MicroVision, Inc. (MVIS) Earnings Call Transcript & Summary

Hi, and welcome to Behind the Wall at InvestorPlace. I'm your host, Joanna Makris. And today, we are back talking about autonomous driving and safety among car makers and specifically lidar technology, which is going to be an important enabling technology. Joining us today is Sumit Sharma, CEO of MicroVision, which is very much involved in the automotive lidar and augmented reality space. Hi, Sumit. Welcome.

Thank you, Joanna. Thank you for having me.

So let's jump into it. Let's talk about lidar competitive space. Not everyone is going to make it. Are many of these companies even able to meet carmaker requirements? And what's your take on kind of the state of the industry right now?

I think recently, we presented our sensor at the Munich Auto Show, so I can give you direct context from recently what we've done. It's actually very interesting being there because everybody was demonstrating the technology publicly. So it's kind of pound for pound, it was all out there. One thing that I can walk away clearly saying that every OEM and every Tier 1 that was present there, they had a lidar story as part of their product story. ADAS is going to be big, and I think it's clear that for ADAS features beyond autonomous driving, but even in ADAS, in the space like advanced safety, lidar is acquired because every OEM, every Tier One, one the biggest things that they were talking about was lidar. So I think it's important to understand that what we're talking about in lidar, all the companies are in the lidar space. There is a market. There is a market that clearly, we all have to find a way to attack and to find a solution. But knowing the market, which is automotive OEMs and Tier 1s I think it's also important to remember, they know their space, they know their customers. Everything has to be price competitive, the highest in technology. So what I walked away was more confident about our past than ever before. And not just, it's not just hubris. I mean honestly, I can tell you this is the sensor size, the specifications, all these things have been known. Cost targets have been known by all the competitors. And all of us have gone a different route to get there. I feel pretty confident in our path because what we demonstrated meets and exceeds what OEMs wanted. And I was very happy with the outcome of our visit.

So you talked about on your last earnings call, I think, 4 new lidar products. Can you discuss kind of what you see as the addressable market for each? There's a kind of a wide span of companies targeting safety on one hand and autonomous driving on the other. So that would be helpful to differentiate us.

So we actually have 1 main product that we believe actually solves a lot of the issues that OEMs have been struggling with when it came to using lidar technology. It is our dynamic view lidar. The other 3 products that we announced at the show and also we've talked about in the last earnings call, those are more interim products as part of a derivative from our A-Sample, allows different OEMs and different Tier 1s if they are exploring something new that they're able to have a sensor that can do exactly what they need without having to initiate a development contract or joint development contract. So what we have done with A-Sample is we tried to enable OEMs and Tier 1s to evaluate the space. Again, if you think about it, if you have a very rigid lidar product and every time somebody wants to engage with you and it's going to take you 3 to 5 years to develop it with all the risk and all the cost that goes into it, that's not attainable for any OEM. That's a lot of money. So creating something that's flexible allows them to actually get on board. But the main product, the one that got the most attention, that I can honestly say, really like we talked the most about with potential interested parties was about our dynamic view lidar. So -- and with the dynamic view lidar is, of course, it is imaging the near field, the midfield and the far field, all in from a single lidar at an extremely high resolution. So instead of having a static field of view, which is, yes, it's got high resolution near the car, but as you go further and further out, the resolution drops, doing all that at high frame rate, right? It's exactly what OEMs want. And to be frank with you, in 2019, we went on the road before COVID, and we collected all the information that was there. So when we went down the path of developing a dynamic view lidar, it was not just something that we went off on our own. -- we had an idea what the product we wanted to make. And we presented that and we got feedback, we got specifications, we got input. And we've been marching along that way. So we were not surprised when the response was positive.

Great. Let's talk more about dynamic view. You're operating at the 905-nanometer wavelength. What do you say to competitors to say that you get less optimal performance? And talk to us about why you made that specific choice and what you see as kind of the performance cost ratio or relationship.

