MicroVision Inc (MVIS) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen. And welcome to the fourth quarter 2010 Microvision, Inc. earnings conference call. My name is Deanna, and I will be the operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. (Operator Instructions). As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Tiffany Bradford, Investor Relations Specialist. Please proceed.

Thank you. I would like to welcome everyone to Microvision's fourth quarter and year ended 2010 financial and operating preliminary 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 applications and benefits, availability and supply of product and key components, business partnering expectations, market opportunities and growth and demand, as well as statements containing words like believes, estimate, expect, anticipate, 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 and Exchange Commission, and 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 statements, whether as a result of new information, future events, changes in circumstances, or any other reason. As we have done in prior quarters, we ask for your suggestions for topics for today's call using our corporate blog as a display ground. We received a diverse collection of questions this quarter, topics raise from commercialization timelines for new products, two questions about direct Green Laser development. We expect that many of these questions we have received will be addressed through our prepared comments and Q&A, and I will follow-up on individual inquiries for any topics not addressed during the course of this conference call.

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

Thanks, Tiffany. Thank you very much for joining us this morning. I want to apologize to the people from the West Coast. We had to do this call earlier this quarter because of some of the prior commitments to the customers at the Mobile World Congress in Barcelona. So thanks for joining us.

We have two topics to discuss today. First, I will focus your attention on our 2011 strategy, and how we are planning to fulfill the Microvision inside mission of becoming a preferred provider of the embedded engines for high volume consumer and automotive products. Second, Jeff will provide an update on operations and financial results for 2010. Let's start with the strategy, there are certain market events that occurred in the fourth quarter of last year that served as catalysts for our 2011 strategy. These include global suppliers progress in the development of direct green lasers, the resulting in shift Q&A from investment in synthetic green lasers, and finally, our strategic business partnership with Pioneer.

All of these factors served, again, as primary catalysts for our 2011 strategy. We believe that these developments will allow us to make the embedded play sooner than recently anticipate, because we finally see the path to get a cost effective green laser that can be produced in volume, and has the necessary attributes to become a high-volume embedded solution that everybody wants. We also have a vested partner in Pioneer, who not only will help us to develop and manufacture the key components of the new direct green PicoP engine, but also will serve as a customer who will introduce their first automotive product based on the same engine in the first half of 2012.

Few years, some of you remember a few years back, we set two goals for Microvision. First, to redefine the mobility paradigm by enriching the visual experience for people on the move, and second, to become a preferred solution for consumer electronic OEMs and become part of their products. We believe that the progress in the direct green laser technology announced at the tail end of 2010 will finally bring the missing ingredient that will allow us to reach both goals. As a result of these developments, we modified our tactics for 2011 to focus most resources on commercialization of the direct green PicoP display solution, while at the same time we will also simplify operations and significantly reduce the cash requirements for 2011.

There are three elements to 2011 strategy. First one is to commercialize the next generation PicoP display engine by 2012, second, simplify operations and significantly reduce cash burned by 40%, and finally, the third one, sell the existing products based on the synthetic green platform to continue to validate new use models and applications. Let's break down each one. I will start with the first goal, commercializing the next generation PicoP engine, based on technology by 2012. Here are some of the elements which will be completed in 2011 and early 2012 to get to our goal, to reach our goal.

First, completion of the ultra-compact light source module, which will combine direct red, blue, and green lasers, and we will be working very closely with Pioneer to complete this task. The second one is the completion of the new ultra-compact optical subsystem that will house this new light source module and new high-definition MEMS scanner. The electronics platform also will be optimized for the direct green laser technology to reduce the power requirements and size. And finally, all of this will be culminated in a pre-production version of the new display engine.

Now, the next question is how we going to do this? We are going to focus most resources on this single goal and we also are enlisting support, outside support from industry leading partners, to reduce commercialization costs and go-to-market risks. We have reorganized internally and allocated most resources to this effort already. We have already enlisted Pioneer, and are continuing to work, and developing new partnerships to help us to proliferate this initiative. And we expect to secure additional commercialization partners to advance the electronics platform for the new engine in 2011.

The steps I describe to you just right now will lead to productization or availability of our display engine. We will also begin seeding the market with samples of this engine in the second half of this year, to allow prospective OEM customers to complete their evaluation of this new engine, and start incorporating it inside their own products. Obviously, the cycle for each OEM will vary, but typically it takes about 12 months to complete. So this concludes the breakdown of the first goal.

