MicroVision Inc (MVIS) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2008 Microvision, Incorporated earnings conference call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). I will now turn the call over to Tiffany Bradford, Investor Relations Specialist. Please proceed, ma'am.

Thank you. I'd like to welcome everyone to Microvision's fourth quarter and year-end 2008 financial results conference call. In addition to myself, participants on today's call include Alexander Tokman, President and Chief Executive Officer, and Jeff Wilson, Chief Financial Officer.

The information in today's conference call may include forward-looking statements, including statements regarding projections of future operations, product development, introduction, applications and benefits, business partner and expectations, market opportunities and growth and demand, as well as statements containing words like believe, estimate, expects, anticipate, target, plan, will, could, would, and other similar expressions. These statements are not guarantees of future performance. Actual results could differ materially from the future results implied or expressed in the forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statement are included in our most recent annual report on Form 10-K filed with the Securities Exchange Commission, under the heading "Risk Factors Relating to the Company's Business" and our other reports filed with the commission from time to time. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in circumstances, or any other reason.

I would now like to turn the call over to Alexander Tokman. Alex?

Thank you, Tiffany. Welcome everyone. Our call is divided into several parts. First, I will give you update on 2008 results. Jeff will come back with financials, and we'll jump into 2009 outlook followed by question session.

So without further adieu, let me just start with 2008 results. While at times challenging, 2008 was an exciting and very productive year for the Microvision team as we continued to execute on our PicoP commercialization road map. We made substantial progress on the objectives that we set for ourselves early in 2008 in completing multiple business developments, technology and supply chain milestones. All were more essential for bringing our first PicoP consumer product to market.

Now, you also are aware that the longer than expected development and commercialization cycles one of our key light source components, as well as a deteriorating economic conditions, have (inaudible) a full fulfillment of our goals for 2008. We'll highlight on these later in the discussion. A key indicator of how we have progressed against the commercialization milestones is measured not by us, not by you, but by our customers and interests that OEMs have expressed for our product. And judging by the most recent feedback we received at the shows, OEM interest remains very strong for bringing our unique solution to market in 2009.

Clearly, the positive results of 2008 execution were realized at the three global commercial trade shows, Mackworld, Xbox, Consumer Electronics show, and Mobile World Congress, all which happened in the January and February of this year. We have demonstrated, to the delight of many prospective customers, a preproduction (inaudible) plug-and-play accessory, Pico Projector called name Show WX. WX stands for "wide-screen experience." I would qualify a different way. I think it's a wild experience because if you had a chance to see the units and you would immediately recognize that no one today, except for Microvision, is able in controlled lighting environment to produce a screen of 70-80 inches (inaudible) in 24 while seeing every detail in the image.

We're not limited by resolution, like some of our competitors, and we're not limited by focus, which is also one of the limitations that advantages we have over the competitive products. Show WX was selected by the editors of Appletell. One of Apple echo systems premier players and websites as one of their favorite gadgets in 2009, Macworld Expo. We were also acknowledged by the Discovery Channel as one of the top technology innovations at CES for 2009. The significance of Show WX lies not only in the fact that it offered performance features superior to its predecessors as well as the existing competitive products, but more importantly that this accessory projector, for the first time, was produced by our manufacturing partner, Asia Optical, which in itself represents a major milestone on the path to launch of our first PicoP enabled consumer product in mid-2009.

We're going to hit on several critical areas that describe and characterize our commercial launch readiness. These areas obviously include customer development, technology maturity, and supply chain readiness. Let's start with customer development first. Recall that we began customer trials late in 2008 with the goal to get an early feedback in order to finalize the accessory product design by the end the year. We've done this. Those trial units incorporated were so important advancement, including U generation Green Lasers, improved PicoP engine, as well as several image quality improvements.

