I Visit Kopin HQ And See John Fan’s HBT Redux In The Making

Summary

  • In 1995 Kopin’s HBT component was instrumental in Qualcomm’s CDMA disruption of the mobile industry.
  • During a visit to Kopin this month, I saw for myself how John Fan is leading his team to disrupt wearables, hearables, AR and VR markets.
  • If Kopin can repeat their prior HBT success in the wearable technology arena, the scale of revenue growth will be massive.
  • Design wins inside Google Glass 3 and Apple AirPods or similar voice driven headsets will validate my thesis of consumer dominance for Kopin components.

On March 12, 2018, I had the opportunity to visit Kopin’s (KOPN) head office and meet with CEO Dr. John Fan and members of the management team. I happened to be in Boston that weekend and LightSpeed Public Relationsarranged a visit for me. It was a very productive day and a great opportunity to fine tune my investment thesis regarding this company.

Derrick Interviews John Fan

I have been following Kopin for quite a while, but even I didn’t fully understand John’s vision for the company until he told me the HBT story …

The Kopin HBT Story: Looking Ahead to Massive Markets

In order to better understand Dr. Fan’s vision for Kopin, their business model and outlook, it is useful to review the story of their contribution to the smartphone industry approximately 25 years ago. Yes, at that time Kopin created a critical component that is inside the phone you carry around with you to this day. Here’s how that success story unfolded …

In the early 90s, it was a GSM world as far as cell phones were concerned and few were talking about the internet connected mobile world we now take for granted. However, Qualcomm (QCOM) had designs on CDMA becoming the new digital standard for cellular communications and you can find that story on their site here: CDMA World-Changing Technology.

Working with Qualcomm, Kopin created a unique transistor for power amplifiers that would be critical to the CDMA architecture and future scalability: the heterojunction bipolar transistor (HBT). This gallium arsenide nano transistor was ground breaking at the time as the industry was primarily silicon-based.

HBT Image from Kopin.com

In 1995, the broad rollout of 2G CDMA as an industry standard cemented Qualcomm’s leadership position in the mobile phone industry. Indeed, the success of CDMA was made possible in part by that tiny component designed by Dr. Fan’s team at Kopin. Dr. Fan foresaw the need for a vertical transistor with improved power characteristics that would enable a coming wave of smart phone and internet connected mobile devices.

Today, that HBT transistor John and his team created for Qualcomm is still inside virtually every smart phone sold today. Furthermore, it was not blind luck that this happened. John and his team looked forward to the future needs of an emerging market and developed a product to fulfill those needs at a massive scale: Billions of units.

Can Dr. Fan pull off an encore performance with wearable technology?

Augmented Reality – A Massive Emerging Market

While AR and VR markets are suffering from a bit of overexposure and heightened expectations of late, there should be no doubt that they will be massive markets within 5 years. Apple (AAPL), Google (GOOGL), Facebook (FB), Snap (SNAP), Microsoft (MSFT) have all been laying foundational blocks in their respective ecosystems for years to enable Augmented Reality for comsumers.

However, as yet the industry has not yet figured out how to provide the optimal AR form factor we are all waiting for: a head worn device that provides audio and visual information to the user with a hands-free User Interface. Several attempts have been made including Google Glass, Microsoft Hololens, etc. but no one has provided a solution consumers will accept.

I should note that there are few enterprise or industrial devices which ARE having success including: Google Glass Enterprise Edition, RealWear HMT-1, Vuzix M300, and Scott Safety SCBA for firefighters. I have written extensively on Seeking Alpha about this: A Surprise Google Glass Announcement Is The Tipping Point For Enterprise Augmented Reality.

As an aid the industry, Dr. Fan recently provided his “Five Rules For Doing AR Right.” To further understand how human adoption of Augmented Reality will evolve in the context of “Dr. Fan’s Five Rules,” I sat down with John on March 12, 2018, to get more texture on the subject. It was an enlightening question and answer discussion. Below you will find details from this discussion including direct quotes where relevant:

HUMANS FIRST. Humans do not generally want to wear devices on their heads. If users are uncomfortable, they will reject innovation. Prioritize human ergonomics first, technology second.

John and I discussed ergonomics and the transition from our smartphones to wearables, it is becoming clear that Apple has successfully started to move us from the glass display in our pocket to the wrist and is now slowly moving the UI to our heads with AirPods. During this part of the discussion, I started to visualize a world where the smart watch was the CPU and connectivity with a discreet headset being the primary UI using audio and a small display. This combination minimizes the real estate required on a user’s head and fits John’s Humans First rule quite well.

His thoughts on the smart watch form factor, “… a lot of people have started to wear them and see them as high fashion and I think Apple has won and in many ways they did a very good job. Now take the new Bose headset that is very interesting as it ties in with my watch. Also, it has Google Now. So you can actually use voice control and voice commands. This is the latest version of Bose and I look at it and its main interesting feature is connectivity and secondly, you can walk around without your phone. I was able to walk around the house the last few days with the watch on and listen to music and everything and search and so on. It tells me that the days of phones being carried with you may have passed.”

