Friday, August 27, 2010

Microvision: Investors Are Just Frustrated

Definition of “Frustration”…

• The act of frustrating or an instance of being frustrated
• The state of being frustrated
• Something that serves to frustrate

Let's add one more definition to the word frustration...

“waiting for definitive plans and answers to simple question from Microvision while being told that the management will disclose them soon by the next CC… or some other future event that has come and gone by the way side over the last 4 years.”

How dare we worry about where our investment dollars are going when it's such a small part of the big picture of: “the holly grail of embedded PicoP projectors in the billion unit mobile world?” What frustrates us now is another article about the Green Laser price and availability. It sounded like yet another warning, by those in the industry, why a laser based PicoP will fail because of Green Laser pricing issues. I’m sure Microvision brass has the answers, and has its reasons for keeping quite on the issue, but can somebody please throw some light on this 4 year old issue of GL availability, pricing and stability issues as they affect the profit margins and eventual success of laser based PicoP projectors.

Here’re some more thoughts on frustration…

  • Having the wool pulled over our eyes is frustrating;
  • Lack of communications in spoken English is frustrating;
  • Waiting for straight answers is frustrating;
  • Having legitimate concerns brushed aside is frustrating;
  • Being told to take the pain and ignore the small stuff is frustrating;
  • Watching the market price of MVIS drift lower and lower is frustrating, too.
There is enough dry powder on the sidelines to send this market [and MVIS stock price] significantly higher, even into the plus column for the year. But, would-be buyers continue to be stymied as each day brings more questions rather than answers and we keep hearing how off base our concerns are. While panic has become the permanent aroma that greets investors each day, I sense frustration could be moving the market more than any other feeling these days, and certainly over the last few days.

I'm getting emails and phone calls and I know that many folks just want to throw in the towel out of frustration and a lack of confidence. Day to day it's hard to see where it will end, but I think we are going to be just fine and at the end of the day [in mid 2011] Microvision investor will come out whole.

If you are wondering “why mid 2011”…

Here’s what I have finally figured out…

• Currently, the quantities of synthetic green lasers and the ASICs are too small─ like 5,000 to 10,000 units per month, and the cost is relatively too expensive… thus the negative profit margins. The key word is “relatively”… meaning product cost [in such small quantities] is more than the transfer price that can be charged to the OEMs at a suggested retail price of $549.

• To put it another way; if the retail price was increased to $649 and the transfer price charged to OEMs also raised by say $60… than the relative cost of product─ at such small quantities, may NOT be, relatively speaking, too expensive… thus the potential for positive profit margins.

However, the recent drop of $100 in the retail price of SHOWwx [from $549 to $449] mucks the waters yet again and that is frustrating. Does this mean that the price of synthetic green lasers has come down significantly to a point where Microvision can charge less for SHOWwx and still make some profit? Well, that is one thought… as in one side of the coin so to speak.

The other side of the coin could be; that Microvision needs to clear old stock at a loss in anticipation of second generation PDEs that are expected to be cheaper, smaller, more energy efficient and with higher 15- lumen brightness and 720P HD resolution.

We don’t know for sure one way or the other… and that is frustrating.

The current debate between synthetic green lasers versus the diode [direct] green lasers got so confusing at the 2nd Qtr earnings CC that Microvision CEO responded with a Blog post at The Displayground to clear-up the matter.

Here’s the link…

Green Laser Diodes Are On the Way, In the Meantime If Done Right Synthetic Green Lasers Have an Embedded Play

What I find very interesting is the comment about…

“We have already begun to see availability of the first generation synthetic lasers increase. The next generation synthetic green lasers are expected to be more efficient and less expensive than their first generation cousins. We also anticipate that the direct green lasers targeted for introduction in the second half of next year may not reach desired performance and cost targets immediately. For these reasons, we believe that synthetic lasers could continue to remain a competitive alternative to direct green lasers for at least the first 4-5 years after diodes are introduced.”

From the CEO comments about synthetic lasers, it is now clear that they have 4-5 years as the economic life cycle… before the diode green laser mature and become cost competitive. Considering the potential volume sales of laser based pico projectors over the next 5 years, which could easily run into 200-300 million units, there’s enough incentive for the synthetic green laser manufactures to ramp-up production with corresponding drop in prices.

I see two opportunities for cost reduction, and a very strong possibility of profitable margins, in the near future…

• Next generation green lasers and ASICs should be coming out in the next three or four months and they are more efficient and less expensive… and that bodes well for positive margins.

• A significantly large order from an OEM, in the 50,000 to 100,000 units per month range, will not only motivate the synthetic Green Laser suppliers, Corning and Osram, to crank-up the production lines… but it will also help reach the critical volume in terms of quantities that would result in some dramatic price drop.

With next generation synthetic Green Laser supply continuing to improve over the rest of year 2010, it is just the matter of time that a visionary company like Apple will come waltzing down the aisle to embed Microvision’s PDEs in their smartphones, iPads or iPods etc. If it is not Apple or NetFlix initially, it will be someone else… you can bet on that.

It may not be quite apparent to the naked eye; but with a little diligence the negative profit margins issue is just a short term anomaly that should correct itself in the next three to four months.

In the meantime, we are just frustrated!

Anant Goel