of just 800Kg/year, an amount which is roughly one third QMC's present capacity. We also understand from reading industry press reports that at least one of the privately held companies in the space also possess the capability to produce commercial quantities of high performance cad free quantum dots - a fact which seems to be overlooked by Nanoco's supporters as well. In the grand scheme of things we bring this up to highlight that their really looks to be a limited supply of quantum dots available to supply what looks to be a rapidly expanding market demand. What we do know for sure is that the OEM's are looking for quantum dot suppliers that can produce large volumes of low cost quantum dots and have the ability to scale quickly to support rapid commercial uptake - and based on Quantum Materials IP protected continuous flow processing technology they look to be very well positioned to support this type of industry growth going forward - and possibly are either presently at, or near the top of a very short list of companies that can do this.
Quantum's Q3-2015 financials came out today and we are very pleased to see $225,000 in (deferred) revenue generated from their recent JDA partnership with Nitto Denko, a leading film and optoelectronic component supplier with a significant market share among the many OEM display manufacturers (we have included a footnote below which further describes this revenue). Nitto Denko and Quantum Materials Corp. are jointly developing quantum dot film substrates to power these next generation panels and we expect that once this film is completed - we will see Nitto Denko/Quantum Materials products start showing up in displays to power wide color gamut in next generation panels and the Company will start reporting revenue based on sales of quantum dot products - the Rubicon event that all shareholders have been looking forward to. Based on everything we see, that event draws nearer every week.
Oh, and by the way, we also want to share with you a recent article that covers another very important topic to all Quantum Materials Corp investors, and that topic is which path is Apple going to take the next generation iPhone display screen down? Will they stay the course of an LCD based screen or will they adopt an OLED strategy like several of their competitors. Well this article (link below) dives into that question pretty deeply and while the jury will be out until we get the official word from Cupertino down the road, this article seems to spell out pretty clearly that they will be continuing to utilize LCD technology for the foreseeable future and that means that once cad-free QD's get fully entrenched in the large format display realm, there remains a very good opportunity we just might someday see an iPhone with QD film onboard to produce eye popping color gamuts AND extend battery life! As you will see by reading the article, Apple has been reluctant to utilize quantum dots in the iPhone due to the cadmium issue. With cadmium free alternatives now coming into the market, that could open the door for this technology to move into the handheld realm - and by the way, did we mention that Nitto Denko just happens to be an existing supplier of film substrates to Apple? Well they are.
Here's a link to that article: http://www.fool.com/investing/general/2015/11...ays-f.aspx
We will be heading to CES in early January 2016 with the QMC team to reprise our "2015 CES Travel Digest" and we will be sure to forward that report along once completed. Quantum dots made a big splash at last year's show and we expect that with the rapid advancement in display uptake of this highly efficient new technology that this year they are going to be a really big deal!!
The next couple of months looks to be a pivotal time for both quantum dot technology and Quantum Materials Corp, and we will be sure to keep you up to speed on all breaking news as it happens.
Wishing everyone a great weekend and safe Thanksgiving Holiday!
Regards,
Clay Chase
SD Torrey Hills Capital
858 456-7300
cc@sdthc.com
Excerpt from the 10-Q
NOTE 6 — DEFERRED REVENUE
During the three months ended September 30, 2015, the Company recorded $225,000 of deferred revenue. This represents full payment pursuant to the previously announced funded development agreement with Nitto Denko Corporation (the “Agreement”). The Agreement does not require specific deliverables by the Company, however it does place certain restrictions on the Company’s ability to communicate with a limited number of specifically named businesses during the four month term of the Agreement. Management does not believe that the restrictions have a material negative affect on the Company’s business prospects.
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