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Samsung deal wobbles Nanoco

Shares in quantum-dot producer Nanoco (NANO) were hammered this week following news that Samsung may be teaming up with a rival producer. But where does that leave shareholders?
January 9, 2015

Shares in quantum-dot maker Nanoco (NANO) took a dive this week after it emerged that electronics giant Samsung had signed a contract with rival dot producer Nanosys and was apparently already using Nanosys products - including quantum dots - in its electronic devices.

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That was bad news for Nanoco, which was widely expected to be a big supplier of cadmium-free quantum dots to Samsung and is thought to be the only company capable of mass-producing cadmium-free dots. But, yesterday the story changed again - and the shares rebounded - after Nanosys published a press release correcting "inaccurate information" in its original release. "We note that Samsung does not and has not used Nanosys products in Samsung’s products," the company said, adding that the multi-year agreement with Samsung would merely give Samsung access to Nanosys' quantum dot patents, including cadmium-free varieties.

It's all rather ambiguous, but it does suggest that the market reaction to the original news story was uncalled for and that Nanosys doesn't have a commercial agreement to supply quantum dots to Samsung, but is merely supporting Samsung's own production efforts. Tech analysts at Canaccord still reckon that Nanoco/Dow will become a prominent supplier to Samsung. Speaking from the International Consumer Electronics Show in Las Vegas, they said: "Samsung's quantum dot TV displays at CES are not based on Nanosys's technology. They are built using Samsung's internally developed technology. We believe Samsung's internally developed quantum dots are still not suited for production in commercial quantities."

Analysts at Liberum also expect Nanoco to team up with Samsung, with the latter dual sourcing quantum dots from its own internal supply and from Nanoco/Dow.

So where does this leave shareholders? It's a tough call, but we remain buyers: Nanoco/Dow has already signed a contract to supply electronics behemoth LG with cadmium-free quantum dots, which will take up most of its capacity in the near-term. The manufacturing facility being built by Dow is set to start commercial shipments in the middle of the year. Quantum dot technology appears to be the next big thing in television and a further supply agreement with Samsung would really boost the shares. Long-term there are risks to volumes and pricing as the dot technology becomes more mainstream, but Nanoco/Dow is currently the only real provider of cadmium-free dots in potentially large quantities.