The outcome of those initial customer trials resulted in two important wins. First, it allowed us to incorporate the valuable customer feedback that resulted in Show WX. Second, they allow us to develop a core funnel of prospective OEM customers, which includes some of the well-known handset manufacturers, mobile operators, and a large consumer electronic brands, as well as distributors. By our current estimates, the bottoms-up demands expressed by this core group of prospective customers exceeds our estimated supply for 2009 by almost 20X. So, the question that ultimately comes to your mind, Where are the (inaudible). Well, the answer is quite simple.

The longer than expected development cycles and lack of a detailed delivery schedule for some of the components have made it challenging for us to complete final product testing and complete customer agreements to date. However, as the light source suppliers move closer to commercialization and finalize their delivery schedule, we expect to complete our final product testing and anticipate signing customer agreements soon after. We have also implemented other go-to market measures that will provide more flexibility in distributing the initial volume of units.

Let's focus now on the technology. None of our progress with respective customers in 2008 and early 2009 would have been possible if we did not make a significant leap forward on maturing the PicoP technology platform. In addition to our inherent advantages, such as infinite focus immersive large screen viewing experience, we made considerable improvements in the areas of image quality, optical engine maturity, overall product size reduction and MEMS reliability resulting in the following relevant attributes, relevant to customer that is.

First, a match (inaudible) and viewing screen size versus the existing competitive product, a 25% reduction in the form factor versus our earlier prototype, and attaining drug test performance requirement for MEMS, one of the most critical components of the PicoP display engine that exceeds known industry standards. We have also completed all the necessary ASIC Electronics with world-renowned electronic component manufacturers to enable the initial accessory product launch in mid-2009. Supply chain. In 2008, we considerably shrinking our supply chain by engaging Asia Optical, who is one of the world's largest manufacturers of digital cameras, DVD engines, to manufacture PicoP display engine, as well as our first accessory product.

Asia Optical's list of customers and partners is very impressive and it includes the likes of Fuji, Olympus, Kodak, Nikon, GE, Toshiba and Hitachi. So we have confidence that they will enable us to get to market with the expectations we have of us and of them. Throughout 2008, we actually manage all key component suppliers and while we received the initial delivery of next generation green lasers for september customer trials, the green laser suppliers have experienced longer than expected development and commercialization cycles for this critical component, which force us to delay our plans to the mid of 2009.

Let me now briefly recap the other highlights for the year. Let's start with automotive display applications. We develop first truly tiny head-up display demonstrated are based on our core PicoP display engine. This is the first of a kind. Many of you have followed Microvision know that we have developed hot prototypes over the past five years. This is the first one that is based on our core platform.

This is the first one that's produced the images that are four times brighter, 15 times contrast, and half the size of anything that's been produced in the past. These complex units are being marketed to global mobility players for after-market automotive applications, including litigation, telematics and others to facilitate driver safety and situational awareness. During 2008, we also delivered head-up display and instrument (inaudible) display prototypes to several large global automotive tier ones with the intent for (inaudible) contracts waiting to embed a hot product. However, due to a deteriorating economy and specifically the automotive industry challenges, the foreign customer program force extended for 2009.

Let's now focus -- let's come to PicoP whereabout display. This is the segment we work primarily with U.S. government and government contractors and we've been using the leverage in these efforts in proliferating our consumer platform. 2008 was no different. We delivered on government contracts, which resulted in new funding opportunities for 2009. We already discussed the two new contracts we've signed with customers for the development of high definition, PicoP display engine that totals about $1.5 million. The high-definition development is a part of our ongoing strategy to anticipate future market needs and stay ahead of competition while improving PicoP platform functionality.

Last but not least, bar code scanner. The bar code scanner segment achieved about 25% growth in revenue over prior year, but the sales were impacted by the deteriorating economy. Our continued focus on product quality, however, have resulted in dramatic improvement in the sealed return rate, which is less than .5% today of all units shipped. It's a huge improvement from the 50% returns just three years ago.

