I am an enthusiastic investor, especially now as the company transitions into sales. The reception of PicoP technology as I have demonstrated it to various people with a PicoAir from Celluon has been beyond enthusiastic.
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Dear Fellow Shareowner:
We entered 2015 with strong momentum because of our achievements in 2014. We already have achieved two milestone events this year with our Fortune Global 100 customer: the licensing of our PicoP® display technology and receipt of multi-million dollar component orders for display engines our customer plans to manufacture.
In 2014 we focused on three core areas to transition us from development to production and commercialization of PicoP display technology:
- Complete development with Fortune Global 100 customer, support its commercialization efforts and supply key components
- Build a pipeline of consumer and automotive OEM opportunities for MicroVision’s go-tomarket partners that are providing display engines incorporating our PicoP display technology
- Ramp supply chain for volume production of MicroVision components in the second half of 2014.
Our 2014 progress in all three operating areas form the foundation for the significant growth we expect in 2015.
Fortune Global 100 Customer
Early in the third quarter 2014 we completed our development program and began supporting our Fortune Global 100 customer with commercialization of its display module. In the second half of 2014 we entered into a new support services agreement and we began receiving orders for MicroVision key components. By the fourth quarter we began fulfilling the component orders.
As our collaboration on display module commercialization continued, our teams were negotiating a commercial license agreement. In March 2015 we announced a multi-year license agreement, which included payment to MicroVision of an upfront license fee and royalties for display modules sold by the Fortune Global 100 company. Soon after the license agreement was in place we announced receipt of large component orders that we plan to begin delivering in the second half of 2015, continuing into 2016.
These milestone events mark the culmination of two years of close collaboration. We believe our Fortune Global 100 partner is committed to growing this exciting new market, and we look forward to a bright future for both companies in this arena.
Pipeline of Go-To-Market Opportunities
We continued to engage with multiple companies to build a pipeline of go-to-market opportunities for PicoP display technology with an emphasis on the consumer market. Our main focus was placed on developing new opportunities for our go-to-market partners that are providing display engines incorporating PicoP display technology.
Last year we engaged key OEMs and major retailers in the United States and Asia to introduce them to the opportunity pico projection presents in a world where consumers are progressively turning to mobile devices for media consumption. MicroVision executed a series of direct consumer studies and produced a comprehensive design-in and market data “tool kit” to present the value proposition and demonstrate the advanced capabilities of display modules incorporating PicoP display technology.
We achieved a series of important 2014 market milestones, which included:
- Collaborating with a Fortune Global 500 electronics company on a display engine for an innovative smart phone product that company is designing.
- Supporting Korean OEM Celluon, known for its innovative laser keyboard products, on the CES 2015 introduction of two pico projectors incorporating PicoP display technology that are already garnering very positive media and consumer reviews
- At CES 2015 Celluon was not the only company showing products that incorporated our technology. Behind the scenes there were several other companies in the consumer and aftermarket automotive markets privately screening prototypes of products they had developed in 2014 for their potential customers and distributors.
- On the embedded Head Up Display (HUD) front we have two active programs, one with a leading global Tier-One automotive supplier and one with a global vehicle OEM. We delivered prototype HUD systems to both of these customers in 2014, and these companies continue their evaluation and testing of the systems featuring PicoP display technology. The automotive segment is one with great promise, but it is also one with a long lead time and more complex requirements and infrastructure than consumer electronics. The timelines and our progress with these programs reflect those conditions.
- Outside of consumer and automotive, PicoP display technology has other applications for display and imaging, and in 2014 we were pleased to work with a world leading logistics company on an industrial application. In the third quarter we delivered custom PicoP® display modules to be used as part of a new package guidance application aimed at increasing processing efficiency in real-time package sorting and routing. Our customer deployed the modules in a facility in the United States. In the future we look forward to pursuing other applications where PicoP display technology and its benefits in laser scanning and imaging can bring value to new market segments.
- Support the Fortune Global 100 customer with display module commercialization
- Develop new OEM/channel opportunities for display engine manufacturing partners that are incorporating PicoP display technology
- Increase supply capacity for key MicroVision components
- Achieve significant year-over-year growth through component sales and licensing of PicoP display technology
- Evolve technology platform to offer enhanced features and capabilities for a compelling roadmap for licensees of PicoP display technology
Supply Chain
2014 was about establishing baseline production capacity for the key components we supply to our go-to-market partners who are developing and producing display modules. We made solid progress to ramp production capability in the second half of 2014 and began shipments of components to our Fortune Global 100 customer in the fourth quarter.
The supply chain developed in 2014 is expected to meet our goals of providing higher volumes at significantly lower costs for key components.
Financial Performance
By the fourth quarter of 2014 we were reporting at least half of revenue coming from sale of product and that more than two-thirds of backlog was comprised of component orders. We also successfully managed our cash used in operations at a level consistent with the reduced amount we targeted and achieved following our restructuring in 2012. As a result we reported a reduction in operating loss each quarter of 2014 compared to the same quarter the previous year and an overall year-over-year 13 percent reduction.
Outlook for 2015
We look forward to taking advantage of the momentum we built in 2014 to propel us forward this year on the following goals:
As we reflect on 2014 the watchword was transition, but as we set our sights on 2015 I believe that the word would be transformation. We expect to go from a company that primarily earned its revenue from development activities to one that is earning revenues from sale of goods and licensing for increasing numbers of products coming to market with our patented technology inside.
We expect significant growth in 2015 related to our presence in the market and our production capabilities, and we also plan to continuously evolve the capabilities of our technology. Not only are we looking to grow and transform, but we think consumer behaviors that make pico projection an attractive option are also transforming the entertainment and automotive industries.
TV Everywhere and cord cutting have become standard nomenclature in the industry and there are stories almost daily about the migration of younger viewers to digital platforms for television and media consumption. YouTube continues a dominant position as a social media and video consumption source and online-only shows are becoming mainstream, competing with network television for audience and premier industry awards.
In the automotive sector head up displays continue to come to market in a variety of vehicles and the topic of the connected car that integrates data and applications from the smartphone that is always with us is going from a talking point to a reality. Trade shows such as CES now have such a strong presence by automakers that they rival auto shows for debuting new and exciting technology innovations.
All of these market dynamics paired with the introduction of new pico projection products by companies embracing technology like ours point to a vibrant market with multiple opportunities to capture consumer awareness and excitement and fuel the growth that we foresee for ourselves and our industry.
It is against this backdrop that we thank our shareholders for their support. We have a steadfast conviction that MicroVision and PicoP display technology have a revolutionary approach to changing the way people view and interact with visual information in an increasingly mobile world.
Alexander Tokman
President and Chief Executive Officer
April 20, 2015
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