MicroVision Inc (MVIS) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2009 Microvision earnings conference call. My name is Wayne, and I will be your coordinator for today.

(Operator instructions.)

I would now like to turn this presentation over to your host for today's call, Ms. Tiffany Bradford. Please proceed, ma'am.

Thank you.

I'd like to welcome everyone to Microvision's second quarter 2009 financial and operating 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, availability and supply of key components, business partnering expectations, market opportunities and growth in demand, as well as statements containing words like believe, estimate, expects, anticipates, target, plans, 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 statements 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.

As we've done in previous quarters, we asked for your suggestions for topics for today's call using our corporate blog, the Displayground. The most popular topics were details of the SHOW WX product launch and volume expectations, an update on the expected availability of green lasers, and the status of customer agreements. We've addressed some of these in today's press release, and we will also be discussing each of these topics during today's call.

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

Thanks, Tiffany.

Good afternoon, everyone. I know what you are waiting for, so let's just dive right in.

As many of you know, we have completed several critical milestones in the second quarter, among others a supply agreement with Corning for green lasers and $15 million investment from a strategic partner, Walsin Lihwa. But because of the significance of today's early announcement, let me start with green lasers.

First of all, signing the strategic supply agreement for green lasers with Corning was a major milestone several months ago for our go-to-market strategy. It signified a belief by a very reputable company that (a) they believe in a large market opportunity for pico projectors, (b) they believe in Microvision's technology, and (c) they feel comfortable and close enough to commercialization of the product to announce this agreement after they heavily invested over the past several years.

Needless to say, we are also very excited about today's announced agreement with OSRAM Opto Semiconductors for the supply of green lasers. We believe that OSRAM is also guided by similar factors as Corning is. Many of you know, many of you don't, OSRAM is a heavy hitter in the semiconductor space. In fact, they are one of the world's leading manufacturers of optoelectronic semiconductors for lightning sensors and visualization applications. Following their recent success and consequent announcement to commercialize blue laser, they are now working on commercialization plans for its frequency-doubled green laser for use in our PicoP display engine in the fourth quarter of this year.

Securing this second supply source for green lasers is an integral component of our PicoP display engine and strategy, and it strengthens our go-to-market strategy and should allow us for increased product volume at the end of this year -- starting at the end of this year. Both Corning and OSRAM agreements represent major milestones not only for Microvision but for the pico projection market in general, as lasers have several inherent advantages over light-emitting diodes for projection display applications.

Let's jump into product readiness. We are rapidly approaching the introduction of our first product based on the proprietary PicoP display engine. This introduction is scheduled for later this summer. We are completing the product reliability and quality tests, and we are validating manufacturing processes at our suppliers. All of this is important, because we want to assure that our customers will delighted with SHOW WX experience. Our contract manufacturing partner, Asia Optical, continues to mature its processes in anticipation of commercial introduction.

Additionally, we are finalizing the supply quantities that will be available to support our commercial introduction this year. As we have previously indicated, we estimate that the demand for the SHOW projectors will exceed the available supply in 2009. We are currently negotiating purchase orders with several global customers interested in introducing our SHOW WX through their channels. Overall, it's an exciting time for everyone at Microvision as we prepare to introduce our first product based on the strategic platform that was put in place and defined several years ago.

We also have other activities. Let me start with PicoP Evaluation Kits. In January, we made commercially available evaluation kits as a part of our strategy to increase embedded product opportunities. There are limitless products and applications that could take advantage of our unique offering, so we decided to put the power into the users' hands, and these PicoP Evaluation Kits have been distributed to a variety of customers. During the second quarter, the strong demand for our PEKs continued, and we continually shipped additional units to the customers in consumer and automotive sectors. We plan to supply these units to selected customers through the remainder of this year.

We also have an important win on the eyewear strategy. Subsequent to the end of the quarter, we announced a $1 million contract from Lockheed Martin to support a DARPA Awareness & Visualization, sorry, Visualization program. Under the subcontract, Microvision will develop a daylight-readable, see-through, low-profile, ergonomic eyewear display based on the PicoP engine that we are developing. This PicoP engine will be combined with our proprietary Substrate Guided Relay Optics. It's a new development that we are facilitating in anticipation of the eyewear demand for both military and consumer applications.