So as I said, like the #1 thing, believe it or not, it's not technology for OEM and Tier 1s as they consider a partner. It is what the final cost is going to be when you go to scale. So a lot of the choices, I mean, us, of course, in the last Q announced our AR, our partnership with Microsoft in the past, cost is something that we always look at from the ground up. So the choices that you have to make, if you want to have a scalable product, it has to be something that does not have anything exotic, something that's unique. It's something that is mass producible, multiple partners. You're going to have to work through a Tier 1 to go to an OEM anyway. So those are the things -- those choices you have to make accordingly. There is no limitation to our MEMS-based technology. We can make an FMCW. We can make a 1550-nanometer, we can make it out of any wavelength. It's a steering system that can use any kind of laser source. But the specific choice for 905 that we made is because it gives all the specifications that an OEM and Tier 1 would want and in the cost bracket they're looking for. The cost competitive nature of our technology is demonstrable now, not like years in the future after so many hundreds or maybe $1 billion worth investment that some other choices that people may have made. We don't have to invest in new fab for a SPAD. We don't have to invest in a new VCSEL or a laser. We work with partners that have already invested billions of dollars in those spaces and are experts in that. And of course, everything that's inside there, we have all our technology. But what's really exotic about our technology is, of course, things like algorithms, things like our silicon, where we actually deploy some special algorithms that allows us to do things that other products cannot do. So the way we achieve high resolution at such range in full sunlight is this technique called active scan locking. It's part of our IP and effectively, transmit and receive are always synchronized, which allows us to reject sunlight and also reject rogue laser signals from others in the 905-nanometer range. So therefore, if you think about a true product that you will have on your car that I may have on my car in the future, it has to be immune to sunlight, but it also has to be immune to other systems that are out there. It works in every scenario like airbag, it works every time. It has to because it's a safety feature. So 905-nanometer was a specific choice. It was not an incidental choice for us. And it's the right choice because it has the cost, but it also has all the benefit, as I said, of resolution, range, velocity as part of the sensor. We were able to achieve that.

Do you think that 1550 solutions are prohibitively expensive? You do have companies that say, the proof is in the pudding. Look at some of these announced relationships with carmakers. So I'm curious to get your take also on whether or not you think any company really has a first-mover advantage.

I believe none of the companies have a first-mover advantage because I can tell you just after the show, how many people have actually engaged with us. The names of those Tier 1s and OEMs that you think are all signed up and everybody's coupled up -- that it cannot be true if the amount of RFIs and interest that we're seeing just a few weeks after. You know because [ I think ] I can -- sure, go ahead.

How do you see these relationships unfolding? I just ask because companies are claiming big order books, that they have these relationships. So I would just love to get your take on kind of how you see the relationships evolving over time.

Yes. I think the order book, I'm smiling, because the word order book actually like always gets me going, right? Is it their backlog? Are they saying it's guidance? Is it on the P&L.? So people can say words that they want to say. Is it on backlog? So I mean I'll just leave you that as far as the order book is concerned. Now, as far as anything is concerned in automotive, it is going to be something that's commercially viable, something scalable and actually solves a problem. So I think we can all talk about it, right? But I tend to be -- as a company, we tend to be humble. We tend to focus on what we have to get done. And think about the progress we've made just in the year through COVID even. And I was going to show you. So this is our sensor obviously. There was nothing that I saw at the show that was the size that was anywhere near that. The #1 comment that we got through everybody was like, "Wow, even with an FPGA right now, without even doing an ASIC, this is where your size is and the next -- and at this frame rate at these kind of features." So I'm happy about our path. I'm happy where we are, and we're going to continue focusing on that. But I don't see any -- nothing is signed yet, nothing is done. Nobody's announced the start of production. People say they're expecting to start up production in XYZ year. But mark lidar, you can go in there and look that up and the models that they're talking about, the OEMs is declaring there's no model. So I'm not really sure what people are talking about. So I'll leave you with that.

No, that makes sense. You know companies are also saying that some lidars are not going to have the kind of frame rate that's truly needed, the features that are truly needed to enable autonomous driving that they might be kind of at the low end of the spectrum with safety features. What are your thoughts? I mean, will the market shake out in that way?

I think the market is going to shake out. I think one thing you said at the beginning when we first started talking was consolidation is along the way. You can think about what just recently was announced yesterday, there were 2 things announced yesterday. One was, of course, with Ouster. The other one was Veoneer. You can see ADAS space. Just let's talk about at lidar, ADAS space. A lot of consolidation is going to continue happening because this is a big market. It is a big opportunity for lots of different things to shake out. So I think beyond that, I think who's going to end up where that -- you figure out who's got the best technology, who's got the best credentials and pedigree and the rest will kind of shake itself out.

And where do you think we are in terms of the cost curve right now? How close is MicroVision towards optimized production and how do you get there?

