Market Overview

James Altucher Article Sends Neonode Soaring


A Seeking Alpha post by noted writer, entrepreneur, and investor James Altucher has sent shares of small-cap company Neonode (NASDAQ: NEON) up 27% to $6.08 on Wednesday. Altucher argues that the stock could be worth north of $30.00 per share. The basis for his argument is twofold. First, according to Altucher's piece, NEON could sue companies such as Apple (NASDAQ: AAPL) for using its "slide to unlock" feature.

In fact, Samsung, which is being sued by Apple for violating its patents relating to the swipe technology, is arguing that it is actually using NEON's earlier patents and is not in violation of Apple's intellectual property. With Apple seeking 2.5% of Samsung's revenues as compensation for its patent infringement claims, Altucher argues that Apple could in fact end up having to pay NEON, for infringing on ITS patents.

Samsung is supporting this view by arguing in its case with Apple that it is using NEON's patents and not Apple's. Altucher says that "a Dutch judge (where the patent battle is also being held) specifically said NEON had the "prior art" on this, so case closed. NEON first filed the patent in 2002 actually." The patent describes "an active application, function, service or setting that is advanced one step by gliding the object along the touch sensitive area from left to right."

Altucher notes that the iPhone, iPad, and iPod have made over $100 billion in profits for Apple, and that they all use the "swipe to unlock" feature. He continues, "Now, I don't know if NEON is going to sue, but clearly at some point a license has to be worked out, plus a probable settlement for past use. You can't flaunt the law forever."

Altucher also argues that AAPL could buy NEON for as much as $30.00 per share to work out the issue. He also mentions Google (NASDAQ: GOOG), and Microsoft (NASDAQ: MSFT) as potential suitors. The second piece of his thesis on the stock has to do with the company's existing business, which is built on these patents. He notes that NEON has a monopoly on the e-reader market with its zForce technology which is used when pages are turned on e-readers.

Furthermore, Altucher draws attention to the fact that NEON has announced 17 design wins with "tier one" companies over the last quarter. According to an analyst at Cowen & Co. most of these design wins are outside of the e-reader segment and Altucher thinks some of them could be in the automotive sector. Other potential industries mentioned include GPS and household appliances.

Therefore, it is clear that NEON is making inroads into other industries and could potentially monopolize them the same way that it has done in the e-reader segment. Altucher assumes that some of the the design wins are in the automotive sector and also factors in growth in e-readers to come up with a 2014 earnings estimate of $1.30 per share for Neonode.

Based on this earnings assumption, along with the company's patent portfolio, he thinks that the stock is "an acquisition target up to $30." Furthermore, he argues that "Even at $30 there is significant upside if the patents come fully to life or they reach monopolies in any other sector (mobile phones, cars, etc) as they have in the e-reader space."

Posted-In: James AltucherLong Ideas News Rumors M&A Tech Media Trading Ideas Best of Benzinga


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