PoLight ASA - to the global top with piezolenses

[In_Der_Esche]

This is a Norwegian company founded in 2005 and listed on the Oslo Stock Exchange in 2018, which develops and manufactures bendable thin lenses based on the piezoelectric effect for industrial, medical, and consumer electronics needs. Those seeking a more detailed technical description can find it here.

Market capitalization approx. 60 million euros. (Note, I am converting Norwegian kroner to euros for clarity, using the formula 1 EUR = 10 NOK.)

PoLight appeared on my radar from an interview with Juha Alakarhu, known from Nokia’s former camera unit. He currently serves on the company’s board (albeit without share ownership). Tampere is home to one of the company’s offices, and some former Nokia/Microsoft “camera gurus” have been hired there.

Products and Product Development

Why should one be interested in the company? The “piezoelectric lens” has advantages over traditional lens solutions: power consumption and space requirements are smaller, and the focus delay caused by the “pumping effect” of the motor moving the lens is absent, as the lens is bent to the desired position with electric current.

PoLight uses the name TLens for its product. The image below details the different product versions (source: IPO material), of which the Silver and Silver Premium versions are on the market.

The most advanced version, Platinum, which produces the best image quality, is currently on hold as the company cuts its development costs. In the IPO material, the Platinum version was described as being ready this year. The differences between the products relate to, among other things, the required space, image quality, and thus naturally the final price of the element. (Source: IPO prospectus, section “Products” and annual report 2019)

The product’s cash-burning development phase is still ongoing. Freezing the Platinum product version for now reduced R&D costs, but at the same time, it excludes PoLight from high-quality rear cameras that bring better margins, to which consumers are already accustomed in their mobile phones.

According to the company, development and commercialization will continue once current products have established their place in the market. A small reservation must be made that this may never happen.

Use Cases

The number of potential use cases for PoLight’s technology is large, but the company sees AR (Augmented Reality) glasses as the most significant opportunity. Since the entire market is nascent, there is no need to displace previously proven technology and win markets from others.

\u003e ”This includes consumer market devices, such as smartphones, wearables and augmented reality, as well as a wide range of industrial applications, such as barcode readers and machine vision/sensor application…TLens is currently being considered for use in next generation augmented reality (AR) glasses by several market participants. While the AR market is still at an early stage, with low volumes, it could potentially be the next ‘big thing’ in the consumer mass market after the smartphone. ” (Source: 2020/Q2 report)

A “design win” is an important milestone for the company, where a proof of concept demo materializes into product and TLens orders. TLens is currently used in two children’s smartwatches (Chinese market, as a front camera and a shooting camera) and the first industrial product using the lens is a handheld scanner, which will be launched by an OEM manufacturer during the autumn.

In addition, in the Chinese market, the product has already ended up in a Xiaomi mobile phone, as a front camera, as I understand it. Potentially, a mobile phone could have several TLens lenses, but as mentioned, without a high-quality rear camera enabled by the Platinum version and further software development, there is no access to higher-priced devices.

Note: A month ago, a press release was published stating that development of a Platinum-type TLens would resume with the support of an unnamed camera module supplier, but this was only an MoU-type preliminary commitment.

Financials

(Images from 2020/Q2 presentation.)

In 2019, the company incurred a loss of approximately 8 million euros, and cash flow was approximately -5.4 million euros. The company arranged an offering in the summer (5 million euros), with which it secured its financing until 2022, according to its own words.

For 2020/Q2, the cash burn rate has slowed down, thanks to personnel (read: R&D) cuts compared to the previous year. After Q2, the company has approximately 9 million euros in cash, so the company’s estimate of cash sufficiency until 2022 is realistic.

According to the company, the “pure” product development phase is ending, so the cash burn rate will slow down and revenue growth will begin. On the other hand, customer projects and production support activities require resources and increasingly tie up capital. PoLight uses a subcontractor for product manufacturing. In my understanding, scaling up capacity is not an issue.

The first Proof of concept projects are now converting into orders, although we are not yet talking about large sums. In 2019, the company’s total sales were only 300,000 euros, consisting not only of lenses but also of development kits and ASIC driver chips controlling the lens.

