Intermolecular (NASDAQ:IMI) had a tough time finding investors for its IPO late last week. Even though the price range was $12-$14, the company priced the deal at only $10 — and it still wasn’t low enough. On its first day of trading, the stock fell by 5%.
But might this ultimately be a good deal for investors?
Founded in 2004, Intermolecular provides high-end research services for the semiconductor and clean-energy industries. Because of its focus, the company has been able to develop sophisticated processing tools and equipment. For example, its so-called combinatorial processing allows research and development experimentation — on various materials — that can be 100 times faster than traditional methods.
Intermolecular also has a top-notch work force of 140 scientists and engineers. Of these, 55 have doctorates. In all, they have put together a portfolio of 622 U.S. patents and patent applications.
Intermolecular’s services have seen lots of traction. The semiconductor industry is reaching the limits of performance in terms of the current set of materials and manufacturing processes. This has become a big problem as chips need to be much smaller and cost-effective for smartphones and tablets, which are seeing tremendous growth.
Intermolecular makes money primarily through two means: First, it charges fees for the development of new chip technologies; then, once they are commercialized, the company gets an ongoing royalty.
So far, the business model has been solid. For the first nine months of 2011, revenue increased to $38.7 million from $28.5 million. Intermolecular’s backlog is $94.5 million, and adjusted pretax income was $4.2 million. IMI’s customers include Guardian Industries, SanDisk (NASDAQ:SNDK), ATMI (NASDAQ:ATMI), Taiwan Semiconductor Manufacturing (NYSE:TSM) and Toshiba.
Still, investors have a few concerns, the biggest of which perhaps is the status of the semiconductor industry. Will a global slowdown be a problem for Intermolecular? Also, the company has only a handful of customers. Can it snag enough to continue its growth?
These are good questions, but the fact remains that Intermolecular has a unique platform that helps customers lower its costs and get to market faster — critically important abilities in today’s highly competitive global markets. And, as time goes by, the company should get larger amounts of high-margin revenue from royalties. Thus, Intermolecular could be a long-term play on some of the powerful trends in tech.