I transcribed this myself. I did not get any part of the transcription from any source other than listening to the conference call. I made efforts to be accurate while still removing extra words that made it difficult to understand.
A couple of questions (and the financial portion of the call) were omitted. (One will be included at a later date.)
If I got something wrong, I'm sorry.
If I got something wrong, I'm sorry.
If I got something wrong and you were speaking, please send me a correction and I will update the text as soon as I am able (and include a notation to that effect if you wish.)
After listening, copying and re-listening to this call, I find that while it wasn't an exciting call with new and eagerly anticipated news, it is very positive, shows Microvision to be on track and doing the hard work that it takes to bring a new technology to market. Those of us who appreciate what it takes and have the patience to hold shares in this company until the exciting news happens will be well rewarded.
THE CALL
Tokman: In the
second quarter, we continued to make tangible progress on our three primary operating
goals for the year.
Outside of major announcements with the Fortune Global 500
company which we communicated in June, Q2 was about completing less visible but
essential blocking and tackling milestones associated with completing design
and development phases and beginning the transition into the production phase.
Let’s start with the first goal, which entails three
elements:
·
First completing the display module development
phase with the Fortune Global 100 customer.
·
Second, supporting them with their
productization and commercialization efforts.
·
And finally, supplying them with key Microvision
components.
Now many of you know, our customer announced in January that
it aims to bring a high-performance high definition image quality display
module to market to use in picoprojectors and other devices with projection
functionality.
We have been closely supporting the development of this module
which incorporates Microvision’s patented PicoP laser scan beam display
technology. We are currently focusing on production planning and support phase
with our partner, now that the design and development phases are nearly
complete. We also made progress on the negotiations related to the commercial
agreements which we are targeting to complete later this year. (probably will
be announced.)
Now, moving on to the second operating goal which
encompasses building a pipeline of consumer and automotive opportunities for Microvision’s
go to market partners. In June we announced a collaboration with a second
consumer electronic company, on the Fortune Global 500 list, to develop a
display engine for an innovative smartphone product to be offered by this
company. The new partner has communicated to us that it targets market
introduction of the new product in the second half of 2015.
Shifting to the automotive segment, we previously announced
we are working with a global tier one supplier and a major vehicle OEM.
Microvision delivered multiple prototype HUD systems to the Tier1 supplier in
the second quarter. The prototype head up display system for the vehicle OEM is
slated for delivery this quarter. Third quarter. These programs are in the
evaluation and test phases as we mentioned earlier which are critical steps to
having a new technology adopted and embedded in automotive applications.
Next topic is UPS, we are currently on track to deliver
custom PicoP display modules in the third quarter to UPS which is another Fortune
Global 500 customer. The modules are part of a new package guidance application targeted at increasing processing
efficiency in real time package sorting and routing. UPS has informed us that
it plans to deploy the system in a facility in the United States.
Our business development efforts are focused on forming go
to market coalitions that involve all the key stake holders needed to enable a
new market. In our case, the coalition involves display engine manufacturers,
consumer electronics OEMS, and major retailers. In Q2 we continue to make
important progress on several go to market paths involving some of these OEMs
and major retailers that are interested in a variety of consumer electronic
products utilizing PicoP display technology.
The final goal for the year is to ramp supply chain for high
volume production of Microvision components in the second half of 2014. Recall
that in 2013 we began development of supply sources for MEMs and other key
components with some of the world’s leaders in their respective areas. In the
second quarter of this year we began qualification cycles of production
processes for Microvision specific components and we expect volume production
capacity for our components to be in place in the fourth quarter of this year.
Stephen Holt’s
financial presentation. ---
Questions and
answers:
Andrew Uerkwitz
Oppenheimer:
Q: Thanks, congratulations on the progress you’ve been
making. Alex, question for you. As you enter the production phase and several
of these potential customers are trying out the products, what are some of the
milestones that you need to accomplish and what are some of the potential
hurdles you could face to get there?
Tokman: There are
several different milestones we need to complete on our own, and then with our
partners. If you look at our own deliverables we need to complete qualification
phases of Microvision specific components with our specific suppliers and have
it ready for mass production in the 4th quarter. We feel comfortable
that we can achieve this.
The other milestones include supporting our fortune global
100 and several other customers in development of their engines because we
still are part of the cycle and we’re enlisted to support them with both
technical and market support, in preparation for their own commercialization
efforts.
Finally, product OEMS who are developing products based on
our technology utilizing the engines of our partners also need marketing and
technical support to help them to deliver products to market.
So we are working three fronts right now: our own
deliverables, and then supporting our partners, both on the engine and the
product side, to help them to introduce the best possible products as soon as
they are ready.
Andrew: Opex Question….
Q: Mike Latimore,
Northland Capital Management: You mention that the design and development
is nearly complete with your fortune 100, when do you think that will be
complete.
Tokman: We’ve
basically completed 95% of the all the deliverables. The 5% that remains we
submitted the final deliverables and right now it’s going through acceptance
and evaluation phases --so for all practical purposes we expect it to be
completed very shortly, and it’s not hindering any other progress on the production
support nor on commercial agreement negotiations.
Mike Latimore: Does
that have to be complete before the commercial agreement is complete?