The company does not provide euro-denominated guidance for the current year. No delivery volume target for this or the coming year has been published either. So far, the company is ahead of last year’s revenue, so revenue growth compared to last year is possible. It does not appear to be a major growth leap.

In the long term, the company believes it will be profitable if it becomes the chosen solution in smartphones and barcode readers (Source: IPO material). The breakeven point has not been described in more detail than this. Unofficial online sources estimate the selling price of a TLens unit at 2-3 USD, but this is not the company’s own factual information and should therefore be taken as an approximation.

\u003e If the Company is able to achieve design-wins within both the smartphone and barcode segment, the Company expects to become profitable. If it is successful in reaching all of the milestones listed above, it has an ambition of reaching annual revenues of USD 150 million at a targeted EBIT-margin in the midtwenties. (Source: IPO prospectus, EBIT margin not disclosed.)

Currently, achieving the original revenue target would require revenue to approximately double every year.

Strategy, its Implementation, and Risks

In its strategy, the company has first sought to gain a foothold in the barcode reader and mobile phone/smartwatch markets. So far, the strategy has been implemented as planned, although achieving design wins has taken slightly longer than initially estimated.

Barcode readers have a relatively long “shelf life” compared to consumer electronics (several years vs. one year). Therefore, more significant than individual design wins in the mobile phone/wearables sector would be repeat orders from the same players. This would signify a genuine breakthrough into lucrative markets and continuous cash flow.

“Selling” a new solution to various market players is a challenging task and can take longer than initially imagined, especially in established markets, despite TLens’ obvious advantages. According to the company, COVID has already affected the launch of smartphone PoC projects and slowed progress. This should be kept in mind when drawing rosy growth curves.

In the Q2 quarter, the project situation is described in the image below: the number in parentheses describes the situation in the previous quarter. The concentration of numbers on the right side of the image excellently demonstrates how early the product’s commercialization phase is!

There is a decrease in the “Planning PoC” column compared to the previous quarter, and I believe this is explained by delays caused by the COVID shock. Although the size and significance of each PoC project for the company are not equal, the “Planning/Ongoing PoC” columns are one indicator of the realization of TLens’ potential.

Despite delays, the pace of progress and the future across all different segments were described as good in management’s speeches in the Q2/2020 presentation material.

Market focus on

• securing the first design-win for barcode
• position poLight for the first AR case
• follow-up orders/new design-win for smartwatch cases and bring poLight existing products, and longer-term potential new products, into the smartphone market

Expect good progress on all the above activities the next twelve months

Expectations have been set high for the next 12 months!

Verdict

The stock price, like other small tech stocks, has surged ahead, and the current price level (~65 NOK) is not cheap, even though the recent price drop - thanks to sales by the seed fund (Viking Fund III) - has unwound the worst overshoot. It is illustrative how about a month ago, a single “letter of intent”-type news caused the stock price to rocket 25% to around 100 kroner.

On the other side of the scale weighs the realization of potential: a breakthrough in barcode scanners would secure cash flow and reduce the risk of a new share issue diluting owners. Design wins related to AR glasses would be a significant factor in terms of market value, even if the impact on revenue would be minor.

Disclaimer

Today I opened a Polight position at a price of 62.5 NOK. I am adding the article towards the weekend, after Oslo closed recently, so that there is no impression of “pump and dump” and interested parties have time to calmly familiarize themselves with the writing. The Q3 results will be published next week.

[In_Der_Esche]

Rereading my opening post, I realized I failed to explain why the company is at least worth following. What is the company’s “moat” against competition?

1. Patent portfolio and development work

Polight has comprehensively protected the results of its research work. A link to the patents is provided below. While the number of patents does not guarantee success - more information can be requested from Nokia - it is a strong backrest against copycats.

Patents - poLight

2. Approaching commercial breakthrough

In early spring, smartwatches equipped with TLens lenses entered the market, and in September, the launch of the first barcode scanner was confirmed. These are important milestones. A mere product development company would not be an interesting investment target.

With the sale of devkits, Polight’s technology is being tested in various applications, and TLens is named in Microsoft’s HoloLens team’s patent applications. These are by no means a guarantee of a corresponding product ending up in production. But they are some indication of the product’s competitiveness.

