Thin Film has announced the licensing agreement it signed at the end of December with a Fortune 250 company is with Xerox (NYSE:XRX). Through its wholly owned subsidiary PARC, Xerox has an existing relationship with Thinfilm, which should make the transfer of knowledge swifter and the likelihood of success greater than if it were with a completely new partner. It also has an extensive network of suppliers, customers, distribution channels and production facilities that should help Thinfilm’s printed memory products reach scale quickly.
As we described in our January update note, the licensing agreement is a key step in the scale up of Thinfilm’s revenue. In our opinion Xerox is a good partner for the first licensing agreement as it has a history of innovation and has experience working with Thinfilm through its subsidiary PARC, which is also a minority shareholder (estimated <1%) in Thinfilm. It is therefore more likely that Xerox will have the technical expertise, willingness and determination necessary to make an innovative product such as Thinfilm Memory a success. Xerox will be modifying a production line in one of its existing facilities in New York State, which may mean the time for scale up is towards the closer end of the 12-14 month period estimated in our update note. The detailed terms of the licensing agreement such as expected scale of production and royalty rate are now the key sensitivities to the share valuation. This will only start to become clear once larger-scale production is reached, which we expect in FY16.
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