Let's move onto the second element of 2011 strategy, which is simplify operations and reduce cash requirements. As a result of our broader partnering agreements, and the green laser landscape shift, we have streamlined our operations to reduce the cash requirements from 2010 by a significant amount. The measures we implemented already include sharing development and commercialization costs of the direct green PicoP engine with a development partner. We limited the investment in the synthetic green PicoP platform, which is the one we have today. We move in future product development activities beyond SHOWWX Plus to the original design manufacturers. We also have worked tirelessly in the fourth quarter to restructure the inventory cycles with major suppliers. All of this, while reducing the additional operating costs to recently completed work force reduction and some other measures.

I just want to pause and give you a little more color on one of the important bullets that is described, which is limiting the investment in the synthetic green platform, what does it mean to us?Earlier it made sense for us to invest with Corning into the new synthetic green PicoP platform. And the plan was to grow the accessory business in 2011 by adding a very different shade of features to our platform that could not be reproduced by others such as high definition display. Because the new synthetic laser from Corning, which was expected to hit the market just six months ago, was far less expensive than the current lasers we are using today. However, Corning's exit in November from the synthetic green manufacturing impacted our plan.

All-in-all, our product is based on existence first generation synthetic green laser offer a good intermediate solution to lay the foundation for future success. However, the current solution based on these lasers does not offer a real growth path, because the current green laser is priced higher than the target price for the entire engine. The good news is that the direct green technology and the progress announced by five vendors is expected to alleviate this issue for all of us. As a result of all this, we decided not to invest in further improvements or capacity expansions of the existing platform that is based on synthetic green laser, and put your cash at work where it brings the highest ROI, which is the direct green PicoP engine. As a result of all these activities, again we plan to reduce the cash used in operations in 2011 by 40% from 2010. This concludes a brief overview of the second goal.

Now let's move to the final objective, which is to continue selling our existing innovative award-winning products that are based on the existing laser. We think it is important to continue to do this to build market awareness, to continue to validate the new use models because it allows us to incorporate these findings and features into the new direct green engine, and most importantly is to continue to increase confidence of the OEMs and mobile operators in the embedded solution while they are test driving our accessory products. With the new product SHOWWX Plus, which won several awards and was introduced in late November of last year, more distributed sales strategy, and the applications ecosystem growth, we now have three variables that we will leverage to sell the product in 2011.

As you know, the introduction of SHOWWX Plus in November came with several improvements in connectivity to the latest hottest device from Apple, as well as improved brightness and other features. We also changed in Q3 sales strategy and focused on developing more channel partners and distributing the volume that we have today to more customers, such that if our predictability would be improved because we would rely on more people for less orders versus fewer people for larger orders. We also improved marketing and branding strategy, and at CES it was a great validation to see that everybody who came to see us, have commented that they like the edgier, the better, the more modern look and messaging that has been generated.

The final variable is very important, which is not controlled by us, and it is improving as well. It is market. The new smart phones and tablet all in 2011 most of them will come with video-out capabilities. What does this mean? It means that all this information that you carry on your portable device in 2010, we are not able to project it out using any pico projector, not just Microvision's, because these devices did not allow video-out to be projected on the wall.

Well, this is changing because the device manufacturers, the application developers have realized that there is this emerging category called pico projectors and they can greatly enhance the user experience, but you need to provide a capability to let the video-out for display. So finally the new devices, new smartphones based on the Android operating system, Apple operating system, and Windows 7 will have video-out capabilities, which greatly enhances our addressable serviceable market. The second big piece that has emerged this year which was not available last year was applications. I mean think about this. Our device has always brought a big wow factor everywhere we show it. However, when you purchase it, you have to connect. You have to be able to use it, this multitude of devices and applications. Well in the past it was limited.

Now the applications developers, such as gamers and others, are putting features and hooks inside their games and applications to allow projection of the video-out using the pico projectors. All of this would be very helpful for everybody, not just Microvision, in 2011. So this is basically our third goal. In summary, 2011 will be all about positioning for growth in the latter part of 2012, when we expect to commercialize our next generation PicoP display engine that will be cost reduced, will have enhanced performance and functionality, and something we believe will be desired by OEM customers.

