Investing in Computer Technology

Wall Street Has Overlooked the Most Explosive Side of this Tech Company
By Jim Nelson
June 19, 2007

Last week, I wrote to you about the future of the Hard Disk Drive (HDD) industry. I mentioned the industry leader, Intevac, Inc (IVAC: NASDAQ), which has a 60-plus % market share. This week, I’ll show you how this company is in a league of its own.

Intevac is one of the companies that manufacture the machines that produce the storage areas on HDDs. The company has recently been selling one of the industry’s top machines, the 200 Lean.

Well, the company produces and sells this $4 million machine to many of the top HDD makers such as Fuji Electric, Hitachi Global Storage Technology and Seagate.

Intevac sells another machine, which is also as vitally important in the growing HDD field. The DLS-100 is a post-sputtering, lubricating machine. The purpose of this machine is to cover the finished HDDs with a layer of lubrication to extend durability and reduce friction between the disk and the read/write head.

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The DLS-100 is essential to all HDD manufacturers, especially the ones using the 200 Lean because of the compatibility of the two machines. This particular machine has a patented upper tank design, which is a great benefit to the company in this cutthroat industry. The company also improved the most important aspect of lubrication, -- that is, most important to the buyers -- shorter production cycles.

These two machines have put the company in terrific positioning compared to its rivals.

On top of all that, Intevac’s manufacturing facilities are mostly located in Asia: Japan, China, Malaysia, South Korea and Singapore. There is also a U.S. headquarters in Santa Clara, California. These locations are crucial to its sales force aimed at Silicon Valley and Asian-based HDD manufacturing companies.

But the company doesn’t stop there…

What most people do not know is that along with its amazing equipment business, Intevac has a second division of products: imaging equipment.

Wall Street has simply overlooked this potentially enormous side of Intevac’s business.

Only representing 4.4% of the company’s revenue, most of the products just aren’t ready for sale, yet. It’s not going to stay that way forever…

The company has many R&D contracts with the U.S. military and NATO for night-vision products, which are expected to go into production for the military in 2010, as well as many small commercial companies in the fields of astronomy, spectroscopy, life sciences and industrial products monitoring for a variety of digital imaging products.

These contracts can quite easily turn into huge patents worth millions of dollars in the imaging industry. Besides future patents, landing a U.S. military and Special Operations equipment contract in the first place will ultimately bring in unlimited business from all kinds of companies who want night-vision goggles, low-light cameras, etc.

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Other aspects of this imaging division are in the fields of life sciences and astronomy. This includes everything from high-speed, low-light cameras for cellular monitoring to high performance Raman spectrometer systems for astronomers.

The company just recently acquired a company call, DeltaNu, LLC, which was one of the leading spectrometer manufacturers. This acquisition should also boost Intevac’s imagining business.

Obviously, this side of Intevac’s business is broad, but I suspect that once a few of these R&D projects make the turn into production and sales, especially to the U.S. military, many investors will look at it as a catalyst to buy stock in this company, hopefully sending the price of its shares through the roof.

Intevac may represent a highly technical and complex industry or even a few industries, but with 60% of its market share and key locations, it does it well. Even if its imaging business doesn’t ever take off, I have no doubt that its overall foothold in its industry will stay strong for years.

Sincerely,
Jim Nelson

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Jim Nelson is the managing editor of Penny Sleuth, a daily small-cap e-letter with more than 110,000 subscribers. Jim has been playing the stock market since he was 14, always with a preference toward smaller companies. He has honed his stock picking skills at Agora Financial since 2004, effectively combining a growth and value approach.

He holds a degree in Political Science with a minor in History from the University of Pittsburgh.