Adept Technology First Look

August 30, 2012

Adept Technology is a Pleasanton, California based maker of robotic machines for materials handling. I was mentioned in a New York Times article recently, which I read because of my interest in robots and artificial intelligence. I decided to take a look at the company as a potential investment. Yesterday Adept (ADEP) released its June quarter (fiscal Q4) results, and I listened to the analyst conference. You can read my notes at: Adept Technology fiscal Q4 2012 notes.

The first thing that individual investors should note is the Adept has a small market capitalization and is not yet profitable. Revenue in the quarter was substantial, however, at $17 million. Net income was negative $360,000, which is within sight of break-even. However bright the future of robotics and Adept might be, it needs to be treated as a risky stock. The stock price ran up after the Times article, and is falling today along with most of the market. Right now it is at $4.30, which would give it a market capitalization of $45.3 million.

I certainly don't consider a young technology company with an annual revenue run rate approaching $70 million to be overpriced when the market cap is $45.3 million and it is running near break-even.

Judging mainly from the conference, Adept makes three basic types of robots, all of which are based on artificial intelligence applied to video, as well as the usual need to manipulate the robots themselves. It mainstay is robots used in the manufacture of hard disk drives.

It has also introduced robots for handling semiconductor wafers, and has a first client for these mobile robots in Singapore.

A third line is designed to rapidly pack agricultural products in plastic clamshell packaging, and there is a California company that is the first customer and proving ground for this product.

It is tempting to plunge in and buy an initial stake of ADEP, but I am going to follow my usual path of being patient and doing more research. There are many robotics companies already, and while there are a lot of applications that could benefit from robots, it is important to understand the competition. Also, I need to read the more recent SEC filings, which I have not done yet.

I already own stock in a medical robotics company, Hansen Medical, and in a manufacturer of microcontrollers used in robotics, Microchip.

I should mention that Adept raised $3 million in the quarter through a new stock issue, and has less than $9 million in cash on hand. In addition to stock dilution through stock-based compensation, there could be a need to raise more cash.

Going forward, I would hope to see better margins on the newer robot lines. If they are valuable to customers, they should be valuable enough to price at a point where there are profit margins for Adept. Otherwise they are just having fun with robots and are not an investment-grade company.

My initial impression of Adept Technologies is very positive overall. At the same time there are a lot of alternatives for my (or your) investment cash. If I do start buying Adept I probably will report that only after the fact. Often I follow stocks for years without ever buying in.

Disclaimer: I have no relationship to ADEP and currently do not own stock. I may buy ADEP at any point without prior notice

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Copyright 2012 William P. Meyers