- MicroVision’s (MVIS) business hasn’t fundamentally changed since it was trading at $0.20 through most of March and April.
- MVIS’ own financial advisor, a Craig-Hallum analyst, to this day hasn’t changed his 25-cent price target on the stock.
- Microsoft buyout rumors caused the initial rally, but MVIS' financial advisor that is helping to look for an acquirer, said the Microsoft rumors don’t make sense.
- MVIS' own investor relations rep told us the stock rally is from retail investors, not tech investors or "smart money".
- MVIS’ will report earnings on 8/5/20, and we believe there won't be any new bullish updates.
(Editors Note: This article was updated following publication. Originally, it was stated that MVIS sold Intellectual Property related to the deal in which one of its customers took over production of a component. However, the Microvision stated in their Q1 earnings call specifically that no intellectual property was sold, so the original article statement has been amended.)
Microvision (NASDAQ:MVIS) develops PicoP scanning technology to create high-resolution miniature projection, and three-dimensional sensing and image capture solutions in the US and Asia. The company has been trying to develop and commercialize this technology for many years, almost since its inception in 1993, with no luck. Over the past few years it has desperately tried to transition its use for different types of products such as:
- Interactive and non-interactive pico projection;
- 3D LiDAR sensing for consumer electronics, automotive collision avoidance;
- and Augmented/Virtual Reality (AR/VR).
However, it has not made progress in any of these areas, and there has been little to no interest by major technology companies. We liken MVIS to a biotech with only one drug that hasn’t worked, yet the company keeps trying to repurpose the drug for different diseases to try and keep investors interested.
On this same topic of MicroVision’s laser beam scan failures:
From a technology blog on 5/5/20:
From 2007 to 2011, I was competing with Microvision working on Pico Projectors as CTO of the LCOS company Syndiant. While at Syndiant, I did some in-depth technical studies of laser beam scanning. I learned that laser beam scanning is one of those concepts that looks and seems simple until you understand it. There must have been over 20 significant companies, including no less than Samsung and Sony, that put serious efforts into laser beam scanning that all failed to make a successful commercial product. Every year or two, Microvision gets an end customer, including Sony and Pioneer, as well as many small companies to build a product using Microvision devices, all of which quickly failed.
MVIS has gone on a crazy run from what we believe to be delusional dreams from retail investors, not from any business achievements by the company. We believe they are buying on false optimism. There has not been any buying by tech investors or technology investment funds.
MicroVision’s 2020 Plan Is A Complete Liquidation Of Its Assets
Select Reddit investors reportedly had a “fireside chat” with MVIS CEO, Summit Sharma, in May 2020. The discussion was regarding the hiring of Craig-Hallum for a strategic alternative/sale process.
From the chat, referring to the CEO:
He made it CRYSTAL clear he understands his current marching orders from the BoD and the shareholders are to sell the assets of this company in its entirety by the end of the year. To the point that myself, Sig, and KY were the ones saying “Well, let’s not be OVERLY hasty here, if a proposal comes along that looks pretty good to keep the company going AND adequately capitalized without significant new dilution, we hope the BoD will consider it.” He allowed the BoD will consider all proposals for what is in the best interests of the shareholders, but his understanding right now is the tide is running towards a complete liquidation, whether to one bidder or multiple bidders (parting out the verticals across multiply suitors).
MicroVision Has Had An Epic Rally That Is Now Reversing
As recently as April of 2020, Microvision was a ~$30M company by market cap, trading at $0.20 per share. By current investor logic, proposed suitors including Microsoft, Apple, Google, Tesla and semiconductor manufacturer STMicro had the deal of a lifetime right in front of their eyes. Even at a 100% premium, $60M for a company with such massive potential for revenue generation as is currently touted is an absolute no brainer. Yet not a single indication of an offer was made.
There’s no reasonable argument to be made that big tech is unaware of MVIS and their patent portfolio. MVIS has been operating for 27 years and has done work with Microsoft, Sony, and Pioneer.
