TIGRE Presents MVIS Q4 2007 Conference Call Transcript

TIGRE Presents MVIS Q4 2007 Conference Call Transcript

Tiffany reads the standard intro…

Alex: Thank you Tiffany. Everyone good afternoon, and thanks for joining us today. We have an informative session for you, and I believe everyone will be satisfied with what we have to say today.

I’ll start with 4th quarter results. 4th quarter has been very productive for us. Our operating and financial results represent a culmination of the tremendous effort put forth by the microvision team in 2007. We announced in 4th quarter, signed and announced 3 joint development deals, one with the consumer electronic OEM, specifically targeted for the development of the picop consumer product. We also announced an agreement with a large European tier 1 player for the development of the picop based automotive display. And finally we announced a very important agreement with a high volume manufacturing partner, who will lead the integration of the picop engine into the product of our customers. We also ended the year with almost 36 million in cash and cash equivalents. And we reduced at the same we reduced our burn to sub 5 million of the 4th quarter. Jeff will spend provide more detail on this matter.

One of the most visible results of the success that we had in 2007 is represented by our showing at the consumer electronics show in Las Vegas in January. At this show we introduced our first fully functional self contained PDA sized battery operated prototype code named show, as in show me the money. We received a very, very strong feedback and positive feedback from our partners and prospective partners and members of the media. There are many comments that we can not state publicly, but I’ll cite some of these that were available for distribution and could be attained on a response.

Lance O. – who is the editor and chief of PCMagazine has stated that this is one of the coolest things that I’ve seen at CES in a long time, I can’t wait to get my hands on it.

Shawn – Who is the editor of popular science said that your next telephone could have a 100 inch screen without getting an inch bigger. Microvision’s tiny picop projector can turn a wall, tabletop, or any other surface into a display. It’s small enough to fit into a packet, because it uses laser which sips power, are extremely bright and produce little heat. They also do away with bulky lens. The pinpoint beams are always in focus from any distance. This ability to shine a big screen image anywhere is awfully appealing.

There was many, many more of these attributes that came up at the consumer electronic show. One of the more important ones came from Chris C. Who is the senior analyst and editor of Insight Media, he’s a 30 year veteran of the display industry, and a long time skeptic of Microvision’s capabilities. Insight media has awarded Microvision as the best pico projector demo at CES, and he stated I quote, “At CES there was a lot of pico projectors, but almost all featured LED illumination, Microvision has stuck with laser illumination and their 2 axis scanning mirror approach, but image quality has always been underwhelming, at CES this has changed.”

He said a lot more, but for the sake of time, I’ll focus on other attributes. Some of the testimonies came from our partners. For example, at most recent shareholders meeting at Corning, their chief operation officer, and exec vice president Joseph Miller has stated that Microvision’s show projector is an illustration of the outstanding image quality produced by laser based projector. The show projector has 5 times the number of pixels as the LED based projectors shown at the consumer electronics show, and therefore is able to produce high resolution images from a very small footprint. He went further to say that laser based projector; especially scanning mirror projectors have advantages in quality of image, size and power consumption. These advantages become most significant as this market will move to the embedded projectors. Projectors using LED as the light sources do not produce the same level of color saturation and therefore the projected image appears to be less bright even when achieving the same nominal output power. All of these are very critical statements and these are testimonials of people that have seen what we’ve shown at CES.

The momentum has continued after the consumer electronics show. As the 2008 mobile world congress which is also called GSMA in Barcelona, which is the largest mobile communication conference in the world, we demonstrated picop projectors in the booth of several of our customers. So they actually showcased our projectors to their customers. Based on all the feedback that we have received to date, we believe that these successful demonstrations to global OEMs, mobile carriers, and development partners, have advanced their interests in bringing picop technology to market.

At this point, I would like to pause and give you a highlight on the 2007. Overall we very good about the results from 2007, it was very rewarding year for Microvision internal and external stakeholders, because we made outstanding progress in all of our articulated focus areas all while managing our operating expenses. As you know we also retired the outstanding debt, and raised over 34 million through the call of our call of the publicly traded warrants without additional dilution to our shareholders. We continue to position ourselves for future growth, particularly with high volume, consumer and automotive products based on the picop display engine, which as you know is the high resolution, small and low power device that can be embedded in a variety of mobile products.