Our yields at manufacturing has improved to 98%, which is another big win for the team and the current PicoP team is heavily leveraged in the experience gained from the efforts we conducted in 2007 and redesigning the bar code scanner. Everything that we've been doing throughout 2008 did not go unnoticed. We won numerous awards, most notably (inaudible) awarded us North American Technology Innovation award for the ultra miniature Pico head-up display based on our PicoP display engine. As I mentioned earlier, we won several wards at CES and Macworld Xbox, which we affirm that we are moving in the right direction.

Now, before I pass baton to Jeff, who will cover the 2008 financials, I want to stress one important point. Anytime a company moves closer to commercial product introduction, the expenses grow substantially. It's a fact of developing and bringing new products to market. While not sizeable for us, this factor is reflected in our financials for 2008 versus 2007 as you're going to see in a moment. We were still able to close the year with $24 million in cash in hand and it was made possible only because of how carefully we managed expenses throughout the year once we realized that economic conditions and the critical components being delayed.

Jeff?

Thank you, Alex. For 2008, we reported revenue of $6.6 million, compared to $10.5 million for 2007, and $1.5 million for the fourth quarter 2008, compared to $3 million for the same period in 2007. The decline in revenues primarily due to the deteriorating economic conditions resulting in reduced contract activities in 2008, and to a lesser extent, on our focus on commercialization of the PicoP display engine.

As of December 31st, our backlog totaled $1.2 million, compared to $4.1 million last year. We expect that under the current economic conditions and as we continue to focus on our commercial products, we'll not see much growth in contract revenue in 2009. We had an operating loss for 2008 of $35.5 million, compared to $26.7 million in 2007, and $10.2 million for the fourth quarter of 2008, compared to $7.9 million in the same period of 2007. The increase is primarily attributable to increased development costs associated with the planned introduction of PicoP-enabled products, including increased headcount in strategic sourcing, supplier quality, and business development and increased material costs consistent with product commercialization.

We reported a net loss available to common shareholders of $32.6 million, or $0.53 per share, for 2008, compared to $19.8 million, or $0.40 per share, for 2007. The 2007 loss included a one-time gain from our sale of our investment in Lumera of $6.6 million. Excluding this gain, the net loss available to common shareholders in 2007 was $26.4 million, or $0.53 per share. For the fourth quarter 2008, the net loss available for common shareholders was $9.9 million, or $0.15 per share, compared to $6 million, or $0.11 per share, for the fourth quarter of 2007.

For 2008, our net cash used in operating activities was $31.2 million, compared to $21.3 million in 2007. We ended 2008 with $28.2 million in cash, cash equivalents and investment securities. As Alex mentioned, we've taken steps over the past several months to reduce our cash burn. We are confident that our cash balance is sufficient to support the planned launch of our accessory product. We will need additional working capital to fully fund our operating plan for 2009 and we're continually assessing our opportunities for obtaining additional capital through discussions with bankers, existing and potential investors and strategic partners. We use the information we receive from the market combined with our progress on completing our supply chain, signing OEM agreements and launching our accessory product to determine the appropriate time and manner for obtaining additional capital.

We believe that even in this difficult market, we will be able to raise additional capital. Alex?

Thank you, Jeff. 2009 priorities. There's nothing ambiguous about these. We have three goals. First, launch first PicoP accessory product by mid-year and convert the strong OEM interest into firm POS. Second, develop embedded opportunities this year for 2010 launch for embedded applications that will include handsets and other consumer devices. And number three, conserve cash.

Jeff has mentioned that early in the year, we implemented a number of cost reduction efforts, including consolidation of internal development programs, reduction of planned expenditures, joint funding on some longer-term development programs, and we reduced our headcount. We've done this to focus most of our efforts this year on two primary opportunities. Again, launching the accessory product, and developing high-growth opportunities for the embedded launch in 2010.

In January, to facilitate the latter, in January we've made commercially available PicoP Evaluation Kits as a part of our strategy to increase the embedded product opportunities. What some of you may think, Why have we done this? Well, there are almost limitless number of products and applications which could take advantage of our unique PicoP offering, so we put the power into the hands of the user. We have a lot of bright people in Microvision, but we don't know everything.

