Author: Derrick Zierler - First published: January 1, 2019

• ​​Multiple catalysts favour one AR/VR/Hearables Pure Play this year.​
  
• Large technology companies will be racing to acquire AR, VR, and Hearables IP in 2019.
  
• A large valuation gap exists between Kopin's market cap and my opinion of the intrinsic value of the company.

As we crest the wave that is 2018 and look forward to a New Year, I thought it would be a good time to preview 2019 from the perspective of an investor looking for signals that the AR and VR markets are about to deliver the growth rates we have all been awaiting for some time. 

If you have read any of my work here or on my website, you will know I feel strongly that Kopin (KOPN) represents the best way to play the emerging Wearables, AR & VR markets. The very markets most analysts project will grow rapidly over the next five years. 

To be honest, I had hoped we would have seen that growth kick in much earlier - with the introduction of Google Glass for example - but, that has not been the case. Furthermore, Kopin has traded down from my longstanding Price Target of $4.50/share that it did actually reach in September 2017. I’ll offer more thoughts on Kopin’s current share price at the end of this article.

But first, on to some exciting events CEO John Fan may have in store for Kopin shareholders in 2019!

My Top Ten AR/VR Predictions For 2019

#1 - Google Glass Finally Sees Success
Google (GOOGL) will surprise everyone with a highly visible and material launch for the latest version of Glass. It is my opinion that Google has chosen Kopin display modules for Glass Enterprise Edition V2 as they did for V1. I also expect that this version will be quickly adopted for light commercial and medical use cases and ship in excess of 50K units in 2019. Shipping in that kind of volume would make Glass a leading Enterprise AR device and cement Kopin’s already dominant market share position.

#2 - SOLOS AR Smart Glasses Level Up
SOLOS is using grass roots marketing today. I believe SOLOS shipped fewer than 2,000 units in 2018 as it focused on penetrating the Pro athlete market via USA Cycling and Iron Man sponsorships and a $499 MSRP. In 2019, I see SOLOS reducing the MSRP to $299 or $349 and adding additional wearables device compatibility to target serious runners, cyclists, and other athletes. These moves will generate annual shipments of 10,000 units making it the highest volume Consumer smart glass device to ship in 2019. As a result of this success, the SOLOS division of Kopin evolves into a spin-off or will partner with one or more major athletic brands in late 2019 or 2020.

#3 - Golden-i Infinity Launch Triggers Mass Enterprise AR Adoption
The new Kopin Golden-i Infinity Smart Screen will seemingly come out of nowhere and achieve the shortest AR launch-to-sales cycle yet. With an aggressive MSRP of $899 and the addition of large channel partners & VARs, the launch of this headset will trigger mass AR deployments of simple yet effective 100% Hands-Free AR devices for mobile workers of all types. I expect channel partners to include Verizon, Panasonic, and Toshiba, along with multiple mid-size VARs with global reach. The combination of low price point/instant ROI, superior voice UI, industry leading comfort/usability, and a large sales network will bring strong unit demand by Q4 2019. Goldeni-i will likely ship in excess of 20K units its inaugural year.


#4 - Whisper Chip Enables Audio AR
Wireless earbuds and ubiquitous use of voice user interfaces will converge in 2019 to create mobile Audio AR segment and Kopin’s Whisper IP will become the industry standard solution to ensuring a flawless voice user experience in noisy (everyday) environments.

 This is the market opportunity Kopin built Whisper to address and it means billions of Whisper chips will eventually be sold.

The following design wins in 2019 will validate Whisper’s unique advantages:

• Apple (AAPL) AirPods V2 are revealed (finally!) and include always-on Siri Powered By Kopin Whisper speech enhancement IP.
  
• True Wireless Stereo Audio AR device makers including Google, Amazon (AMZN), and everyone else suddenly realize just how important a flawless voice UI in noisy (everyday) environments is for mobile users. As a result, every device maker starts to design-in Kopin Whisper IP as “insurance” inside all devices with a Voice UI to ensure flawless voice recognition in all environments.
  

#5 - Waveguides Start To Look Promising
Industry activity to scale up waveguide production for optical see-through AR is underway involving a number of large technology firms. In 2017, Goertek took a 10% stake in Kopin to access micro display and speech enhancement technology. In 2018, Goertek took an equity position in WaveOptics to access waveguide optical see-through AR technology. Goertek is one of the largest Original Design Manufacturers for AR, VR, and Hearables. I believe that at CES in January, or early in 2019, Goertek will reveal waveguide-based prototype smart glasses incorporating WaveOptics optics with Kopin microdisplays as light engines.


