This column was originally published on RealMoney on Aug. 1 at 2:15 p.m. EDT.
Over the past 15 years, there has been an explosion in the use of mobile electronic devices. Unfortunately, across the spectrum of electronic devices, battery life has not kept up with all the additional functionality and features that device manufacturers are giving to consumers. I believe this could have dire effects on the growth of the electronic device market, but I also believe the market will recognize this and develop solutions -- investable solutions. I put out the call
readers for suggestions along this line, and I have three ideas to share with you.
A Draining Problem
Before you consider investing in the solution, you've got to understand the problem.
In 1991, the only cell phones available were the size of briefcases, and they cost a fortune. Today, there are more than 1 billion cell phones being used all over the world. Far from being status symbols for the nouveau riche, mobile phones are now a normal part of life for the masses, with proliferating functions, from email to capturing full-motion video. And phones are just the tip of the iceberg. Millions of people now own laptop computers, portable music players, handheld video game devices, digital cameras and other gizmos.
The simple fact is that mobile devices of all types do not operate long enough between charges. This is no secret, and the electronics industry is working feverishly to change this. In 2002, the PC industry created a working group to address the challenge of increasing battery life: the Mobile PC Extended Battery Life (EBL) Working Group. Unfortunately, a cursory read of the group's Web site shows that, at least so far, this industry group is long on goals and short on results, despite several years of focus on the issue.
But too-short battery life is a constant frustration for many of us, who increasingly rely on mobile devices to enhance our productivity or increase our enjoyment while we are away from the office or home. The frustration is compounded by the device manufacturers' seemingly universal tendency to "pad" their devices' stated battery life specifications. For example,
claims its iPod batteries should provide between eight and 18 hours of playing time between recharges, depending on the iPod model. But on the basis of my personal experience (I own a second-generation iPod Mini) and my research on the Web, this is optimistic. The same disconnect between advertised and actual battery life appears to exist in laptop computers and PDAs.
While I'm not a physicist or an engineer, it seems that battery manufacturers and designers are somewhat limited by the physics in their ability to create a better battery. There is, apparently, no Moore's Law of battery life. Moore's Law outlines the ability of engineers to double microchip transistor density every 18 months (with a commensurate doubling of computing power). Unfortunately, battery power density (measured by confusing terms such as Watt-hour per kilogram) has not been able to grow at anywhere near the same pace.
For example, according to a 2002 report by the Institute for Information Technology, Watt-hour per kilogram in Lithium-ion batteries roughly doubled between 1991 and 2001. That sounds fine until you compare that with the Moore's Law growth in microchip density over the same time period (a 6.7-times increase in transistor density over the same period). By dividing the growth rates, one can see that computing power is increasing at more than three times the rate of battery power.
The upshot is that there is an inverse relationship between greater functionality and the duration of battery power. If this disparity is not rectified over the next few years, I believe that the growth of electronic device market could become constrained, as consumers grow increasingly irritated with constant recharge demands.
Charging Toward an Answer
But I'm an optimist. I believe that the combination of economic incentives and engineering talent that comes with our free-market system will begin to make progress on the battery problem in the foreseeable future. While I could be wrong, I believe it behooves today's investors to look for companies that are focusing on building a better battery. That's why I polled
readers for their own ideas on this subject. Thankfully (and not surprisingly), I got a lot of great responses from our subscriber base. Thanks to all who took the time to email me.
As promised, here are three of the better ideas I received:
Energy Conversion Devices
suggested by subscriber B.R.
Energy Conversion Devices
( ENER) is not quite a pure play on battery power, but it has a number of interesting areas of focus. The company has an $846 million market cap, no long-term debt and a current ratio of more than 6. While it is not currently profitable, ECD appears to have little risk of going out of business in the near future, and its Phase-Change Memory research may have some promise for the mobile-computing industry. The company spends heavily on research and development and is very active in the hybrid automotive, fuel-cell and solar power markets. This one definitely warrants some further research, in my opinion.
suggested by subscribers J.S., W.G.
A pure play on batteries,
boasts a solid current ratio of more than 3 and currently is profitable. The company claims particular expertise in lithium battery development, which is interesting because of the importance of lithium in portable electronic applications. The consensus analyst estimate for EPS for 2005 is 44 cents, according to Thomson Financial. Currently, the company's largest customer is the U.S. Department of Defense (about 60% of sales), which means its revenue can be lumpy. That said, UB appears to be a great company to investigate further.
suggested by subscribers J.M., B.H., L.M., J.S., S.G.
A pure play on battery technology,
was the most-mentioned name from my subscriber poll. The company has been around for more than 15 years. It builds battery and backup solutions for a number of different channels, including mobile electronic devices. Despite this popularity and comparatively long history, I believe VT common stock is a highly speculative investment.
While revenue has been increasing dramatically (from $2.6 million in the year ending March 2002 to almost $11 million in the year ending March 2005), VT is not currently profitable, its current ratio is less than 1, and it carries more than $34 million in long-term debt on its balance sheet. It also recently hired a new CEO. To put it lightly, there is not much of a margin of safety in this name, so tread lightly. That said, some of the best investment ideas are "hairy." I plan on looking more closely at VT in the near future.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Ultralife Batteries and Valence Technology to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
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Norm Conley is vice president of JAG Advisors, a St. Louis-based money-management firm. As co-manager of JAG's Large Cap Growth separate account product, with more than $175 million in assets, he's a long-only investor who focuses on growth companies with favorable fundamental and technical characteristics. At time of original publication, Conley and/or his firm had no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Conley appreciates your feedback;
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