Shares outstanding: 21.02 million
Price on date of publication: $5.06
Market cap: $ 106.36 million
Insider ownership: 29%
Float: 12.45 million
Institutional ownership: 4%
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Goldman Sachs research believes that augmented reality (AR) and virtual reality (VR) have potential to become the next big computing platform and that AR/VR will become an $80 billion industry by 2025. Forrester research estimates that enterprise customers will adopt 400,000 smart glasses in 2016 alone. In 2015 the industry witnessed smart glass pilot program across a production line, but over the second half of 2016 commercial rollouts will expand and encompass an entire factory. Google brought the hype to the industry in 2014 with the introduction of Google Glass, but one company’s smart glasses have outperformed Google Glass time in and time again in the enterprise field where it matters most.
The company that outperformed Google Glass in the enterprise field with its first generation augmented reality smart glasses was Vuzix (VUZI). Vuzix has sold thousands of smart glasses to enterprise customers over the past few years and the company is planning a commercial rollout of its next generation smart glasses this summer. Vuzix’s second generation smart glasses (M300) were developed based on the feedback from thousands of users. The M300 smart glasses will continue to expand the performance gap between Vuzix’s smart glasses and the competition within the enterprise marketplace.
Market Overview: Enterprise Adoption of Augmented Reality Smart Glasses Will Be Massive
- “Over 14 million US workers will use smart glasses by 2025” – Forrester
- “8 % of all US workers will use smart glasses in their jobs by 2025” – Forrester
- “Augmented reality is expected to generate $80 billion in revenue (excluding hardware) by 2020 and become the backbone of immersive journalism where readers can experience a story and be part of it.” – Manatt Digital Media
- “Enterprises will spend over $30 billion on smart glasses hardware through 2025” – Forrester
- “You’ll start seeing them (smart glasses) used on a much larger scale than they were in 2015: Moving from one line to the whole factory, or from one factory to the whole bullpen of factories that support a process” – APX Labs via Washington Post
Forrester estimates that enterprise customers will adopt 400,000 smart glasses in 2016, with the total adoption of smart glasses expected to reach 14.4 million by 2025. The 2025 estimate assumes that 8% of US workers will wear smart glasses as part of their jobs. New smart glass device unit sales are expected to make up a majority of unit sales through 2021 until sales of replacement units eclipse new units.
Forrester identified 264 jobs in the US that are most likely to benefit from smart glasses including the most jobs such as technician, repairer, operator and nurses. Other jobs that are less common that made the list include museum curators and surgeons. GE’s aviation engineers use APX Labs’ skylight software and smart glasses to power real-time, first person collaboration. General maintenance and repair workers are expected to adopt a large number of smart glasses.
Forrester interviewed 13 vendor and user companies to compile its most recent report on enterprise smart glasses. Vuzix works closely with more than half of the companies referenced in Forrester’s industry report including Intel, Boeing, General Electric, APX Labs, Atheer, Kopin and Salesforce.
Boeing, Airbus and General Electric are early users of smart glasses and have active smart glass pilot programs with Vuzix. General Electric is expected to do a large commercial rollout of smart glasses in 2016 based on commentary provided by APX Labs in a November 2015 interview with Tech Crunch.
Vuzix partners with key software developers including APX Labs, Atheer and Salesforce, which are developing software to support the deployment of enterprise smart glasses. These key relationships are yet another key confirmation why Vuzix is a leader amongst leaders in the augmented marketplace.
In addition to the companies named in the Forrester report Vuzix has partnerships with SAP, Lenovo, XOeye, Pristine Labs, AMA, NTT Data, HP, IBM, Augmate, Sony, AirWatch as well as several other around the globe. Vuzix is also working closely with key smart glass integration partners including Accenture, who specializes in effective implementation of large-scale mobile technology deployments for clients such as Airbus.
Vuzix Corporation (VUZI) is an award winning, leading developer and supplier of smart glasses and video eyewear products in the consumer, enterprise and industrial markets. The company has won 20 Consumer Electronics Show Innovations awards and holds over 40 patents and 23 additional patents pending along with numerous IP licenses in the Video Eyewear field.