Let me just go by segment and just outline some of the key accomplishment by this team in 2007. I’ll start with pico projection displays. First, as I mentioned earlier, we successfully unveiled at 2008 CES the show prototype. We also signed an agreement as you know with Motorola, to develop pico projector display solutions for mobile applications using our engine. And most recently signed the second development agreement with the world leading consumer electronic OEM for the development of the pico projection for the variety of devices that range from the cell phone, to the lap top, top personal media players.

We delivered on the automotive side; we delivered our first advanced picop based projection module for the automotive head up displays. We delivered to our existing partner Visteon and they will be using this to solicit feedback and get commitments from their customers which are the automotive OEMs around the world. We signed 2 additional development contracts with global tier 1 integrator, 1 in Europe and 1 in Asia, to develop a variety of picop based display applications for the automotive industry. Which in addition to the automotive head up display include improved instrument cluster display and entertainment displays. There’s a strong belief on our part that this is greatly enhanced our go to market strategy for the automotive segment because the spreading our risk and we’re improving our global coverage.

Next, I would like to highlight some of the accomplishments in the wearable display space. Specifically, I’m referring to the eyewear. We delivered per the contract a demonstrator unit of the innovative eyewear optical system to the air force, and this project essentially has set a foundation for our future commercial solution in this segment. We were also awarded a 3.2 million contract from the air force to provide a lightweight, see-through, full color eyewear display for the applications of the branch.

There’s an important component that needs to be mentioned as a win in 2007 specifically pertaining to the maturation of the platform technology and supply chain. As of 2006, we became a market driven company, and a perfect example of this is our new wide angle projector. It was developed based on customer feedback, and that’s one of the reasons we developed new wide angle platform scanner, that better suits mobile application and mobile usage models. We improved image quality of the picop display engine, and validated these improvements through customer feedback and direct user studies. The testimonies were many, and you heard some of them. We accelerated progress with leading ASIC development partners to reduce the size and power consumption as well as cost of the final solutions. We also, this is very important statement; we successfully integrated several green lasers into our picop platform.

Bar code scanners, as you know, we released our new laser based bar code scanner called ROV. It’s the first product in the history of the company that is based on core MEMS technology. The ROV was developed for use specifically in mobile application to provide simple and affordable point of scan capability. I want to discuss more about what our plans for this segment in 2008.

We also received as a bonus, several industry awards and were recognized by IEEE and were named as one of the top 20 electronic company’s world wide in patent pipeline for 2006. This is an important accomplishment by Microvision team because companies that are listed in the top 20 have issued thousands of patents while Microvision has issued only 19 in 2006 compared to the larger companies, but we still made the top 20 pipeline because of the value and importance of these patents. We also received a 2007 North American Frost and Sullivan award for technology innovation specifically because of our MEMS scanning mirror which is the key component of the picop display engine. At this point I would like to stop and pass the baton to Jeff who will cover the financial results and then we’ll come back and I’ll discuss the 2008 focus areas.

Jeff: Thank you Alex.

For 2008, we reported revenue of 10.5 million compared to 7 million last year and 3 million for the 4th quarter 2007, compared to 1.8 million for the same period last year. We ended the year with a backlog of 4.1 million compared to 7.1 million last year. We reported an operating loss of 2007 26.7 million compared to 29 million last year. And we had a loss of 7.9 million for both the 4th quarter of 2006 and 2007. Overall for the year the improvement of the operating income is primarily due to improved gross margins on contract and product revenue as well as lower SG&A costs. These improvements were partially offset by increases in our R&D spending as we make rapid progress on our picop technology.

We also reported a net loss available to common shareholders of 19.8 million in 2007 compared to 27.3 million last year, and 6 million for the 4th quarter compared to 8.7 million for the 4th quarter in 2006. That translates into a net loss per share of 40 cents for 2007 compared to 81 cents last year. And 11 cents per share for the 4th quarter compared to 21 cents for the 4th quarter 2006. The improvement in the net loss available to common shareholders reflects the improvement in operating income as well as reductions in interest expense and not having to repeat the cost of the preferred stock conversion we did in 2006. As Alex mentioned earlier the cash used in operating activities was 4.7 million in the 4th quarter compared to 5.8 million for the 4th quarter 2006. And we ended the year with 35.8 million in cash, cash equivalents, and investment securities. Alex…


Alex: Thanks Jeff.