At this point, I am going to pause and let Jeff give you an overview of 2010 results, and then we will move to Q&A.

Thank you, Alex. First I would like to go over a few of our significant wins and challenges for the fourth quarter, and then we will go over the financial results. Some of the key wins in 2010, first was the launch of our second consumer product the SHOWWX Plus. And the SHOWWX Plus demonstrates our technology can scale to higher brightness and carries the made for iPhone certification, ShowWX has received almost universal positive responses from customers and reviewers.

Another key milestone as Alex talked about was our agreement with Pioneer. This was our first OEM agreement where our partner will take on a significant portion of the product development, manufacturing, and distribution of products using our technology. By leveraging resources of Pioneer, and additional partners we plan to add this year, we can reduce our investment in development, tooling and test equipment, and working capital while improving our time to market. Also during the quarter, we completed the Motorola Symbol IP acquisition. We believe this portfolio represented the largest pico projector patent portfolio outside of Microvision, outside of our own. We were able to obtain the portfolio on very favorable terms.

During 2010, we also faced several challenges as we worked to introduce new products into an emerging market. As we have previously discussed, our OEM customer delayed the launch of their product from Q3 2010 to Q2 2011. This delay greatly reduced our expected revenue for 2010, and caused a large increase in our inventory. The inventory issue continued into the fourth quarter as some component deliveries could not be rescheduled. Our customer has communicated the plans to launch their product during the second quarter of the year, and we are working with them to better understand specific launch timing and initial forecast for delivery.

Also in the middle of 2010, new Apple products came onto the market. The iPhone4 and iPad were introduced with new features, which required us to modify our projector for recertification by Apple. This resulted in delays and filling customer orders, and lost market opportunity. We are now fully compatible with Apple products.

Now I would like to turn to the financial results. I will cover our revenue, operating and net income, and finally our cash position. We are in the process of completing our year-end audit, so the following numbers are preliminary until we file our 10-K. For the fourth quarter, we expect to report revenue of $683,000, compared to $971,000 in 2009, and $4.7 million for the full year compared to $3.8 million last year. The year-over-year increase is almost exclusively attributable to increased sales of our accessory pico projector products.

As we discussed revenue for the quarter fell short of our expectations, due to delays in customers taking delivery of product we discussed earlier, and the slower than expected sales of the original SHOWWX to end customers. As Alex discussed we have taken a number of steps to improve our sales traction, including improving our branding and collateral material, reducing our pricing for both the SHOWWX and SHOWWX Plus, and we are expecting to add additional connectivity, features, accessories and applications, to broaden demand for and enhance the user experience of our existing products. In order to conserve capital until direct green lasers are commercially available, we have decided to limit our investment in the current synthetic green laser products, and for 2011 we expect a moderate increase in our revenue from 2010.

For the fourth quarter, we expect to report an operating loss of $15.3 million to $15.8 million, compared to $11.3 million for the fourth quarter last year, and between $48.3 millionand $48.8 million for the full year, compared to $39.2 million last year.

Our operating loss for the quarter includes additional inventory adjustments of approximately $5.7 million resulting from lower prices for the accessory products and obsolescence caused by the transition to the new SHOWWX Plus. The higher operating loss for the fourth quarter and year, are a result of lower gross margins, due to the high cost of the early SHOWWX Plus product, and the inventory adjustments we just discussed. We expect to report a net loss of between $15.3 million and $15.8 million, or $0.16 to $0.17 per share for the fourth quarter, compared to $8.7 million, $0.11 per share for the fourth quarter of 2009.

For the full year we expect to report a net loss of between $47.4 million and $47.9 million, or $0.52 to $0.53 per share, compared to $39.5 million or $0.54 per share for 2009. We ended the year with a backlog of $13.7 million, but that includes $11.9 million in PicoP engines for our OEM customer, that plans to embed them in the high-end media player that we discussed earlier.

We ended the year with $19.4 million in cash. The year end balance includes $9.9 million that was raised during the fourth quarter through our previously announced equity financing facility. We have been able to raise over $20 million using the equity facility that was put in place in August on very favorable terms. During the quarter, we also received $2.5 million in cash from the liquidation of our auction rate securities,through a combination of redemptions and sales.

We expect our 2011 cash used in operations to be about 40% lower than 2010. In order to accomplish this, we have already taken prudent steps to use cash more wisely, including eliminating programs related to the synthetic green lasers, and reducing costs not essential to either SHOWWX Plus revenue, or next generation engine development. We believe this strategy will provide the best long term return for our shareholders.