From closing at $0.17 on 3/31/20, to as high as $3.45 on 7/17/20, to most recently $2.06 on 7/27/20, the stock has gone on an epic rally of over 1000%. Our research has concluded that the stock and its technology is worth very little, at best $0.10-$0.30 per share, if not completely worthless.
Today, MVIS’ only customer is Microsoft. MVIS’ chip is used in their Hololens II. But at this point, MVIS doesn’t even receive revenues for the chip. MSFT bought the license from MVIS, and manufactures it themselves. They only pay MVIS a royalty on their sales, yet MVIS won’t even receive a royalty for many years because MSFT paid MVIS $10M up front in 2018.
The reason why we have a $0.15 price target on the stock, is we don’t think it will acquire any more customers over the next year. As the company has sold shares with its ATM during this rally, there are now more shares outstanding. This lowers the value of each share, and therefore we predict the stock will retest its lows next year and go even lower than it was trading at in March and April of 2020.
How MicroVision’s Technology And Business Has Failed Time and Again
In recent quarters, MVIS’ business has gone downhill. It had previously consistently made at least $1M per year in contract revenue, sometimes much more than that. However, contract revenue fizzled out in the fourth quarter of 2019. Contract revenue is the sales of prototype units and evaluation kits based on the PicoP technology. It’s what technology companies have purchased from MVIS who wanted to try out the technology and see if they could turn it into a viable product. In 2017, MVIS signed a $14M contract with a major technology company to develop an LBS (Laser Beam Scanner) display system. Once that contract ended in 2019, MVIS didn’t have any more contracts after that. Since no company is currently interested in buying a prototype or evaluation kit from MVIS, that tells us it’s unlikely that MVIS will find a strategic partner or acquirer.
MVIS product revenue backlog went to zero at the end of Q120. The company had a remaining product order with Ragentek in 2019 from 2017, but Ragentek “failed to meet their obligations under the 2017 order” as stated in MVIS 2019 10-K.
In short, right now, the company’s technology isn’t marketable, and it loses millions of dollars every quarter. Therefore, the company’s board decided to give the current management until the end of the year to try and sell the technology, return cash to shareholders, and close the company down.
Analyst Ratings Add Confirmation To Our $0.15 Price Target
On 2/26/20, sellside analyst Mike Malouf of Craig-Hallum downgraded MVIS to Hold from Buy with a $0.25 price target from $1.75. There has been no business update from MVIS since this analyst downgrade. There’s no indication that any improvement or progress has been made, therefore there has been no reason to raise this price target, and Malouf hasn’t.
On 2/26/20, HC Wainwright also downgraded MVIS to Neutral from Buy but without a price target.
This is a really big deal that these small cap stock sell-side analysts have such a low opinion about MVIS. These analysts are well known for being optimistic on company prospects.
On 4/6/20, MVIS announced they had retained Craig-Hallum as financial advisor to explore strategic alternatives. This is even more rare, that MVIS own financial advisor has a price target for the stock much lower than where it’s trading. But since they are trying to sell the company’s assets, where the stock is trading isn’t a concern for the analyst or management. Inevitably, shareholders will receive whatever those assets can be sold for, and the analysts aren’t optimistic that it will be much.
On 7/7/20, we spoke with MVIS outside investor relations rep, David Allen from Darrow Associates, and he confirmed that there has been no justification for the change in stock price.
We asked him:
The share price was pretty low after the company announced they retained Craig Hallum as a financial advisor. The stock was trading below 30 cents in April. Why is there such a big difference in the share price between April and now?
There were lots of rumors going around regarding the topic of the sale of the company. The company’s shareholder base is largely retail today, and that retail base is very much interested in the technology and has been very supportive. But beyond that, the company has made no announcements about where they are in the process.
Mr. Allen’s statement above confirms our view that MVIS share price is being supported by retail investors who are uninformed about the technology and MVIS business prospects. We believe smart money isn’t buying MVIS stock.