The major shareholders of Vuzix are the founding management team and Intel Corporation, which collectively own approximately 40% of Vuzix Corporation. Intel Corporation invested $24.8 million in Vuzix in January 2015 and owns 24% of the company. Founded in 1997, Vuzix is a NASDAQ listed company with offices in Rochester, NY, Oxford, UK and Tokyo, Japan.
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Shares outstanding: 21.02 million
Recent price: $5.06
Market cap: $ 106.36 million
Insider ownership: 29%
Float: 12.45 million
Institutional ownership: 4%
The Next Big Thing: Augmented Reality
Augmented reality is often times referred to as mixed reality, superimposes information or images on top of the real world through glass or a display of a device. Virtual reality on the other hand provides a view of computer-generated scenes and is totally immersive. Augmented reality allows users to see what’s going on around us, whereas virtual reality users are restricted to a small area. This is one of the prime reasons why augmented reality will have a more immediate practical applications for business according to a BBC News interview with industry leaders published earlier this year.
Google’s Glass project brought an incredible amount of media attention to the smart glass industry and augmented reality. However, Google learned quickly that the company’s smart glass design was ill suited for consumers so the company decides to market the product to enterprise customers. Enterprise customers were excited to have a hardware offering that could improve efficiencies and drive up productivity in manufacturing, warehouses for order picking and receiving as well remotely supporting service technicians.
Unfortunately for Google the company’s experiment to serve enterprise customers with a consumer designed product resembled a square peg being jammed into a round hole. Google’s customers were left with a disappointing taste in their mouth and yearned for augmented reality hardware offering that could deliver on Google’s initial promises.
In January 2015 Google announced that the company ended the sale of Google Glass under its explorer program. Google’s smart glass product simply didn’t live up to expectations. The battery life was exceptionally short lived, the processor suffered from overheating due to inadequate tech specifications and to make matters worse the head worn device shorted out frequently from perspiration. Google Glass failed to deliver real-time video stream, which makes any attempt at remotely delivering field service advice nearly impossible.
Google cared about its enterprise customers and instead of bailing on those customers Google picked up the phone and called the leading augmented reality manufacturer in the marketplace. The industry leader that was on the other end of the phone call from Google was Vuzix, a company that was founded in 1997 in Rochester, NY that has been building a foundation in optics and wearable displays for nearly 20 years.
Vuzix introduced the M100 smart glasses in 2013, which were dubbed as the “first true competitor to Google Glass” by the Examiner. Enterprise customers learned just a few years later that Vuzix’s M100 smart glasses were not simply a competitor to Google Glass, but the augmented reality hardware device that Google itself would recommend to its customers.
Vuzix has sold thousands of M100 smart glasses across a variety of industries including warehousing, logistics, biopharma, oil & gas as well as telemedicine industries since 2013. Vuzix has worked with hundreds of companies that have evaluated the company’s smart glasses and provided critical feedback and user experiences. Vuzix listened to the feedback provided by the company’s vast and diverse customer base, which led to the design of the M300 smart glasses.
Vuzix’s M300 smart glasses will address critical and necessary feedback from customers that will increase the value proposition for enterprise customers. The ergonomic design of the M300 results in a sturdier, tougher and lighter device versus the first generation M100 smart glasses.
The M300 will feature a hot swappable battery that allows users to swap out an existing battery with a fully charged battery without skipping a beat. The M300 will be waterproof, which is critical for the HVAC and other industries that may encounter wet environments. Vuzix partnered with a leading US based Tier-1 contract manufacturer (Jabil Circuit) to produce the M300 smart glasses. The M300 will list for $1,499 or an increase of $500 over its predecessor the M100.
The M300 is set for commercial launch over the summer and industry researchers are expecting enterprise smart glass demand to hit full stride over the second half of 2016. Vuzix’s known customer list includes DHL, General Electric, Airbus, Boeing, Tesla, Daimler, Volkswagen, Bosch, Bechtle and many more. In total Vuzix has well over 100 customers including over 40 of the Fortune 100 companies.