With that, I would like to open the call for questions.

(Operator Instructions). And the first question will come from Yair Reiner, Oppenheimer and Company.

Thank you. Alex, just a couple of questions first on the backlog. I think the last time you reported, you had a backlog of $18 million, now it is $13.7 million, what happened to I guess close to $4.5 million of backlog?

So Alex had talked about we had some orders that had been placed earlier in 2010 for the SHOWWX product. As we moved through the Apple certification process, and then added the SHOWWX Plus and have gone to market, some of those customers have delayed their orders, or we have taken them out of the backlog as the delivery schedule has become pushed, more pushed out.

Okay. Got it. And then one more on the backlog, the backlog is $11.9 million but you suggested that 2011 revenues on the whole would be up only slightly compared to 2010. Where is the delta there between up slightly from about $4.5 million to $12 million in backlog?

Sure. We talked about briefly as the backlog is $13.7 million, of that $11.9 millionis for the one customer with the embedded product, that originally was scheduled for delivery in Q3 of 2010, now they are talking about the launching their products in Q2 of 2011. Until we have better visibility about the timing when they are going to actually launch their product and what their initial quantities are going to be, we have not included very much of that order in our current thinking about revenue for 2011.

Got it. Got it. A while ago I remember about a year ago, you gave kind of a forecast, or at least a road map for getting the Company to be cash flow neutral. Would you mind giving us kind of the path that you see now going forward, and when you see the Company being able to breakeven on a go forward basis?

Sure. Basically, we always said that the profitability is tied to introduction of the first embedded engine that will go inside high-volume OEM products, such as smartphones, and it is really driven by revenue, by volume. Based on the current timelines, commercialization of the green lasers, we are looking, we are talking about the second half of 2012 introduction of the first high volume product outside of the head-up display that we are going to do with Pioneer.

We expect to be gross margin positive within the first two quarters of introduction, and then operating margin profitable the following year. So that is the current timeline. So the fundamentals have not changed. What changed is when we can introduce the cost effective engine, and the cost effective engine is dependent on the green laser, direct green laser commercialization.

Got it. Thank you.

And the next question will come from the line of Doug Reid, Stifel Nicolas.

Thanks so much. The first question is on the competitive environment. I was wondering Alex if you could share with us how Microvision's position has changed competitively vis-a-vis TI and others you might see out there? Attempting to move the Pico projector space, and whether or not this delay deprives Microvision of the chance to be first to market?

Great questions. We feel very strongly that what we have and what we offer has differentiation that will be difficult to match by DLP and other panel technologies. We obviously take everybody very seriously. But fundamentally our barrier to entry for into the larger markets have been cost, and the cost is you know, we are paying for a single component today, more than what we should transfer the engine. This is going to be alleviated with the introduction and commercialization of green lasers, and we believe this will propel us to the next level, this is why all of the investment is focused on the direct green engine.

In terms of are we losing any time, others, we have, our issues has been cost. Everybody else has issue with other areas, for example, panel technologies have known have limitations in power consumption. So if something consumes more than 1.5 watts, and it is expected to produce a brightness of 15 or 20 lumen, you will not be able to put in a cell phone because the battery will be discharged instantaneously, so these are some of the problems that our competition are facing.

We believe we have a path to address the cost fees. It is to be seen whether they can address the limitations that are inherent to the physics of what they produce. So we do take everybody seriously, but we believe what we have will put us to the next level, and we believe that even though the desired lasers that all of us have been waiting for a long time is finally arriving, we think the market is at nascent stages. If you look what happened last year, the Pico projectors, as a growth element, even though people commented about 500,000 projectors have been sold, this was well below the estimates that was just given by several companies 1.5 years ago, which was 1.7 million.

So there are certain things, the price performance are one of the issues that need to be addressed by everybody. Second one really is the ecosystem readiness for these devices, because again, having a great projector but not having the ability to connect it to a smartphone has been a problem. This has been alleviated, we believe our timeline matches well with what is happening in the market. And having an HD engine that is capable of 15 to 20 lumen, that gives you focus free operation, allows you to play games, something that no one else can do, and can be now priced cost effectively for OEMs will be an unmatched solution. And so we feel comfortable about where we are going, and we feel very good about what we have seen in the lab with the first direct green samples.