Other interesting parts of the conversation were:
Allen: I have a good understanding of where the process is and where the players are, I speak with management weekly and just spoke with them today. The company hasn’t provided any statements other than that it’s exploring strategic alternatives.
The company has sufficient funds to make it through the end of 2020 to complete its strategic transaction. Craig-Hallum is the financial advisor to help it in that process. Craig-Hallum understands the marketplace where it’s in.
(in regards to raising cash) Microvision needed a financial runway, it didn’t have the cash to survive beyond the 2nd quarter. It needed cash to last until the end of the year. I would you suggest you read the shareholder meeting transcript, they indicated they have sufficient cash to see a transaction through by the end of the year.
WDR: Microvision has accumulated quite a bit of net operating losses (NOLs) over the years. Do they have any value if a bigger tech company wants to acquire them?
Allen: The NOLs have value, but the value depends on who the acquiring company is. So it’s hard to know what the value is until you see what the significant transaction is. I couldn’t share whatever the values of the NOLs might be for potential buyers.
MicroVision’s Only Revenue Source Is A License Agreement With Microsoft
Right now, MVIS has lost all of its revenue sources and customers, except for a license agreement with Microsoft. On 5/9/18, MVIS announced that it received a $10M license fee in 2018 for its license agreement with “a leading global technology company”. Allen confirmed to us that MVIS only has one customer right now, our research has found that this company is Microsoft.
MVIS receives a royalty equal to what would be a 5% gross margin if MVIS manufactured and sold the component itself. With the $10M received, it will be years before MVIS receives actual cash from Microsoft related to Hololens sales. MVIS gets nothing for the first $10M in Hololens royalties. Microsoft sells less than 100K Hololens units per year. They only expect to get $2.5M in Hololens sales in 1-3Q20.
Being low on cash, MVIS started taking desperate measures. On 3/31/20, MVIS announced that one of its customers will take over production of a component that MVIS was producing for the customer. This was to provide manufacturing stability for the customer, in case MVIS had a disruption in manufacturing by possibly going out of business. This reduces MVIS cash requirements and it receives royalties on the production of this component.
This customer is Microsoft, and MVIS’ chip was found in Microsoft’s Hololens II in a teardown video on YouTube posted on 5/18/20. It was confirmed by MVIS CEO Sumit Sharma in MVIS shareholder meeting the next day that its chip is in fact a component in the Hololens II.
However, it doesn’t seem like the Hololens II is a great device. As stated in the technology blog we referenced earlier:
Hololens 2 is pretty much an R&D project that escaped the lab. It is costly and the image quality is terrible, and neither of these major problems is going to get better soon. There is some real application for it in industrial settings, but we are probably talking a market of maybe 100,000 per year. Remember, Hololens 1 reportedly only shipped 50,000 units in its first two years or only 25,000/year.
The reports I had was that Microsoft had terrible problems making the laser beam scanning engine and then aligning it with the rest of the optics. Soon reports were coming out that the image quality was awful on many units (see: Hololens 2, Not a Pretty Picture andHololens 2 (HL2): “Scan Lines” Making Text Hard to Read and Quality Issues with Waveguides).
In January and February 2020, I got a chance to try on an HL2 and wrote about my experience Hololens 2: How Bad Having Tried It? The image quality is about what I was expecting. The color uniformity was very poor and small text that should have been readable was hard to read. Furthermore, it clearly has a problem with flicker.
Microvision’s Fake Buyout Rumors Rally
MVIS huge rally came from hype that MVIS would be acquired by Microsoft as a result of its search for strategic alternatives. These rumors started with articles and spread through social media and retail investor enthusiasm.
This article from stockpence.com, published on 5/4/20, shows that some reddit posts highlighted Microsoft patents for a Scanner Illuminated LCOS Projector for Head Mounted Display. This was pointed to as a possible link to MVIS. The article also shows that many former MVIS employees are now working at MSFT. That suggests, illogically in our opinion, that a MSFT acquisition of MVIS will allow an easy transition of employees from MVIS to MSFT.