Let’s for a moment focus now on 2008, describe briefly what our key priorities are, and anything I will not cover will be able to cover through the Q&A session. So 2008, it’s going to be an important year for us. We expect to continue the single minded focus on our primary goal of accelerating our path to market for high volume consumer and automotive products. As a manifestation of this goal, we’re targeting the initial commercial introduction or our first picop based accessory product for the end of the year. This goal is aggressive, and in order to fulfill it, we must do the following. There’s really 3 critical pieces that have come to place. First we need to further advance picop product miniaturization, power reduction. I’ll come back and explain some of the steps that need to be taken to address this. Second, we need to secure initial customers, to brand, market, and distribute our picop accessory product. And finally, we need to complete assembly of robust supply chain that will support this global commercialization.

Let me start with the first item, what does it entail? Some of the technical work, that’s left for us to do in 2008, to finalize the design, to further miniaturize the product, and to reduce the power. The device that we showed at CES is the first hand held prototype that we developed for the purpose of doing initial customer trials. We expect the final product to be at least 20% smaller than what we showed at CES, and have 40% less power consumption. We’re also working with several experienced partners for the ASIC development to complete several remaining ASIC chips. The integration of these final ASIC chips, will allow us to reduce the size and power, and therefore increase the battery life of the final device. Our goal is to have a device that could work on standard battery for more than 2.5 hours, what we showed at CES as a prototype, was pretty good, could last about 1.5 hours, but again, based on the customer feedback we solicited it needs to be at least 2.5 hours, which is why further power reduction is necessary. We feel comfortable about reaching these goals, and we’re going to update you as we progress.

The second item is securing initial customers to pull this product to market. As I mentioned we’re using the existing prototypes to get additional feedback from the OEMs and potential customers. We’ll use this feedback to make further refinements if they’re necessary, and then we’ll complete the final reference design and start ramping the manufacturing supply chain.

The final item is the robust supply chain infrastructure necessary to have this global commercial rollout. We have been actually engaged in building the supply chain to support volume manufacturing for quite a while. We started this in 2006, because at that time, as mentioned to you through previous calls, we realized we don’t have this expertise, so we need to engage and solicit strategic partners to help us to go to market. We started this at the end of 2006, there’s been progress in this in 2007, and we have to finish this in 2008. We have been synching our development efforts with the key suppliers to meet the targeted timelines, and implement the joint programs in place to monitor this progress and help out our partners when necessary. Green laser has received special attention from many of you, and we also know that it’s an item because it’s the only; it’s one of the few components that hasn’t been available commercially prior to this introduction. As what we have done effectively in 2006 and continued in 2007, we’re getting involved with all key green laser manufacturers and created a tight corporation of partnerships to help to mature this and help them whenever they need our help, and also basically synchronize our efforts to ensure that what they’re developing is consistent with our expectations. As you know, Corning has recently discussed its green laser development program during their shareholders meeting, I gave you a quote from Joseph Miller, and Corning is very excited about this opportunity. He stated that green lasers for micro projection is an opportunity in the consumer electronic market space, and we expect micro projectors to become a reality in 2009 first as an accessory, and then as an embedded. We have engaged with customers, and it’s one the top priorities from the new products and new programs that we have at the company. He also stated that we’re planning to introduce our first green lasers later this year, and focusing on the long lead production items to have sufficient volume for full blown production in 2009. All of these factors are very encouraging. And our final goal for 2008 is to complete the manufacturing agreements with product integrations, IPM suppliers, and light source manufacturers to complete final pieces of the puzzle. But this is not all, what I have described is just one of the focus areas of 2009. specifically I attributed to our first high volume product introduction, we’re also focusing on other items, just as important, specifically we’re looking on securing new OEM commitments for picop enabled display solution for the embedded devices as well as for the vehicle and automotive displays. We’re planning on working with our customers to further develop the innovative eyewear technology we started in 2007 to enable this lightweight, small form factor, full color eyewear which becomes a great complimentor for pico projector.

Just think about if you’re on the move, if you have a pico projector and an eyewear you have everything you need to use, share, information, doesn’t matter where you are, whether you’re in transit, outside, inside. You have total solution, and that’s what we’re focusing on. We’re also planning on delivering on the existing customer commitment on the current projects and contracts that we signed in 2007 in all of the tree segments, consumer projection segments, automotive and eyewear.

Our final goal of the year is to increase sales of our ROV barcode scanner by at least 100% over 2007 figures, and we’re going to do this by partnering with the key application providers, and the large mobility solution integrators as well look in some of the traditional channels.

