Instablog post originally published June 28, 2014.
In my previous post, I proposed that Kopin (NASDAQ:KOPN) represents outstanding value at current levels due in large part to their vast accumulated wearable Intellectual Property. In particular, their patent portfolio, which now exceeds 250 applied and granted patents, is of extremely high quality and covers all key areas required for success in the emerging wearable smart glass/eyewear/headset market.
While I cannot personally attach a specific monetary value to this IP, if we take a brief tour through some key patent filings and overlay how they might be monetized, I believe my previous valuation assumptions become reasonable, if not conservative.
User Interface (UI), User Experience (UX), & Software IP
Along with becoming a key component supplier of complete LCD optical modules for wearable technology, Kopin has built an architecture comprised of essential software components that will result in recurring license revenue if successfully adopted by partners and customers. In this summary, I will focus on examples of Kopin's licensable UI, UX, and software IP.
While providing incredible power, flexibility and mobility, smart glasses and headsets have unique challenges when it comes to UI/UX design. If you are a vendor looking to enter the wearable market, you need hardware and software components to complete your product. The complexities of integrating gesture and speech recognition into user inputs that drive seamless visual and audio outputs are significant. You need a partner who can deliver an integrated hardware and software solution. For five years, Kopin has been building just that: Golden-i is a complete wearable architecture that can be licensed, in whole or in part, to fill this need.
I have included some examples of how Kopin's IP does the heavy lifting for wearable UI/UX:
- Headset Computer (HSC) As Auxiliary Display With ASR and HT Input
- Advanced Remote Control of Host Application Using Motion and Voice Commands
- Bluetooth or Other Wireless Interface with Power Management for Head Mounted Display
- Enabling and Disabling Features of a Headset Computer Based on Real-Time Image Analysis
- Headset Computer Operation Using Vehicle Sensor Feedback for Remote Control Vehicle
- Headset Computer With Handsfree Emergency Response
- Instant Translation System
- LifeBoard - Series Of Home Pages For Head Mounted Displays (HMD) That Respond to Head Tracking
- Searchlight Navigation Using Headtracker To Reveal Hidden or Extra Document Data
- Context Sensitive Overlays In Voice Controlled Headset Computer Displays
A little known fact is that Kopin owns a boutique software developer in England that has created an entire wearable-centric operating system (Golden-i OS) that resides over top of Windows or Android to provide a complete user interface and supporting infrastructure for headsets and eyewear.
Additionally, what we learned with the launch of Kopin's Pupil optics in February is that Kopin has scaled their software IP from enabling a full PC-Class headset like Golden-i down to a pair of smart glasses for discrete notification and other functions.
With an OS layer that runs on two key mobile platforms, Kopin is well positioned to create a recurring software license revenue stream in addition to hardware component sales. Motorola Solutions was the first Golden-i OS licensee with their HC1 product. Kopin has not yet disclosed revenue derived from this product, but it will include recurring license income related to Golden-i OS.
Furthermore, Kopin and Ikanos Consulting have been actively developing a number of professional grade applications to trigger wearable adoption in the light industrial and public safety segments:
- An enterprise class Work Flow/Maintenance application that enables mobile workers on all devices including current wearable devices such as Google Glass.
- Public Safety applications such as the well published collaboration with Verizon (NYSE:VZ) for firefighters.
Monetize the IP and Drive Shareholder Value
As you can see, Kopin has assembled an impressive array of software and IP components that can be licensed to partners and customers in all segments of the wearable market. As smart glasses prepare to go mainstream and headsets are adopted by businesses of all sizes, Kopin stands to generate significant incremental revenue through:
- Recurring license revenue based on customer unit sales which ship with Kopin's Golden-i OS or individual UI/UX component IP
- Application software revenue as cross platform products such as WorkfloPlus enter the market
- Software development revenue as customers and partners increasingly engage Kopin subsidiary Ikanos Consulting for custom solutions across all devices and platforms
- Consulting services revenue as Kopin provides access to its IP in assisting customers with their internal wearable technology development efforts
From an investment perspective, what is this IP worth? In my previous summary, I had compared Kopin's IP to that of the Osterhout Design Group, a portion of which was apparently transferred to Microsoft (NASDAQ:MSFT) for upwards of $200M. I believe the value of Kopin's patent portfolio (applied and granted) as well as the wearable experience of their employees easily outweighs the valuation of the ODG patents - our only comparable benchmark. This perspective is useful when assessing the intrinsic value of Kopin relative to the current market capitalization. As a result, I believe Kopin is undervalued at these levels.
This link provides a complete summary of all patent filings for Kopin and I would encourage all potential and current investors in Kopin to review it.
In conclusion, I believe that Kopin's exceptional IP position combined with a cash heavy balance sheet and exponential growth opportunities in the wearable space make it an undervalued gem. However, I expect partner and customer announcements to change this dramatically in Q3 and Q4 of 2014.
Disclosure: The author is long KOPN. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.