Liquidmetal (LQMT) Already Gave Up the Golden Goose to Apple (AAPL), Shares Pare Gains
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Liquidmetal Technologies, Inc. (OTC: LQMT) is down 22% Thursday after surging 230% yesterday amid news reports that Apple (NASDAQ: AAPL) is prepared to use the company's technology in its upcoming iPhone 5S, and even the still-rumored iWatch.
Today's selling pressure comes as traders dig into the details of the Apple agreement. Unfortunately for the company and shareholders, the deal with Apple was for a one time license fee and grants Apple exclusive rights for the terms of the deal (originally February 2012, which was subsequently amended to extend through February 2014) to use in "consumer electronic products" (which is very broad-based).
Apple agreement described in the company's 10-K:
"On August 5, 2010, we entered into a license transaction with Apple Inc. (“Apple”) pursuant to which (i) we contributed substantially all of our intellectual property assets to a newly organized special-purpose, wholly-owned subsidiary, called Crucible Intellectual Property, LLC (“CIP”), (ii) CIP granted to Apple a perpetual, worldwide, fully-paid, exclusive license to commercialize such intellectual property in the field of consumer electronic products, as defined in the license agreement, in exchange for a license fee, and (iii) CIP granted back to us a perpetual, worldwide, fully-paid, exclusive license to commercialize such intellectual property in all other fields of use. Additionally, in connection with the license transaction, Apple required us to complete a statement of work related to the exchange of Liquidmetal intellectual property information. We recognized a portion of the one-time license fee upon receipt of the initial payment and completion of the foregoing requirements under the license transaction. The remaining portion of the one-time license fee was recognized at the completion of the required statement of work.
Under the agreements relating to the license transaction with Apple, we are obligated to contribute all intellectual property that we developed through February 2012 (which was subsequently amended to extend through February 2014) to CIP. We are also obligated to maintain certain limited liability company formalities with respect to CIP at all times after the closing of the license transaction."
Definition of 'Consumer Electronic Products:
"Consumer Electronic Products" shall mean personal computers (portable and desktop); tablet or slate style computing devices; handheld electronic and/or communication devices (e.g., smartphones, digital music players, multi-function devices, etc.); any device whose function includes the creation, storage or consumption of digital media; any component or sub-component in any Consumer Electronic Product; and any accessory that is the same or similar to an accessory made or sold by or on behalf of Apple (regardless of when Apple sold or started to sell such accessory) that is suitable for use with any Consumer Electronic Product. Notwithstanding the foregoing, “Consumer Electronic Products” shall not include: (i) products (except for any product that is capable of interacting or interfacing with a Consumer Electronic Product) that are powered by electricity or batteries but that do not in any way involve the creation, storage, consumption, use, viewing, transmission, or processing of digital media or digital information and do not involve the use of wireless communication networks. Products that fall into this category include, without limitation, electric-powered and/or battery-powered drills, hand tools and watches (i.e. a wrist-worn device whose sole function is to display the time of day); (ii) medical devices and other products that are not the same or similar to any Apple product (regardless of when Apple sold or started to sell such product) and that are used exclusively for the diagnosis and/or treatment of human or animal health conditions; or (iii) products or components thereof that are not the same as or similar to any Apple product (regardless of when Apple sold or started to sell such product) or component of any Apple product and that are made solely for, and sold solely into, the defense/military, automotive, medical, or industrial markets."
Overall, even if the rumors prove correct and Apple uses liquidmetal in the iPhone 5S and iWatch, it won't be a financial windfall for the company. Also, given other consumer product companies are forbidden from using the technology, 'me too' products won't be seen. That said, if liquidmetal is in fact used in Apple products this could bring a lot of fanfare and publicity to the technology. Companies in other areas including defense/military, automotive, medical, or industrial markets could find plenty of uses for the alloy. Also, if mass production of liquidmetal proves effective, an eventual takeover by Apple should not be ruled out.
Today's selling pressure comes as traders dig into the details of the Apple agreement. Unfortunately for the company and shareholders, the deal with Apple was for a one time license fee and grants Apple exclusive rights for the terms of the deal (originally February 2012, which was subsequently amended to extend through February 2014) to use in "consumer electronic products" (which is very broad-based).
Apple agreement described in the company's 10-K:
"On August 5, 2010, we entered into a license transaction with Apple Inc. (“Apple”) pursuant to which (i) we contributed substantially all of our intellectual property assets to a newly organized special-purpose, wholly-owned subsidiary, called Crucible Intellectual Property, LLC (“CIP”), (ii) CIP granted to Apple a perpetual, worldwide, fully-paid, exclusive license to commercialize such intellectual property in the field of consumer electronic products, as defined in the license agreement, in exchange for a license fee, and (iii) CIP granted back to us a perpetual, worldwide, fully-paid, exclusive license to commercialize such intellectual property in all other fields of use. Additionally, in connection with the license transaction, Apple required us to complete a statement of work related to the exchange of Liquidmetal intellectual property information. We recognized a portion of the one-time license fee upon receipt of the initial payment and completion of the foregoing requirements under the license transaction. The remaining portion of the one-time license fee was recognized at the completion of the required statement of work.
Under the agreements relating to the license transaction with Apple, we are obligated to contribute all intellectual property that we developed through February 2012 (which was subsequently amended to extend through February 2014) to CIP. We are also obligated to maintain certain limited liability company formalities with respect to CIP at all times after the closing of the license transaction."
Definition of 'Consumer Electronic Products:
"Consumer Electronic Products" shall mean personal computers (portable and desktop); tablet or slate style computing devices; handheld electronic and/or communication devices (e.g., smartphones, digital music players, multi-function devices, etc.); any device whose function includes the creation, storage or consumption of digital media; any component or sub-component in any Consumer Electronic Product; and any accessory that is the same or similar to an accessory made or sold by or on behalf of Apple (regardless of when Apple sold or started to sell such accessory) that is suitable for use with any Consumer Electronic Product. Notwithstanding the foregoing, “Consumer Electronic Products” shall not include: (i) products (except for any product that is capable of interacting or interfacing with a Consumer Electronic Product) that are powered by electricity or batteries but that do not in any way involve the creation, storage, consumption, use, viewing, transmission, or processing of digital media or digital information and do not involve the use of wireless communication networks. Products that fall into this category include, without limitation, electric-powered and/or battery-powered drills, hand tools and watches (i.e. a wrist-worn device whose sole function is to display the time of day); (ii) medical devices and other products that are not the same or similar to any Apple product (regardless of when Apple sold or started to sell such product) and that are used exclusively for the diagnosis and/or treatment of human or animal health conditions; or (iii) products or components thereof that are not the same as or similar to any Apple product (regardless of when Apple sold or started to sell such product) or component of any Apple product and that are made solely for, and sold solely into, the defense/military, automotive, medical, or industrial markets."
Overall, even if the rumors prove correct and Apple uses liquidmetal in the iPhone 5S and iWatch, it won't be a financial windfall for the company. Also, given other consumer product companies are forbidden from using the technology, 'me too' products won't be seen. That said, if liquidmetal is in fact used in Apple products this could bring a lot of fanfare and publicity to the technology. Companies in other areas including defense/military, automotive, medical, or industrial markets could find plenty of uses for the alloy. Also, if mass production of liquidmetal proves effective, an eventual takeover by Apple should not be ruled out.
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