I think at this point, I will stop, and we will open for questions.

Q&A:

Joel A: Thank you, good afternoon gentlemen.

Alex: Good afternoon Joel

Joel: I was wondering, since obviously the show is exciting to see at CES, but we haven’t heard of a great deal about your work with Motorola. When might we see some kind of a mock up or preliminary form factor of an integrated handset device, is that something we might see shortly?

Alex: Good question Joel, our work with Motorola is progressing very, very nicely. We have completed the development of first handset prototypes with the embedded picop projectors, this is truly a historic event since it represents for the first time in the history that a pico projector has been installed a fully functional handset, and I don’t think anybody can claim this. Both Motorola and Microvision recently demonstrated pico projection cell phones at the mobile world congress GSMA in Barcelona, this was done in private settings, and we’re very proud about this accomplishment and our continuing relationship with Motorola. We expect both parties, Motorola and Microvision, expect to show the handset prototypes privately, specifically focused at major events, with primary goal of engaging the consumer interest, assess the full market potential, and refine the requirements for the final product.

Joel: Might that be at like CTIA, or SID 08 in L.A.?

Alex: Good question, listen, when I said at most of the major events, I believe that CTIA falls in this category, but if you really want more precision on specific dates and shows, it would be wise to call Motorola PR and get this information from them because we’re under the restriction of what we can say.

Joel: I understand. I was interested in your comment on Corning, and this semi-green laser as opposed to frequency doubling manifestation, Alex. Is it possible, I mean obviously it would seem probably more propitious a solid state green laser to work with, but could you possibly have a production viable product and still use your frequency doubling green laser manifestation.

Alex: Absolutely Joel. The leading green laser manufacturers right now are first focusing on introducing the frequency doubling green laser, this includes everyone that you know. However, people understand that the solid state lasers bring inherent advantages. Following this it takes at least 5 years or so to develop this technology so my guess without speaking for the green laser manufacturers, they are developing the frequency doubling technology to introduce in the near term, but they are also looking for a longer term solution, which I believe would include solid state lasers.

Joel: Very good. And final question, Alex, obviously continuing engineering work, when are we going to see some major player besides obviously OEMs your working with obviously have a vested interest, but it would be nice to see some interest somewhere down the line from some major operator that this says this is really hot stuff, and we can’t wait to see it get out the factory door, so that we can begin to market it to customers. We might we see some kind of endorsement like that, do we have to wait until 2009?

Alex: It’s a very good question. I’m just as impatient about this as you are, probably more so. The show, what we’ve seen at CES and in Barcelona Mobile World Congress, gives us very good feel and mobile operators really want this solution because ultimately they will be dealing with cell phone manufacturers to get this to market because I personally believe, and I think this will be affirmed within a few years the biggest beneficiary of this feature are in fact mobile carriers and content providers because they will make the most amount of money on the subscription services and the content downloaded that today is not. And when this occurs I cannot tell you but what I can tell you is that some of these companies have a plan to do this, but they will not communicate their intentions until they are very close to product introduction. So I will anticipate you will hear this in early 2009 maybe late 2008 but it would be difficult to see if there would be early announcements unless there is a surprise.

Joel: Well hopefully you can hold on the show schedule in later part of 08 and hopefully we’ll see some more information on the integrated product, good luck going forward.

Alex: Thank you very much.

Darice (sp?): Good afternoon guys. Alex you presented some priorities for 2008, and there is quite a list. Can you put some dates, target dates, around this?

Alex: (Laughing) You want me to give all the competitive information to the (?) no, listen; I’ll be as transparent as I can without compromising what we do. So of the three activities we need to finalize the final reference design to get commitments, final commitments from the pull in customers, and to solidify our supply chain. Some of it has started already, so we anticipate to kick off some limited trials with customers, limited because we have limited number of units today. The goal of these trials is for our customers to better sense what the consumer and user things of the performance, functionality, price to basically to create their own go to market strategy before they can give further commitments, specifically what are the volumes and what are the average selling prices they expected to get out of these devices. So this initiative is going to start, it’s already started, and we anticipate it to continue throughout the first half of the year.

In terms of the technology maturation, we find that we’re pursuing does not happen simultaneously. What this means is that we phase in different components at different times, so we anticipate to complete this detailed design, by I’d say, our goal is somewhere by the end of the first half early third quarter, because that’s what we need to enable the year end introduction.

