Microsoft word - 43a1f355-4c72-088d7c.doc

Michael Sinkula
[email protected]
The confluence of several trends has created an environment that is ripe for mobile computing and mobile consumer electronics. Consumers and corporations are abandoning desktop PCs, the main information and IN THIS ISSUE
computing tools for the past 20 years, for laptops and other mobile PCs. Contributing to this is the falling cost of laptops and the rapid evolution of wireless networks. As a result, roughly one quarter of al PCs is now laptops and in the coming years, portable computers will continue to take market share from stationary units. Laptops are just one of several mobile computing products experiencing recent growth – others include mobile tablet PCs, sensors, PDAs, etc. Consumers' desire for increased mobility combined with new technology with enhanced functionality has reinvigorated the growth of the PC market. PC and mobile phones have combined to create a new market of SPONSORED BY
products in a new area cal ed the “converged mobile device market” where handheld device and mobile phone vendors are both seeking opportunity. This market has been created as a result of the enormous competition and difficulty in generating recurring customers in the mobile handheld device market. Many of the competitors in the handheld device, such as Sony and Toshiba, have shifted their resources towards leveraging their core competencies in mobility to bring advanced converged mobile devices to market. Competitors realize that they need to seek additional applications beyond personal information management (PIM) in order to generate sales growth going forward. According to Bob Lifton, CEO of Medis Technologies, "People don't realize the revolution that just took place. Mobile computing is now available to everyone." Lifton says that Microsoft wil enable direct communication with one's desktop computer as opposed to current handset networks where users must use the servers of the service provider. Lifton believes that the largest growth wil be seen in the enterprise segment of the mobile computing market (the conversion of mobile phones and handheld devices). This is largely driven by the enabling abilities of new operating systems (such as those from Microsoft). But mobile operators suggest that the battery life of the mobile phones being delivered fal short of al owing the consumer to make ful use of the capabilities presently being offered. It appears that power is the limiting factor to vastly increased functionality of mobile devices. Other mobility factors, such as wireless capability, Consumers can look to the military market for have advanced considerably over the last decade. products that may eventually emerge in the Mobile and Wi-Fi capabilities (somewhat driven by mainstream. The military has a higher tolerance for new processors such as Intel’s Centrino) have price when greater performance is offered. Soldiers al owed handheld device manufacturers like Sony currently carry pounds and pounds of primary to command higher prices for devices such as PDAs batteries to power their devices. The military is while experiencing high volume growth. Similar desperate for lighter power sources with greater products without wireless capabilities experienced power density, qualities that fuel cel s can a decline in sales over recent years. And as more potential y offer. If fuel cel s prove to be successful and more mobile products become connected to in the military, then high end consumer electronics networks, there wil be increasing strains on applications may soon follow. However, it is battery requirements. While external features, such difficult to determine the exact timeframe because as bursts of light in camera phones or digital product cycles are so short in portable electronics – cameras, and start-up power needs are often product makers usual y take what is immediately targeted as huge consumers of battery power, it is available and proven. Thus, batteries wil continue actually the wireless capabilities that consume the to dominate the portable power market and most power when activated (as depicted earlier in performance in portable electronics will suffer, but the figure comparing power consumption of the fuel cells will enable new capabilities and new display and wireless card). In fact, it is reported products in a number of different markets. that a Del PDA can run four times longer when the Eventually fuel cel s wil emerge on the consumer scene, allowing users to officially ‘cut the cord’. Consumers are demanding longer run times on their portable devices and manufacturers are building increasingly power-hungry applications. Already 3G phones and devices are proving to be too much of a power drain on their batteries. In fact, some sources in China report battery run- times of around one hour when used for power-hungry applications such as gaming. This limited capability may dramatically limit the success of these products. Batteries are the common choice for almost all portable electronic devices, but some portable fuel cel system costs are entering a competitive price range. In some portable applications, fuel cel s can help improve the performance and life of batteries (and vice versa) thus extending the users experience. Battery technologies, primarily lithium and lithium polymer, are still improving, but at a very incremental pace. Some experts suggest that lithium based batteries wil improve by only 50% over their lifetime. On the other hand, fuel cel s offer much more attractive performance metrics and convenience, but cost has always been a limiting factor. Recent Price (12/14/05):$14.00
Market Capitalization:
$387.74 million
Price/Earnings: N/A
Shares Outstanding: 27.70 million
EPS (ttm): -0.73
52 Week High/Low: 21.60 / 11.67
R&D/Sales: N/A
Medis Technologies produces fuel cells for The company has two primary innovations: recharging batteries in mobile applications in a number of different industries including consumer 1. It has invented a fuel cel that uses borohydride electronics and military gear. The company would that has limits of 1.3 watts and is 85% efficient. enter more aggressively into other markets such as medical but there is currently a manufacturing characterized by very high levels of electrochemical issue where the demand is greater than the activity which results in high levels of power possible output. In fact, they believe that there are density and energy capacity at a broad range of currently over 1.5 billion users of portable temperatures, even including room temperatures. electronic devices world wide and expect this The company's design is very different than number to reach 2 billion by 2007, with reported traditional fuel cel s that have relied on membranes annual sales of approximately 450 million devices and platinum catalysts (which can be very per year. They are quickly developing the first expensive). In addition, their system has avoided manufacturing line, after which the management of the need for water and heat management systems. the line wil be outsourced. Their first products wil The design is very simple. This has kept the costs be disposable fuel cel