Microvision Announces 2006 Strategy and Organizational Changes

Microvision Announces 2006 Strategy and Organizational Changes

Company Establishes Five Priorities to Position for Turnaround and Growth

BOTHELL, Wash.--(BUSINESS WIRE)--Feb. 6, 2006--Microvision, Inc. (NASDAQ:MVIS - News), a leader in light scanning technologies, today announced key aspects of its 2006 business strategy and an organizational realignment and restructuring. In a separate press release issued today, the company announced its preliminary financial results for 2005.

"We are pleased to announce Microvision's turnaround strategy and actions including key elements of the 2006 operating plan which we developed over the past few months by conducting a comprehensive assessment of Microvision's business strategy, performance, organizational effectiveness and culture," said Alexander Tokman, the newly appointed President and CEO. "We had some significant wins in 2005; however, the Company needs improvement in a number of areas.

"2006 will be a rebirth year for us because we are implementing the fundamental business elements that separate successful from less successful enterprises. First among those are letting the market and customers drive our business priorities and investment decisions. We have developed and have begun executing a detailed operating plan that is intended to instill focus and accountability for everyone within the organization. Our 2006 priorities are to:

1. Grow product revenue and margins;

2. Focus on a vital few OEM product development growth opportunities, particularly in automotive head-up display (HUD) and two consumer display applications;

3. Substantially cut the burn rate and reduce the net operating loss by 30%;

4. Improve quality and customer satisfaction; and

5. Realign and restructure the company to improve organizational effectiveness and culture.

1. Grow Product Revenue and Margins

"In 2006 we expect to double bar code scanner revenue and improve its gross margin by at least 15 percentage points. In the third quarter of 2005 we positioned ourselves for a stronger fourth quarter by improving our marketing and sales effectiveness through new channel development, increased focus on improving product quality and performance by the R&D team and improved supply chain management. As a result, the fourth quarter of 2005 was our strongest bar code scanner quarter ever as we shipped approximately 70% more units than in any previous quarter in 2005. We expect further FLIC volume growth in the first quarter of 2006. Our marketing and sales strategy and growth opportunities are focused around four primary segments: mobility, healthcare, small business/ household, and traditional automated identification and data capture (AIDC) markets.

"Our assessment has shown that the original Nomad introduction was not as successful as planned due to the lack of targeted segment selection, less than desirable product performance and weak commercialization strategy. As a result, at the end of fourth quarter 2005 we modified our Nomad go-to-market strategy, moving away from the 'feet-on-the-street' sales approach to targeting a few strategic accounts with opportunities for higher sales volume. The new strategy emphasizes: (a) identifying targeted applications; (b) understanding the customer's workflow for these applications; (c) quantifying the value proposition and return-on-investment (ROI) to the customer; and (d) developing effective sales tools to communicate the value proposition and ROI. In the meantime we focused the R&D and supply chain teams on addressing several performance improvement areas identified through customer feedback in the second half of 2005. These and other efforts are expected to help us considerably in 2006 by turning the product's large negative gross margin into a positive gain for the product. We believe this overall approach to Nomad will result in a better market acceptance. At mid-year however, we intend to evaluate the longer term viability and true market potential of Nomad in its current configuration.

2. Focus on Vital Few OEM Product Development Growth Opportunities in Automotive HUD and Consumer Display Applications

"In 2006 we will focus our OEM product development strategy and execution on what we believe to be our three largest opportunities that we identified through our recently completed market analysis in the second half of 2005: automotive HUD; personal projection display (PicoP(TM)); and color eyewear for consumer and business applications. As a result, we are targeting an increase in the allocation of our R&D budget for these programs to approximately 42% from 15% in 2005. We will also accelerate the development of a modular architecture for an integrated photonics module (IPM) that we expect will enable future exciting product opportunities, including the following:

Head-up Display (HUD)

Our goal for this year is to sign an OEM agreement with a strategic Tier 1 partner to enable the development and productization of the head-up, windshield based color display for automotive applications. Microvision's technology offers three distinct advantages over the competitive solutions: (a) typically more than 10x higher contrast which results in a better visibility under demanding operating conditions; (b) almost 2x more compact form factor which is critical to automotive manufacturers in managing HUD integration into tight passenger cabin spaces; and (c) lower overall cost of installation due to Microvision technology's unique ability to electronically align an image to different windshields.
To fully enable this important effort, we have created, funded and engaged a cross-functional business, R&D, manufacturing and sourcing team. We have been in ongoing discussions with several Tier1 suppliers and we are working to have at least one of these suppliers commit to our unique solution during 2006.

Personal projection display - PicoP(TM)

Confined into a hand-held form factor, Microvision's unique high-resolution, high-contrast, low power display technology will enable two types of applications. For consumers, it will offer an alternative solution to the '2 inch screen' of their cellular handsets, PDAs and media players. For enterprise users, it will offer an alternative to carrying or needing a bulky projector for business and sales presentations.

