Tuesday, September 20, 2011

Cloud watching with an HMD

Below is a comic strip, not an instruction manual, but I guess it is possible to try this at home. Some notes after the comic strip.
Normally, when placing stereoscopic cameras or rendering a virtual image, it is important to try and match the actual distance between the eyes. That's why 3D camera rigs try to minimize the distance between the cameras, which are pretty large:
Having said that, there is no depth perception in such a large distance as looking at the clouds, so substantially increasing the distance between the eyes might create some 3D effect. 

Saturday, September 17, 2011

Preview to thoughts about Augmented Reality goggles

One of the followers of this blog asked what I think about augmented reality goggles. Great question, worth discussing in more detail. In short, I don't think today's solutions are there yet, partially because of technical limitations and partially because of the currently-available applications. More on that soon. In the meantime, this video shows what good augmented reality would be like.

Thursday, September 15, 2011

The VR goggle as a media viewer

Several VR goggles (such as the Carl Zeiss Cinemizer) present themselves as media viewers, which translates to a really cool way to watch movies from your iPod.

Is there really a significant market for VR media viewers?

Have you ever gone to a movie theater to watch a movie alone? Sure, when I travel, I sometimes go to restaurants alone, but I don't remember going to a movie alone. Isn't watching a movie alone what VR media players are designed for?

I tried researching how many people go to see movies alone and could not find the answer. There are tons of movie stats from the Motion Picture Association of America, the movies alone is not one of them. Googling this brings up pages titled "Do you ever go to the movies along and feel weird for doing it?"

People watch movies alone at home, but then they can use a TV and don't need a low-resolution set of goggles to do so (Cinemizer had 640x480 pixels, though perhaps has gone up since). Watching movies on a plane is a potential use, but wouldn't an iPad or other tablet be a better experience? Privacy is a plus when using goggles, but would you really spend $500 on a pair of goggles only to use them on a plane to watch movies that you are uncomfortable having your neighbor see?

Sure, I get using an iPod, not to mention that since as of Dec 2010 "only" 297 million units were sold, there is clearly a big market. You can do other things while using an iPod, but you can't do much when watching a movie on a set of VR goggles.

So, I don't get it. Any ideas?

Saturday, September 10, 2011

A 3D look at the Vuzix financial reports

In the spirit of the previous financially-related post, I decided to take a look at the Vuzix (VZX.V) 2nd quarter SEC 10-Q filing and see if there is anything interesting to share from a market direction standpoint.

Some disclaimers: I am not a financial adviser and I don't make stock recommendations. You should buy or sell Vuzix stock based on what you read in this post. It is just my opinion as an individual fairly versed in virtual reality, not a Wall Street person. Also, I don't own Vuzix shares so I don't stand to gain or lose if their share price changes. This analysis is fully based just on the public information contained in the 10-Q.

Having said that, let's take a look at some of the interesting nuggets in the report, in no particular order:

VR Market-focused:

  • Sales of what the company calls consumer eye wear products are in decline. It sold $1M of consumer products in the first six months of the year compared with $2.2M in the first six months of 2010.
  • Sales of defense products, such as eyepieces, are on the rise.
  • The company notes that demand for their consumer eye wear has declined for two reasons. The first is that they pre-announced a higher-performance product which they did not deliver yet, causing customers to slow down their purchasing. The second is that the iPad and other high-resolution tablets are used as media viewers instead of goggles. Personally, I don't fully understand the market need for goggles as video viewers: Resolution on the low-end products is fairly poor (I don't think that Vuzix has an HD product - not even HD720 - in that category); Privacy is not truly needed unless you are viewing certain kinds of media in public places.
  • The company says it is going to place lower emphasis on consumer products and phase out some of their low-end products. Instead, they will focus on the defense market and upscale products such as their recently announced $5K augmented reality glasses which is priced for academic research (a fun, but not very large market). I can understand the attraction of the defense market. Sales are less sporadic (Vuzix reports a backlog of $3.8M on page 18); margins are higher. But, how large can this defense market really get?
  • It seems that Vuzix which is/was known for consumer goggles as trying to move uptown in price, whereas professional HMD providers are being encouraged to produce affordable mass-market products. As the saying goes: "The grass may look greener on the other side, but believe me, it's just as hard to cut."


  • Cash is getting tight (page 2). Cash on hand + accounts receivable was approximately $1.8M at the end of Q2, as compared with approx $4M at the end of 2010.
  • Accounts receivable ($1.2M) is substantially lower than accounts payable ($3.1M)
  • Customer deposits (these are typically pre-pays or down-payments) are nearly $900K and are higher than cash on hand (approx $700K). Without down payments, the company looks like it would be in a difficult financial situation.
  • Inventories ($3.8M, page 2) are more than twice the second quarter product sales (about $1.7M, page 11). Since inventory is typically recorded at cost yet product sales reflect actual prices, this is even more startling. Assuming material cost is the primary driver of cost of sales, and looking at Q2 cost of sales ($1M cost on $1.7M product revenue), $3.8M inventory could be enough for more than $6M worth of product sales, which are at least 9 month's worth of sales. It would appear that Vuzix is sitting on really large inventories. Are these obsolete parts? Do they have very long-lead items that require substantial stocking? Were they planning for much higher sales? Page 7 shows the breakdown of the inventory and shows more than $1M of finished goods waiting to be delivered or sold. On page 17, the first item mentioned in discussion on how to improve cash position is "managing our working capital through better optimization of inventory levels."
  • There are two loans totaling over $400K made to the company by one or two of its officers. Clearly, cash is a bit of a struggle. There is also accrued compensation of over $100K to be paid in the future to officers.
  • There is an interesting margin discussion on page 14. Apparently, video eyewear is not a truly profitable business. Augmented reality is a bit more, but the best business from a gross profit perspective is engineering services related to the defense side of the business.
  • The shift away from consumer products is reflected in lower sales and marketing costs, which the company notes are in part due to reduction in catalog advertising costs (Skymall?)
It's great to have a small public company to provide everyone with some market data on virtual reality!