An “if-investment” thesis is inherently weak - faith, hope, and love may work in an altar speech - but let’s allow it in the analysis of a tech company, because I believe the breakthrough will happen like a cockroach infestation. First one, and then suddenly many. Now we are at a stage where “something” that looks like a cockroach is found in the corner. If more TLens orders are heard in the next six months (my own scenario), it will be a big positive signal.

In the next 12 months, we will learn a lot about whether there will be more discoveries, or whether we will just spin our wheels burning cash.

3. Versatility

I mentioned in the opening text that one should not expect miracles regarding mobile phone rear cameras. Or rather, I do not expect them myself. That is a drawback, because mobile phones are an obvious volume product, but the lens has obvious advantages that expand its applications. In logistics, fast focusing brings concrete savings in reading times. In multi-camera systems, the motor-free design eliminates magnetic interference.

In other words, we are not relying on a single card. Of course, it is possible that a liquid lens or some other technology will come along and take the pot. In any case, my investment thesis is that the technological path should be clear. The rest is “only” up to commercial success - if such dry sarcasm is allowed.

Concluding remarks

I cannot calculate a target price for the company. In my own assessment, a suitable purchase price was the price of the share issue in the spring, 55 NOK; the IPO price two years ago was 50 NOK. Compared to these, the share price has not yet soared to the skies, but by traditional metrics, the valuation is high; that cannot be denied.

[In_Der_Esche]

The Q3 a little over a week ago offered no surprises in terms of results. The tax authority’s VAT adjustment gave the result a one-time boost. Other numbers are secondary, and I won’t go into them in detail, as cash will be consumed for several more quarters. The most interesting part was the outlook for the next year.

According to the CEO, the first design win related to AR glasses could potentially come at the end of the year, and product delivery would potentially begin in the second half of 2021. For the rest of the year, a few other design wins were implied, likely industrial scanners, one manufacturer’s product of which was already on the market earlier, and from whom a new NOK 750,000 lens order came after the quarterly report (the name was not disclosed, according to forum sherlocks, it’s Honeywell). The order sum is small due to the low volume of the device; the most important thing is the signal of Tlens’ capability provided by recurring purchases.

Demand for children’s smartwatches remained weak in China, so no repeat orders have been received from there. The reason given was the impact of the coronavirus on segment demand. The model cycle is rapid, so we await to see if orders come for new products.

Regarding mobile phones, the interesting aspect was a new camera project from an unnamed mobile phone manufacturer, which would combine Tlens with a camera apparently placed under the display (a hybrid?). The obvious benefit is the freeing up of the front surface for screen use. Technically, the project was called challenging, so deliveries are spoken of earliest in 2022, but the mobile phone manufacturer is also investing its own development resources into this. After a breakthrough, potential delivery volumes would be on a completely different scale than what Polight has delivered so far – several millions versus the current tens of thousands.

Another project related to mobile phone cameras was announced in September. Development work for a larger aperture Tlens (for the rear camera) was resumed with funding from a mobile phone manufacturer (unnamed), and at the same time, NOK 1.3 million in purchases were announced.

If the purchase is recorded for the current year and the expected design wins for the end of the year materialize, Polight will, in my opinion, double its sales from a year ago to close to NOK 6 million. In percentages, impressive, but still small sums. For comparison, with rough math, revenue should be NOK 40-50 million for breakeven, which would mean approx. 1-1.5 million Tlens deliveries annually.

[In_Der_Esche]

@Mikidi

In this case, how does the VAT adjustment boost the result? Or do you mean that the company’s cash flow strengthened as a result of the adjustment?

That’s a valid question, and I’ll start by saying that the term “VAT adjustment” might be an understatement when it comes to such a large sum for Polight. I dismissed it as a one-off with a brief comment. Well, first some background.

The Norwegian tax authority had interpreted Polight as “merely” a product development company, incapable of ever achieving profitable results (since about 2013), and therefore the company had been denied VAT registration and had to pay VAT without being able to deduct it themselves. A legal battle ensued, which Polight expects to win, and to get back at least a large part of the excess taxes it paid. These were recorded in the past quarter.

Edited: The final decision has not yet been made – I misinterpreted that Polight had already won the legal battle.