Well, what we have right now in our product is an FPGA. Of course, we've done many ASICs in our history as a company. So going to an ASIC for us more like a muscle memory rather than anything new. So we can certainly start transitioning to ASIC product and our A-Sample to be ready for SOP. But once the ASIC is there, when I look at the product, I look at the cost structures right now, they meet what the future requirements are going to be. It's all about scaling. It's all about how many sensors can you aggregate in a single design, therefore, you get the economy of scale. If you have OEMs that are looking at 50,000, 100,000 units a year, that does not scale to the ASIC where the cost comes down. Now when you start getting to like 1.5 million, 1.2 million, now investing in an ASIC program totally makes sense because if you want to do the right ASIC. You want to do a 7-nanometer ASIC, it's going to cost you some. But they have to justify it because that's a pretty big expense you're going to take on. This where is Mobileye, of course, is ahead, right? Because of course, they have the volumes. Therefore, they have those generation of ASICs. We can do those ASICs, of course. But lidar companies are trying to find that sweet spot where they are going to be able to provide a product at the right price point. I feel comfortable where we are. We have a 200-millimeter wafer for our MEMS already. So I mean that's scaled. As far as the steering system is concerned, it's all electronics. Whenever I show anybody what's inside here, whenever I have these meetings, my pitch is actually very, very simple. And it always resonates. Let me just tell you what it is. I open it up and show them, like, "Look, everything inside here is something you know. It's silicon, it's glass, it's plastic, it's metal. There's nothing exotic. It's everything you're familiar with. The magic part is, of course, our IP that we've created. We take those same components that you can buy, same laser, same sensor, and we can create these features." And of course, you have the pedigree, as we filled in the last Q, we've done this for bigger companies before with reliability, with the cost targets. So there's nothing exotic, but yet all the features that nobody else can meet right now. The exotic part is in our software, is in our silicon, which is, of course, our great set of engineers that keep creating these features. So every time that resonates because it gets them comfortable because it's now they understand, there's nothing that I'm selling to them. This is they can look at themselves, they can get their arms around the technology. But the exotic part, of course, is our IP, what this company has done over such a long time in all these different spaces. So when you talk about costs, right, the reason why so calmly I can say cost is contained is because what's inside there, anybody can price out. There's nothing. So when somebody creates a custom SPAD line or custom VCSEL line, they're investing a lot of their investors money making custom lasers. They're trying to find a way to have a foothold so they can charge margin. In this case, software and silicon that's the magic. Anybody can have those components where you need our software and our IP to make it happen.

Well, we've talked a lot about automotive lidar. There's a lot of activity there, but MicroVision is actually sitting squarely in another interesting market, augmented reality. You've talked about Microsoft and the HoloLens relationship. Can you update us on what's going on in that space?

I think AR space is developing. I think til a big OEM -- here, now you have Goliaths of OEMs, there's now 34 OEMs globally. There's Goliaths, right? As they enter, as they expand the market, AR will have -- AR will become part of our life. And actually, as a matter of fact, it has already become part of life if you have a new iPhone, if you have a new iPad, if you have a Samsung device, if you have a Facebook device, if you think about all these devices that are already starting to bring AR into our lives slowly. Now head-mounted display is, again, the holy grail. Something that you can create an experience that you be able to create otherwise. So as that happens, I believe AR is going to become part of life. When that happens, of course, none of us control OEMs, [ they know ], in that space. Now where is MicroVision? Well, we already have a 2K display. In August last year, we did a video of a 720P, something that could actually fit inside with a wide field of view. It's the technology we already have, it's actually our Gen 3 MEMS was in there. So we can clearly do above and beyond what anybody else is offering out there. So North got acquired. Other companies are in that space. I already have technology that can do bigger and better than them in AR space. But the issue is the OEMs have to decide what experience they want to deliver to the consumer, how do they actually going to see the market developing, right? So right now, if you think about AR, it's still early experimentation early times. I would say it's earlier than the lidar space. But again, we are so far ahead of that one, we don't really have to invest that much because we can just sit on what we've already created. There's always need for innovation, but the innovation we have something is already cost reduced and can fit on your top of your head and a nice pair of frames like the Ray-Ban frames or something similar, good industrial design. We also have the helmet-mounted which is going to have unbelievable specifications for, let's say, commercial industrial product, certainly military as well. So all that is already there. So that's in our suite already. And that's part of our IP created over 20 years. So as far as AR is concerned, I think MicroVision knows a lot more about that because we were in that space for a long time. And of course, our lidar is now, that I believe, is the market is seeing right now. So AR will be part of our lives. When? I think I sit and wait as well to see what the OEMs will let us know.