Pennycrunch.com published an article on 5/2/20 providing similar “evidence” of a MSFT buyout of MVIS. It also states that “There are rumors and evidence that Microsoft is using MicroVision technology in their new expanded capability with the Xbox.”
The rumor that MVIS chip is in the new Xbox is nonsensical. The new Xbox has been in development for several years, and MVIS would likely have already announced the contact as they did their Hololens II contract in 2018.
Craig-Hallum Refuted The Microsoft Buyout Rumors
MVIS’ own financial advisor poured cold water on the MSFT acquisition rumors. On 5/6/20, Malouf said he believes the primary drivers of the dramatic increase in share price are speculation that the company’s technology is in the MSFT Hololens 2, and that MSFT would be interested in acquiring MVIS.
The assumption of MicroVision technology in the Hololens 2 is nothing new, and the recent sale of IP to Microsoft removes most of the buyout incentive.
Note that Malouf's statement above contradicts what MVIS CEO said in the Q120 earnings call. It states that MVIS gave its customer permission to produce the component and pay MVIS a royalty for every component. Therefore, the result is similar to the transfer of IP, however the agreement doesn't involve the selling of MVIS' IP.
There is also a report on Reddit of a call with a Microsoft rep who denies the rumors. From someone quoting the call:
Here's what Alison said: 1:04 A majority of the questions so far have been about the rumored acquisition between Microsoft and Microvision. I don't have any information on that yet right now. As soon as our PR team releases something I will let you guys know. I should be getting something shortly. So sit tight on that. 1:06:09: I just heard back from our PR team and apparently it is not true, it is a rumor that we [Microsoft] are buying microvision. That's all I have at the moment. Sorry- probably disappointing to a lot of you. No truth to the rumor. We don't have anything to add at the moment.
MicroVision’s Financial and Technology History
The following is the company’s annual revenues and net losses over the past five years:
Source: MicroVision SEC Filings
As shown above, things were looking good for MVIS revenue-wise, as there was big growth in 2018. However, the company’s losses continued to be massive. Then revenues fell about 50% in 2019, and continued to fall in Q120. What happened was companies like Sony were trying out their technology in previous years. Since they didn't find a way to leverage MVIS' technology into viable products, except in the one case of Microsoft, they have lost interest.
Below we look at each year for MVIS since 2015, and how the company did in regards to developing their technology and generating revenue.
2015 Technology and Revenue
This year, the only technology MVIS mentions in their 2015 10-K was their PicoP scanning technology, which they try to use for various applications. It states:
“We see pico projection and automotive head up display (HUD) as the most promising applications for our technology, and we have concentrated in these areas over the past several years. We believe augmented reality (AR) and virtual reality (VR) eyewear displays and three-dimensional sensing and image capture applications can also benefit from our technology, and we are actively exploring these opportunities.”
In 2015, MVIS made $6.45M in PicoP product revenue, $1.165M in royalty revenue. This royalty revenue was from Sony Corporation. It made $1.571M in contract revenue from support service contracts, and the sale of prototype units and evaluation kits.
2016 Technology and Revenue
This year, again, the only technology MVIS mentions in their 2016 10-K was their PicoP scanning technology. It states:
“We see pico projection, interactive pico projection and short range 3D sensing as the most promising applications for our technology in the near to mid-term. We expect AR/VR and HUD to be mid to long-term opportunities. In 2016, we were engaged by another leading technology company to develop a proof-of-concept demonstrator for an AR application. In the automotive HUD market, we have supported customer evaluations for an LBS HUD.
We have also begun to investigate opportunities to apply our technology to emerging applications for in-car connectivity and infotainment systems and our mid-range LiDAR engine can be integrated into autonomous vehicles and vehicle ADAS applications for 3D special measurement and navigation assistance.”
In 2016, MVIS made $12.849M in product revenue to Sony of its MEMS and ASICS. It made $1.8M in royalty revenue from license agreements to its PicoP scanning technology. Contract revenue was negligible.