In terms of supply chain structure and supply chain agreements, the work is in progress and I believe as we progress through the year, you’re going to see the periodic announcements as we bring in new players and acknowledge them. To date we already have actually signed several joint development agreements with our supply chain partners, but we’re not privy at discussing who they are or what they’re working on, and all of this is that we’re honoring their request at keeping this information secret. So expect first half to be very important in positioning for this year end launch and the information that we expect to get in the first half early third quarter would be probably naming some of the customers, naming some new supply chain partners, and also giving you updates on how we’re miniaturizing and reducing power on the final product because it’s important for it’s success, and I believe you’re going to see some of the symptoms of this definitely at SID and possibly earlier.

D: Ok fair enough. And in terms of the demos that you’re giving out, I know that a number of the guys that met with you at CES wanted some sort of prototype. Are most of the prototypes that you’re sending out, are they more for embedded solution or for accessory solutions?

Alex: You’re good. Listen, it’s both. It’s both.

D: It’s more like 50-50?

A: That’s all I can say, unfortunately.

D: Ok, and you are confirming that you will have an accessory product out by 4Q ’08?

A: Our target is to have that, that’s correct.

D: And you guys are on track for it?

A: Well, there’s a lot to do, but we feel it’s an aggressive target, the end of the year, but we feel comfortable that we have the tools in place to reach that target.

D: Fair enough, and the last question is for you Jeff. Op-ex increased quite a bit quarter per quarter, what level should we model then going forward in 2008?

J: We talked about having expenses increase in 2008 over where we were in 2007, as we got closer to product introduction. I think for the first half of the year, you won’t see much increase from where you were in Q4, and then I think update that as we get closer to product introduction in second half of the year, but I think you can see some more increase in the second half of the year.

D: Is that both R&D and SG&A, or is more weighted towards R&D?

J: Certainly more weighted towards R&D, and if you look to the increase in the 4th quarter, it was much more weighted towards R&D.

A: And specific areas the areas we are trying to strengthen the manufacturing we tremendously our strategic sourcing capability and service as well as the procurement parts for the initial beta units.

D: OK thank you guys.

Jed D: Hi guys, is actually Josh for Jed who’s on the road. Just a couple questions for you, you mentioned that and this is obviously consistent with what you’ve been saying for a while you mentioned that you’re hoping to have the accessory by the end of the year. Do you anticipate material revenues or are you hoping for material revenues in the actual Christmas shopping season, or do you just plan on introducing the product and not having much of an impact for the Christmas season.

A: It’s the latter. We want to introduce it, but we’re not counting for revenue in 2008.

J: Ok, and just a housekeeping type of question. You talked about op-ex coming up a bit in the year. Can you talk us a little bit through your burn rate and what you expect that to look like for the next 4 quarters or so?

Jeff: Sure, if you look at Q4, we talked about having the 5 million per quarter, we achieved that in the back half of 07, and I would expect to see that increase pretty much along the lines of op-ex increases. Maybe a little bit of an increase in the first half of the year, and then a little more of an increase as you get to the back half of the year, and I’ll have a little bit more guidance for that as we get through the year, and we kinda refine the product launch plans. We’re not talking huge increases.

A: One of the key aspects of the question is ultimately, number is going to be determined by the volume that is going to be given by the customers, also what we’re trying to do to mitigate this, we’re trying to pass some of these costs to our strategic partners, we’ve given them first mover advantage in this activity.

D: Ok, that’s actually it for me, thanks for the time.

Chris: Thanks for taking my call guys. I’m just wondering if you could update me on how long it would take for lead times in each of your products with a embedded opportunity, and accessory opportunity, and the automotive. How much lead time to do we need once you get a design in there before you actually see a product.

A: Are you interested in each of the segments mentioned, or in one of them?

C: Each of them. I mean how long does it take if we get a design for the accessory product how much lead time do we need before manufacturing rolls them out?