Yes. And speaking of now, investors are very much focused on timing. And I think there has been some frustration that the lidar, it's too early, that this isn't really a viable market until next year, or possibly later. So I would just love to get your take on timing. When you think big selections might take place? When could companies like yourself begin to really be shipping in volumes to OEMs?

As I mentioned to you that right after the Munich show, we're already seeing a lot more RFI directly to us. So clearly, RFI, RFPs going to RFQs are on play. If you think about all the lidar companies, there's going to be consolidation. And the comment I started off with that, if you think about ADAS and what is happening with Veoneer, Hella, all these companies, right, that consolidation is going to continue. So there is a lot of opportunity. As far as investors are concerned, of course, the company with the best technology, cost structure, its own IP. There's a path forward where they can win traditional revenue, traditional EBITDA, like how people would think of it. But also there's this other opportunity, which is I've never taken it off the table, that strategic alternatives, that's always there. I think the company that's there has revenues. If they are multiple years out, there's always a choice. And if you solve a very difficult problem, and it is important for somebody to own your technology rather than work with you, those are things that we're open to hear at MicroVision. The Board is always open to that. So the way I look at it, if you and I have this conversation several years down the line, you will say the number of lidar companies we'll talk about is shrinking. And eventually, I do believe probably 3 -- I believe it's going to be about 3 companies that's going to end up there, maybe as many as 5 recently just yes, somebody said, maybe, it could be 5, maybe. So 3 to 5 is where it's going to consolidate. And to think about if you're going to be in the automotive space, think about what happened with airbags over such a long period of time. It's a safety device. It has to consolidate. Everybody is going to be part of the supply chain at the right level. So I think that's what I expect the future to be for -- people want revenues, when is it going take off? Well, when somebody does a joint development agreement with you in the automotive space, they want something specific for you. It is still multiple years to get it qualified. We could be done with our technology, but qualifying a vehicle takes a lot. There's regulations that you have to go through. There's regulation that you have to follow through it. So we're learning a lot about that, of course, also we're doing testing on our test tracks and our plans are. So I think it's good to be early, as in, like technology is ready, you can show the viability, the cost advantage. And then, of course, you have to work with their time lines. And in the meantime, consolidation is always there.

Right. You're obviously managing a business and not the stock, but many of the lidar stocks have pulled back recently. I think a lot of it is just kind of frustration around timing. What do you think the market is missing? And what would you say to a retail investing audience that's looking at this space?

I think you have to have patience as in like, look, if the entire stock market is going down because the Fed is about to do something or not do something, you can't hold a lidar company responsible for the entire market. That's number one, right? we are under [ russell ]. So we have the same ebbs and flow what the market is seeing. So you're just going to have to not coming into stock, take a deeper and step back, right? But the company -- I mean, I can certainly tell you, I do -- I go beyond my way in these earnings call. I do put a lot of things out there and give as much clarity as possible that gives them something to a foundation to form their thoughts about their investment thesis. So as far as timing, if there was something I knew, I would certainly get on the call, and I would announce that, right? But I think right now, the ebbs and flow in the market are taking place. There are choices coming next year. OEMs and Tier 1s are going to -- are active, and we are active and so are our competitors. And we tend to remain active. That's why companies like us and our competitors have raised enough money because you have to ride out these waves. You have to actually go ahead and actually focus on getting a deal done because that actually does unlock value -- significant value for shareholders immediately. Because you want to start seeing, who's going to be the final 3 companies? And the only way that's going to be evidenced is not by a joint development agreement that any company did by saying who's going to work SOP. But the evidence they have is -- I have a sensor right now that I can show you that you can say, "Well, I can see it fitting inside my car." We've had the discussion with folks that say, "Well, I need 2 of these per car." So as you can imagine, people are -- OEMs and Tier 1s are -- OEMs, specifically are evaluating based on regulation, based on the feature they want to deliver to their customers. What are the different choices, right? And you just have to -- you have to go along the ride with them. So I know patience as investors is hard, right? But again, if you think about the value that's here, if it's a short-term gain up and down right in the market, no CEO, no company can do anything about that. We have to stay neutral. We give all the information that's pertinent to the market. But the ebbs and flow, I think are more market related. They're not lidar specific.

Thank you so much, Sumit, for joining us. This is very informative.

Thank you so much for your time. Nice meeting you.