Be we do know, however, that there's a lot of ingenious applications and products that our customers have today that could get even better with the inclusion of our engine and that's exactly the purpose for PicoP Evaluation Kits. We have a high demand today. We just started this exercise in January and we're already experiencing a very high demand for these tools and we already sold a number of these to worlds largest global OEMs. As I mentioned previously, we have developed a core funnel of prospective OEM customers for the launch of the accessory product.

In addition, we also created and implemented a distribution strategy for Microvision-branded accessory product. We've done this to maximize our go-to market flexibility in 2009. As green lasers suppliers move closer to commercialization in the next few months and finalize their delivery schedule, we expect to complete our final product testing and anticipate signing customer agreements to get ready for mid-year launch. We also -- although -- I stress the fact that we're going to focus on two big things, we're going to be very opportunistic about new business development opportunities and product opportunities in consumer, eyewear, entertainment and automotive segments beyond the two both mentioned activities.

I think at this point, it would be wise for us to stop and get some questions from you, and we'll take it from there.

(Operator Instructions). Our first questions comes from the line of Jed Dorsheimer with Canaccord Adams. You may proceed.

Hi. Thanks. Couple of questions. I guess the first one, is you mention contract revenue is going to not be much, could you further quantify what not much is? Is it a couple hundred thousand; is it a million? Any sort of idea of what should expect for 2009 in that business?

I'm sorry, Jed. If I said not too much, I meant not much different.

How much different?

We expect it to be pretty much in line with this year.

All right. Perhaps I wrote it down wrong.

We've already announced that we've signed two contracts. We announced in January and December, so, for this year, and we think we'll be in line with this year. That's helpful. And then, could you provide some more clarity around the green laser timing and what gives you the confidence that your suppliers will be able to get you the green lasers in time for your launch and what specifically is the issue around it?

Fair question, Jed. Try to be as transparent as I can. The commitment to deliver the commercial quantities by several green laser manufacturers are still very much intact, and if you wanted some external validation, I would highly encourage you to visit Corning's website and read a transcript from the most recent annual shareholders meeting.

Corning executive team is reiterated its belief in the enormous market opportunity for Pico Projectors, their significant support behind the green laser program, as well as our leadership in this emerging segment. The issues that we're driving and delays in the delivery of the green lasers last year are being resolved and the samples we're receiving today are far closer to production from what we've seen just three, four months ago. So, this gives us added confidence that we're going to have a commercial launch mid-year for the second half of 2009.

And the mid-year launch, that's for accessory products, correct?

For accessory product, correct.

And what type of volumes are your customers that you -- I assume you've already signed many of these customers for the accessory. What type of volumes are they talking about?

Just right now, we're having a good problem, but it's still a problem. Right now, the bottoms-up demand from the core list of our customer exceed our anticipated supply for 2009 by 20 times and we're trying, as we get more refined estimates from our strategic green laser partners, we'll have a lot more confidence in what we can provide back to our customers because you don't want to overcommit and underdeliver because you don't have a handle on exactly how many units you're going to have by what time because of the green laser supply availability.

On the other hand, you don't want to provide too low of a number because they may say, It's below my minimum expectations. So, we have a list of customers who are waiting for us. We have have a weekly meetings with green laser partners and at every level within each organization and we feel comfortable we're going to get volume to have commercial product starting mid-year in the second half of 2009. How many exact units? I think I will provide you with much greater clarity next time we talk.

You mentioned 20 -- I mean, that's a great problem to have, Alex, 20 times over your capacity. What is capacity?

Good one. Let's say that the bottoms-up demand is measured at minimum in hundreds of thousands of units for 2009.

All right, and so that 20 times the hundreds of thousands, how many customers --

It's actually the other way around. Go ahead.

No, I'm sorry. What do you mean the other way around?

No, the bottoms-up demand is measured in several hundreds of thousands of units and supply, you can basically divide it into 20.

