​Vuzix Is One to Watch in the Augmented Reality Space

Mark Collins  |

We're all fascinated with imaginative depictions of augmented reality (AR), from Popular Mechanics magazine to the floors of Amazon warehouses filled with smartglass-wearing workers. Today, science fiction has become science fact. Augmented reality (AR) has matured into an astonishingly life-enhancing experience for workers around the world.

But do you think AR is just for games and entertainment? Think again. AR is already a multi-billion-dollar business that's revolutionizing a wide variety of industries.

A host of sectors are incorporating AR for everyday use, with practical applications that include CAD/CAM engineering, auto manufacturing, drug development and testing, medical diagnostics, supply chain monitoring, enterprise collaboration, architecture, telecommunications, building construction, cockpit simulation, field inspection, battlefield tactics… the list is a long one. Real-world applications of AR are outrunning our most outlandish fantasies.

An enticing play on this trend right now is Vuzix (VUZI), a company whose leading status puts it in the sweet spot for growth. With a nine-figure market cap, Vuzix is a leader in AR for business (think enterprise) applications. Over 350 companies use Vuzix's AR products today.

Vuzix has actually existed for nearly two decades, but until 2012, most of its activities were for military contractors, but the firm sold off that division to emphasize commercial applications for its AR products.

The M100 was the company's first successful release, an augmented reality headset that quickly became popular among hands-tied workers like airline pilots.

The technology sector went on a tear in 2017, outperforming the broader markets by a wide margin. But there have been bumps along the way. Vuzix is large enough to withstand the inevitable volatility of the high-tech sector, yet small enough to provide gains that leapfrog past the overvalued Silicon Valley blue chips.

Vuzix M100 Smart Glasses are an Android-based wearable computer with several pre-installed apps, enhanced with an onboard processor, recording features and wireless connectivity. The M100 is designed for a wide variety of business-related functions. The company also makes an upgraded and enhanced version called the M300.

Pilot Program Expansion

Vuzix announced this week that the company has more than 350 companies are paying or using demos of its M300 product, spanning a broad customer base that includes several large-cap, blue-chip, and transnational companies.

In addition to multi-site customer footprint expansions, Vuzix continues to see more complex and different uses for the M300 that are now being successfully migrated beyond pilot programs in a host of industries, including many of those mentioned above.

The Vuzix M300 boasts a far-flung distribution channel and is currently being shipped into 45 countries around the world with plans underway to expand distribution to another 55 countries.

Paul Travers, president and chief executive officer at Vuzix, asserts:

"Since the commercial launch of the M300, Vuzix and its VIP partners and direct customers have completed dozens of pilot programs that are now resulting in commercial volume follow-up orders which are being fulfilled with our tested and optimized M300 Smart Glasses that are now in full volume production.

"It's very apparent to us that the enterprise smart glasses industry has shifted into the adoption phase and should undergo strong growth rates consistent with market researcher's forecasts of hundreds of thousands of devices being required globally in 2018."

The growth potential of smart glasses is huge, as more and more companies seek to use the technology on a day-to-day basis. The trend positions Vuzix as one of the most exciting up-and-coming names in AR.

A Growing Patent Portfolio

Vuzix also announced this week that its patent portfolio has increased by 53% over the last year, with the number of patents and patents pending increasing to 101 from 66 a year ago.

Vuzix has strengthened the company's intellectual property patent portfolio and leadership position in the area of optics, head mounted displays and smart glasses over the past 12 months and now has 59 patents and 42 pending compared to 43 patents and 23 pending a year ago.

Explains CEO Travers:

"One of our corporate goals has been to broaden and expand our intellectual portfolio of patents in the cornerstone area of augmented reality and smart glasses. Vuzix continues to innovate and expand our portfolio of intellectual property that is primarily focused on the next generation of disruptive wearable technology and displays."

Several companies are now fiercely competing in the AR hardware and software arena, including Apple (AAPL), Alphabet (GOOG), Amazon (AMZN), Facebook (FB) and Sony (SNE).

Several smaller players are proliferating, but many are thinly capitalized and destined to crash and burn. Vuzix is an established player with strong revenue and profits, as well as a rock-solid balance sheet. Those inherent strengths set it apart from the vulnerable small fry. Breakthrough technology can confer market-beating growth, but investors must be selective. The sector is notoriously volatile, especially in a fast-developing area such as AR.

Vuzix enjoys ballast and stability from its deals with mega-cap players. The firm recently signed a deal to build customized smart glasses for Toshiba Client Solutions, a wholly owned subsidiary of Japan-based electronics firm Toshiba (TOSBF).

Vuzix's M300 smart glasses are now certified to ship into the lucrative markets of Europe, the U.S., Canada, Australia, India and New Zealand. The M300 delivers a hands-free digital world to improve workflows for industrial, medical, retail and other applications. The capability has gone from cutting edge to mainstream.

Looking forward, the company is set to debut its latest hardware, the Vuzix Blade Smart Glasses, at global consumer electronics and consumer technology tradeshow CES, which will take place in January 2018 in Las Vegas, Nevada. These glasses are Vuzix's first major push into the consumer space, with the company hoping it can achieve success in an industry that Google previously tried, and failed to conquer. Time will tell, of course, but a look at the hardware suggests the company is positioning itself strongly to branch out from its current commercial focus.

Management just put out third quarter financials, third consecutive quarter of sequential growth and record revenue. Top line for the period was $1.40 million or an increase of 141% compared to $582,549 for the third quarter of 2016.

Revenues attributable to smart glasses specifically crossed the $1milliion threshold for the first time in the company's history with $1.027 million in sales, an increase of 171% compared to $379,053 for the third quarter of 2016

Cash on hand at September 30 came in at just shy of $8.7 million.

Here are some industry and company specific projections to go away with:

The estimated growth of the VR/AR industry is impressive. Goldman Sachs (GS), an investment bank not given to exaggeration, projects that annual revenue of the global VR/AR market will hit $80 billion by 2025.

According to a recent report from Juniper Research, by 2021, one out of every 10 wearable devices will be smart glasses. Revenue from these products are forecast to increase from $327 million this year to $9 billion in 2021. Investors will increasingly seek "full immersion" in this outsized growth.

The average analyst expectation calls for Vuzix's year-over-year earnings growth to reach 38.20% this year and 46.10% next year.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.


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