MicroVision To Transition From Pure Development To Commercialization

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 |  About: Microvision, Inc. (MVIS)
by: Stephen Tang

Summary

The company's pending announcement of business compensation details with Sony is a catalyst.

High penetration and growth of mobile devices used for video streaming is an opportunity for portable video projection.

The company is reaching an inflection point in its history as it transitions from development to commercialization of its technology.

MicroVision (NASDAQ:MVIS) develops green laser-based, micro-sized projection display technology known as PicoP. Some of the unique benefits of this technological advancement include:

  • Superior brightness relative to LED that is uniform from edge/corner to center.
  • Distortion free, always in focus picture with vivid colors.
  • Projection of very large display sizes up to 250 inches in HD.

The past several years have focused heavily on R&D to develop the display technology, identify potential market opportunities, and to create business partnerships in order to establish commercial products utilizing their technology. As a result, company financial results show limited pre-production revenue and a string of operational losses that are relatively meaningless at the present time. The important metric to focus on right now is that MVIS has reduced their annual operational cash burn rate to about $12.5 million, which is a significant improvement from prior years when it exceeded $30 million. As of June 30, 2014 they showed cash equivalents of $12.5 million.

Since April 2013, MVIS has been working with a Global Fortune 100 company that has been identified as Sony and they have recently submitted the final, remaining design specifications to them. At this point the company is engaged in contract negotiations to finalize potential deals for either component sales, product support, and royalty licensing for the commercial product. There is no timeline but earlier this year MVIS made the strategic decision to be prepared to handle volume production of components in H2-2014 after revamping its supply chain in 2013. This leads to speculation that official business contract details with Sony will be concluded and announced by the end of 2014. One recent market research report forecasts that the pico projector segment will experience significant growth exceeding 40% compounded annually over seven years to reach $10 billion by 2020.

Thus, it is evident that the Sony deal will be a pivotal and company defining transaction in determining its future success. Assuming a business contract with Sony is finalized and announced before the end of 2014, along with their decision to also support volume product manufacturing by then, it is logical to assume MVIS would begin recording component sales no later than Q2 2015 and possibly as early as Q1 2015 to reach commercial status.

On June 5, 2014, the company announced a development deal with an unidentified Global Fortune 500 company to develop a display engine for a new mobile smartphone using PicoP display technology. Initial plans outline a H2-2015 commercial product deployment. This represents a tremendous opportunity because of high penetration rates of mobile phones and tablets. In 2015 worldwide smartphone shipments are expected to exceed 1.1 billion devices and tablets to exceed 300 million devices. Both markets are expected to grow another 20% in 2016.

Studies indicate online mobile devices now account for 25% of video views, which is 57% year-over-year growth. The limited screen sizes of mobile devices that detract from the overall viewing experience could be revolutionized with PicoP as a solution. Doing the logical math and making the assumption that component deliveries to the phone company precede product manufacturing, MVIS is anticipated to begin recording revenue in this large, high growth segment possibly by Q2 2015.

MVIS is also working on other market opportunities such as automotive heads up display application and also landed a deal with UPS for a new package guidance application. Both are intriguing and important in the long term because it could pave the foundation for many unrealized opportunities that extend beyond retail consumer electronics. However, presently, I would not attribute any valuation to either of these applications and it would be prudent to merely regard them as bonus upside additions if success is achieved. The company is currently devoting nearly all of its resources towards consumer electronic opportunities because it offers the quicker path to market and also for revenue.

Also worth mentioning is their intellectual property patent portfolio containing over 500 patents offers overlooked value. The Patent Board has recognized their IP portfolio to be in the top 50 among global industrial companies during 2009-11. Again, it is probably best to attribute this fact as unexpected bonus upside if the company was ever acquired due to its technology patents or if any patents were monetized by licensing or sale.

The one future innovation that I find most compelling in the product road map is the ability to air touch projected objects. In other words, you can use your finger in the air to articulate all the objects and it would respond accordingly. As an example, the projected image could be a keyboard and you can physically tap the projected keys and the application would recognize it. Or you could play a game such as a first person shooter and hit your enemies with in air gestures that touch those projected targets. It seems almost surreal like the futuristic 4D sequences you observe in some sci-fi movies but it is now very achievable and happening now.

Conclusion:

Be aware that MVIS only has 43.5M shares outstanding (as of June 30, 2014) and at recent share prices results in a market capitalization of under $100 million. Since its current cash position only funds the company's operational needs for the next twelve months and with only limited product revenue to have been generated from initial launch of its first commercialized products anticipated by then, there will likely be at least another round of financing during this time frame. Shareholders involved with this stock anytime during the past four years either had their patience tested during the research and product development phase or have moved on after growing sick and frustrated of enduring operating losses and dilution of shares from numerous past financings. But MVIS is presently nearing an important inflection point as it is finally on the verge of transitioning from a development company into one about to capitalize on commercialization of its technology. And no analysis of past financials or income statements will point to this pending paradigm shift.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in MVIS over the next 72 hours. 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.

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