Got you. And the -- how many customers are you -- are making up that demand that --

Right now, believe it or not, this is based on less than six customers. We actually had to trim down our initial list because we don't want to greatly overcommit and underdeliver so we streamline the initial funnel of the first movers for our technology and we waiting right now for more refined estimates from our green laser partners. As soon as this comes available, which we expect in the next few months, we are ready to move forward in a big way.

Great, last question and I'll jump in the queue. How many of those less than six customers would also be doing an embedded product in 2010?

90%.

90%? Great, thank you

Our next question comes from the line of Brian Yurinich with Craig-Hallum Capital. You may proceed.

Hi. This is Brian Yurinich on behalf of Christian Schwab. I was wondering, with Samsung introducing two Pico Projector phones and GSM with the competitors technology, could you walk us through what your competitive advantage is and cost advantage is versus Texas Instruments are?

Absolutely. This is a very good question that I believe is on a lot of people's minds. Here's the simple answer. We think that Samsung's pioneering work that was shown at Barcelona is actually helping our cause. For several reasons. (A) It validates a huge market opportunity. We don't have to own the whole pie, just a fraction and we're very, very successful.

Second reason is that it's putting additional pressure on the other handset manufacturers to move faster into finding there own solutions. As far as the utility of that product, there are still lots of unanswered questions. I was in Barcelona myself and had a chance of seeing the device, and although Samsung has done a commendable job of integrating a larger power-hungry TI engine into their prototype handset, the brightness, image size, and the power raise big questions how well market will accept it. The device was less than (inaudible), the image could only be seen in a dark, black box and the image was twice the size of the iPhone screen.

So there's still a lot of questions that they need to answer, but the good news is that large companies see the value, this puts pressure on other handset manufacturers, and we have some distinct advantages. Our brightness is twice as high as what we've seen in the Samsung form. Our form factor is probably 30% to 40% to 50% less than the TI engine and we have focus (inaudible), we have our resolution is DVD quality, not half VGA-like like Samsung phone, and our image could be at least two to three times larger at the same distance versus what I've seen in Barcelona.

Thank you. And then, also, I was wondering what you expected your cash burn to be like next year?

As we mentioned -- as Jeff has mentioned, we ended last year north of $28 million in cash and we're confident that our cash balance is sufficient to support the planned launch of the accessory product. Jeff also mentioned we will need some additional working capital to fully fund the operating plant for 2009 and we're continuing to assess the opportunities for obtaining additional capital through various discussions, including strategic investors.

All right. Thank you very much.

Our next question comes from the line of Suji De Silva with Kaufman Brothers. You may proceed.

Hi, Alex. Hi, Jeff. How are you guys doing? Real quick, I'm following up on that question. Where is your headcount now? And I guess looking forward, what revenue level would you be at sort of break even?

So, headcount we're just right around 150 people, and break-even, what we've talked about is that break-even we think comes very soon after you get to an embedded product. And we've talked consistently that we see an embedded product being nine to twelve months after the launch of an accessory product. When you get to embedded volumes, you get to break-even relatively quickly within a quarter or two of a launch of the product.

Okay, great. That color helps. And then, Alex, you've met with many customers here. What, of all the different attributes you've said you think your competitively advantaged at, which one was kind of really the one or two that resonated with the customers to get them on board for what you're trying to do?

It always starts and ends with user experience and there's no feature that facilitates ease of use and focus reoperation, where you basically hold this device in your hand, project it on any surface and you can read text and see any image clearly. It's not the case with the competitive product.

And last question, on the accessory versus the embedded. It sounds like you have time frames of when you think those will happen, 2009/2010. But Alex, Jeff, what is the timeframe from a new customer starting wanting to do an accessory with you that's cycle time is that versus the development time for an embedded from the start when they engage with you to getting a product? What's the difference in those lengths of time?

Well, we estimate it at about 12 months from the time we launch the accessory, I think within 12 months our expectation with the end gauge customers we can get several embedded offerings to market.