I think Vuzix was tempted to try and create a substantial consumer market for goggles by offering reasonably-priced, nice-looking products. In my opinion, the experience is just not compelling enough both in terms of resolution/field of view and also in terms of content (games/movies) that can take advantage of the goggle capabilities. As such, not enough goggles are being sold and the company is perhaps unable to get the economies of scale it was hoping for as well as to cover its relatively fixed costs for product development and advertising.

Would the company's product fared much better if they were offered by a bigger brand (e.g. Apple), or is there some other missing ingredient needed to break open the consumer market?

Monday, September 5, 2011

Popcorn carts and the economics of HMDs

The Sensics YouTube channel received a comment noting that for the price of an HMD, "I might as well build a 30' theater room onto my house with stadium seating and a popcorn cart. Please explain how that price is justified, I'd love to hear it.". 

So, at the risk of being a bit wonkish, here are some insights on how the price is determined.

First, professional HMDs are currently made in small quantities. Let's try to figure how many:

  • A company making professional HMDs was recently listed in Inc magazine. Inc. reported their 2010 revenue as $4.8M. If the average price of an HMD they sell is $20K, and even if we assume that they sell nothing but HMDs, this company made 240 HMDs in 2010. Maybe my price assumptions are too high and they made 300 HMDs. Hundreds, not hundreds of thousands.
  • A small public company that sells consumer-type goggles released their second quarter financials. They sold approximately $720K of consumer goggles in the second quarter. If all of these sales were goggles, and these goggles were sold for an average price of $250, then they sold just under 3,000 units in the quarter. Thousands, not hundreds of thousands.
In contrast, there were approximately 10 million 3D televisions made last year. With quantities, come economies of scale: you can get parts cheaper, you can invest in manufacturing technologies to make cost lower, you can assemble HMDs at low-wage areas and so forth.

Aside from quantities, one needs to consider the cost of the components that go into making an HMD. Have you ever been with a friend at a restaurant only to hear why the components of the $15 salad probably cost $2.34? It's pretty annoying, but I'm going to do this a little bit for HMDs now.

Historically, the key difference between professional HMDs and consumer goggles was the resolution of the display and the width of the field of view. Professional HMDs had higher resolution and wider field of view. Many professional vendors, Sensics included, use 1280x1024 OLED microdisplays from another small public companies. We use these microdisplays because they are high brightness, low power, high contrast and have rich colors. However, they are expensive. On the open market, these displays (and other like them) could cost approximately $2500 each, so approximately $5000 per system. Yes, manufacturers like Sensics do get quantity discounts, but in my opinion the displays drive the cost of the product into a cost that is in line with a professional market. Once prices are in the range of a professional market, vendors perform their own price/quantity optimization. If you priced a hypothetical product at $20,000 apiece, you could sell a certain quantity. If you priced it at $18,000 apiece, you could probably sell slightly larger quantity, but not dramatically larger. On the other hand, you just lost $2000 of profit. Now, if you could price the product at $995 you would sell many, many more, but then you'd be selling it at a significant loss.

Of course, a direct relationship between cost to make and price to sell is not required. Does a basketball shoe suddenly become much so more expensive to make when an 'Air Jordan' sticker is placed on it? Not necessarily. It is just deemed to be worth more. Sensics is  profitable, and the Sensics team would like to keep it this way. In fact, though customers clearly appreciate a discount when they can get one, customers are probably also interested in diversity and choice among HMD companies, so it's good to keep more of them around.

What to do? Priority one is to find a lower-cost solution to placing these dynamic images in front of your eyes. This could come from various places:

  • Find some lower-cost display. Imagine if TI started making displays just like they make DLP components. Imagine if Samsung, or Sharp, or Micron started to sell high-resolution OLEDs to HMD vendors. Then, prices could significantly come down.
  • Find some alternative display configuration that is not micro-displays. 
  • Place one display in front of both eyes, though this could reduce the refresh rate that each eye sees.
  • The passage of time. Just like Moore's laws with CPUs, time brings higher resolution displays at a lower price point.
Last, but not least, what you can do with a 30' theater room and a popcorn cart does not fully overlap with what you can do with a professional HMD. Try carrying the room around from place to place. Try training a soldier with the popcorn cart. But, I am on board. Let's hear it for lower-cost displays that will enable making lower-cost HMDs.