Intelligent Energy (IEH) has signed a joint development agreement (JDA) with an emerging smartphone OEM. The announcement shows the group is making rapid progress on executing its operational strategy while management proceeds with completing its financing programme. In January, management noted that good progress was being made towards completing both phases of the financing programme by the end of calendar Q116, as originally indicated.
IEH announced a preliminary agreement with an emerging smartphone OEM at end November, so the rapidity with which this has converted to a full JDA indicates the strength of customer interest. This tailored development and integration programme builds on the prototype demonstrated in August 2015, which showed that IEH’s fuel cell technologies could be embedded in cell phone and tablet hardware without reducing any of the functionality or battery life of the devices. The JDA, which is non-exclusive, has a total contract value of £5.25m ($7.6m). If successful, this JDA may be followed by a licensing agreement. We discussed the potential value of a licensing agreement in the smartphone space in December.
The contract underpins our estimates for the Consumer Electronics division, so we leave our group financial estimates and valuation unchanged. This is against the backdrop of a visible share price drop fuelled by concerns about financing. Management expects the contract to be cash-flow positive as 10% of the contract value is payable after signature, the rest is deliverable in time-based instalments over the next 24 months. This highlights how the switch in business model for the Consumer Electronics division is enabling the group to develop product tailored for deployment in mobile devices while sharing costs with partners who will potentially market the finished products.