MicroVision, thank you for the timing of your press release. Last Saturday’s post was about what did and didn’t happen in the first quarter of the year (1Q12). The second Tuesday in the second quarter started with MicroVision’s news about an agreement with Pioneer. Yeah! And yet the stock, MVIS, remains low. Maybe it’s because the news is nothing grand, or because the company’s news is frequently received with skepticism, or because the press release requires parsing to yield understanding. I can understand all three possibilities. Let’s see what I can read from it, and also use it as an example of why it can be so hard to understand corporate announcements.
“MicroVision Announces Definitive Agreements with Pioneer for HD PicoP Gen2 Display Engines Using Direct Green Lasers”
That’s the title? Give it a few more words and it would be a run-on sentence. Okay, I understand, MicroVision is a tech company, so English majors may not be common. Fortunately, there are some key words in there: Definitive, Pioneer, Gen2, Direct.
“Definitive” is more concrete than usual for MicroVision, but I’ll withhold judgment until I read the rest. Maybe what’s definitive is qualitative instead of quantitative.
Pioneer is more definitive than usual because the company name was used directly instead of “a major electronics manufacturer”, which has led to some misunderstandings in the past.
“Gen2” and “Direct Green Laser” only makes sense to people watching MicroVision’s technology and is good news because Gen1 cost too much, partly because they didn’t use direct green lasers. (Long story there which may be moot if MicroVision survives.) Gen2 also has much higher quality, and using Gen2 in a Definitive Agreement suggests, well, that involves reading more into the words than are there.
Let’s dive into the text.
“Under the agreements, Pioneer will produce PicoP Gen2 display engines for its own automotive aftermarket products and will pay MicroVision royalties from sales of these products. Pioneer plans to release its first aftermarket head-up display product later this year.”
“Agreements”, note the plural. This could be bigger than I thought. “Pioneer will produce” takes the work and capital expenditures out of poorly capitalized MicroVision’s finances. “and will pay MicroVision royalties” and revenues are good. From the “sales of these products” suggests delayed revenues until after sales are made? booked?, or is there an upfront fee to MicroVision so they won’t have to dive into onerous financing? “release its first . . . product later this year.” Like I wrote in my previous post, is that July 1 or December 31? For those who aren’t pilots, “head-up display” is like Google glasses for a car.
In summary, the news could mean MicroVision makes money before July 1, 2012 with a long list of other products to follow, or doesn’t see the first cash until after December 31 and many agreements were needed for one product, or anything in between.
Later in the text I found another encouragement.
“Under the agreements, Pioneer will also manufacture and supply key display engine subsystems to MicroVision for consumer, industrial, and other applications.”
The auto HUD is a consumer product. Maybe its display engine can be used for industrial and other applications, but hope steps in with the possibility of a larger product line.
“MicroVision’s continued transition to an “Image by PicoP” ingredient brand model, which is expected over time to reduce working capital requirements.”
Reducing capital requirements confirms some of the cash issues described earlier, but the “expected over time” part suggests that this agreement alone is not sufficient. If I saw another such agreement with another customer that didn’t include that phrase, then maybe I’d think the cash was finally taken care of.
“With the expected availability of direct green lasers in the second quarter of this year,”
Hallelujah! Direct Green Lasers in the second quarter of this year, 2Q12. If they said second half of the year, 2H12, I would guess that the product would be late in the year. But they didn’t say the direct green lasers were available in 1Q12 as was hoped. I’m confidently guessing that they are talking commercial quantities, not prototypes because the prototypes have been in product testing for a while.
So, there it is, as clear as, well, hmm, – and so it goes with corporate press releases. Press releases full of words are always subject to interpretation and misinterpretation. Language is not as precise as mathematics, which is one reason many investors rely on financial statements from companies that have years of stable numbers. Ambiguity is the bane of startups. It is too easy to create too many interpretations from such language. Booms and busts result.
I manage the ambiguity by looking at the company, its products, and its industry. If the company looks very cheap, but the technology and products are positively disruptive, then with good management and some luck the stock can be bought low and eventually sold high. Lately, that strategy (which I describe in detail in my book, Dream. Invest. Live.) has been severely challenged in my portfolio (read Irrational Markets), as much from small-cap market conditions as anything else. Yet, I am reading more good news, realizing that much of it is hidden with caveats and legalese, and hoping that my frugality and personal productivity will provide enough patience for my portfolio to prevail. (Pardon all the p’s but it was fun practice.)
Oh yeah, and my gut feel is that this is good news for MicroVision for this year. It isn’t the biggest news, but it might be big enough. The word they didn’t use was “exclusive”. That means they can do other deals too. A bit more news with another customer or two might be much more than big enough for the company, the stock, my portfolio, and me.