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
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.
|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
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.
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.