MicroVision emerged about the time gasoline was $1 and the auto-film rewind Sure Shot cameras were the big thing.
When MicroVision went public three years later in 1996, investors plunked down about $42 a share on the belief that the company would someday sell technology to project images onto a user’s eyeball.
Decades later, the eyeball idea has morphed into component modules for tiny projectors. And the share price morphed to ~$2.
It stayed in that range from the summer of 2013 until recently. Then the stock suddenly streaked to ~$4. Why?
MicroVision has landed a $14.5 million component order essentially confirmed to be from Sony Corp (ADR) (NYSE:SNE).
But TheStreetSweeper contends a $14.5 million order is still not going to morph MicroVision’s $469 million loss into a profit.
Let’s look at the issues we believe are conspiring to pummel this stock back to that familiar $2 territory and below.
*First, the bull case.
The bull thesis applauds further development efforts with Sony that began in April 2013. The technology is validated through the March non-exclusive licensing agreement.
MicroVision began fulfilling $3.8 million in component orders for Sony near year’s end and will continue into 2015.
Bulls are lauding PicoP integration into some consumer products such as the Korean OEM Celluon, which is now selling products. Sometime in the second half of the year, they are expecting a smartphone product.
More revenue sources are needed as indicated by 4Q14 revenue/losses of $0.7 million and $0.08 loss/share, however. Wall Street expected $1.7 million and $0.08 loss.
Oppenheimer is estimating $20 million revenue in 2015 ($-0.04 loss). It estimates revenue dropping to $12 million in 2016 ($-0.20 loss).
Extrapolating from Oppenheimer’s estimates, it appears MicroVision might sell $9.5 million to Sony this year, but only $8.5 million in 2016 – which doesn’t sound like a growing market.
While Northland Securities has a “buy” on MicroVision (the report was unavailable), Oppenheimer said it prefers to remain sidelined until more revenue sources are secured.
Investors may find other viewpoints on MicroVision here.
*The entire projector market is tiny. The average sales price is declining.
Worldwide, the demand for projectors is just about 8.3 million units per year. In the US, the sales overall were up only 1 percent year-over-year in the fourth quarter of 2014.
At the same time, the average sales price has declined 19 percent in the United States, according to the report. And in other countries, a few percentage points greater.
Indeed, the market for the PicoP projector – MicroVision’s product – is so small that there’s no good market data on just that category’s sales.
Big ol’ boys have tried and failed to grow this market. Samsung introduced its Galaxy Beam containing a Pico projector several years ago. As a reviewer suspected, the novelty soon wore off, and Samsung moved on due to what sources called low sales. Samsung tried again with the Beam 2 but those soon went in the trash can, too.
One new purchase order obviously can’t grow this niche market.
*Why Sony Might Throw Millions Into Such A Small Market
TheStreetSweeper asked engineer and KGOn Tech president Karl Guttag what he thinks motivated Sony to spend money on Pico projector components if the field offers so little promise.
“It could be that Sony is looking for a gimmick to help sell something,” said Mr. Guttag.
An analyst agreed and pointed out that, weighed down by $1 billion in losses last year, Sony spun off its TV business and sold its personal computer division. The company now seems open to a sales or joint venture deal for its TV and mobile phone units, according to Reuters’ sources.
So it appears restructuring Sony could be splashing on extra cologne to try to find a consumer electronics buyer.
*Why MicroVision’s Deal With Sony Does Not Open Up iPhone Opportunities
Along with its PlayStation, Sony is now primarily focusing on selling image sensors for iPhones. At first glance, this sounds as if it might be an opportunity for MicroVision’s product. We’ll hit on the chief reasons we don’t think that’s the case.
First, apparently unimpressed with Microvision’s IP, Sony stuck with its own intellectual property. MicroVision’s product is a module containing laser light source, circuitry to control mirrors, and MEMS controllable mirror to direct the image. Sony elected to order only the MEMS component.
Second, the MEMS isn’t applicable to the iPhone. For smartphone camera modules, Sony is the huge vendor of the CMOS sensor, a piece of silicon that reads light input and converts it to digital data. But MicroVision’s product paints laser beams on a screen. So it does just the opposite.