Back to today. In the Q3 report presentation material (an excerpt of which is below), the credit to be received is recorded in the Income Statement section, specifically under Administrative Expenses, which is exceptionally positive instead of the usual negative (2020 vs. 2019). So, the entry is income-affecting in Polight’s calculation.

poLight expects to receive retrospective VAT settlements backdated to 1 July 2017. The monetary
effect is estimated to be NOK 8.2 million and is recognised in the third quarter this year.
If the company’s appeal case is successful, the monetary outcome is estimated to be NOK 11.9 million after deduction of the retrospective VAT settlements.

So the VAT money is not yet in the bank. I’ll raise my hands in surrender regarding further interpretations. I am relying on the press releases read (share issuance materials, quarterly reports, annual reports).

The entire Q3 presentation below:
https://s22.q4cdn.com/177975322/files/doc_financials/2020/q3/poLight-Q3-2020-presentation.pdf

[In_Der_Esche]

Let’s take a mid-year look before the year changes. Like almost all technology-related stock prices, Polight’s share price has also risen without specific news by about 40% since the beginning of the chain. Ho-hum, one could say in the current situation. Business as usual. The rise surprised me, so Uncle will explain a little.

One of Polight’s first financiers, the Viking Fund III fund, has, as expected, begun unwinding its position. In three months, the fund has sold a million shares, and its ownership stake decreased from 15+ percent to less than five. Not a Mickey Mouse position, then.

My plan was to wait for the share price to dip towards the end of the year due to the unwinding of the position (as in the case of Kamux back then), while design wins were delayed due to the second wave of COVID. Both of my assumptions were fully realized, but market sentiment seemed to overrun cold logic almost 100-0, and the market absorbed the shares without a significant dip. So much for that special situation.

[In_Der_Esche]

Q4 review is behind us. Full-year revenue remained at the same modest level (3 million NOK) compared to the previous year, but better visibility can be said to be already in sight.

The texts and images below are from the Q4 presentation, unless otherwise stated:
https://s22.q4cdn.com/177975322/files/doc_financials/2020/q4/poLight-Q4-2020-presentation.pdf

Highlights

• The inclusion of TLens in Honeywell’s scanner engine was confirmed, and work with other scanner manufacturers continues → regular base load for deliveries → cash flow
• For mobile phones, the application of TLens as a selfie camera has advanced by leaps and bounds - “This concept has the potential to become the mainstream solution for selfie cameras”. Rumors suggest the camera could end up in Xiaomi’s more expensive models.
• For AR glasses, work continues → “Within reach to be included in an AR product to be released towards the end of 2021 (or later), depending on ongoing design work and successful testing”

Polight is currently recruiting mobile phone camera experts in Tampere (source: Polight’s Careers page), so there seems to be demand for this application. The increase in the “Ongoing PoC” figure in the consumer section of the project pipeline likely indicates an increase in the number of mobile phone/AR projects.

Near-term outlook supports the view of strong revenue growth and probable design wins. Securing the supply chain indicates preparation for managing larger order volumes than before.

On the negative side, the low sales of smartwatches for children (e.g., Xiaomi) mean that no additional/repeat orders have been received from there. The need for additional financing has been raised as operations expand - if I guess correctly, a share issue will be seen in May-June, and it could temporarily push the share price down.

I’m holding the shares with mostly positive thoughts. The share price rose to ATH figures (at least in recent years). Well, so have many other shares. In this case, the realistic potential is genuinely much further out.

[In_Der_Esche]

@In_Der_Esche

Regarding cell phones, the application of Tlens as a selfie camera has advanced by leaps and bounds - “This concept has the potential to become the mainstream solution for selfie cameras”. Rumors say the camera would end up in Xiaomi’s more expensive models.

Yesterday, we got pretty direct confirmation of Tlens ending up in a 1-tier phone manufacturer’s products, when OnePlus announced its camera partnership with Hasselblad. According to OnePlus’s own press release, Tlens technology is being incorporated into the 9-series phones to be unveiled later this month.

