In the wake of my article on Google Glass and Himax, we had the honor of a response from Karl Guttag himself. Karl is one of the world's foremost authorities on LCOS technologies (among others). His credentials are too extensive to list here, but I encourage everyone to check them out here: http://www.kguttag.com/about-karl-guttag/
His response seems to have sparked the precipitous reversal in HIMX shares today. Keep in mind that I neither endorse nor condemn today's move. That being said, I maintain my belief that shares of HIMX are poised to triple. How and how fast it gets there is not something I can forecast (in fact, I'm a terrible trader). My strength -- and the basis of Pipeline Data -- is in fundamental analysis.
Without further ado, here's Mr. Guttag's note…and my reply.
Thanks for referencing my blog and your kind words about my expertise, but I would like to correct/comment on a few things in your article and related comments.
As my blog (and other comments) have pointed out, I think it is unlikely that Google is using a Himax LCOS panel in the newer design. I was just pointing out the fact that the old prototype used a Himax panel. Himax's current LCOS site does have the appearance of being "abandoned" with broken pages and missing links.
It is no simple matter to go from reflective LCOS to a transmissive panel as the technologies to form the transistors are radically different. The major technical different that it requires the transistor to be on a glass/clear substrate rather than silicon. There are other companies such as Kopin and Epson and others who are much more established players and are much more likely to be providing transmissive panel than Himax. I don't know what information you got from Himax, but there is a chance that there was a communication error.
Himax has sold their color filter LCOS panels into products sold in China and/or India for several years. So selling 20K in a quarter would not necessarily indicate a build up for Google Glass.
Additionally as my blog points out, I am more than a little skeptical that any head mount display, including Google Glass, is ready for "prime time" high volume sales any time soon. Just because a lot of companies are looking at and researching something does not mean that it is about to happen in high volume. Head mount displays while solving some problems, have a hole host of issues that have I have yet to be convince have been solved.
First, I thank you for your note…and more so for the expertise you routinely share on your blog. I believe it is a must-read on the topics you cover.
In regards to your comments, I concede all technical points. You are by-far the expert on this subject. Along those lines, I read and understood your thoughts regarding the likelihood of Google of utilizing a transmissive panel in the commercial-launch version of Google Glass.
It would be understandable to dismiss Himax on that basis. Indeed, their website could use some updating, but I assure you that it's functional. http://www.himaxdisplay.com/en/product/info.asp
Comparisons to past iterations (via Google's Wayback Machine) show that changes are made fairly regularly. Most importantly, its ties to LCOS are alive and well. My colleagues and I have contacted several folks in the industry to check on the status of each competitor's offerings. Specific to HIMX, I asked the company directly. This was the response:
I just heard back from the CFO, Jackie Chang, on your question.
The answer to your first question is "Yes" the Company does offer a transmissive color filter device.
MZ Group |Senior Vice President - MZ North America
I have no doubt in your assessment of the difficulty involved with moving from a reflective LCOS to a transmissive panel. Not surprisingly, my communications with Gartner Group yielded no refutation to any of your expertise either. However, I believe that the feedback from HIMX's CFO would imply that they have indeed crossed those tough, but surmountable hurdles. Indeed, $80 million of annual R&D spending can go a long way.
Further, as your excellent detective work revealed, they were in the prototype. While that's no guarentee of being designed into the final product, indications seem to point in that direction, including the company's claim to offering a transmissive CF device, along with its ability to offer Google a color sequential device, should they choose to pursue that path in future versions. I haven't been able to identify any other company that offers this combination of capabilities.
As for your skepticism regarding the readiness of Google Glass for prime time, that is surely the debate du jour! Sergey Brin certainly did his best to show what Glass can currently do and moved up Google's timeline for launch. I can only assume that they feel confident in the progress they have made.
I have no doubt that the first iteration will reveal issues that will need to be addressed. Battery life and price come to mind. That being said, it is my understanding that HIMX is mulling a multi-fold increase in its manufacturing capacity, which is already measured in the millions.
Frankly, I wouldn't consider a couple million units to be a runaway hit. However, for HIMX it would represent substantial upside relative to what is currently baked into the Wall Street estimates. Such upside and future prospects could move the stock toward the "growth" category in investors' minds which would warrant a EV-basis P/E far in excess of the single-digits it commands today.
In short, I don't refute any of your points -- our facts are not in conflict. Rather, your research and mine seem complementary.
Thanks again for your generous contribution. I welcome the honor of any further thoughts. My curiosity is always piqued by the pursuit of the truth and you provide much to the world in that regard!
Disclosure: I am long HIMX.