Will the Next iPhone Be Straight Out of Sci-Fi?

The science-fiction genre is full of stuff that technophiles dream will one day become reality -- everything from Star Trek holodecks to Back to the Future hoverboards. Remember in Terminator 2 when Arnold Schwarzenegger faced off with T-1000, a futuristic assassin made out of a fictional amorphous alloy called liquid metal?

Well, according to a recent round of Apple (Nasdaq: AAPL  ) rumors, a similar technology may be making its way to the next iPhone. Of course, since Arnold has since retired from his terminating and governating days, no one will be able to save us if these new devices prove to similarly have homicidal tendencies.

Let's back up a bit.

A trip down pink sheet lane
Back in August 2010, Apple signed an agreement with a small company called Liquidmetal Technologies (OTC: LQMT.PK) that granted the Mac maker "perpetual, worldwide, fully paid, exclusive license to commercialize" the company's intellectual property for use in consumer electronics.

Shares of the microcap stock had closed out the prior month at $0.23, and news of the agreement promptly sent shares roaring higher over the following weeks to an intraday high of $1.76 -- a 665% gain.

Since then, all has been quiet on the amorphous-alloy front, as the episode faded from the market's memory with no significant new Liquidmetal iDevices to be seen, and shares quietly retracted back down, closing out last month at $0.21.

Earlier this week, rumors have resurfaced that Apple is exploring the possibility of using Liquidmetal in the next iPhone, and all of a sudden investors remembered this small company and shares closed out Friday at $0.41, nearly doubling month-to-date.

What is Liquidmetal?
As much as I'd like to tell you that Apple is creating an iPhone that can morph itself into an iPad, just as T-1000 fashioned its arms into deadly blades, that's not the case here. According to its website, the alloy that Liquidmetal Technologies has developed features an "amorphous atomic structure" with these properties:

  • High yield strength
  • High hardness
  • Superior strength/weight ratio
  • Superior elastic limit
  • High corrosion resistance
  • High wear resistance
  • Unique acoustical properties
  • Low shrinkage rate

The material can also bounce better than stainless steel or titanium. The obvious application here would be that a Liquidmetal iPhone casing would be more resistant to impacts, compared to the current glass casing that frequently shatters when accidentally dropped. It accomplishes this while also being incredibly sturdy and resistant to wear and tear.

Apple has already used this material before, although in something rather insignificant: The iPhone SIM ejector tool that it used to bundle with new iPhones was made out of Liquidmetal.

Can it be?
At this point, you're naturally wondering how possible it is for Apple to craft the next iPhone out of Liquidmetal. Yes, it's definitely possible. The material has characteristics that would benefit iDevices, and Apple has yet to meaningfully deploy the technology that it has exclusively licensed.

If it wants to, it could even use this stuff in other future products. While Liquidmetal has various other industrial applications, Cupertino has it locked down in "consumer electronic products."

The Master Transaction Agreement for the deal is included in the 10-Q filed in November 2010 and defines "consumer electronic products" as computers; tablets; smartphones; music players; multi-function devices; anything used to create, store, or consume digital media; and more.

Buy! Buy! ... Buy?
I know what you're thinking now: Is this stock a buy? Not so fast, you ambitious Fool.

As luck would have it, the company just recently filed a fresh 10-K for us to peruse. Have a look-see at its top and bottom lines from its nonsensical income statement over the past two years.

Metric

2010

2011

Product revenue $567,000 $572,000
Licensing and royalties $20 million $400,000
Total revenue $20.57 million $972,000
Net income (loss) ($17.6 million) $6.2 million

Source: Liquidmetal Technologies 10-K filed 3/30/12.

Confused yet? Me, too. Yes, the company made money during the year when revenue fell 95%, while losing more in the year Apple paid up. You can thank a huge swing in the value of warrants for the difference.

Apple paid roughly $20 million for the licensing agreement, which the company promptly began using to pay down debt and fund operations. And pay down debt it has, as all that money is already gone. At the end of last year, the company had just $122,000 in cash left, and total liabilities are about a quarter of what they were a year ago.

CEO Thomas Steipp was paid a cash salary of $300,000 last year, and he's one of 15 total employees (one is part-time).

Sell? Sell? ... Sell!
Thanks, but no thanks. It's unclear if this company will get recurring revenues or if it was a one-time licensing fee. Regardless, relying on Apple too much can be a curse in itself. Just ask OmniVision Technologies (Nasdaq: OVTI  ) how it feels when bears question its iProspects, or when they're right. OmniVision's recent iPad win is a small consolation, but the next iPhone will be the company's next true test.

Liquidmetal thanked Apple for 97% of 2010 revenue -- talk about overreliance. The next iPhone may very well use Liquidmetal's IP, but as with many of Apple's other suppliers, Cupertino has muscled its way into extracting all of the value out of this deal, leaving little to nothing left for Liquidmetal.

The iPhone is helping drive The Next Trillion-Dollar Revolution, but there's also another chipmaker that stands to cash in from the inside. Get this free report to find out who.