Pioneering new areas of smartphone imaging technology for future OnePlus camera systems, such as a panoramic camera with a 140-degree field of view, T-lens technology for lightning-fast focus in the front-facing camera, and a freeform lens – to be first introduced on the OnePlus 9 Series – that practically eliminates edge distortion in ultra-wide photos.

OnePlus and Hasselblad enter long-term partnership to co-develop next...

It goes without saying that an approved stamp from a player like OnePlus is a big step towards strong revenue growth and similar announcements from other manufacturers. If Polight’s technology fulfills its purpose and the technology ports from high-end models to lower price ranges, the growth curve will be considerable.

Heja Norge!

[In_Der_Esche]

@In_Der_Esche

it’s probably industrial scanners, one manufacturer’s product of which already hit the market earlier and from whom, after the earnings report, came a new 750,000 NOK lens order (name not disclosed, according to forum sherlocks, Honeywell). The order amount is small due to the low volume of the device; the most important thing is the signal given by recurring purchases of Tlens’ capability.

A quote from November. The same operator - which was indeed Honeywell - received a new order of the same size as about half a year ago. Money is still not flowing in through doors or other holes made in the wall, but the CEO emphasized that these are low-volume scanner models. The most important thing, as I emphasized in November, are repeat orders.

In connection with the Q4 earnings report, it was given to understand that new design wins related to scanners are in the pipeline, so the basic cash flow element is starting to fall into place. As long-life products, scanner order backlogs can be estimated further into the future than seasonal consumer electronics.

https://www.polight.com/investors/news/press-release-details/2021/poLight-ASA--follow-up-purchase-order-for-barcode-scan-engine-product/default.aspx

[In_Der_Esche]

The OnePlus 9 launch still hasn’t confirmed if the Tlens will be in the front camera. Since the collaboration between Hasselblad and OnePlus is quite recent, I suspect the Tlens will only appear in the later announced 9T series. It’s an explanation, but the OnePlus press release linked above isn’t the clearest…

–

STMicroelectronics’ YouTube channel has a video demonstrating why a camera module with Tlens is well-suited for phone front cameras. If the link between ST and Polight puzzles you, here’s a description from the Q4 report: “ST produces the wafers/actuator, the assembly partners assemble the complete product. The polymer (i.e. lens material) is produced at poLight HQ.”

Below is Polight’s position in the phone supply chain, taken from the video mentioned above.

SPIE 2021: poLight TLens®

Another interesting point is Polight’s fascinating experiment with Brighterwave. This Tampere-based company describes its operations on its website as “we design and sell innovative lasers and laser projection systems for AR/VR, automotive and life sciences applications”. The experiment combined Brighterwave’s RGB laser with Polight’s lens expertise. It’s unlikely to materialize on the bottom line immediately, but it’s a good example of how lens expertise can be adapted for various applications.

More on this topic will be covered at an STMicroelectronics workshop on AR/VR display technology (as I understood it), which will be held later this month. The themes covered in the workshop are outside my area of expertise.

https://spie.org/ar-vr-mr/event/optical-design-considerations-for-scanning-displays-am-session/2597321?SSO=1

[In_Der_Esche]

An unexpected design win in the enterprise webcam sector. Hardly a volume product, but all wins are gladly accepted. Order quantities are presumably on par with industrial scanners. The sentence “we do see several other opportunities for applying the TLens” in the press release leaves expectations for other design wins from the same company. (I must say - a short press release like that shouldn’t have typos like oppurtunites!)

https://www.polight.com/investors/news/press-release-details/2021/poLight-ASA--Webcam-launched-with-advanced-TLensautofocus-function/default.aspx

Maxhub is the second main brand of the Chinese company CVTE. This electronics company has a turnover of a couple of billion euros. Product introduction:
https://www.maxhub.com/en/ucw20/

Added 7.4.

Polight immediately announced a TLens order related to the same customer. The order and previous deliveries are in the sub-million Norwegian kroner range, as the product was confirmed to be low-volume in the press release.

A somewhat unnecessary press release, as the info had to be separated for consecutive days. I edited the old post accordingly.

https://www.polight.com/investors/news/press-release-details/2021/poLight-ASA--poLight-received-purchase-order-for-web-camera/default.aspx

[In_Der_Esche]

The Economist featured shape-shifting lenses as one of its news stories just over a week ago. Without quoting too much from the paywalled article, the growth prospects it painted cannot be described as modest. Bold text is my own.

