Thin Film Electronics: Upside If Technology Is Adopted

Thin Film’s (THIN.OL) printable, rewritable, non-volatile memory is a key component of printed electronics. Due to the low cost of production, printed electronics (PE) has the potential to add intelligence to high volume, disposable items. The PE market is predicated on achieving high volumes to make ubiquitous computing a reality, but is currently highly fragmented. As the only pure-play listed PE company, we believe Thinfilm is well placed to take a leadership role in integrating the industry. Thinfilm’s relationships with global companies and licensing model provide scalable revenue opportunities and potential for significant share price upside.


Pioneering printable memory technology
Thinfilm’s technology enables memory to be produced using standard industrial roll-to-roll printing techniques and organic materials. The low cost to produce printed electronics compared to well-established silicon-based electronics opens up a substantial opportunity to develop low-value, high-volume applications (eg brand protection, sensor tags) and to accelerate the “Internet of things”. Thinfilm’s technology can already be used to make passive array memory and further development is underway to expand the number of logic components that can be printed to make more complex electronic products. Thinfilm’s strategy is to demonstrate what can be made by establishing in-house production capacity, before licensing the technology “copy-exact” to customers in target markets.

Commercial agreements prelude to production ramp
Thinfilm has signed several significant commercial contracts to develop products, including brand protection, smart labels and temperature sensor tags. We expect production to ramp from H213. Management expects to see the first licensing agreements in 2014, with 70% of volume from licensing partners by 2016. Key risks include scaling production, achieving targeted production yields, ability to access funds, and customer adoption and product roadmaps.

Valuation: Material upside if technology adopted
Based on management’s assumptions for adoption, a WACC of 15% and long-term growth of 3%, our DCF values the company at NOK18.5/share. Varying the WACC and long-term growth rate produces a valuation range of NOK10.1-52.2/share; varying the licence fee or materials cost a range of NOK7.3-24.2/share. Using a slower adoption and licensing scenario, we calculate a value of NOK6.9/share.

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