Tokman: We expect
yes and we expect that this will be done prior to the commercial agreement being
completed, yes.
Mike Latimore: On
the new smartphone opportunity if they want products for the second half of
next year, would that suggest you would see revenue during the first half of
next year related to that.
Tokman: You’re
right Mike, typically there’s a lead time on a component before they convert it
into engines before the product, so if they target the second half of 2015, you
would need -back probably three months, this is when we would start receiving something
from them from the engine manufacturers who will be receiving orders from the
product OEMS, that’s correct.
Mike Latimore: What’s
in the 1.1 million of backlog?
Holt: UPS is a
large part of that, and some additional development work for the Fortune Global
100. Those are the two main pieces.
Mike Latimore: Do
you think you’ll see revenue from the Fortune Global 100 first or the
smartphone manufacturer first?
Tokman: Most
likely it will be from the Fortune Global 100.
Dennis: I wanted
to know the commercial agreement with the first customer, the Fortune Global
100, can you shed any light on how sizeable that deal will be and how close
that gets us to the breakeven point, and not needing to raise more funds.
Tokman: I’m going
to try to stay within the framework of not disclosing something we’re not
allowed to at this time and still give you hopefully enough information. The
agreements we’re pursuing right now with the Fortune Global 100 include several.
First, there is the supply agreement, second there is the product support agreement which
is independent, third the licensing agreement for the royalties of incorporating our technology inside their
offerings. There are several agreements ongoing, each with different terms and
conditions and we have to cross each one to complete this. In terms of what is
the size. The size is going to be determined by the size of the demand that
this customer will generate for their own products, and for the products from
other customers they will pursue to
incorporate their engines. So it’s their target plans, and we’re not at liberty
to discuss what their target volumes are. But we’re excited about this opportunity, this
is the largest opportunity has had in the history of Microvision. So we want to
see It come to fruition, and we’re doing our part to ensure that it will
happen.
Dennis – Cash raising
question.. response by Holt
David Morgan: As
far as the UPS system is concerned, the deployment that you discussed, is that
going to be in this calendar year?
Tokman: We’re
delivering our modules this quarter and they will deploy it in the US. We
cannot specify the timing, because it’s something they are sensitive about, but
-you do your own math.
David: Originally
you said this was pilot development, is it still in the pilot stage? Or will
this be beyond that at this point?
Tokman: It’s a
real implementation in one of their flagship sites. The goal – remember what
the goal is, the goal for UPS is to quantify the potential performance
improvements of their processes in terms of increase of throughput and
reduction of error rate. So they need to quantify this information and they
selected the site to implement this.
Unanswerable question – can’t comment..
David: You also discussed
a large volume capacity by the end of the year, now is there two components,
are some of your partners going to supply all of the pieces on their own, or
will you be a supplier in every case of at least part of the module?
Tokman: We will
be a supplier in most of the cases. It’s case to case specific. In some cases
we will provide more, and others we will provide less. We should be a part of
every endeavor, whether it’s engine manufacture, and We expect to be in every
module.
David: You say
large volumes by the end of the year, any
kind of an idea what large means? Is
that a million units, or more than a million units?
Tokman: It’s a sensitive
question because it would guide the demand from some of our partners who ask us
not to discuss this publicly. Our goal, as I mentioned -as Steve mentioned, our
goal is to have volume capacity ready in the fourth quarter to enable whatever
the needs are. We feel that what we have put in place will satisfy the initial demand, and we have a
plan to ramp that as necessary as we see the demand increase subject to lead
times that everyone knows they need to provide to us to allow for higher
demand.
David: And the
commercial agreement that’s in progress, when that’s negotiated and final is
that something you’re going to be able to announce?
Tokman: We
believe so.
Closing remarks:
Let me start closing remarks by saying that a lot of work
has been done by Microvision and our partners and we’re excited at the
prospects in front of us. As we’re moving into commercialization stages for our
own components, in the second half of this year. We’re concurrently providing
both technical and market support to our go to market partners to facilitate
their efforts in launching their solutions be it engines or products. PicoP
display technology as you know can enable end user experiences that are not attainable
by other picoprojection solutions; and that are well-suited for the mobile
video consumption that consumers are now making part of their daily routine. We
believe the rapidly expanding consumer behavior of watching video on mobile
devices creates a perfect opportunity for picoprojection. According to Adobe,
for example, online video views on a mobile device has experienced a 57%
increase year over year. With smart phones leading the charge, followed by
tablets. No matter how great your smartphone or tablet is, the screen is still
too small to share information with others. And you have to admit it, watching
a 1 and a half hour movie from your smart phone on a 100 inch screen is much
more pleasurable than watching it on a 5 inch screen. That’s why having a
device or a feature that works in tandem with your primary device and offers an
immersive experience could be very valuable, we believe. Hence, if anyone wants
to have an immersive experience from their mobile device of choice – experience
that is characterized by enormous high-definition image that is always in focus
and obtained from a low-power very slim and light device, then Microvision’s
PicoP technology is for you. We are very excited about the business
partnerships that we have developed and built and are developing and building
with the leading industry players who are bullish on this emerging market. Who
enlisted our support to bring their solutions to market. At this point we’ll
conclude this call.
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