A Close Look Into Vuzix’s Current Products and Pipeline
Vuzix M100 smart glasses for enterprise customers will soon be replaced by the M300, which is an all-around more impressive device in terms of design, functionality, features and component upgrades. The “M” in front of Vuzix products stands for monocular and any product that begins with a “B” is a binocular based product. The M300 will be the hit of the year for Vuzix beginning this summer, but the company’s current product offerings and pipeline does not end there.
iWear Video Headphones:
Vuzix currently generates limited revenue from sales of its iWear video headphones, which are immersive headphones best suited for gamers, drone owners, medical/dental facilities and other markets around the globe. The iWear video headphones sell for $499 and the iWear’s direct competitor is the Avegant Glyph. Vuzix encountered some manufacturing and supplier quality issues over Q4 2015 and the first half of 2016. However, over the next month the company is expecting to reach full production levels. The company recently launched an initiative with market leading companies such as GoPro to enhance iWear sales opportunities.
M3000 Smart Glasses
Vuzix is currently working on the company’s first waveguide based product for enterprise customers. The M3000 features all of the advantages of the M300, but utilizes the latest optics to deliver a 1.4mm thin see-through display that will enable more advanced AR applications. The M3000 is expected to begin shipping in the fall of 2016, shortly after the commercial launch of the M300.
VidWear B3000 Series Sunglasses
Vuzix is working on augmented reality sunglasses that resemble fashion-based sunglasses for enterprise customers and prosumers. The VidWear B3000 waveguide sunglasses blend fashion and technology and is expected to be one of the world’s first sunglasses with integrated video. The B3000 allows for full see-through capabilities in fashion glasses. The B3000 VidWear products are targeted for introduction into the marketplace sometime in 2017.
The AR3000 waveguide augmented reality sunglasses will be Vuzix’s first binocular augmented reality smart glasses viewer. These sunglasses are expected to feature two HD cameras with one for gesture support. The wearer will be able to reach out and manipulate 3-D objects overlaid in the real world. The AR3000 is being developed to provided advanced operator support for enterprise, industrial and medical uses.
Waveguides and Display Engines
Vuzix holds over 40 patents and 23 additional patents pending along with numerous IP licenses in the Video Eyewear field. Vuzix has developed waveguide displays that use complex displays engines to enable image and video viewing through a microscopic display. Vuzix is now producing display engines at the diameter of a large pencil with optical displays that are as thin as reading glasses.
During the FY 15 Q4 conference call Vuzix indicated that the company is actively sharing the company’s new waveguides and display engines with the public. The display engines are mini projectors built into the wearable displays that beam an image into the waveguide displays for users to view. Vuzix generated over $200,000 of revenue from waveguide sales to Intel in Q3.
The Tier-1 customers that Vuzix is working with are believed to be on par with the likes of Apple, Samsung and LG, which are all actively pursuing, augmented reality smart glasses for the consumer marketplace. Other PC OEM manufacturers including HP and Dell are anticipated to enter the consumer augmented reality marketplace as well.
The augmented reality arms race occurring behind closed doors to introduce consumer centric smart glasses is in full swing. The arrival of the first generation of smart glasses for consumers will hit the market within the next 6 to 18 months and Vuzix is well positioned to be a key player within the consumer smart glass marketplace.
Why Intel Corporation Invested $24.8m in Vuzix
In January 2015 Intel Corporation invested $24.8m (30% stake that currently sits at 24%) in Vuzix to advance Vuzix’s waveguides for fashion based wearable display products for the consumer marketplace. Intel’s investment provided Vuzix with the financial resources to build a 30,000 square foot manufacturing facility to manufacture waveguides for the company’s next-generation wearable display products as well as the company’s strategic partners.
Intel has been providing silicon expertise for Vuzix behind closed doors for Vuzix’s next generation augmented reality smart glasses. Intel and Vuzix are also working together on a secret augmented reality project led by Intel. In December 2014, Intel partnered with Luxottica, the owner of Oakley fashion sunglasses on a collaborative research project to bring fashionable smart glasses to consumers.