Okay. Great. And then my second question is for Jeff. Good morning, Jeff could you help us understand for modeling purposes how the operating expenses decline over the next few quarters to get to that full year decline of 40%?Is it happening lineally or back half loaded?

Overall the operating expenses we are looking at for the year are down about 25%. Most of the actions were taken during the first quarter of this year, have been taken during the first quarter of this year. So I would expect there would be a decline during the year. I would say Q1 would be down slightly from Q4 from an operating expense standpoint, and then we go down to that overall 25% down.

And there are two elements really. There is OpEx and the working capital. So the OpEx is what Jeff just described, working capital, we as Jeff mentioned earlier, we spent a lot of time in the fourth quarter to renegotiate, and the delivery inventory schedules and payment schedules with the suppliers based on the updated forecast from our customers, and this is going to help us a lot in 2011 as well.

And did you disclose a full year cash from operations number in 2010 in your preliminary results?

We did not put that in the preliminary results, but I can give you preliminary we are sitting at about $46 million.

Great. Thank you.

And the next question will come from the line of Richard Shannon, Northland Capital Markets.

Hi, guys. I guess my first question is on kind of looking at your 2011 revenue profile, I am kind of curious if the backlog that you have currently in place with the expectations of seeing some more SHOWWX bookings coming throughout the year, are those kind of numbers possible with your expectations of your green laser supply through this year, or if all those came to fruition, would you have to pick and choose which pieces of business would you have to take?

If your question is could we fill the existing backlog if all those orders came in, the answer is yes, I think we have the availability of additional raw components, including green lasers to meet the demand. But again right now we have already discussed what our thinking is around the $11.9 million embedded order. But again, if that did come to fruition and they wanted to take that product in 2011, we could meet the requirements.

We have some ability, Richard, to do one-time buy on the synthetic platform, on the synthetic lasers from obviously Osram, and as we go through the year, if as we are working with the multimedia OEM customer, if this materializes, if they can launch what they think they will do, and we need more lasers, we should be able to get those.

Okay. Fair enough. The question on the direct green laser, the phrasing you have used in your press release as well as in your prepared remarks, you talk about commercialization of the direct green laser between the end of this year and some time in the middle of 2012. I am kind of curious what commercialized means, if you can quantify that in terms of kind of volumes or price points, or the kind of performance that your Pico engine can provide when it becomes commercialized?If you can give us a sense what that means that would be great?

Fair question Richard, commercialization means to have at least a couple of hundred thousand units to start with. This is what are the capabilities of the direct green suppliers. There is one big difference between the synthetic green laser and the direct green laser. And that is in the complexity of manufacturing it.

So both lasers were difficult to design. You have to figure out how to create green light in synthetic case by manipulating infrared light in the native or direct green case, you excite the crystal and produce this light natively. So in terms of design, it was a difficult task to achieve both for both technologies. The difference is in manufacturing. To scale to larger volume of the direct green would be expected to be much easier, because it is the same process that is used to manufacture red and blue lasers today in very high volume. The synthetic green was really a unique proposition that with manufacturing practices that have not existed in the past. So if you look at who is developing direct green lasers today, the five vendors that have articulated, if you look at their history and their background, you will find out that they have been involved with red lasers and blue lasers, so they have maturation and experience to scale to higher volumes, much better than what was done with synthetic green.

And in terms of price, again I don't want to give you competitive information but let me tell you this. At the beginning of 2010, we paid X for green laser. Today we are paying 50% of X. The direct Green Laser is expected to start at 10% of X. So that is significant. So we paid X just a year ago. We paying right now 50% of that X. And the direct green laser expected to start around 10% to 15% of that number.

Okay. And just to clarify, Alex, that 10% of X, you expect that to be in the timeframes, this commercialization timeframe of the middle of--?

The initial quote, Richard, the initial quote we have seen directly or through Pioneer, because keep in mind right now Pioneer would be one of the negotiating partners for the lasers, because they are going to manage this for us. We have seen representing prices that are 10% to 15% of what we paid a year ago.

Okay. Fair enough. And my last question probably for you, Alex, you commented about your confidence in signing up additional OEM partners kind of like your agreement with Pioneer. I am kind of curious maybe the number of partners that you are talking with that may come to fruition and be announced here some time during 2011, and your confidence level of that happening?