A: For us to initiate the introduction of the accessory product we need to have a serious commitment in hand by third quarter of this year, this is I would say the latest, the desired date, would be the end of the second quarter. In terms of embedded solution, as communicated in the past, our goal is still to introduce an embedded product sometime late second quarter early third quarter of 2009. And as far as the automotive products are concerned, the goal for this year is to help our partners, our tier 1 integrator partners to find a pull in customer, to date they’re essentially using what we gave them, we delivered to them, to get commitment from the automotive manufacturer for this specific model of the future, when that year it is 2010 or 2011 we don’t know yet. We enabled them to do it as early as possible but they have to carry a big load and use their influence with their customers to get that commitment, but we’re helping with everything we can and so far we’ve been very predictable in what we’ve delivered to them, it’s always been on time, and at the performance level that has been specified. So again, I can’t give you a precise year, but it’s 2010-2011, but for us to enable that launch we need to complete our development as early as this year as at the end of this year, as late as probably end of 2009.

C: That clears it up on the automotive and the accessory but I’m just a little unclear still on the embedded opportunity, if you introduced in late Q2, when does the design have to be finalized.

A: The design has to be completed pretty much by the end of this year.

C: Great, and on the supply chain side, besides the light source integration, what are the other hurdles remaining?

A: The big hurdles, I would say the light sources, which everybody knows about, and just to put the general supply chain to broker and to sign supply chain agreements between different partners, we don’t want to be involved in every step of managing the traffic, we just want to be involved in the critical steps we add value. Today as we negotiate agreements with our direct supply chain partners, we also help them broker supply chain agreements with other supply chain factors involved in this go to market strategy. All of these activities will happen, and should conclude in the next 6 months, I would say.

C: Then on the prototype you had in private sessions in Barcelona, did you say that was a Motorola model?

A: I said that Microvision and Motorola, Motorola showed a cell phone with microvision’s picop embedded projector.

C: Great, all right that helps very much, thanks.

Joseph: Hi guys, how are you today.

A: Good Joseph

J: Good, hey listen, in Barcelona that was a fully functioning, I could pick it up, make a phone call, and flash my pictures on the wall, cell phone?

A: That was it Joe, that’s why it was an historical event, and I think all of us and all of you should be proud that we achieved this before everybody else.

J: Was that shown to carriers in Barcelona?

A: It was shown privately to Motorola’s customers. So obviously it wasn’t to their competitors. It was carriers and mobile providers and other end users that Motorola views as their customers.

J: Can you give us some sense on, I know you probably don’t want to give away costs of the product yet, but there’s a certain cost to it, what’s the response from the carriers, can they see the value there, if there going to subsidize this, say 50 a unit, are they recognizing they can up sell video content greater than that over the life of the product any comments on their initial response to it.

A: You ask a very good question. The response from the carriers has been very, very positive. Can’t disclose the details and comment on what they said on how much subsidies they are going to do and what the ultimate price is they are going to charge, but what I can tell you is that there’s a strong interest from the carriers and mobile content providers and the reason is very simple. If digital camera can penetrate cell phones from 0 to 75 % penetration within 5 years, and digital camera is not benefiting carriers and content providers, then we believe projector will do just as well, specifically because now you know, you and I can download anything we want, and we can play it anywhere we are.

J: There’s been a lot of obviously Motorola has been in the news, there’s been a lot of turmoil of late, has it caused any disruption in your timeline with them, are the champions of your technology still in place at Motorola.

A: Simple answer is yes, champions are still there, they’ve been actually promoted. It’s good for us, and Motorola’s turmoil, one of the reasons for Motorola’s turmoil is the lack of innovation over the past and this is a perfect example of why they should be interested in getting this to market, because it represents something unique that no one else will have.

J: The other day, I was listening to Greg Brown, they did what I guess what they called a fireside chat, and he said that they were going to be moving away from the traditional slim and colorful, to the more feature rich smart phone/PDA devices. Have you guys been given any indication that you are part of that focus, and due to their need have they accelerated the process at all.

A: You asked a very good question Joseph, I can’t answer it. Even if I had the answer, I can’t tell you this because we’re not privy to discuss a lot of information, so I apologize, but that’s the best answer I can give you. What I can tell you, something that is really cool. The cell phone that Motorola has shown, if you’ve seen it and you’ve held it in your hand, you’d never guess there’s a projector built in, and the reason is because you know, we’re able to produce ultra thin embedded engine that no one else has.

J: let me ask you one more question, and then I’ll get back in queue. How long are your hands going to be tied cause obviously shareholders, it gets frustrating the lack of news, and when do you think the first change the public will get to see these prototypes or phones?

