Vuzix (ticker symbol VUZI, headquartered in West Henrietta, New York)* designs and markets smart glasses for augmented reality applications, as seen in the above video highlighting their recently-introduced M4000 smart glasses.
At Taylor Frigon, our narrative-based investment philosophy involves trying to understand the "storyline" or "narrative" that will unfold in a particular industry or technology over the next several years, and finding well-managed companies that are positioned to benefit from the changes that will take place, or that are in fact making those changes possible.
When we think about all the ways that mobile connected technology such as the smartphone have changed our lives, by bringing the capabilities of the network to virtually every aspect of our day, it seems very clear to us that moving the visual element (presently a screen that we hold in our hand) up to the organ of our body that we actually use for seeing (in other words, our eyes) will enable another exponential increase in possibilities which is likely to change our lives in ways that are difficult to predict today (just as the changes that the smartphone has brought were difficult to predict back in 2006, prior to the release of the first iPhone in 2007).
Vuzix manufactures a variety of smart glasses, mostly targeting "non-consumer" applications at this time, including the use of smart glasses for warehouse picking, for medical and healthcare applications, and for military and first-responder applications. These glasses feature the ability to see digital projections in a hands-free manner, which can be projected across a lens using a technology known as a waveguide, or alternatively can be mounted in a tiny LED screen held on an arm in front of the user's eye.
Having the visual element in front of the eyes enables "augmented reality," through which digital information can be presented right on top of whatever you are looking at, thus "augmenting" it with added information which can enhance the performance of a variety of tasks, from conducting a surgery to fixing an air conditioner unit to maneuvering a drone.
Additionally, Vuzix smart glasses feature a video camera which enables someone in a remote location to see exactly what the wearer of the smart glasses is looking at, creating a very powerful dynamic for collaboration without the necessity of physical proximity. A technician on a job site looking at a piece of machinery can get instruction from a more experienced engineer who is sitting in an office thousands of miles away. Conversely, the chief engineer of a company can put on a pair of Vuzix glasses and show the operation of a complex piece of equipment to someone in another part of the world, and point out very specific details, and those watching remotely can see exactly what that chief engineer is looking at, as if they are looking through those glasses themselves.
The Vuzix glasses also come with speakers or earpieces which enable hands-free conversation, thus eliminating two of the problems with the current smartphone form factor (as transformative as it has already been), which is the fact that we hold our smartphones in our hands but our eyes and our ears are not located in our hand.
Vuzix is still a small company and has been the subject of short-seller attack pieces in recent years, alleging that their product does not even truly exist or that the entire story is somehow fraudulent, but those arguments have proven to be unfounded and the company is now demonstrating that it can land significant contracts, including with major defense contractors for the incorporation of Vuzix waveguides into wearable devices such as night vision goggles for the military. Vuzix smart glasses are also being used in a variety of healthcare applications, including for real-time assistance during surgeries and other medical procedures, as well as for a variety of patient interaction and medical training applications.
In fact, the company has been selected by Verizon as a partner for a new initiative which is scheduled to launch in the first quarter of 2021, in which Verizon plans to offer mobile 5G capability to first-responders including ambulance companies and EMT units, which will enable the two-way sharing of tremendous amounts of real-time video and digital data with the personnel out in the field, including over smart glasses designed by Vuzix. A first-responder wearing a pair of smart glasses could then get timely advice from specialist medical personnel back at the hospital, for example, potentially saving precious time in extreme situations.
By no means is Vuzix the only company to perceive that augmented reality will have tremendous and transformative applications in all aspects of our lives in the near future, or the only company to be working on smart glasses -- but they have been one of the first, and their waveguide technology has capabilities that so far others lack. We certainly expect other major players to enter this field, but we believe that the opportunity is extremely large and there is room for multiple participants going forward.
Vuzix right now has a market capitalization of about $200 million, on annual revenues of just $11.5 million. However, we believe that some of the business deals described above have the potential for significant increases in revenues as they enter into volume production over the next few years.
And, more importantly, we believe that the general narrative of continued increased "augmentation" of all kinds of different daily tasks through the juxtaposition of digital and video technology will only grow, creating a paradigm shift similar to what we have seen since the advent of the smartphone, and offering potential growth for Vuzix, if the company can continue to execute as it has been doing up until now (and especially as it has been doing in the past year).
* Disclosure: At the time of publication, the principals of Taylor Frigon Capital owned securities issued by Vuzix (VUZI).
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