Uni-Pixel: Lands First Commercial Order And Takes Major Steps To Rebuild Investor Trust

On Thursday morning, Uni-Pixel (NASDAQ:UNXL) announced it has received an initial mass production order from a Japanese OEM for a 10" tablet. The news was refreshing to see and is a tremendous first step to rebuild investor trust in the Uni-Pixel name and brand. After years and years of disappointing investors UniPixel finally delivered a commercial order to a new customer and I believe several others will follow.

Uni-Pixel took over Atmel's (NASDAQ:ATML) manufacturing facility in Colorado Springs in April 2015 and has produced $2.9m of revenue from the customer base formerly under Atmel's control. Many of the critics I have come across appear scorned from previous management's inability to get operations off the ground after years of struggles.

In April, when CEO Jeff Hawthorne and team assumed control of Colorado Springs manufacturing facility, they expected revenue to exceed $10m in 2015 and be profitable in 2016. Unfortunately, as is the case with many startups and/or companies selling a new product into the market, the adoption timeline can take longer than expected. The mass production order received from a Japanese OEM for a 10" tablet puts Uni-Pixel in excellent position to reach analyst sales estimates of $4.8m in Q1 of 2016.

The decision by a Japanese OEM to adopt Uni-Pixel's XTouch sensors on a 10" tablet not only validates the technology, but also increases the odds that additional wins from the other five active evaluation programs will take shape over the coming weeks and months. The Uni-Pixel of today has a proven manufacturing facility that can produce sensors with good yields, which is in sharp contrast to the Uni-Pixel of old that had a joint venture with Kodak (NYSE:KODK) that just could not get over the yield hurdle.

XTouch Sensor (Image Source)

(click to enlarge)

The recent mass production order placed was for Uni-Pixel's newest XTouch sensor that combines the hybrid metal plating process along with Diamond Guard resin coating. Uni-Pixel closed this deal very quickly. Uni-Pixel delivered engineering samples to the customer in August, pre-production sensors in early November and less than three weeks later the company received a commercial mass production order on Thursday.

The newest XTouch sensors for the 10" tablet customer by design will be produced with less material, which will dramatically improve margins beginning in Q4 2015 and into Q1 of 2016. Gross margins in Q2 and Q3 of 2015 were negatively impacted by low manufacturing volume as well as legacy XSense sensors, which have been manufactured with significantly more expense catalytic film purchased from CIT. However, as volume for this new program kicks-in coupled with consuming in-house Uni-Pixel produced catalytic film we will see gross margins improve in Q4 and significantly improve in Q1 2016.

I reached out to Uni-Pixel's CEO Jeff Hawthorne for comments regarding the mass production order and he provided the following commentary:

The key thing to point out is this was one of the five programs we mentioned in our November 9th press release. In the relative short period of time since we closed the acquisition, the newly integrated management team at Uni-Pixel is executing on expanding the customer base. - Jeff Hawthorne

The key takeaway from Jeff's comments for investors is that Uni-Pixel's management team that includes a new COO, CFO and CEO over the last 18 months is finally executing under the Uni-Pixel name and brand. The newly designed XTouch sensors featuring Diamond Guard resin and a hybrid plating process are no longer just a proof a concept they are a viable option for consumer electronic OEMs.

The next major customer order may come from a Tier 1 PC OEM, which received pre-production sensor samples from Uni-Pixel in July (see press release). During the 2nd quarter conference call CEO Jeff Hawthorne indicated that the company had better than a 50:50 change of winning the bid (see below).

We are in the middle of going through preproduction trial at a second Tier I PC OEM. So that's probably the closest to a design win, we think we have better than 50-50 chance of winning the production order there and then I will let Brett comment on some of our pipeline activity. (Jeff Hawthorne Q2 CC)

On November 9th Uni-Pixel issued a press release (image below) summarizing the current evaluation programs. The program associated with the Tier 1 PC OEM above has already received initial testing samples, engineering samples and pre-production qualification units.

Uni-Pixel is waiting for this Tier 1 US based OEM to finalize production qualifications tests in Q4 and select a winner. If I had to cast my vote on the name of this Tier 1 US based OEM that is considering adopting XTouch sensors the first two names that come to mind are Microsoft (NASDAQ:MSFT) and Dell. Additionally, the odds that management will deliver on its promises related to this better than 50:50 chance with the Tier-1 US based OEM just went up based on Thursday's commercial order announcement.

In summary, Uni-Pixel's first commercial order is a significant milestone for the company and is a clear sign that management is executing on its promises to expand the customer base. This commercial order also validates Uni-Pixel's technology as a viable touch sensor option within the consumer electronic space. It is clear that OEMs are excited about Uni-Pixels product offerings given the number of programs under evaluation with leading OEMS in US and Asia. I expect commercial order flows to continue in the coming weeks and months as we finish out 2015 and move into 2016 off of heels of Thursday's first commercial order.