A: The Motorola solutions will obviously be determined by when Motorola decides to share it in more public forum than what they have been doing. In terms of what we have, specifically pertained to Show, and it’s derivative as we move towards product, you’re going to see further in innovations as we move into the year, and I believe we’re going to have some major shows on the way CTIA is one, SID is two, which will happen within in the next 3-5 months you’re going to see some new toys from Microvision, you’re going to see how we’re progressing towards the ultimate goal. You obviously, everybody can make their own opinion, but so far we’ve been predictable in what we’ve said we’re going to do despite the aggressive goals we’ve set, and I believe this is going to continue.

J: Ok, thanks, I’ll get back in queue.

Bob: Good afternoon. It’s….equity group. How are you guys. Congratulations on another year filled with just terrific milestone achievements. My question is at CES, it seemed to us there was a tremendous amount of positive media coverage and also lots of excitement about the company’s product offerings, but there was also what we would call misperception I believe about potential competition from the likes TI and 3M as to perhaps those companies beating Microvision to market. Can you give us your take on our observation?

A: It’s a good question, so let me try to break it into several sub questions. So I think you’re asking what about the competition. There was at least 13 competitors at CES who demonstrated several flavors of projectors ranging from small to something a lot more bulkier. So the question is, could they introduce something earlier than us this year, and what does it mean to us. Am I capturing this?

J: You are absolutely on the money.

A: All right, let me start with the first one. Anytime you have a large market opportunity you will draw competition. It’s a fact of life. The number of companies developing small projectors which are at various stages of development, TI and 3M happen to be 2 of them, and they happen to be large companies. We believe personally, and I believe, and we believe this is a good thing because it confirms that this emerging market has huge, huge, huge opportunity. So leading consumer electronic OEMS, our customers or perspective customers, have indicated they see great promise in Microvision’s solution primarily because our display engine, unlike other, can be made smaller, consumes less power, and produces much brighter and higher resolution images than any other technology. In terms of the moving to the next step, which is the holy grail of this market, and embedded solution, even though there are people that will claim they will introduce, and they probably will introduce accessory products this year, I don’t think anyone have claimed that they can make it an embedded solution, and our strategy has always been start with accessory, click (?) with the embedded and basically create a totally different usage model for mobile consumers, that’s what gives us strategic advantage and tactical advantage over everybody involved. Could someone introduce something earlier? It’s possible; however being first does not guarantee success, just ask Toshiba with HD TV and ask Pan AM. So we want to introduce the right product, and our targets are aggressive, and we’re going to stick to them and do whatever it takes to make it happen, but if somebody should introduce something earlier, they have to battle certain attributes that they have to explain to their users because DLP specifically and (?) have some basic issues in performance starting brightness, you know the projectors are not very bright, the colors are washed out. The center is brighter than the sides. It’s not because TI and 3M and others cannot do a good product, they can. It’s just the inherent limitations of the technology they use. Also, the projectors are lower resolution than ours, and as you know there’s been a major push to broad band networking, and one of the final attributes, that I think is going to be very, very critical for mobile applications, we’re the only technology today that can say we’re focus free. Even though some of the players claim they are focus free, they really deceive the public by hiding the button to adjust the focus.

J: Is it your opinion that size and power are the two key gating items and that Microvision has both, and that the others don’t/

A: I would add two additional items. It’s size, its power, its brightness, and finally it’s resolution.

J: Terrific, thank you very much for that, and all the best of luck to you this year and next.

A: Thank you, one more question.

Randy: Thank you fellas, and I’ll second the last question about your year, fabulous year. I want to go back to the auxiliary product Alex if I could for a minute. Just to give us an idea while you commented that you would just introduce the product under your timeline with no intention in 2008 Christmas to mass produce the device nevertheless you need to be thinking I’m sure, or have been thinking about what theoretical market sizes are in terms of units over time, and I don’t know if you’ve ever shared that with us. Could you give us some feel for what we might look forward to in terms of ramping in ’09 and 2010 with respect to the assuming everything is successful in the rollout in late 08?

