Interesting article Dec 22/03Westaim Corp. (Nasdaq: WEDX)
WEDX has settled back the last few weeks. I believe this is because the last quarter's call had nothing to say about any partnership with Asian (or other) companies for Westaim's flat-screen technology. And the hope in the market was that there would be a deal of some kind for Westaim this year.
From a technology standpoint, the company seems to be proceeding as fast as can be expected: monochrome 34" by Christmas and color after that. From what management has consistently said, companies need to see the 34", even though they have been showing the 17". Westaim commissioned a study that confirmed their costs will be 50% lower than that of LCD screens from new fabs, so the company maintains that it still has a big cost advantage.
I would like to see management moving faster, and in my opinion they should have been in a position to roll out this Christmas season. I have recently been considering whether I'm being impatient with my expectations for Westaim's time-to-market, or whether management is missing the boat. My impression is that Westaim is going as fast as it can, but that potential large partners (such as Sony, Samsung, etc.) expect a "show me" story and are unlikely to jump to a new technology unless it is a layup.
That said, I've been hearing renewed chatter that a deal or joint venture of some kind could be close for Westaim involving its iFire flat-screen technology. If it means anything, then the technicals and price action I have seen the last couple of weeks in the stock appear to be confirming. But as is the case with chatter about potential deals, nothing is for certain. There has been talk about a deal for Westaim on and off for the last six months. From what I understand, any delays with a JV or alliance for Westaim's iFire could be due to first jumping from the pilot plant stage to a small manufacturing plant (that was announced a while back), then just now skipping this to move directly to a full-scale manufacturing facility. This involves more money and more details, and hence could push potential for a full collaboration between Westaim and another company further out. However, from what I understand, management is open to a JV or similar arrangement, possibly with the subtle hand of an Asian company (such as Sanyo) pushing things along.
I understand that Westaim has been actively demonstrating the iFire technology in Asia, so this should help build interest and awareness levels. If interest and awareness in iFire continues to build, perhaps we will see an alliance of some kind for Westaim in 2004 -- and that would be positive for the stock.
If WEDX takes out $2.5-ish on volume, I think that could be powerful for the stock. If it broke $2.5 with volume of 200k-300k, then I'd be happy with that and would be inclined to start/add to positions if it does. But it would be key to get both the volume and the $2.5 price point. If WEDX takes out $2.5 on volume, then that should confirm the action I see. And it seems that we're almost there. But I continue to watch carefully.
My thinking is that a rough sum of parts analysis places an 18- to 24-month price target for WEDX at around $6.5 -- comprised to 1) iFire division being worth around $3.7 USD ($5 CDN), 2) NuCryst $1.8 USD ($2.50 CDN), plus 3) around $1 USD cash. There has also been some insider buying in the stock recently, and that increases my confidence in being long WEDX for the next 6 to 12 months. After Westaim's last conference call when the stock fell, CEO Delaney bought another 100,000 shares at about $2.25 USD (around $3 CDN) and a director bought 180,000 shares at the same price.
I do like the Westaim story and the company's iFire technology. However, management's lack of "real deals" with their flat-screen technology concerns me, and with technology issues it is often who moves fastest to market to secure the first mover advantage that wins; it's a race. The risk with continuing to hold WEDX is getting impatient about an alliance and holding the position solely on the basis of "hoping" for an imminent JV deal. That said, technically the stock is just basing, and I see no sign that there should be particular cause for concern; but it all depends on your cost basis. One mitigating factor for holding WEDX (on the Nasdaq) versus WED (on the TSX) has been their large cash position in Canadian dollars. WED on the TSX looks less appealing than WEDX on the Nasdaq.
Melanie Hollands has more than a decade of experience covering the technology and telecommunications sectors, from positions held in business strategy (McKinsey & Co., Bain & Co.), corporate finance (Salomon Smith Barney) and fundamental equity research (Merrill Lynch). While at Merrill, she received an Institutional Investor All-Star Research Team Honorable Mention for her coverage of PC hardware and wireless stocks. She follows PC/server/storage hardware, enterprise software and application software, wireless hardware and software, data networking and telecom equipment, optics, semiconductors, semi capital equipment, and various niche technologies (RFID, WiMax, VOIP and others). Hollands is President of hedge fund Koala Capital (located in Aspen, Colorado, and New York City), which focuses on trading/investing in technology stocks. She is also a senior advisory board member for a start-up financial services venture, the Semiconductor Futures Exchange, and has been a guest lecturer and adjunct professor at Columbia Business School, where she earned her MBA.