A123 Causing Investors' Patience To Flicker

Just because investors say that they expect and accept that there will be volatility and setbacks with emerging technologies and the companies behind them, that does not mean that they will not punish offending stocks anyway. As A123 Systems (Nasdaq:AONE) announces another disappointing quarter and some commercial setbacks, investors appear ready to take the stock out to the woodshed one more time.

A Challenging Quarter
Although A123 met the consensus estimate for revenue this quarter (up about 11% to $26 million), it seems unlikely that anybody will care about that number. The company is still a pre-commercial company for all intents and purposes, so it is not a relevant figure.

What is more relevant is the company's report of a higher gross loss - sales rose about $2.6 million, but the gross loss worsened by $1.2 million to a loss of $3.1 million. The company had some yield issues and that led to higher expenses, but it brings to mind the old joke, "we lose money on every sale, but we'll make up for it with volume".

More seriously, the setback will feed the bears who are betting on the idea that A123 cannot profitably scale up its manufacturing process to meet the demand that investors are counting on in the future. While it can just as easily be argued that all new technologies have kinks in the initial production phases and that it is better for a company to work them out before getting large orders, the market is likely to take a "show me" attitude in the meantime. 

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A123 Needs To Recharge

What is there to say about the high-tech battery sector today? Advanced lithium batteries are still the most likely clean-tech option to get traction in the auto sector, but large-scale rollouts are still off in the distance. In the meantime, investors have certainly turned on the smaller, riskier names in this sector and sent the stocks down while the overall market has done alright. 

The Quarter that Was
A123 once again came up short on the revenue line this quarter, as sales totaled a bit under $23 million. Transportation revenue (which is close to half of the total) was flat sequentially, while consumer revenue and service revenue both grew nicely. The company did not record any electric grid revenue this quarter, and the company shipped 10% fewer megawatts on a sequential basis. 


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Does A123 Have The Juice?

Investing in potentially game-changing technology comes at a cost. By the time you know the winners from the losers, a large percentage of the gains are already in the hands of those investors who stepped up when there were more doubts than answers. On the other hand, investing in these companies is a virtual guarantee of volatility and runs a serious risk of capital loss. 

All that said, battery maker A123 (Nasdaq:AONE) in one of those plays that may be worth the risk. Although the stock has been weak lately and first-quarter earnings will not help matters, these are still early days for the company, the technology, and the industry as a whole.  

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