The confidence of, one of the good things for us, we are not starting everything from scratch. We have been dealing with the leading cell phone manufacturers and mobile operators and consumer electronic OEMs for the past two years. What we learned through this experience is that there are certain barriers to entry. They love our technology. They always tell us we are the preferred solution, but they say you have to address cost, and our cost is rooted in the green laser. So right now we are going to continue advanced negotiations with all of these partners, but what they really looking for, they looking for initial samples of the new direct green size reduced, power reduced, cost reduced engine.

Based on everything we know right now, based on direct green commercialization timelines and Pioneer's schedule with us, we believe we should have early samples being available some time around Q3, to see those in OEM hands so they can complete evaluation, and determine how they are going to go forward with commercializing this. So we expect to work with a twist, a twist, five to probably 10 different large partners. We expect to provide seed samples some time in Q3 and throughout the year, it would be basically be determined how we are going to go forward, who we going to bet on, about terms and conditions.

If something will happen in 2011 in terms of definitive agreements, sometimes as you know the large OEMs are not always open to articulate this development to the outside public, until they get close to their commercialization timelines, until they have their marketing and communications departments, with messages ready to articulate the value proposition, ready to do everything, so we expect to do a lot. How much we can announce this year, obviously it will depend on OEM willingness to talk about early development and we will obviously update you on everything that we will have, and we are allowed to discuss publicly with you.

Okay. I appreciate the thoughts and detail there, Alex, that is all for me. Thank you.

And the next question will come from the line of Diane Daggatt, McAdams Wright Ragen. Please go ahead.

Good morning. A couple of questions here. First of all, how about inventory levels? I didn't see balance sheets, so I was just curious as to what the inventory level was?I know at the end of the third quarter it was around $7.7 million and Accounts Payable were also around $7.7 million.

Sure, Diane. So the inventory levels, and we talked a little bit about the additional write-offs during the fourth quarter. The inventory is on a net basis will be down slightly from where it was at the third quarter. So again, we had cash flow going out to buy inventories, the write-downs and sales will bring that number down just a little bit. The AP balance is about in line with where it was at the end of the third quarter.

Okay. Can you talk a little bit about your equity line of credit, how many shares are left on that, what are your financing options, and then after that, how about visibility into the five, the suppliers of the direct green lasers, and who is in the lead there.?

Okay. I will do the first one and I will pass off the second one to Alex. As we talked about we ended the year with $19.4 million in cash. We have raised about $20 million using the equity line again on very favorable terms. We have about 5 million shares left available on that. As always, we will look at all of our financing options, including additional draw downs on the equity line, and other options as we always do.

Okay.

Diane, the direct green vendors, there were five who have articulated that they will be commercializing the technology in 2012, three of them were considered front runners, the three front runners at this point in time are Osram, [Lucia], and Soraa. And they are guiding to somewhere between the end of 2011 to mid-2012 availability of commercial direct green lasers.

Okay. And then you mentioned that you expect to have samples to customers in the third quarter. How long will it take those customers to test the new direct green lasers, and then give you--?

Typically, the test part, the validation part is really quick. When they determine that they are ready to go and commercialize this technology, from that point it takes about approximately, it differs from manufacturer to manufacturer, but approximately it takes 12 months to integrate engine into the product, be it a smartphone or a media player, or a laptop, or tablet or whatever else you may select, and for them to integrate, productize and commercialize. It takes about 12 months, plus or minus three.

Okay. Thank you.

And the next question will come from the line of Randy Hough, ProEquities.

Good morning guys, and thank you. I am sorry to beat this drum one more time, but I find it a bit confusing. It is out on the web here and has been for some time that a company called Nioncom has announced, and it is their announcement, that a product called a MemoryKick Vision, and the specs for this are presented showing the PicoP technology by Microvision. This is the company that announces too, that they intend to bring this product that does just about everything but make coffee for someone, that they are going to introduce this product in Q2.

And it runs on Android and it goes through a discussion that they were once going to engineer it with Windows operating system, but it went to Android. So it appears that this company, Nioncom is the one we are talking about, and I don't expect you to confirm or deny that. But if they do launch, I guess the question boils down after hearing the discussion, is if they are committed to launching and they are going to have an embedded projector, it seems to me in Q2 they have to go to market with the current form of the green laser, i.e. the synthetic green laser.

