The cadmium-free quantum dots (QD) developer is taking a lower royalty rate from future shipments. In return, Nanoco doesn't have to pay its £10 million share to build a new production plant. That may not be a bad idea for many businesses, but does it really suit a new technology developer that's supposed to see a big, bright future?
The market seems to, at least in part, share my concerns as the shares off nearly 4% to 172p, although the fall needs to be drawn against a 30%-odd three month surge.
The Dow deal is likely to play a fundamental roll in transforming Nanoco into a profitable company, probably in 2015.
Shares explained in March the importance of the displays market to make that break into the black. But perhaps my initial reaction assumes too much?
Analysts at Liberum Capital make a fair point that the renegotiation slices a bit more risk off the execution profile, ergo the investment case too. 'When ramping new technologies there are always unknowns such as the exact timing of customer adoption and pricing,' point out Liberum's Janardan Menon and Eoin Lambe.
'Dow and Nanoco have been working together closely for nine months with increased resources and the amended agreement irons out any potential issues.' That's compelling reasoning for a company that's burning through £5.5 million of cash on an annualised basis, although it does have £12.5 million in the bank.
Let's also remember that Nanoco's cadmium-free QD technology has other market applications too, particularly in solar and LEDs, two fast emerging markets. 'As time progresses the risks surrounding Nanoco’s ramp are reducing,' add Liberum's Menon and Lambe. 'We continue to believe Nanoco has a competitive advantage (only cadmium free QDs) and it will ramp with multiple tier one customers over the next 18 months.'