Third, even if it would work technologically, MicroVision’s product is way too big for today’s slim phones and it rapidly consumes phone batteries.
*Just Building Inventory … Or Worse?
Mr. Guttag and an analyst in this field say the deal may one day break investors’ hearts.
“My guess is … at best, Sony will not find a market for 1 million units to support the roughly $8 million pre-order,” said Mr. Guttag, referring to the up-front licensing payment received.
Mr. Guttag is a retired Texas Instruments fellow and, until December 2011, CTO of Microvision competitor Syndiant.
Mr. Guttag and another expert envision a worst case scenario.
“If the first X-thousand units don’t sell they may cancel their order,” said Mr. Guttag.
An analyst who requested anonymity agreed. He added that those orders likely will become just more inventory.
“Based on reasonable assumptions, for their product to be price competitive, this implies 1 million units,” the analyst said. “That’s a very high number versus the total projector market (of about 8 million worldwide).”
* Millions In MicroVision Market – Billions Needed
Beyond the cancellation risk, there’s risk in the bigger picture.
MicroVision’s MEMS, short for “micro electrical-mechanical system,” products must be high volume to be profitable.
It is possible to make a profit selling MEMS. We can see that by comparing MicroVision ($18 million net loss in 2014) with two companies that have succeeded: InvenSense (INVN, $6 million net income ) and STMicroelectronics (STM, $128 million net income ).
The difference? Those two built their MEMS business on the cell phone market.
Why was this possible? Billions of cell phones are sold each year.
The Pico projector is a niche in the total projector market, which is how big, again? Eight million.
Microvision would be extremely fortunate if it could sell a million or two in the market. But even drastically improving that -377% operating margin, it still wouldn’t be profitable.
*MicroVision’s Own Projectors Flop
Microvision’s 2010 Pico projector product, ShowWX, carried a $500 price tag originally, now out-of-stock at Amazon, and garnered only a “fair” rating from a PCMag editor. The reviewer called it interesting but added “the image quality isn’t quite ready for prime time.”
The latter version, ShowWX+, got better reviews, including this “6-out-of-10” rating, with pros of “small and light,” and cons of “Only suitable for small-screen projection, weak brightness, requires TV Out in iOS apps.”
This reviewer commented: “The lack of brightness removes all punch – watching a film at this size is like having a story whispered at you from across a room.”
The ShowWX+ and ShowWX are vrtually impossible to find – anyplace. If you check MicroVision’s website, here’s what you’ll see:
If you click on any of the links to online retailers, here’s what you’ll see:
Mr. Guttag, the engineer, is negative on laser scanning, regardless of what company offers it.
“From a technology perspective, laser scanning is still a poor choice in terms of cost, size, power efficiency and image quality,” he said, referring to his preference, Texas Instrument’s DLP (digital light processing) and LCOS (liquid crystal on silicon).
Consumers can find little conference projectors now that offer wireless mirroring, shown here and here and here.
And good projection capabilities are offered on today’s tablets, as well. Some examples are here and here.
*Burn, Revenue and Equity Raise Issues
The four top executives running this money-losing enterprise haul in a cool $2.07 million, with CEO Alexander Tokman’s salary and stock options the highest in 2013 at $846,056.
Their company just made $3.48 million in revenue in 2014. And it burned through almost that much – $3.25 million – in one quarter.
The company’s SEC filings contain nearly seven pages of risk warnings, including:
“We have a history of operating losses and expect to incur significant losses in the future.”
“We will require additional capital to fund our operations and to implement our business plan.”
“… we anticipate that we have sufficient cash and cash equivalents to fund our operations through December 2015. We will require additional cash to fund our operating plan past that time. We plan to obtain additional cash through sales and licensing activities and/or the issuance of equity or debt securities.”
“We cannot assure you that we will ever become or remain profitable.”
The company has been trying to make money for 22 years and hasn’t done so yet.
So, what are the chances this $14.5 million order will save MicroVision from its nearly half-billion in net losses, going concern issues and tiny product, while working within a teensy niche market? In our opinion, the chances are micro.