So once accessory is launched, you can get the embedded within 12 months after that?

Right. Because think about this. Jed has asked very valuable questions. How many of the customers on our core funnel list, six, interested in embedded and 90% are interested in embedded. They just want to -- due to this poor economy, people are conserving cash. They tried to push the risks on somebody else. In this case, it's us. So they want to validate the accessory quickly, ensure that everything is in place, and move quickly to bigger and better pastures, which is the embedded application, which is the thesis on which we build this Company.

Great. Maybe one last numbers question. On the backlog, is that a 12-month number or just an ongoing number or three-month number? Just want to get some color on that?

Yes, that is all for delivery during this year.

Okay, great. Thanks, guys. Good luck to you.

(Operator Instructions). Our next question comes from the line of Arthur Doglione with Alpha Fiduciaries. You may proceed.

Well, hi, Alex. Hope everything is going well. Sounds like you're making very good progress up there. Question that I -- my original question was actually asked, but with regard to the anticipated product ramp relative to the cash burn, are you anticipating any of the agreements that you might sign from a distribution or branding perspective would involve perhaps some cash?

You're talking about the purchase orders?

Yes, in other words, as these folks would commit to getting involved with having the display engine utilizing the technology, would they sign a distribution deal and then pay Microvision to do that as a way to help just keep the Company going without having to seek additional financing?

Are you talking specifically about accessory or embedded efforts?

Well, I guess we could throw it out for either one.

Well, the accessory business model is quite simple. It's basically worked of purchase orders. A customer wants to turn them on a volume and they issue PO and we use this PO to feed the supply chain. On the embed efforts, there are some opportunities for additional funding, but because of the economic situation, we don't expect large contract revenue from these efforts. Our goal is to get to market as soon as possible. So, we obviously welcome and solicit and expect some of the help from the large consumer electronic players, but in this economy, to count on this and to build the operating plan is very difficult. So, we treat it as a pure outside in this case.

Okay, great. Thank you.

Our next question comes from the line of Joe Dubroth with Morgan Stanley. You may proceed.

Hey, guys. Can you give us any color on what the technology issues are at Corning and your other suppliers and why it has taken them so long to produce this product?

Joe, I can't, in all consciousness tell you about -- every company, when developing new technology, goes through these pains. You're just seeing this because we're a small public Company and it's amplified times 100. Every company on this earth has gone through these things. Fortunately for them, no one knows about this until they're ready to launch this. We don't have this luxury. So, Corning has extremely bright hard-working team of people. They have support from the highest levels within their organization, they pour a lot of funding to get this program to market and to commercialize in the second half of 2009, and we have no reason to believe why they would not be there.

Right now, same thing with the OSRAM. It's basically -- there's both companies see huge market potential and outside and these are just normal technology to manufacturing conversion pains that are experienced by every company and again, unfortunately we cannot hide this because of us, you know that they experience this problem because we're a public Company. We're relying on their components. All I can tell you is that the the problems that were hampering them and us last year are being solved and the green laser components we're receiving today are much closer to the commercializations that we were just three months ago.

So, Alex, it sounds like to me you have customer demand. You're getting closer to actually having a product. Can you build that product at a price that you can make money on?

That's the goal. We're for profit organization, so that's the ultimate goal, yes.

All right. So, if you've got that, then really the remaining issue is, how are you going to fund yourself without -- at a dollar whatever the stock closed at, although I think it was higher than Citigroup's, so congratulations. The question is how do you finance this thing without completely diluting your shareholder base? Is there -- can you go to your supply chain partners? Can you get upfront cash from OEMs for, say, territorial exclusivity or first-mover advantages? For your shareholders' sake, I hope you're looking at some other possibilities besides going to the public market.

Joe, we're looking at all options. We continuously assessing all options, including the strategic investments, and so basically, there's nothing that can be done right now we're not doing right now. We're evaluating continuously and over the past three years, we've been pretty consistent about being proactive and being opportunistic about what we see and our goal is to minimize dilution as much as possible, but at the same time, we have to get to market and it's like the old Greek mythology. Obviously you have to go between the Scylla and Charybdis, two rocks, and you have to decide how you're going to navigate. This is exactly the problem we're facing and I think we're going to get on the other side of that rock.