As other smartphone-makers have been investigating the technology, it seems only a matter of time before liquid lenses replace some or all of the multiple lenses now appearing on phones.

Xiaomi’s Mi Mix Fold has been highlighted as the new showcase for shape-shifting lenses. The phone does not use Polight’s lenses, but it’s a good thing if and when there is competition and multiple manufacturers in the market. There’s enough cake to share for all manufacturers.

The rise of shape-shifting lenses in mobile phones has been predicted for over ten years, and Polight’s own initial estimate for a breakthrough did not materialize. They admitted this in the Q4 QA section. The product needed further refinement and testing to meet requirements set by, for example, drop tests.

By the way, more job openings have become available in Tampere. “Mobile camera” is listed under desired skills for every position. You don’t need to be an Einstein to figure out what that means for yet-to-be-published supply contracts…

https://www.economist.com/science-and-technology/2021/04/14/taking-selfies-with-a-liquid-lens

[In_Der_Esche]

Q1 is behind us, and as is typical for this company, there’s not much to boast about in terms of revenue. Next year, the numbers will be different, I dare say.

Q1 presentation below:
https://s22.q4cdn.com/177975322/files/doc_financials/2021/poLight-Q1-2021-presentation.pdf

Regarding mobile phone lenses, we received official confirmation of progress. To a layman’s eye, it looks like the next news will be a design win announcement. Could this be a Q3 event? The customer’s name has not yet been disclosed, but that’s not even essential. Bullet points from the Q1 material:

• Design-in confirmation
• Start shipping TLens for phone prototype phase
• Testing on component and system level continues
• Improvement activities ongoing, ramp-up under planning
• Current phone release plan is implying deliveries from poLight
from Q4-2021
• Well recognised camera module supplier & OEM are heavily
engaged
• In sum very good progress, but not a “done deal”

The delivery time is highlighted, meaning that delivery capacity had better be in order from the last quarter onwards IF everything goes smoothly as in that well-known area near Vaasa. Instead of hundreds and thousands of lens orders, we are jumping straight to hundreds of thousands, even millions, at once. No wonder they have been and are looking for ex-Nokia employees to fine-tune the supply chain to meet the needs of mobile phone manufacturers…

Currently, we are talking about the front camera of a mobile phone, and TLens’s share is shown in the image below. (One implementation example.)

Polight for the first time published a guiding overview of important milestones for the coming years. In the Q&A section, it was emphasized that the further we go in the years, the more uncertainty there is. They can happen sooner, later, or not at all. If the milestones for the coming years materialize, it can be said that growth will feed itself from then on.

[In_Der_Esche]

The first industrial design win came faster than I expected - TLens is going into a machine vision product. The customer’s name was not disclosed, but I believe it is among the machine vision workshops in Finland or Sweden.

The total delivery volume, NOK 500,000, is really small, but as the press release states, the most important thing is to get a reference case. Every sales professional in the tech industry knows that one of the standard questions from a new potential customer is “who in our industry is using this product?”

https://www.polight.com/investors/news/press-release-details/2021/poLight-ASA--poLight-TLens-confirmed-to-be-used-in-a-machine-vision-product/default.aspx

According to my own records, the list of design wins is as follows:

• Xiaomi smartwatches (2020, 2 products)
• Honeywell industrial scanner (2020)
• Maxhub video conferencing equipment (2021)
• Undisclosed machine vision product (2021)

From one extreme to another. This is TLens’ strength. It is not tied to, for example, the automotive industry, but the repertoire of application areas is genuinely broad. This is not a guarantee of success, but it reduces sector-specific risk.

[In_Der_Esche]

There was an article in Helsingin Sanomat (HS) about a Finnish startup called Pixieray, which is developing an “eyeglass replacement.” In practice, the lenses adapt to the direction of gaze, enabling clear near and far vision simultaneously.

Yritykset | Varjolta lähtenyt tiimi keksi silmälasit uudelleen. Uusi startup...

My attention was drawn to the following sentence:

One of the technical challenges is the power consumption of the glasses. For the glasses to look just like ordinary eyeglasses, the power consumption of the lenses must be very low.

