With $25.3 million cash at the end of Q3 2017, MicroVision (MVIS) is currently swimming in cash almost like Scrooge McDuck. MicroVision announced on Friday after market closing a surprising need for an additional $60 million. That means $85 million cash for an 80-people development company. It works out to one million dollars per employee. Why? The reason could be that MicroVision is facing huge development demands for new products, compelling it to extend ongoing multiple and paid developments.
There could only be two potential fields of innovation: self-driving cars and augmented reality. And all the companies in these areas should have two things in common:
All of them should be facing an upcoming dramatic change in customers needs. All of them would need new specialist hardware as a basic requirement to support the new software use cases.
Whether it means supporting hardware and software infrastructure for autonomous vehicles or making feasible augmented-reality hardware, realistic pre-commercial developments are limited to only a few technological approaches. One of these approaches, besides OLED for AR, is a laser-based MEMS solution. The leading (or potentially leading) MEMS technology company today is MicroVision. It is “pursuing these two concurrent go-to-market paths in order to increase the probability of success.”
So, what are the reasons that a strategic investor and not an investment firm is likely to invest in MicroVision?
MicroVision reduced its financial forecast until the end of 2018 from $60 million to approximately $30 million. This makes MicroVision less attractive to short-term investors. MicroVision has cash for almost one year. It has no need at all to issue new shares before the summer of 2018 and before the expected order entries in the winter. Some days ago, MicroVision announced in the Q3 1017 conference call that it would not issue any shares this year (“I think were at about 78 million shares” at the end of 2017. This is the companys current share count). Issuing shares without an urgent need for cash before the anticipated order entries come in could show unfaithfulness toward current shareholders. Shareholders in the Board of Directors like the “Fahri Family” voted for this strategy. They must assume that they will make profits.
What are the challenges of the mentioned automotive and technology companies? Despite the widespread assumption that self-driving cars and augmented-reality devices are far away, this is likely not true. We can assume that behind the scenes a race is on between these companies to see which can supply the first really usable solution to make cars autonomous or launch a breakthrough augmented-reality device, just like the first iPhone invented the smartphone market. MicroVision recognized the need for speed: “So what we realize is the best thing for us to do is to get development kits of the LiDAR engine a lot earlier than we initially anticipated.”
Software is crucial. But software is nothing in this race without small and high-resolution hardware that supports these use cases. MicroVision’s MEMS-based laser solutions are relatively small for glasses and very small for cars, especially compared to the devices of its competitors.
A strategic investment into MicroVision by one or two of the companies in these areas could give them a strategic advantage and prevent the use of these technologies by their competitors. And MicroVision could be the partner that they need because MicroVision is “in the process of creating a revolutionary high-resolution LBS platform that could be extended to all the segments we are pursuing – mobility, IoT, ARVR, head-up display, and 3D LiDAR.” What all of these companies need is to overcome the relatively low-resolution solutions that are available today. Laser safety would be no issue for AR glasses.
This scenario is supported by Alexander Tokman, former CEO: “I believe that Perry is the right person to take the company to the next stage and am pleased that he was chosen to helm the next era of growth for the Company.” Keep in mind that MicroVision “continues to do the work with the major global technology leaders.” Especially the “$24 million Black Box project with a major technology Company” (Announcement: “MicroVision Awarded Development and Supply Contract for Laser Beam Scanning System by a Leading Technology Company”). Presumably now one of these leading technology companies makes the next step to secure the technology for future products. From the Q3 2017 conference call: “Starting with ADAS, since last year we were under contract with another major tech company to develop prototypes for their ADAS solution.” And “Regarding AR, in addition to ADAS remember we had augmented reality project. The deliverables for another major technology company were also completed and we received all payments. This customer is also evaluating the demonstrators we delivered.”
The typical reaction to the announcement of the offering was a decline after hours in the share price. Normally, this is a feasible and logical reaction to anticipating a dilution. But these sellers may not have seen the likely backgrounds and probably did not put two and two together. As a long-term shareholder of MicroVision, while I am not under a cloud to be too positive about MicroVision (see here or here), I assume that this could be a game changer and (short) sellers could have made the wrong decision; the share price of an offering is normally second-tier for a strategic investor. In addition, MicroVision should price the (from the current cash position unneeded) offering in order to protect the long-term investments of the current shareholders with an approximately 50% premium on the recent high of $3.25 per share. I assume that the company will offer 12 million shares at $5 per share to get $60 million additional cash. This would be a fair balance of interests between the new investor(s) and the current shareholders. This will safeguard the investments and give the strategic investor a significant stake and control in the company.
I am relatively confident that I identified the correct scenario as I was the first to discuss the competition by Bosch and I also identified the need for a change in the leadership at MicroVision shortly before the company announced it. The new CEO should likely manage the upcoming growth.
$5 per share is also in line with the $4.00 price objective from research analysts at H.C. Wainwright in a research report issued on Thursday.
Disclosure: I am/we are long MVIS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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