2017 Technology and Revenue
This year, the only technology MVIS mentions in their 2017 10-K was their laser beam scanning (LBS) technology under their PicoP brand name. It states:
“In November 2016, we announced our strategy for 2017 and beyond that includes selling LBS engines to original design manufacturers (ODMs) and original equipment manufacturers (OEMs.) We plan to offer three scanning engines to support a wide array of applications: a small form factor display engine for consumer products, an interactive scanning engine for smart Internet of Things (IoT) products, and a light detection and ranging (LiDAR) engine for consumer electronic applications. We also are developing LiDAR for automotive collision avoidance systems.”
Revenue fell significantly in 2017 from 2016. 2016 was the last year that MVIS sold components to Sony for their display modules. Product revenue was $2.3M, which was part of a $6.7M order from Ragentek for small form factor display engines.
MVIS made $1.568M in royalty revenue through per unit royalties sold by Sony.
MVIS made $7M in contract revenue. They signed a $14M contract with a major technology company to develop an LBS display system. Received $4M in fees for development work, as well as other contract revenue.
2018 Technology and Revenue
2018 was MVIS best year in terms of revenues with $17.6M. But this was short lived because most of it came from an upfront 100% payment for a five year license contract with Microsoft. The 2018 10-K states:
"Our PicoP® scanning technology system strategy is focused on addressing the following market segments:
- Interactive and non-interactive pico projection;
- 3D LiDAR sensing for consumer electronics, automotive collision avoidance; and
- Augmented/Virtual Reality (AR/VR)."
This year, MVIS no longer received any revenue from Sony. It had zero product revenue. MVIS made $10M in license revenue, which was a sale of its LBS technology license to Microsoft for five years. It made $7.6M in contract revenue from the original $14M contract from 2017.
2019 Technology and Revenue
This is the year where business started to fall apart for MVIS. Revenue fell 50% from 2018. The 2019 10-K shows the business strategy was the same as for 2018.
The company made $5.3M in product revenue. $1.2M was from Ragentek, and it says that Ragentek failed to meet their obligations under the 2017 order.
License revenue was immaterial, it was all recognized the previous year in an up-front payment.
Contract revenue was $3.44M, contract activity decreased. There was no more contract revenue backlog at 12/31/19, compared to $2.5M on at 12/31/18.
Quarter 1 2020 Technology and Revenue
In this first quarter of 2020, contract revenue was effectively zero. This means that MVIS couldn’t find any company interested in purchasing its prototype units and evaluation kits based on its PicoP scanning module. This is a telling sign that there is no longer any interest in MVIS technology.
Product revenue was $1.247M, which was LBS modules and components. In March 2020,. Product revenue backlog is zero at the end of the quarter, so we expect there to be zero product revenue in Q220.
License and royalty revenue was $212K.
MicroVision’s Bull Case
We believe the Microsoft acquisition of MVIS bull case is nonsensical and shouldn’t even be considered. However, it is possible that they will be able to make some kind of other strategic alternative deal with Craig-Hallum that would give the stock a boost if reported. We don’t think this is likely as they have been shopping since February, as the company announced on 2/25, and haven’t reported any progress. Also as shown above in its earnings reports, interest in MVIS PicoP scanner has all but disappeared.
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It’s apparent to us that nothing is happening at MVIS and there aren’t any interested acquirers or partners. We believe this will be reflected in the company’s upcoming Q220 earnings call on 8/5/20. The company itself hasn’t been promotional, it has all come from outside sources and a retail investor rally that has fueled itself. That rally now seems to be slowing down as the stock has retraced considerably from its peak. We think the stock will continue to cool-off, and will go well below $1 per share before the year is over. If management isn’t able to carry through with its plan to sell its assets by the end of the year, we predict the stock will return to its 2020 lows next year, and will likely go even lower as there are more shares outstanding now.
This article was written by
Analyst’s Disclosure: I am/we are short MVIS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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