Fool contributor Evan Niu owns shares of Apple and OmniVision Technologies, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (11) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 21, 2012, at 4:52 PM, zpoet wrote:

    Sometimes I don't believe the disclaimer. I'm sure someone at TMF owns shares of LiquidMetal and essentially they just try to "pump and dump" stocks, however small their impact may be. Am I paranoid?

  • Report this Comment On April 21, 2012, at 5:25 PM, TMFMileHigh wrote:

    @zpoet,

    >>Am I paranoid?

    Yes.

    FWIW and Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On April 21, 2012, at 10:50 PM, lucasmonger wrote:

    Here's my take on LQMT. LQMT spun off all of their IP into another company, sold that company to Apple, then licensed all the IP back to themselves for all other markets except consumer electronic. So although LQMT won't make a dime from Apple's use of the material (if they choose to use it), the release of an iPhone with liquid metal will bring the material to the forefront and will likely cause people to want other things to be made out of that material. Golf clubs, baseball bats, golf balls, and watches already sport this material. Imagine belt clips, wallet clips, jewelry, Parker pens, accents on handbags, anything that is currently gold or silver could become liquid metal. That's where the growth will be for LQMT. Not from iPhone, but the new-found popularity of the metal because of iPhones.

    Alas, the recent climb from 12 cents to around 45 cents are just day traders trying to make a quick buck based on the rampant rumor from multiple sources.

    @zpoet - I would hardly call this pump and dump as there are a large number of Apple rumor sites reporting this, not just TMF. If TMF were the only one reporting this, then maybe we'd look for ulterior motives.

  • Report this Comment On April 22, 2012, at 1:28 AM, steven107 wrote:

    I think a big advantage of using this metal is the following i'll link to another article. Alot of articles mention the ability to use injection molding like plastics and 1 step, no finishing or milling or whatever would normally be done afterward to other metal products and no shrinkage between going into the mold and coming out, etc. Comes out of mold with already smooth shiny finished exterior.

    http://www.cultofmac.com/55322/worlds-most-advanced-machiner...

    This company has had many attempts to get their company kickstarted for years now, may have had bad management, I haven't kept up with it in a long time; and maybe apple will keep it alive and take the concept where it needs to go. I've always thought the idea of metalic glass sounded neat.

  • Report this Comment On April 22, 2012, at 1:49 AM, portefeuille wrote:
  • Report this Comment On April 22, 2012, at 2:00 AM, portefeuille wrote:

    AAPL shares are one of the larger positions of my fund, see comments #75,82 here -> http://caps.fool.com/Blogs/fund-trades/727816.

  • Report this Comment On April 22, 2012, at 6:35 AM, H3D wrote:

    "Will the Next iPhone Be Straight Out of Sci-Fi?"

    Boy are you journalists obsessed with the box rather than the contents. Most people grow out of that by age 10.

    Considering that I can say to the current iPhone

    "Book me a table for 4 people at 8 pm in the Italian restaurant on Green Street"

    And it will check my diary to see where I am tomorrow evening before confirming

    "Is that Luigi's on Green Street in Norwich"

    I hardly think that making the case out of a metal that can be injection molded, rather than needing to be machined, is going to impress the average user as being a step into science fiction.

    Great case? Probablly.

    But for the next stage in science fiction impact, I suspect we will need to be able to say

    "... Oh, and beam me over there at about 10 to 8."

    I don't think we'll get that 'til the 6S... And then you'll all complain that it isn't radical enough because the case hasn't changed, and that makes it just evolutionary.

  • Report this Comment On April 22, 2012, at 6:41 AM, H3D wrote:

    For the record I just tested out the "...beam me over at 10 to 8" request, just in case.

    It suggested that I catch the 7:35 bus.

    So it's getting there. Even if I'm not.

  • Report this Comment On April 22, 2012, at 10:48 AM, TMFNewCow wrote:

    zpoet,

    There's also really no "pumping" here, as I made it pretty evident that I think investors should steer clear of LQMT. Kind of hard to "pump" a stock I'm calling a "sell" from the get go.

    -- Evan

  • Report this Comment On April 22, 2012, at 8:41 PM, Straightener wrote:

    Nice article.

    A report from the Associated Press said it's not a sure thing that Liquidmetal's material will ever make it into Apple's products. "Though it matches the sleek Apple aesthetic, it's prohibitively expensive," it said, noting that the material contains large amounts of platinum, which costs $1,500 per ounce.

    http://www.appleinsider.com/articles/10/08/12/licensing_agre...

    I am watching this stock, but I think I will wait until the hype has died down and somebody uses their technology who has to actually pay them for it. Also look for another round of cash-raising in the near future.

  • Report this Comment On April 22, 2012, at 10:20 PM, seadude61 wrote:

    What I like about the liquidmetal casing is that I've seen where you can run over it with a car and it wont' break. Also, if it's as bouncy as the website shows the ball bearings to be, then, if you drop your liquidmetal cased I Phone, it will just bounce back up into your hand????

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