Sounds good. Thanks, guys.

Our next question comes from the line of [Larry Sisson], private investor. You may proceed.

Alex, we've heard that there will be multiple channels of distribution and I'm assuming that's for the Show product, as obviously the embedded product. And yet today, you say that it will be Microvision-branded, and I'm assuming that part of that marketing channel will be on your website. Is there no possibility that you won't have another customer who wants to put his name on it?

Larry, this is good question. Let me clarify this. I think it's simple problem than what it appears right now. I'm saying Microvision direct, it means we're going to move some of the units and some of the volume through the lower cost, higher average selling price channels. Traditional route, you go through OEMs to retailers. That's a high-cost channel because you have OEM that takes a big cut and you have a retailer that takes a big cut.

There are lower cost channels that exist, especially at the onset of the introduction when you're trying just to create the momentum and maximize your margin. You want to have ability to go through several channels. So it doesn't mean that we're going to sell it off the web. What it means is that it's going to have Microvision's name and the product will be sold through the largest global distributors to retailers and other channels to optimize our -- to give us flexibility on volume and margin.

Okay. I want to go back to HUD for just a second. When are you going to get some orders? When are you going to be able make some deliveries?

We actually made the deliveries, Larry. The problem is not us. The problem is the automotive industry condition that it is right now. Most of -- you don't need -- you open a newspaper and take a look at what happened with GM Ford. Toyota had first plus in the history of the company just announced what, three months ago. So, the automotive industry right now is focused on fuel conservation, not other features. This is why everything has stopped and everybody's focusing on core things and the core thing is fuel economy.

Yes, but, if you're going to go after the secondary market, you expect some order there's at some point, I assume?

Well, we're using right now. We developed these tiny prototype HUDs specifically. We don't know where they're going to go. We said we're going to give it to people who actually have products that will take advantage of this. Let them develop applications and then we'll sell them the components. I mean, that's our strategy. We don't want to be in the HUD business. We want to be in PicoP engine business.

Yes. What is your best judgment as to when these customers' decisions will materialize?

Larry, good question. I don't have an answer. All I can tell you is that current economy is hampering everybody's excitement and euphoria and we have sold several units to some very large names, and they are going to be validating this and we expect some response this year. When it's going to happen? It's difficult to say at this point and time.

Thank you very much.

Our next question comes from the line of Tom Lardner with Microvision. You may proceed.

Hi, Alex, and everybody.

Hi, Tom.

A good call. I have a couple of questions. What will a price or has the price for the accessory been determined?

The price for the accessory, good question, first of all. The price for the accessory is a function of several things. First of all, each OEM, which will private label our accessory, has determined, the ultimate determination of what they're going to price it at. That's number one.

Second variable is where are you going to sell it and through what channels? If you take and look at the existing products sold in different regions around the globe, through different distribution channels, you'll find out that prices are varying by a factor of two. Third variable is what functionality are we going to put on the show to differentiate versus the existing competitive products? So, we have three variables in the mix. All of them give us the confidence that what we know today is that some of the earlier competitive products are sold somewhere from $300 to $600, depending on whether it's in Japan, United States, Australia, or China.

Going through different channels changes this price mix. What we know is that we're going to use that as a baseline. We're going to then have some additional features and advantages, which will allow us to have premium to market and we're going to use same time of ranges that have been established by the market. So, market will dictate the price, but we feel comfortable about a twist within the year from introducing it to have a price point and to have a cost position that makes us profitable.

Thanks. Second issue is have you been able to model -- you have your show product, let's pick a date, say June 15th, and then go out a year for the embedded, as they're both in distribution in June of 2010, as you look out, do they run parallel in terms of sales growth as far as you can tell? Or is it the expectation that embedded takes a faster growth angle or the Show?

