Vuzix: A Deeper Dive Into OEM Prospects

| About: Vuzix Corp (VUZI)

Summary

I believe any OEM development is positive for investors who want to see the Vuzix story mature and develop before the company inevitably gets acquired.

The timing of a potential OEM deal is uncertain.

There are a lot of variables that go into any contract, and it is unclear what type of technological development and/or legal hurdles that need to be cleared before an agreement becomes official.

It has been nearly two weeks since I provided evidence that Vuzix (NASDAQ:VUZI) is likely working with a Korean-based OEM (Samsung (OTC:SSNLF) or LG (OTC:LGEAF)) to deliver holographic waveguides. I believe the S-3 filing in February that provided Vuzix with the ability to issue up to $100m worth of shares was a strategic filing related to an OEM deal the company struck in late January 2016.

I expect that a license or OEM supply agreement will accompany an equity investment by the new strategic partner or Intel (NASDAQ:INTC). As a reminder, Intel has invested just shy of $25m into Vuzix in January 2015, and the investment appears primarily focused on helping market VUZI's waveguides for internal products and external customers. An OEM deal for the company's waveguides would put Intel in a favorable position to be the chip provider for this new Vuzix partner.

If Samsung or LG invests equity in Vuzix, it likely means that the company will not be eventually bought out by Intel or that there could be a bidding war down the road. Either way, I believe any OEM development is very positive for investors who want to see the Vuzix story mature and develop before the company inevitably gets acquired by an augmented reality product and IP-hungry tech titan.

The timing of any deal announcement with Samsung, LG or any other potential OEM is uncertain. There are a lot of variables that go into any contract, and it is unclear what type of technological development and/or legal hurdles that need to be cleared before an agreement becomes official.

I'm not holding my breath that an announcement will be made prior to the Q4 conference call next week; however, at the same time, I would not be surprised if an announcement was made.

The one common theme that continues to be repeated by various augmented reality industry players is that the space is "super hot" right now. My interpretation of "super hot" is that augmented reality hardware providers for the enterprise space such as Vuzix are beginning to see increased market adoption and commercial roll-outs being scheduled over the second half of 2016 and into 2017.

Additionally, I believe large tech titans including Samsung, LG and Intel are moving forward with plans to release a consumer version of smart glasses over the next 12 to 18 months. Other tech companies that have announced plans to enter the augmented reality smart glass space include Amazon (NASDAQ:AMZN), Snapchat (Private:CHAT), ASUS (OTC:ASUUY), Shingyun Technology (China) and Murata (OTCPK:MRAAY) (Japan). Toshiba (OTCPK:TOSYY) on the other hand is moving away from smart glasses after the company recently ditched its enterprise edition Wearvue product just days ahead of the launch in February.

I took some time this past week to dig into LG's smart glass plans, but unfortunately there is not a lot of recent information to report on. The Korean Times report in March 2013 was the first indication that LG was looking into entering the smartwatch and augmented reality space through the introduction of smart glasses. LG introduced the LG G smartwatch in March 2014, and it is reasonable to expect the company to make a splash into smart glasses in the not-so-distant future.

In April 2013, LG was issued a patent related to a head-mounted wearable device. In November 2013, LG filed for a trademark on a wearable product called "Glasstic." However, additional information related to LG's smart glass product plans are not available in the public domain and are likely being kept under wraps for competitive reasons.

In my previous update, I indicated that all signs point to a deal with Samsung and Vuzix. My assumption was based on Samsung's internal smart glass presentation, which showed sincere interest in holographic waveguides as well as various publications and issued patents. These factors were coupled with a Korean-based OEM in town in close proximity to Vuzix as well as VUZI's patented technology and ability to manufacture holographic waveguides to meet Samsung's needs.

Overall, it is a very exciting time to be a Vuzix shareholder, and I believe the party is about to begin for shareholders. I remain uncertain whether or not an OEM deal will be announced ahead of the Q4 conference call next week, however, I do believe Vuzix landed a significant deal with a Korean-based OEM.

Disclosure: I am/we are long VUZI.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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