Coming back to the strategic investment, as you are aware, we secured a $15 million investment from a strategic partner, Walsin Lihwa, through the issuance of common stock and warrants. Walsin Lihwa, for people who do not know, is the parent company of our MEMS chip manufacturer. Since early '90s, Walsin has invested heavily in high-tech companies, specifically in the areas of electronic components, optoelectronics, printed circuit boards and semiconductors, and they have history of seeking growth opportunities through the investment into companies that they believe are well positioned to take advantage of large, emerging market opportunities.

Before I pass the baton to Jeff to give you financials, just a quick summary on cash, and Jeff will provide you a lot more details. In the second quarter we continued to focus most of our resources on commercialization of the PicoP-based accessory product while aggressively managing operating costs, and that is why our result, despite lower revenue, our results are consistent on operating losses and cash burn are consistent with the previous year, because of the aggressive cost-cutting strategy we implemented in the first quarter of this year.

Jeff?

Thanks, Alec.

Let's just dive right in. For the six months of 2009, we reported revenue of $1.9 million, compared to $4.2 million for the first half of 2008, and $987,000 for the second quarter of 2009, compared to $1.6 million for the same quarter last year. The lower revenue is primarily due to lower backlog at the beginning of 2009, which was a result of our strategy to focus most of our resources on commercializing the SHOW WX. As of the end of the second quarter, we had a backlog of $854,000, compared to $679,000 at the same time last year.

For the first half of 2009, we reported operating loss of $18.6 million, compared to $16.4 million for the first half of 2008, and $9.5 million for the second quarter, compared to $9.3 million for the second quarter of last year. As Alec mentioned, the cost-reduction activities we initiated in the first quarter enabled us to maintain an operating loss for the quarter that was consistent with last year, despite lower revenue.

We reported a net loss of $19.3 million, or $0.28 a share, for the first half of 2009, compared to $14.3 million, or $0.25 per share, for the first half of 2008, and $10.4 million, or $0.15 per share, for the second quarter 2009, compared to $9.3 million, or $0.16 per share, for the same quarter last year.

Our net cash used in operating activities was $16.3 million for the first half of 2009, compared to $14.9 million for the same period in 2008, and our operating burn for the second quarter was $7.6 million, compared to $8.8 million for the first quarter of this year. As we've already discussed, the reduction of the burn -- cash burn was primarily the result of the cost-reduction activities we implemented in the first quarter of 2009. We ended the quarter with $26.3 million in cash, cash equivalents, and investment securities.

Alec?

At this point, we will open up for questions.

(Operator instructions.)

And our first question will come from the line of Jed Dorsheimer, from Canaccord Adams. Please proceed.

Hi, Alec and Jeff. This is Josh for Jed. He's actually stuck on a plane right now. Congrats on the OSRAM agreement. Just a couple of questions here. Could you provide a little bit more color on the agreement in terms of maybe did you supply any upfront payments or what are some of the other terms of the deal?

First of all, thanks for the question, Josh. Basically it's a standard -- it's a strategic supply chain agreement for us. Obviously, we will issue a PO to OSRAM for a number of units, and we are right now finalizing and determining what exactly that first PO is going to be -- will look like, and we should know within a very short period of time about what quantity we would anticipate this year and how much we would expect to get early next year.

If you look at the timelines, we announced Corning sometime in May, and we are close to introducing our first product based on the Corning laser. If you extrapolate, we just announced OSRAM today, so anticipate that it will take several months before we will finalize all the critical attributes of this launch with the OSRAM laser, and we will communicate this information as it firms up.

Okay, great. Now, is that a frequency-doubling, the green?

That's correct.

Okay. Just sort of shifting gears a bit, more macro related, could you just give us some of your assumptions or maybe the timing of the ramp of the commercial products?

Well, again, our plan is still to introduce -- to do the first introduction of SHOW WX by the end of the summer, and so you can essentially calculate what that is. And we anticipate that during the first month of introduction we're going to have limited quantities of lasers, so we're going to have limited quantities of units. But for every consecutive month we anticipate this volume of green lasers to grow from several thousand and on, and we anticipate our unit volume will increase accordingly.

Okay, but you think it's too soon to give us a projection for what you expect in terms of unit shipments or dollar value?