systems for recharging 4-6 times lower than other fuel cel makers. However, some are concerned that the catalysts used in borohydride based fuel cel s are easily The company understands that consumers are happy using an outlet for recharging (where the electricity is virtual y free), but they are targeting 2. They have also invented the usage of this fuel their disposable recharging devices for the times cel as a generic battery charger. This charger can be interfaced with a number of different devices and adjust for different voltages (using a simple interchangeable interconnect). Thus one recharger wil be compatible with al portable electronics applications making it more convenient for the They have developed fuel cells that have The company is very bullish on the mobile replacement cartridges (called Power Packs), but computing market, particularly the enterprise they believe that the disposable fuel cel s are more segment. But it appears that Medis is taking a very consumer friendly because they do not involve replacing cartridges. The disposable fuel cells wil essential y making their products available to be able power a cell phone for the equivalent of 20 everyone for multiple applications. Some experts hours of talk time. By powering with the Power do not believe that Medis has a solid value Pack, the consumer can continue to use the device proposition contending that consumers will not while at the same time charging the battery, even purchase their recharging systems when batteries when the device’s battery is running low or is can offer the same solution for half the cost. discharged. This cycle can be repeated a number of times or, at the consumer’s option, the Power The company has military contracts for recharging Pack can be used to maintain the ful charge of the fuel cel s that are compatible with several devices including GSM phones, notebooks, PDAs, radio equipment. The company believes that disposable fuel cel s are a better solution than a fixed fuel cel with cartridges because the disposable ones are In the consumer markets, the company has two easier for the soldier to handle under hectic primary sales channels. First the company has conditions. At present, a military PDA is charged by secured distribution partnerships with Kensington a battery sleeve with eight lithium mangenese Technology Group, a leading maker of computer oxide batteries. For a 72 hour mission, always on, accessories. Kensington wil place the fuel cel the present system would require the military team to carry about 140 batteries costing approximately commercial dealers throughout the world. The CEO $450 (Medis Technologies estimates). The indicated that the pack would be sold for roughly company’s Power Pack is expected to provide $20 in retail stores. Medis has also entered into a approximately 72 hours of operating time with the distribution agreement with Superior use of only four or five refueling cartridges, making it lighter and less expensive than the present accessories to major mobile operators, retailers system. In late 2004, the company (through and distributors across the United States. General Dynamics) received an order for five prototype fuel cel Power Packs and associated More importantly, the company has entered into an cartridges as power sources for 10 prototype tablet agreement with a major mobile carrier who has computers in support of the United States Air Force over 50 mil ion subscribers. The company believes that this only the tip of the iceberg and several other smaller mobile operators will follow suit, The production-delivery targets are as fol ows: potential y adding up to a reach of several mil ion mobile device users. The company is targeting • Delivery of semi-automated production units in mobile operators because they ultimately control the other elements of the market – for example, • In 2H 06, the company wil be booking orders the mobile operators buy $13 bil ion of phones and commitments for the first production line each year. They decide what products and services • In December 2006, Ismeca wil deliver the wil be marketed with every mobile product. When a mobile operator offers Medis' products, they are • In Q1 07, Medis wil deliver the first products essential y enhancing two business segments. They are sel ing products, on which they may take a margin, but they are also helping their core business by creating a mechanism for people to use the mobile device for a longer period of time. Medis has been wel funded with both equity and Medis’ product is very unique in the fact that it debt and is healthy with over $50 mil ion in cash. appeals to a very broad array of potential In addition, the company claims that the 2006 burn customers. It appears that their product is even rate wil be $5 mil ion per quarter. Funding for the broader than most batteries as the Power Pack is automated production line is $11 mil ion and compatible with multiple portable electronics requirements for the fuel line, framing and working products. Medis is targeting every mobile phone user, but particularly users that are frequently Like most developmental companies, Medis has not proposition is most appealing to the enterprise generated noteworthy revenues to date and has market where business travellers are often ‘on the consistently reported annual losses in the $10 road’ for days at a time. As the Power Pack wil million range. With that said, it looks like 2006 wil provide 20-30 hours of talk time, obvious be a substantial revenue year for the company. productivity benefits are easy to market. Couple They anticipate product orders and commitments that with the fact that Microsoft expects to have to ramp up in the second half of 2006 with 100 mil ion devices using the power hungry deliveries of products from the automated line in Windows Mobile 5.0 and there wil be plenty of the first quarter of 2007. The company projects that units from the automated line (capable of producing 1.5 million units/month) will each The key to securing recurring revenues is signing contracts with major mobile providers – they control the sales channels of mobile products. It Medis Financial Metrics
appears that mobile providers are excited about 2002 2003 2004
this product, which bodes very wel for Medis. Mobile operators have a multitude of marketing mechanisms to get the Power Pack into the hands of the consumer or it may simply be used for promotional purposes. In addition, General Dynamics should be able to penetrate the military Insiders are stil a very strong force in this growth stage company, owning nearly 50% of the stock. This can mean several things, but since the CEO is heavily invested in the company and is not allocating a salary to himself, it appears that management has significant motivation to make this a successful company. As one of the only fuel cel companies with an ‘economic’ product on the market, Medis should benefit heavily from the first mover advantage, particularly in the mobile market. The stock is trading at the lower end of its one year range and below its 50 day moving average, making it very attractive for a long term


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