The article, of course, does not reveal the exact technology used, but Polight is likely one very potential component supplier. Compared to a traditional VCM-regulated lens pair, TLens consumes a fraction of the energy. Plus, the focusing speed is in a completely different league. TLens-type “liquid lens” solutions are essential for this application.

Polight has a few structural patents related to eyeglasses, and the company’s CEO mentioned eyeglasses as one application, albeit one further in the future, in a recent Q&A session.

The technology is in itself very similar to smart glasses. The key is to achieve a compromise between design, battery life, and user comfort that appeals to consumers. No one wants to look like a cyborg—except perhaps teenagers, who can literally roll their eyes at their parents through the glasses…

[In_Der_Esche]

@In_Der_Esche

Regarding mobile phone lenses, we received official confirmation of progress. To a layman’s eye, it looks like the next news about this will be a design win announcement. Could this be a Q3 matter? The customer’s name has not yet been disclosed, but that is not essential.

This turned out to be bad news. Although the customer has not been named at any point, yesterday there were rumors about the cancellation of the OnePlus 9T, and today Polight announced that a customer had canceled the release of a model containing the Tlens due to “portfolio reasons.” Do the math. According to the release, the reason for the cancellation is not the Tlens.

This customer may use the lenses in their future models. At the same time, Polight announced that another manufacturer has started evaluating the lenses. More information about these is expected to be heard in the Q2 earnings release. Despite the softening, this was negative news and the stock dropped over 20%.

https://www.polight.com/investors/news/press-release-details/2021/poLight-ASA--smartphone-project-mentioned-in-Q1-report-cancelled-due-to-portfolio-changes---the-same-OEM-still-express-interest-in-TLens-and-other-OEM-has-started-evaluation/default.aspx

[Kelpieracer]

Against my strategy, I placed a buy order, considering doubling my position.
I recall seeing a presentation on this for mobile phones about 15 years ago. But back then, it was very raw. Perhaps now, the technology is promising.
Mobile phone projects are regularly canceled for various reasons, so I don’t necessarily consider the cancellation of one project serious, albeit regrettable.
However, there’s a risk that “portfolio reasons” also include too high a price and technology risk versus predicted usability in marketing and sales. This would be fatal.
Edit. I mean, regarding mobile applications.

[In_Der_Esche]

… company has received a purchase order for TLens of approximately NOK 1,450,000. The purchase order is related to the barcode scan engine product already released to the market.
The purchase order is expected to be delivered within end of Q1-2022.

A new delivery for the scanning side. In my opinion, this is the largest single delivery to a customer that has been announced. The previous delivery for scanning products was in the NOK 750,000 range, so the development is promising.

https://www.polight.com/investors/news/press-release-details/2021/poLight-ASA--follow-up-purchase-order-for-barcode-scan-engine-product-a947f17ca/default.aspx

The half-year report will be published on August 20th. The interest is especially in the VR glasses pipeline. Will the global component shortage (similar to mobile phones), for example, also reflect in the implementation schedule of the glasses, and will a potential design win thus be postponed until, for example, the end of next year?

[In_Der_Esche]

The Korean J2C company, with the support of Polight, has developed a small camera component that can be integrated into devices such as smartwatches. The company specializes in developing iris recognition, and I’ve captured the attached image from a brochure of a product under development:

Disclaimer: Despite the “confidential” texts, the material is available online.

This 5MP camera module, including its lenses, is naturally from Polight’s workshop, as the clever ones among you might have already guessed. Other slides in the same material mention the following about companies contacted by J2C:

Business proposal with iris recognition solutions to Imoo (China), Amazfit (China), Fitbit (US), Garmin (US), Fossil (US)
Supply to Mantratec (India)

(There was also a reference to cooperation with O-Film, a former key supplier for Apple, among others, but the Chinese company was dropped by the Cupertino giant after being suspected of using Uyghur forced labor and was blacklisted by the US. This, of course, doesn’t prevent Huawei and other Chinese companies from continuing cooperation.)

There’s no guarantee that J2C’s solution will become a mainstream product, but this company is not the only workshop developing iris recognition.

