SCON Initiation: HTS Wire - "Disruptive Technology" at Its Finest

1/5/2010

Superconductor Technologies, Inc. (SCON: $2.49) New Initiation   

Rated: Buy   Price Target: $6.75    Jon Hickman   310-526-5024

HTS Wire – “Disruptive Technology” at Its Finest

With more than 20 years of experience in the industry and 57 U.S. patents to its name, Superconductor Technologies, Inc. (STI) has emerged as a leading manufacturer and marketer of high temperature superconducting (HTS) materials. Historically, STI has employed its proprietary technology in the development of radio frequency (RF) filters for the wireless communications market. Though we believe that there is a huge opportunity in providing RF filters for the next generation (4G) of wireless infrastructure, STI’s real value lies in the use of its proven technology and processes for the manufacture of HTS wire. STI is already modifying its current batch process system for HTS thin films to a continuous reel-to-reel system that will accommodate the manufacture of commercial lengths of next generation HTS wire. HTS wire is currently in high demand for numerous power-related products including Fault Current Limiters for electrical grid protection, wind power turbines, Superconducting Magnetic Energy Storage (SMES) systems and even for MRI machines. The market potential for just these few products alone is estimated in the billions of dollars and offers huge rewards for industry leaders. Thus, despite its current lack of bottom line profitability, we feel STI is positioned for significant upside in both revenues and earnings driven by:

• the expected demonstration of commercial feasibility for the production of HTS wire by mid 2010, paving the way for STI’s participation in a multi-billion dollar market opportunity;
• the company’s unique Reactive Co-Evaporation Deposition (RCE) technology which we believe is capable of driving production costs for next generation HTS wire from $400/kA•m down to roughly $4/kA•m – well below the needed price for commercial viability; and
• the potential significant revenue contribution related to the deployment of HTS filters in the next generation (4G) wireless platforms – industry experts anticipate the build out of nearly 200,000 4G base stations by 2014.

With a clear technology leadership position developing in both HTS wire and RF filters, an impressive patent portfolio and a skilled management team, STI is building significant revenue momentum in two extremely attractive new markets. As such, we are initiating coverage of Superconductor Technologies with a BUY rating and a six to nine month target price of $6.75.