The world edits a non-fiction writer’s choice of topics. I’d planned to write a rather dull arithmetic post that would answer some frequently asked questions about penny stocks and interest. Well, the world was more interested in delivering an excellent example of the hearsay I described on Wednesday. Microvision hit the news, well not the news, more like the buzz or the rumor circuit, and became swept up in the feverish chase after The Next Big Thing. Or maybe not.
For those new to the scene, Microvision (MVIS) is a small speculative company that finally launched a product. It is a pocket projector called the ShowWX, designed by people who wear pocket protectors who may be as bad at marketing as most engineers. The device is the size of an iPhone, but under the right lighting conditions, i.e. dark, the projector can create as large of an image as you want that is always in focus. The resolution is about the same as a DVD player which is why I am able to use mine to watch Netflix after the sun goes down. It doesn’t require bat-cave darkness, but the darker the room, the bigger the usable image can be. It uses lasers, similar to laser-pointers, so each dot can be bright and travel a long distance before diffusing. Some folks have replaced their big, noisy, home theater projectors with this little portable device because it is quiet.
Sounds great? Then why is the stock down below $2? It must be an excellent buy. Well, wait a bit. They use lasers, which is good for many reason, but if you notice, red lasers are very common. Blue lasers have just become common which is why blu-ray players are suddenly available. But green lasers, where are the green lasers? They need red, blue and green to make a color image. Despite Microvision designing equipment based on them, green lasers small enough for portable projectors have only been invented within the last few years. Early technology is expensive so the units Microvision sold early this year may have had a negative profit margin. Negative, as in losing money on every sale. Couple that with dodgy early technology (Mine’s an early unit and below average, so I have trouble reading subtitles. Rats.) and sales aren’t stellar, so revenues aren’t great, profits don’t exist, and the company has to sell bits of itself to stay alive. The company’s value gets hammered down.
Technology changes quickly though and they’ve actually reduced the size and such down to the point that the pocket projector, called a pico-projector (a term coined by Microvision), can fit into almost any device. Candidate number one is a cell phone. So, imagine carrying around a 100 inch projection monitor in your pocket or purse. If it fits there, it can fit in more places than any of us can imagine. Are you reading this on a screen? (If not, what did you do? Print it out? Or have the machine read it to you?) The screen could be replaced with a projector the size of a chocolate mint. It would be lighter, cheaper, and more versatile than most every computer screen today. It may not be bright enough or high enough resolution now, but the technology is improving quickly enough that they’ve already demonstrated the cell phone version, an HD version, and just released a version with a 50% increase in brightness.
It is the classic race of a startup, product progress racing with cash. For over ten years Microvision has been losing that race. Technical hurdles have been crossed but there are production, marketing, and operational hurdles ahead. Green lasers were rare, will become common, and will eventually become cheap. But a tiny company may not survive such challenges. Imagine again, and a lot of imagining goes on, which is ironic considering that Microvision is an imaging company, but imagine that someone like Apple would commit to using Microvision’s product. With such friends, great things can happen.
On Friday morning there was a research note that suggested that Apple would possibly use Microvision’s projector in the next iPhone or iPad. Investors heard “possibly would use” and shortened it to ” would use” and the stock climbed from $1.40 to $2.10 within 2.5 hours. MVIS climbed 50% based on the collective ability to skip one word in a short report. It probably would have gone higher because such news would transform Microvision from a startup into the range of billion dollar market caps. But the bubble popped. Another researcher pointed out the cause of the speculation and the price descended. MVIS ended the day up $0.13, about 9%. Millions of dollars were involved. Some firm probably made a million, in which case another firm may have lost a million. Individual investors like myself don’t get to see the personal implications, so I don’t know.
I’m glad to say that I wasn’t caught up by the mis-understanding. I’ve heard similar rumors for years, some with better substantiation. Honda, Nokia, DoD, Canon, BMW, have all been mentioned. Someday it will probably be true. Progress is being made. But I knew that before the mis-interpreted report.
Despite being based on misunderstanding, such hearsay has a value. What I learned was that this little sub-$2 stock represents a company that potentially has a great demand. The risks are high enough to keep the big money away, but the rewards are great enough to draw about eight times the normal trading traffic because of a rumor. That is a substantial underpinning. The major investors are ruthless and won’t save the company for the sake of a more eco-friendly product (a pico-projector uses far fewer resources than a big screen monitor), but they will be the energy that drives the stock up, which aids the company’s financing, which makes the financing easier, which constructively reinforces the company’s success.
Maybe Apple will be the first major company to incorporate Microvision’s components into their products. Apple patents frequently refer to Microvision’s technology. Intel has already expressed interest in a game controller. Some firm was almost ready to launch a high-end media player for Christmas, but postponed the launch into 2011. If any of those succeed soon, then Microvision, and probably MVIS, succeeds too.
That’s why I continue to hold the stock, despite over a decade of waiting. If, if, they succeed, they can disrupt the electronics industry in many positive ways. Fewer resources dug or burned. Less waste heading to the landfill. Less energy spent shipping around big mostly empty boxes packed with Styrofoam and plastic.
They have significant hurdles to cross. I want folks to be aware of that. The technology is disruptive and the stock is seductive. My purpose in this post isn’t to sell the company or the stock, but to show how selective we, and even the titans of finance can be when faced with such potential and delivered with such a message. It is easy to hear what we want to hear, in stocks and in life.
And if you’ve ever wondered why I say that my favorite spectator sport is the stock market, imagine the dramas I got to watch and witness as the stock climbed. You see, the rumor may have been right.