We have invested engineering resources in the fourth quarter of 2005 to develop a feasibility demonstration model of the PicoP(TM) that was successfully shown at the recent Consumer Electronics Show (CES). Based on positive feedback received from the show, we commenced a formal cross-functional program team to aggressively pursue strategic OEMs and to focus on risk retirement of several technical requirements for this application.

Color Eyewear

Color eyewear is the ultimate goal for head-wearable displays. We have identified and will evaluate several potential architectures to determine which one will best meet the market opportunity with the lowest technical risk for one or more of the following applications:

Transmissive color mobility eyewear for light business, web surfing and phone messaging applications;

Occluded color display for video and streaming media viewing; and
Occluded color wide field of view display for immersive gaming.

In 2006, we will invest business and R&D resources to determine which one of our potential solutions best meets the markets needs.

Laser Printing

We expect to continually evaluate the business opportunity in this market segment and evolve our business strategy accordingly.

Government Contracts

We expect to continue our strong relationship with the US government to develop display solutions for military and non-military applications. We enter the year in a strong position for new government contract awards, and look forward to continuing our work with this important strategic customer.

3. Substantially Reduce The Burn Rate By Reducing The Net Operating Loss By 30%

"We are targeting a 30% reduction in our net operating loss for 2006 from 2005 (excluding the impact of the adoption of FASB 123R 'Accounting for Stock Options'). This is expected to be accomplished primarily through improved products gross margin and reduced operating costs. We plan to achieve better gross margins on products through better pricing and discounting strategies, lower product costs and improved product quality. We have started to implement the business restructuring plan discussed below to significantly reduce our operating costs.

4. Improve Quality & Customer Satisfaction

"Based upon our detailed quantitative customer assessment of product performance, transactional quality and post-sale support completed in the second half of 2005, we have initiated product quality improvement activities through the implementation of more rigorous and customer focused processes. We formed a customer support team and implemented an issues escalation process to provide timely and effective support to our customers worldwide. Concurrently, we focused the R&D team to address Nomad and FLIC product quality gaps. Quality and customer centricity are hallmarks of my experience at GE, and we will be instilling those strategic imperatives at Microvision.

5. Realign and Restructure the Company to Improve Organizational Effectiveness and Culture

To improve organizational effectiveness, focus and culture we are implementing an organizational realignment and restructuring program which includes the following actions:

Reorganized the executive management team and made it leaner. 50% of executive management (including Marketing, Sales and R&D) have been or are being replaced and 30% of executive positions have been eliminated through consolidation.
Reduced the overall workforce by approximately 10% primarily in the Nomad sales and manufacturing and executive teams. Overall SG&A costs are expected to be reduced by approximately 25% in 2006 versus 2005.

Consolidated the marketing and sales teams to streamline activities and go-to-market strategies in the Americas and Europe to focus on key customer segments including: enterprise, consumer, industrial and government. We will announce shortly the leader of this combined group.

We will be placing stronger business and organizational focus on exciting international opportunities in Asia. As a result, Steve Willey will assume the role of President, Marketing and Sales for Asia. Mr. Willey has developed strong business ties to the Asian market for consumer applications and he will be responsible for driving strategic relationships as well as product and contract revenue in the region.

Created a new strategic marketing group, headed by our former SVP of Business Development Todd McIntyre, who will assume the role of SVP, Global Strategic Marketing and Business Development, to drive the global platform strategy and focus on applications across all key customer segments worldwide. In this expanded role, Mr. McIntyre and his team will also be responsible for driving key strategic customer relationships across the globe.

We are reorganizing the R&D team to: (1) substantially reduce the number of R&D programs from 30 in 2005 to under 10 in 2006; (2) institutionalize new cross-functional product development discipline predicated by proactive involvement of all key functions at the onset of product definition and development. This discipline is inclusive not only of meeting critical product performance requirements but also product cost, quality and schedule requirements; (3) focus on the development of an IPM that will accelerate our embedded solutions strategy; and (4) improve and grow the critical skill mix. We are pursuing new product focused leadership to head this critical team.

Introduce strategic sourcing discipline aimed at insuring that we identify and qualify all critical component suppliers early in the product development cycle.
Most importantly, we are implementing cross-company initiatives to create a culture that promotes customer focus, cross-functional cooperation, quality mindset, transparency and accountability. We are establishing accountability by driving the company's goals and objectives throughout the organization. We will recognize and reward those who meet and exceed their goals and drive the Company's success. We will cultivate and promote people who lead positive change.

"In summary," concluded Tokman "we are putting in place the necessary foundation that will put us on a path to achieve the recently updated Microvision's vision 'to become an indispensable source for illuminating information and a profitable enterprise with sustainable double-digit growth.' We look forward to discussing our plan with you in more detail during the upcoming conference call."