It's [foolish], Josh, because you understand this better than most. When a company introduces new technology product, it goes, before it gets to a steady state where you have predictable processes in place and you can quantify the capacity -- we are still not in steady state. We're in setup, transitioning to a steady state. So as we introduce the product over the next few months we'll be able to get to steady state with each one of our suppliers, and it will give us a much more granular view on how many units we will be able to ship, and we will gladly communicate this to you and everyone else.

Okay, and then last one for me, before I jump in the queue, anything change on the introduction of the embedded device concerning timing?

We made a lot of progress on this front, also, although it takes a back seat right now to the accessory product introduction. Keep in mind that nine out of 10 customers that are interested in the embedded applications want to validate the technology on the accessory product first, so this launch, this upcoming launch would be a great validation for everybody who is waiting to see how this technology performs before they actually put their -- put it inside their host devices, whether it's cell phones, laptops or multimedia players.

Okay, great. Congrats again on the execution.

Thanks, Josh.

Thank you. Our next question will be from the line of Christian Schwab, from Microvision. Please proceed.

Great. Thank you for taking my question. Guys, congratulations on the OSRAM agreement. We all understand that green lasers will be a limiting factor as far as total unit production maybe for the next six to nine months, but as you look out two to three years, what type of revenue do you think or units do you think you guys can ship in the pico projector?

Christian, great question. Obviously, we have our beliefs and hypotheses and what else, but there are still a lot of variables that are at play. Fundamentally, we built this company and we developed the platform that's intended to go inside devices, not being [as an] accessory. We believe this is where the greatest market opportunity is. And if you just take a look at the largest cell phone manufacturers and just look at the high-end smartphone market, each of these cell phone manufacturers produces high-end models in quantities between 1 million to 5 million units a year. If you take just one of those at the lower end of its volume, annual volume, multiply it times $100, that kind of gives you a clue what we ought to expect within the next two to three years.

All of it, obviously, starts with the accessory, so we're taking the first step to basically put the flags on the stake and say we arrived, and then from that point on we believe validation of our technology, development of several sources for the critical green laser supply, all of it will give global audience confidence that this technology is ready for prime time, and we hope that they will start embedding it starting late this year going in 2010.

And in terms of revenue, again, we're going to have a mixed revenue stream. Some of it comes directly from selling products. Some of it will come from selling components. Some will come from selling engines. All of this would be much clearer once we start getting first embedded applications to market.

How much cost reduction or volume reduction in cost of the green laser is necessary to get us to that $100 module cost?

You know what? We believe we can actually start creating this market very shortly, even though the margins will not be what we would like them to be. However, if there are any good news for everybody who is listening, in addition to Corning and OSRAM, there are at least several additional companies developing frequency-double green laser, and, more importantly, there is at least three to four companies that are developing a diode green laser, which is technology that is very similar to blue and red lasers which essentially costs what LEDs cost today. And we anticipate to see movement on the part of these companies starting 2011.

And then my last question is how many different actual phone, smartphone manufacturers, are you in constant contact with and working with?

We are in contact and negotiations with three out of the top five. We are bringing the fourth one slowly in. And we also -- what's more importantly, probably, we are in PR discussions, actually, with several global carriers, which essentially the businesses that tell cell phone manufacturers what they need to do.

Great. Thank you.

(Operator instructions.)

At this time, it looks like we don't have any more callers in the queue, so I'm going to go ahead and turn the call over to Mr. Tokman for his concluding remarks.

Thanks, Tiffany.

I'm going to keep it short and sweet. I hope [you can sense] we are in the final stages for commercialization of our first product, and it's a historic event for everybody here at Microvision, given the fact of the hole that we had to climb out just several years ago. Although there are still lots of details to complete before our first shipment, we are in full view of the finish line.

Our technology progress and advantages are being recognized by the prospective customers. The supply chain is getting more mature, particularly in the most critical areas. Consumers become more accustomed to accessing information through mobile devices such as mobile phones, mobile media players and small computers. The market is still in its infancy, and we believe we are on the fringe of tapping into significant unconquered markets. All of these are the reasons to be optimistic for us and for you.

Thank you for your participation, and I'm looking forward to speaking to you next time.

This concludes today's presentation, ladies and gentlemen. You may now disconnect. We thank you for joining. Have a great day.