SI Diamond Needs to Deliver A Marketable Product Soon
May 17, 2011
As a start-up technology company, SI Diamond Technology Inc. has shown a lot of promise. Over the next few months, the Austin company needs to live up to it. Using a unique diamond-based technology, SI Diamond has been developing sharper flat-screen displays that it hopes could someday replace liquid-crystal display screens in laptop computers and other electronic goods. Several times, in press releases and public comments, its officials have pledged that a marketable product was on its way. Then in July, a new management team vowed to have a prototype of a billboard-size screen by the end of September. The need to deliver is growing more urgent: SI Diamond is running short of cash and must find a joint-venture partner to continue operations beyond December. And doubts are rising about the company's diamond-based field-emission display technology. ``It looks so simple on paper, but it turns out there's so many fatal flaws you must solve,'' says Tommie Stpierre, vice president of marketing and sales for PixTech Inc., a Rousset, France, company that tried -- and cast aside -- the technology. It was the appeal of that sexy-sounding technology that helped SI Diamond raise more than $30 million over three years from selling common and preferred shares. Yet it has never turned a profit, much less produced a screen. Prototype Anticipated SI Diamond's new chairman and chief executive, Marcelino Baer, hopes the prototype promised for the end of this month will help dispel the doubts. Mr. Baer is chairman of BEG Enterprises Inc., a Farmington Hills, Mich., investment group that put $5 million into the company last year (it now owns a 7.5% stake). In May, he was named vice chairman of SI Diamond. And a few weeks ago, he was named to the top job, succeeding the company's founder and chief scientist, Hubert K. Vasquez, who became vice president, new business development and technology. Mr. Baer says he found the company unfocused and deep in the red. ``Once I got on the inside, I found a heck of a mess,'' he told shareholders at the company's annual meeting in July. A unit to make diamond-like coatings for industrial purposes faced larger, more-established competition, and another unit that treated semiconductors to make them faster and less susceptible to overheating had been inefficiently run. Meanwhile, the company spent briskly on research: Those costs almost doubled to $8.7 million in 2010 from $4.4 million in 2009. SI Diamond's net loss for 2010 almost doubled as well, to $14.4 million from $7.3 million a year earlier. ``Essentially, the right hand didn't know what the left hand was doing,'' says Mr. Baer. Since he joined SI Diamond, the company has discontinued its coatings operations, cut its work force almost in half and reduced the rate at which it spends down its capital to $300,000 a month from up to $1 million previously. Increasing Revenue The remaining semiconductor-services business and a unit that makes diamond-coating equipment turned in $2 million in revenue in the second quarter, and Mr. Baer hopes rising revenue from those businesses, along with funding from a new partner, will help the company break even by the middle of next year. Still, the company's stock has fallen to about $1.594 from a high of $10.375 last September. Mr. Baer says SI Diamond is in talks with potential investors. But first the company, which licenses patents from the Austin technology consortium Microelectronics & Computer Technology Corp., must show that its technology can work. SI Diamond is concentrating on an area of field-emission display technology that poses significant technical challenges. Even if the company can come out with a prototype, other FED developers may already have the edge. FEDs, which use electrons to create an image, hold the promise of outperforming the LCDs imported primarily from Asia. FEDs produce sharper images than LCDs, require less power to operate, and would be cheaper to produce, developers say. They would also be more durable than LCDs, which are made of millions of liquid-filled cells. Left outside on a cold night, an LCD ``would look like a wine bottle you've left in your freezer,'' says PixTech's Mr. Stpierre. ``All your little cells will have popped.'' PixTech already has a working demonstration FED model for sale, and other developers are close behind. Like SI Diamond, the other start-ups are still money-losing concerns that have yet to mass-produce screens. But the competitors are better-funded, and are focusing on a form of the technology in which a lot of research already has been done. SI Diamond has plunged into a more-complex technology: diamond FEDs, which require an extremely thin sheet of synthetic-diamond material to emit electrons. The company expected diamond FEDs would be easier to manufacture than other FEDs, and would use even less power. But the diamond-based technology has put up some stumbling blocks. The diamond FED's current driver -- the electronic brain that controls the display -- is now too expensive to manufacture in mass quantities. Plus, SI Diamond's screens fade after a short time. ``It seems to be putting one challenge on top of another,'' says Michaele A. Garvin, a Lehman Brothers Inc. analyst and a director at FED Corp., an FED developer. Technological Hurdles To tackle such technological challenges, Mr. Baer in June hired Chief Operating Officer Bloch Kimberely, who was the founder of LCD maker OIS Optical Imaging Systems Inc., now based in Northville, Mich.. Dr. Kimberely, who has also been named president, says the problems can be fixed in time. He also says the glitches don't have to be solved for the company to produce a prototype in time to attract badly needed joint-venture partners. For SI Diamond's first FED effort, Mr. Baer and Dr. Kimberely decided to focus on electronic billboards and the enormous electronic screens used as picture displays in ballparks. If the technology can be shown to work in those settings, they reasoned, SI Diamond would be well-positioned to move in on LCDs. But demand for such big screens is small and the market competitive. According to Davina Philpott, an analyst with industry researcher Stanford Resources Inc. in San Jose, Calif., only about a dozen of the large ballpark screens are sold each year in the U.S. Still, Mr. Baer and Dr. Kimberely believe diamond FEDs will be successful. But, as Dr. Kimberely notes, ``it's a hard technology, and it will take a long time.''