Can you comment, Alex, on and this was the confusing part. I didn't understand whether if this product is more successful than they expect and would they have enough supply from Osram for the synthetic green lasers to go to market and accommodate a bigger demand than the $11 million or $12 million worth that has already been committed to?

First of all, Randy, you are asking a question that is probably on the mind of multiple shareholders, so this is actually a good time to put all of the pieces together. Nioncom is the customer who gave us appeal last year for the engines to put inside their multimedia product, and they did experience, they pushed their market launch from Q3 as Jeff mentioned to Q2.

So let's start with the first one. The engine that we have today obviously is based on synthetic green laser. It is more expensive than it needs to be. However, Nioncom has become a good candidate for us. They are targeting their high-end product to a niche market where people pay a premium for their solutions. If you go on the web, if you go on to Amazon, they sell their product through B&K, brick and mortar channels, high end photography sales, and they charge for these products upwards of $400 to $500 to $600.

So because of the positioning of their product, it was a good match between them and Microvision. And unfortunately they decided to, I mean they did the right changes,don't get me wrong,going to Android operating system from Windows was a brilliant move. Unfortunately, it was done at our expense. And we were not prepared, and they did not articulate it early enough.

But with this introduction in Q2, if their volume exceeds their expectations and the purchase order and the backlog that we have based on their purchase order, we will be able to get additional synthetic green lasers if necessary. Obviously as Jeff mentioned, we did not put all of this backlog in our revenue projections for 2011 because we would like to get more information, and feel more comfortable about their scheduling and dates, and we will be able to update this as the information progresses. At this time, all that we know is now you know, and we will work with Nioncom closely to determine what exactly they are expecting for the second half of 2011, and how much volume will they need, and how is it different from the purchase order volumes that they gave us a year ago.

Okay. Well, thank you for that candid answer, Alex. I am not going to be naive enough to think well, my gosh, the route here on the web they have got a great product, they have got everybody excited, so they are going to launch this thing in 2011. I suppose that would be naive. But it appears, my naivety notwithstanding, that they are committed to launching this year, so let me ask a follow-up in terms of your level of confidence that they are going to come into the market with this product some time in let's say in the second half of 2011?Sorry Alex, I have got to ask the question.

No, no. Look. You asked the right question. I am just trying to figure out how to answer it, how to give you what you need, and not to speculate for somebody else what they going to do, without them sitting and answering this question directly. So do we believe that they will launch the product, probability would be good that they will launch the product in second quarter. How many units they will order, that is still a question that needs to be resolved, because they are late to market by nine months.

In nine months in the consumer world, things change. So the question becomes are they able to sustain the price point that they projected nine months ago? And this is what we need to discuss and address with them between now and the launch. And we will expect that during the next call we will provide you much more information on this, because we are going to be much closer to the event of the second quarter, and we will have more granularity at this point. At this point, we will have everything they need to make them successful. Can they do it? We will find out in the next few months.

Okay. Great answer, Alex. Thanks very much.

And the next question comes from the line of Mike Scott, Stephens, Inc.

Hi Jeff, Alex, How are you all doing?

Doing well. How are you?

Great. Just a couple of questions here just to kind of follow-up on what has been mentioned already. But as we are working with these OEMs, I get the feeling that the approach is going to be to let them handle most, if not all, of the development costs going forward on their individual devices, as far as production using the lasers?

I am sorry. Mike, can you repeat that one?

Sure. The question I have got is obviously Pioneer, it appears, is going to have a lot of help to our firm, as far as expensing the cost to develop the lasers for their use. Is that a model we are going to pursue on out with other OEMs, is to let them handle the heavy lifting to develop these lasers for their products?

Yes, Mike. This is absolutely the goal. This is what we are doing with Pioneer. And if many of you say, asking, have this question on your mind says why didn't you do it earlier, because earlier we did not have the technology, we did not have product in the market, and nobody had a confidence if this could ever be commercialized. Last year's development, launching first product last year was huge for us, because it put to rest any doubt that anybody had whether this is commercializable or not. Now the reason we are able to work with Pioneer and others, because of what we have done in launching the product in 2010. So now we don't have to carry the full load, and we can distribute it among the partners

A couple more questions if you don't mind. Also, as we go forward, is there a chance that we could find somebody that is, one of the OEMs that is not completely agnostic about this, and become an advocate of this technology to the extent that they could obviously maybe have a heads up on early supply of the engines, but could be an advocate for the firm versus our call in the wilderness for these green lasers to develop more quickly?