#6 - Enterprise Drives Real VR Growth and New Headsets
At CES in January, Kopin will host a panel including senior executives from Qualcomm (QCOM) and HTC Vive. They will highlight the opportunities for VR in the Enterprise space. NOT the Consumer space. As with AR, VR is pivoting to Enterprise, training, and simulation. What could very well happen at CES, or early in 2019, is that Kopin, Qualcomm, HTC, and Goertek announce a new Mobile VR headset for Enterprise use cases. This device will be powered by Qualcomm SnapDragon, Kopin Lightning OLED displays, and be based on Elf V2 to be built by ODM partner Goertek for HTC.


#7 - Oculus Transitions To Micro Displays For Mobile VR
Facebook’s (FB) VR division, Oculus, will show a new device in late 2019 based on Kopin Lightning OLED micro displays combined with Kopin Pancake optics becoming one of the first customers of the new Kopin/BOE fab in 2020.


#8 - One Key Acquisition Will Validate The AR Gold Rush
Early Enterprise AR pioneer RealWear has been growing faster than anyone in the space and proving that Hands-Free Monocular AR delivers instant ROI in Enterprise. This company has a large early lead in Enterprise AR, a world-class development and management team, and the key components solution providers need to enter the massive enterprise AR space. We see RealWear as an acquisition target. Potential suitors include Honeywell (HON), IBM (IBM), or Asian IT integrators. The acquisition value will be in excess of $500M. Note that Kopin maintains an equity position in RealWear - likely between 10% and 15%.


#9 - Himax Loses Another Display Socket To Kopin
Following the example of Google Glass in 2015, another key AR manufacturer transitions from Himax (HIMX) Reflective LCOS to Kopin’s Transmissive AMLCD for improved brightness and reduced power consumption. That AR manufacturer is Microsoft and the device is HoloLens V2. This would require Microsoft modifying the HoloLens optical architecture for HoloLens V2 to accommodate ultra-bright Kopin Brillian Transmissive LCD micro displays … and in this patent it appears they've done just that.


#10 - True Value Of Kopin Finally Recognized By Wall Street
Kopin becomes an acquisition target in 2019. The acquisition value will be between $15 to $20 per share. Suitors to include: Google, Qualcomm (QCOM), Microsoft (MSFT), SoftBank, and Skyworks (SWKS). As the AR, VR, and Voice UI races heat up, IP becomes ever more important. Kopin’s treasure trove of over 300 wearables AR/VR/Voice patents, coveted customer list, multiple revenue generating IP licensing arrangements, and valuable joint ventures globally become targets for large technology companies looking for an acquisition that puts them in a leadership position for the emerging Augmented Reality, Virtual Reality and Wearables markets.

One Tech Titan stands out in particular as a favoured suitor for Kopin: Google. Kopin's IP and existing product lines are perfect enablers for:

• Growth of existing and future Augmented Reality business starting with Glass
  
• Future Virtual Reality business based on OLED micro displays and reference hardware
  
• ​Further proliferation of Android and ARCore in a mobile headworn AR/VR enabled world
  
• Beyond incredible smart speaker growth, the explosion of hands-free Voice User Interfaces in the mobile space

​I believe Kopin is a perfect fit for Google and one path to acquisition sees Google acquiring an equity stake in the first half of 2019 for around $5.00/share and a follow-on transaction to complete the acquisition for remaining shares in the $20/share price range using Google stock or a mix of cash and stock.


Comments On Kopin Intrinsic Value Vs. The Current Share Price
I have consistently maintained a share price for Kopin of $4.50/share based on cash and IP (patents) alone. Using a common VC “rule of thumb” that a current, valid, revenue producing patent can command ~$1M in valuation, consider the following for Kopin’s current asset position as of Q3 2018 10-Q:

Cash:                     $46M
Patents (~300):    $300M
Total:                    $346M

Kopin’s current Market Cap is $84.3M or $1.10/share as of market close 12/28/2018.

With no debt and the intrinsic value of cash and IP, Kopin should still command a valuation of ~$4.70/share. We can approach it a different way and value each business segment (sum of parts: SOLOS, Golden-i, Display, Whisper, Military) but we will still arrive at a value close to $5.00/share.

I cannot explain the massive discount to intrinsic value with the share price at $1.10/share today. In general, I believe investors are taking a risk averse posture and Kopin has been swept up in this sentiment. Also, AR and VR markets have taken longer to mature than expected. Finally, the current US/China trade war is having a negative impact on Kopin market cap as a result of tariffs. 

There are risks that none of these predictions for Kopin come to fruition in 2019, or ever. But, each of these potential future events has been deduced using publicly available information, industry knowledge, and announcements by Kopin or its partners. At a minimum, there are multiple catalysts for Kopin in 2019 that could trigger a rapid share price move to the upside.

I continue to add below $4.50/share as I believe that is the intrinsic value of this company based on cash and IP. The current share price of $1.10 represents incredible value to own a piece of a unique AR, VR, Hearables Pure Play at this early stage of the growth cycle.

Final note: I have compiled the aforementioned 2019 events based solely on publicly available information.

Disclosure: I am long KOPN.