The Wall Street Journal reported in March 2016 that Intel was developing an augmented reality wearable headset. According to the Wall Street Journal Intel’s augmented reality wearable headset is a reference design that will ultimately end up white labeled and sold through a leading OEM.
According to a recent SEC filing Vuzix has supplied Intel (a related party) with over $200,000 worth of waveguides that are believed to be inside of Intel’s augmented reality smart glasses reference. Vuzix’s waveguides are super thin (1.4mm thick), high quality, relatively inexpensive compared to competitive offerings and ideally positioned for fashion based consumer smart glasses.
Intel has acquired a handful of augmented reality companies and technologies over the past two years. Intel’s acquisitions and investments in augmented reality exceed $500m and are closing in on $1 billion. Intel typically collaborates with a company and acquires them or makes and initial investment and acquires the company within a 24-month period. Intel’s initial $24.8 million investment in Vuzix occurred 16 months ago, which makes Vuzix a potential takeover target within the next 6 to 12 months.
Paul J. Travers, CEO, President and Director (Holds 2.55 million shares or 12.1% of shares outstanding)
Paul J. Travers was the founder of Vuzix and has served as the President and Chief Executive Officer since 1997 and as a member of the board of directors since November 1997. Prior to the formation of Vuzix, Mr. Travers founded both e-Tek Labs, Inc. and Forte Technologies Inc. He has been a driving force behind the development of our products for the consumer market. With more than 25 years of experience in the consumer electronics field, and 15 years of experience in the virtual reality and virtual display fields, he is a nationally recognized industry expert. He holds an Associate degree in engineering science from Canton, ATC and a Bachelor of Science degree in electrical and computer engineering from Clarkson University.
Grant Russell, CFO, Executive Vice President, Treasurer and Director (Holds 0.9 milion shares or 4.2% of shares outstanding)
Grant Russell has served as the Chief Financial Officer since 2000 and as a member of the board of directors since April 2009. From 1997 to 2004, Mr. Russell developed and subsequently sold a successful software firm and a new concept computer store and cyber café. In 1984, he co-founded Advanced Gravis Computer (Gravis), which, under his leadership as President, grew to become the world’s largest PC and Macintosh joystick manufacturer with sales of $44,000,000 worldwide and 220 employees. Gravis was listed on NASDAQ and the Toronto Stock Exchange. In September 1996, Gravis was acquired by a US-based Fortune 100 company in a successful public tender offer. Mr. Russell holds a Bachelor of Commerce degree in Finance from the University of British Columbia and is both a US Certified Public Accountant and a Canadian Chartered Accountant.
Intel Corporation investing $24.8 million in January 2015 and currently owns 24% of Vuzix Corporation. Intel has an option to secure two Vuzix corporate board seats and also has the right of first refusal to match any strategic investment made by another company in Vuzix.
Vuzix is current covered by two sell-side analysts Chardan and H.C. Wainright with an average rating of buy and a price target of $10.00. Both sell-side analysts expect revenue FY17 revenue to double compared to FY16 due to new product rollouts commencing in FY16.
Chardan maintains a buy recommendation for Vuzix and a $10.00 per share price target. Chardan’s price target is based on 10-12 times Q4 2017 revenue run rate of $19 million.
H.C. Wainright maintains a buy recommendation for Vuzix and a $10.00 per share price target. H.C. Wainright’s price target was based on a DCF analysis to arrive at a $10.00 price target.
Why We Are Watching Vuzix Closely
Vuzix is well positioned for a major uptick in business activity in the second half of 2016 driven by the commercial launch of the M300 smart glasses. Vuzix is working closely with Intel on a secret project focused on consumer fashion based smart glasses that provides additional upside for investors. Vuzix’s product pipeline is market leading and extensive, which positions the company for rapid market penetration and growth for years to come. Vuzix (VUZI) shares are trading at an incredible discount to fair value and now might be a good time to take a closer look at Vuzix, a market leader that has all the markings of being The Next Big Thing in Augmented Reality.
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Disclosure: Receipt of $10,000 from an unrelated third party