I’ve considered the small physical size as the primary reason to bring a component like Tlens into a smartwatch or smartphone. A good reason, no doubt. When it comes to payments, the justification for its use multiplies many times over. Why? Iris verification is an extremely strong authentication method. VCM is not a competitor, as that technology cannot combine fast focusing, small space requirements, and low power consumption.

Of course, a technical solution does not guarantee the widespread adoption of iris recognition. Like any technical solution, the end result can be botched. In this case, by failing to address privacy concerns. But these are risks that are outside the component supplier’s control.

[In_Der_Esche]

Q2 is behind us, code-named Dreams and Office Work. The hero of Leevi & the Leavings’ song was afraid “what if construction never ends”? As for Polight, we continue with a waiting approach and hope that the outcome, recalling the song, is not a hell of a racket…

With OnePlus - the name was not changed - having canceled the release of the 9T model, this year’s biggest fish escaped the muddy pond. A disappointment, but now by the end of 2022, orders from OnePlus and a few other OEMs are expected. Fingers crossed. Maybe this time one will make it to the finish line.

The pipeline looks nicely thick around the middle, meaning there’s more and more stuff being pushed into the project pipeline before a design win. It seems that with current resources, we are at the upper limit and cannot take in any more without quality suffering.

Regarding smart glasses for professional use, design wins (3 pcs) could be coming this year, but a more likely scenario is their appearance in early 2022. It was interesting to hear how the required number of Tlens could be 3-5 per smart glass, so as the market grows, the number of lenses delivered would grow rapidly.

On the negative side is the recruitment challenge. Tampere was mentioned in the Q&A as a difficult recruitment area, and based on LinkedIn, one camera expert who had been with Polight for a longer time moved to Microsoft in the spring. Nevertheless, the Polight team is also intended to grow in Tampere, although the focus, based on the speeches, was in Asia closer to major potential customers.

Cash flow remains negative, but this is to be expected. Likewise, a potential share issue or other arrangement for the current year.

At the same time, Polight announced a design-in commitment from a new sector, the medical sector. So not a major win in itself, but a very likely one, as they already initiated a Tlens purchase. Not much was revealed about the device used in surgery, but based on my previous Google searches, it is likely a product used in endoscopies. The order size was at the larger end by Polight’s standards, 2.3 mNOK.

https://www.polight.com/investors/news/press-release-details/2021/poLight-ASA--purchase-order-received-for-mass-production-preparation-for-a-surgical-device/default.aspx

It will be interesting to follow how deliveries are made for such a variety of needs.

[In_Der_Esche]

The Q&A section of the Q2 earnings call had, as usual, good questions. The question regarding the investor call of Sunny Optical, which develops camera components, naturally led to a “no comments” answer, but the clues are clear.

The following excerpts are from Seeking Alpha’s transcript of SO’s Q2 investor call: (I corrected obvious typos)

.. this is smartphone related… this is a tunable curvature lenses. So it’s kind of like a liquid lens, we call them T lens. So this is for front camera, fast focus technology. And we’ve completed our R&D in this part…

It’s like a liquid lens, placed in the front camera of a smartphone, with fast focusing. Polight’s CEO has not mentioned other manufacturers making “non-liquid” tunable lenses, so only Polight comes into question. Below is an image from SO’s presentation material:

If the previous slide was from “optical components,” the next one discusses the “optical products” section.

First of all, we’ll talk about something related to smartphone. For the first one… This is a component that is being coupled with T lens, so it’s going to be replacing the traditional VCM …

A bold claim, but the living space for VCM (Voice Coil Motor)-controlled lenses seems to be shrinking. For Polight, it looks extremely good. We are still in the R&D phase and waiting for mass production, but the omens for it are there.

Sunny Optical is said to have joined Apple’s supplier network and is already a component supplier to well-known Chinese and Korean smartphone giants.

Regarding AR/VR glasses, the presentation material modestly states “industry leading market share, serving a famous customer as a core supplier.” The same company also works with products for the automotive industry, so lidar control, driver alertness monitoring, and other applications may come into play later.

https://seekingalpha.com/article/4450035-sunny-optical-technology-group-company-limited-snptf-ceo-sun-yang-on-half-year-2021-results