Obviously, one of the big things you have to remember, there are three large Japanese entity, one German entity, and these are very large global multi billion dollar organizations, investing in the direct green program. And they would never, ever have done it if it was just Microvision sending us the end user and the final user of this product. They see the market opportunity. They understand the pull from OEMs.

Most of them are doing it because they see that the market really needs a cost effective green laser to fulfill this promise of the huge pico projection growth, and what is standing between us and that growth is the cost effective component that is finally going to be developed, and finally going to be commercialized, and they already have their business case. Without it, they would never, took upon this very complex development and the large investment to commercialize it. So the question that you were asking, do you need anything additional to incentify direct green laser suppliers. No. They already made the big move, they already made the investment. They are already pursuing it. So it is really about getting it ready on times, for times that they communicated, and we going to make sure everything that in our power, that we are ready with our modified cost reduced, size reduced, power reduced engine, to accept these lasers, and provide them to the OEMs so they can finally start incorporating this inside their devices.

Let me make just one more assumptive comment, and you can confirm or deny it, then I will ask one more question. As it appears now that we are truly at the point it is not if, it is when. If I can assume that, as far as the supply of lasers for the mass market. And the question of course to follow-up, and then I will end my conversation would be, can you give us some certainty that we will have the funding financially to get to the Holy Grail, if I may use that term, to see this thing out?

Listen, you are asking an important question. Two things certainly in this life, is that we die, and we have to pay taxes until we do this. Everything else is probabilities. So what I can tell you, is based on everything that we have done, we have done everything to ensure that your cash is put to the highest ROI activity. And that is all it is. That is why by reducing the cash requirements for 2011, and progress on this important development, we feel that we have means of funding operations beyond the cash that we have today.

Thank you for your time, guys, keep up the good work.

Thank you, Mike.

And this concludes the question and answer portion of today's conference. I would like to turn the call back to Mr. Tokman for concluding remarks.

I want to thank everyone again for getting up early, specifically people on the West Coast. Let me just close with saying that we are moving aggressively on commercialization or commercializing the direct green PicoP engine. We are going to sell existing innovative products, and we have simplified operations to significantly reduce the cash requirements for 2011.

We feel and I personally feel even more confident in the future of our Company, because several important strategic milestones have been completed in 2010 that were essential, essential for us to get to the next level. The first one of which was we gained the necessary market experience last year. Launching first product, as I mentioned earlier, in 2010 was huge for many reasons. The most important of which was to validate technology as a commercially viable tool, and to increase OEM's confidence that PicoP technology has the right attributes to be the solution for their products. That was big.

The second one is the accelerated timeline for the direct green lasers. The math is simple. We have one synthetic green laser supplier with EOD issues and cost issues, and we have five vendors that are developing direct green laser that is going to be priced 10% to 20% bill, 10% to 20% of what we are paying today. Big deal.

The third one is that, is we now are not doing it alone, commercializing the first product last year allowed us to get people who actually have a vested interest in the success of what we do. Pioneer is the first example of it, the Pioneer relationship is the first of a kind for Microvision. Not only Microvision and Pioneer will co-develop the light source module and the new engine components together, but Pioneer is going to put it in their first product, which they target for the first half of 2012. Again, this is the first of its kind milestone for us as a Company.

And finally, it is all about enhancing positioning for the future growth. As Jeff mentioned, acquiring a Motorola IP portfolio was huge for us. We know what this market is going to be. We know what other barriers had been prevented us from entering it. These barriers will be removed in the next year and a half. So what do we do? We position for the future.

What is the future? The future is one and two mirror solutions, that are the only way to get something that is small, low power and cost-effective and get inside the smartphone, and acquiring Motorola IP portfolio which already facilitates our Top 20 global portfolio that we have, we developed over the past five years, makes us a very considerable player to be dealing with, as this market matures, and it becomes more embedded rather than an accessory.

So with this, with all of this, I say, we like what we see, and we know what we need to do. Our partners know what they need to do, and hopefully we will all be celebrating not in the too-distant future together. I want to thank you for joining again especially the people on the West Coast, and looking forward to speaking with all of you in three months.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day.