Tom, embedded is going to be a major leap in volume versus any of the accessory products we're ever going to sell because for the embedded, the math the is relatively straight forward. Think about this. I'm going to give you kind of top down market analysis, not that we rationalize against bottoms-up.

Say you have $1.5 billion unit handset market globally, of which about 11% to 12% are smart phones, which is our first addressable market. Why smart phones? Because they're more expensive. They have more features and business users can afford them, as well as some of the kids in some of the countries.

So, this market -- the addressable market -- then becomes about $150 million. If you look at (inaudible) cell phone manufacturers and look what they sell today, their top-end models typically sold in ranges from $1million to $5 million if you discount iPhone, which is an aberration. So, $1million to $5 million for high-end cell phones. Imagine how you put projector into one cell phone model from one handset manufacturer on the lower end of that volume, there's your business case. You now multiply it times two models times two cell phone manufacturers and immediately you have this exponential potential growth that far exceeds any of the accessory volume that we will ever have.

Thanks. Just one final observation. At today's close, General Motors only eight times as valuable as Microvision. So it won't be long that they may become your subsidiary.

We may buy GM if we decide so and put our own (inaudible) --

Thanks, Alex.

All right.

Lastly, we have a follow-up from the line of Brian Yurnich. You may proceed.

Yes, hi. I was just wondering if I could get any clarification on what is the cost of your kind of Pico solution versus the cost of TI's (inaudible) chip technology?

It's a more complex question than what you just described. Let me break it it down. TI. If you look at the business model and go to market, there are several layers. Think of it as a Russian doll -- matryoshka doll -- where you have a a doll inside a doll. So, the lowest doll is the chip set. It's a panel and the driver. That's where TI's playing and you take a panel and a driver and you package it into optical engine.

That's where we play, but we use our MEMS technology instead of dop technology, then you package the engine into a product, whether it's accessory-embedded or anything else of that nature. So, if you just compare apples to apples, our MEMS technology with TI's dop technology, we're favorable in pricing because our component is much simpler and has higher yield.

Do you have any idea of what the difference is in initial volumes or at commercial volumes?

You're asking information for which competitors would pay you an enormous amount of money to get. We can't disclose this obviously.

All right, thank you.

It appears there are no additional questions. I will now turn the call over to Mr. Tokman for closing remarks.

Thank you, everyone, for joining us. Just to wrap this -- what can I say, we expect 2009 to be a pivotal year for us as we and complete preparation for the commercial launch of the PicoP enable accessory projector in mid-2009. We have streamlined our operating plan for 2009 by consolidating programs to focus on the two primary opportunities. During the past year, we have seen tremendous growth in the global demand for Pico projectors. This demand is accelerating as consumers become more accustomed to accessing information through mobile devices, such as smart phones, media players and mids, which are small computers. We're seeing the increasing interest in embedded Pico projector applications in the growing number of applications well beyond the cell phones. These include digital cameras, video cameras, portable media players, mobile television players. There are many applications for what we are producing.

To facilitate the development, we have introduced PicoP Evaluation Kits to increase the business opportunities in these emerging applications. And I guess the most important takeaway for everyone is that you've seen that we're getting very close to the accessory product launch. Remember, the market is still in its infancy and we're on the fringe of tapping into a very large unconquered market opportunity. Technology has inherent advantages that are being recognized by prospective customers and we have an impressive funnel of OEM customers. I know many of you want to hear who they are. We can't disclose it at this time until firm agreements are in place.

Microvision direct channel will help us to optimize go to market flexibility for the initial units and our supply chain is getting more mature as we're preparing for mid-year launch and second half ramp. And we feel good about where we're at right now. Even though there's been a lot of issues that everyone in supply chain has been working on, these issues are being solved and that's the best indicator of a move forward and we feel comfortable about having commercial offering in the second half of '09. Thank you, and look forward to talking to you in three months.

This concludes today's conference. You may now disconnect. Good day.