A: randy, this is a very good question, and not because I think I know the answer, but because it’s a very good question, because it’s a very important question. One of the things, let me start with the basic premise. My personal belief is that the demand is going to be far greater than the supply. I don’t think there would be enough capacity from us or ever from somebody else to introduce something for the accessory to meet the demand if it’s the right product obviously. We believe we’re doing everything possible to make sure it’s the right product. Now, let’s talk about the accessory first, and then I’ll move to the embedded market opportunity. Addressable market for accessory is anything that contains multimedia applications. So what is inclusive of this? It’s any cell phone that has the right video output, it’s the 100 million installed based of ipod users and mp3 players, it’s everyone who’s carrying a laptop around and wants to have a quick projector connected to a laptop to share information with business colleagues. The market opportunity is very large. How many people will actually purchase it is going to be determined by the ultimate performance price ratio of each device. So again, the opportunity is pretty large; the price is going to be I believe one of the factors that’s going to determine the ultimate volume. We believe it would be modest growth in 2009 or say a couple million units for the total market, and I think it would be determined primarily not because users do not want it, but because people will not be able to produce it in the quantity that people want it and at the price potentially that people want it initially. If you look at the embedded proposition, this is really what we’re building the company around. The accessory is a step for us to get to the embedded and if you look at the embedded market, just ignore laptops for right now, ignore mp3 players, ignore digital cameras and just focus on just cell phones, there’s probably a billion and a half cell phone sold by 2008-2009 of which at least 60% would be multimedia phones, basically these phones that you can browse the web, play video, download videos, run business applications, etc. Of the 60% of 1.5 billion is 900 million, right? So 900 million number represents an addressable market, we’re just making a very modest production if we just take 1-3% of that market we will be very, very happy. And keep in mind that today we believe that there’s no one that can get inside the cell phone.

R: I had heard that analysis before with respect to the embedded and I sure appreciate it, that’s certainly the goal of the company to get there. You haven’t reflected at all initial roll out prices per unit have you? Prices to Microvision.

A: there’s simple reason for it, our first desire is to private label this product to our customers, so it would be the consumer electronic manufacturers, cell phone manufacturers that put their name on this, and that’s one of the reasons they would need to do extensive user trials in the first half of the year and potentially third quarter to solicit this feedback to understand what the price range is the consumer will tolerate and what are the necessary features that need to be added to potentially to the solution to make it more attractive so they can gain more margins. Based on what we know to date, we’ve done some street studies with direct users, we also read several reports done on this area. People anticipate when accessory hits full production it will be in the range of 300-400 dollars, that’s the retail price. Within 3-4 years, it’s expected to go down to $200. That’s what I have been reading from the other studies, it’s very similar, very close to what we’ve been getting from the direct user studies that we have conducted, our marketing team have conducted.

R: Ok, and I just want to go ahead and make a closing question with respect to something you had said in the past, and I’m not quite sure about the timing, but I believe it was mid to late year in 2006 and you were quite excited about the prospects about the future, in fact you used the word pumped to describe yourself, and you mentioned something about being in the super bowl in 2006, and winning the super bowl in 2007. Are you going to modify that or are you sticking to that this year, do you still feel like we’re in the super bowl.

A: You’re almost accurate, let me just correct some of it. First of all, I’m still pumped. What I said in 2006, remember when I started, I said 2006 would be our rebuilding year, we basically were a 1-16 team and we need 2006 to completely rebuild it was cleaning house here; it was basically changing many, many variables at the same time. 2007 was our positioning for the playoff year, and how do you validate whether you’re in playoff? It’s the CES for us, consumer electronics show, if we show what people and we surprise people, then to us that means we made the post season, and we’re ready to go on further. This year is what I would call the championship year, the conference championship year. If we do what we said we’re going to do, and we’re going to meet most of the milestones I described here at CES of next year I believe we can say we made the conference championship year. And then 2009 when you have full production on at least 2 products, I would call that a super bowl year.

R: Ok, great, well it’s certainly, I’ve been around for 8 or 9 years here now, and it’s certainly a different company since you came on board so congratulations. Thanks so much for answering my questions.

A: Thank you Randy.

Closing remarks:
A: I don’t know what to say. 2008 is going to be important year for us. We need to, we have been maturing steadily since 2006, this is going to be another major maturation year for this company because we’re going to do something we’ve never done in the history of Microvision. Our goal is still to complete the necessary technology business development and supply chain milestones that are required to bring this picop enabled consumer product to market while still delivering on and progressing on embedded and automotive solutions, as well as the eyewear products. We feel very good about our competitive position, and believe that picop display engine will meet, should meet size, power, and image quality requirements of our customers and ultimate consumers, and they will demand this. I’m very proud of what we have accomplished last year over the past two years, and again we continue to remain very, very excited about the future of this company. And absolutely no regrets of leaving cushy job at GE 2 year ago. This is the best move I ever made. At this point I would like to say thank you and talk to all of you very shortly.