“The next step is of course to go from the smart watch to other areas for wearables. The watch has limitations: screen size and how do you really use voice effectively and things like that. I think that the smart glass form factor will solve those problems.”

At this point in our discussion, John produced a custom set of smart glasses that had been custom 3D-printed just for him. I was able to try them on as you can see in the photo below. Inside the upper portion of the frame and invisible to onlookers is a tiny Pupil micro display module displaying weather, texts, images, and navigation and search results. This device was voice-driven using Kopin Whisper noise cancellation technology and thus completely hands-free. Fascinating!

Derrick Tries Pupil Prototype

Many of the current and proposed smart glass optical architectures have some indication of the screen output visible to onlookers. Kopin’s pupil implementation in this case is unique as it is invisible to onlookers. As John explains, “You can see we have embedded the optics in frame and onlookers don’t see it … Intel’s proposed smart glasses puts the image along the bottom of the lens as kind of a hologram. Its quite visible and an onlooker can see it. Now of course, its a red laser so you see a little red dot. So, similar to Google Glass, when it is lit up, you can see the image. Onlookers can see an image. There are two things at play: the fact that you see it, and that others will see it too. That is different from a smart watch where there is some visibility, but I can hide it. People will still be sensitive to how it looks.”

He elaborated, “Back to my Five Rules For Doing AR Right. Its more than just how you the wearer perceives it, it is also about how the rest of the world sees and perceives it. If it is a smart glass with a red dot that is on when it turns on, will people be bothered by it? Or like Intel with its red hologram in the lens – I may no longer notice it, but you as an onlooker may notice it. Does it bother them?”

I queried John on the ability to get the Pupil display even smaller to fit inside even lower profile frames. The current Pupil optic is 4mm in height and they have shown a version which is 2mm in height that would enable even greater design flexibility so that the whole package could fit inside very stylish frames.

John’s response, ”You can get it smaller, but there are trade-offs. The problem with going to the head with glasses versus the wrist with a watch: the wrist is already a little bit challenging but you can overcome that as everyone’s wrist is basically the same. But on the head, everyone’s head is different, the nose is different, the spacing of the eyes is different, the ears are different. And then, it is a lot more visible to people and onlookers. The look or aesthetics becomes more important. Essentially, the design challenges you have for the wrist are 10 times more challenging for the head.”

Kopin’s Solos product designed for athletes will be a good test of what consumers will accept for smart glasses. It is not quite the discreet AR spectacles I expect consumers to be wearing in the future, but it is a good test of what is possible today. They are athletic sunglasses and for ultimate safety, you put the optics outside the lens. No matter what happens, it is safe. The Pupil optical module is very small, almost invisible and very adjustable.

As John notes, “Adjustability is very important for athletes. Suppose you are riding a bicycle or running, your preferred position could be different for each activity. Even reading a book, you really don’t want the display in the lower portion of your vision as you will spend more time looking down than looking up. So, in my own view, companies putting the display in the lower portion of field-of-view may be putting it in the wrong place. I mean, there is no right place or wrong place – it really depends on how you use it. In the case of Solos, whether it is running or skiing or cycling, it is very adjustable as there is a preferred position for every person.”

Trying Kopin's New SOLOS 2Developing wearables systems for the head is extremely challenging and we see that even large organizations have yet to master it. Despite being a small company, Kopin has advantages here as John highlights, “… it is a tough job to put wearables on the head. Military people knew this and we have many years of experience with the soldiers and pilots and other service members. Now we are in armoured vehicles. They all require different features and the positions of where things are and how they will use the devices.”

I left this part of our discussion with a newfound respect for consumer headset design and why we have yet to see a successful implementation by any company. However, I believe even more strongly that Kopin’s Pupil will be a key enabler to whichever company brings such a device to market and our discussion regarding John’s second AR rule below highlights why.

PHYSICAL WORLD FIRST. Too much virtual content can easily overwhelm the brain. Deliver AR overlays in small, controlled bursts.

A lot of what we have seen in conceptual AR proposals and even some real world implementations like Hololens, ODG and even Vuzix Blade involves a transparent image occluding a large portion of a user’s field-of-view. This is what Hollywood has proposed in movies like Iron Man and Minority Report.

A realistic view of what is possible and acceptable today is quite different from Hollywood’s version of AR as I learned from John, “If you look at a human today, human nature and forgetting about military. Which screen available to you today is really a see-through screen? In my car, I have a GPS which since its early days was a second screen on my dash. Now, they have made a tremendous jump and move the screen to eye level and given me a bigger screen. But it is still a second screen. Furthermore, while these screens have moved into our field of view, but they are never right in front of your eye, they are always on the side. So now lets talk about AR in the factory or industrial setting. They use a tablet or iPad or iPhone, but how many are see-through? None.”

What John is introducing to us here is Second Screen AR using a video see-through arrangement. I discuss this as well in an article on my website:

Comparison of AR ArchitecturesAt this point in the discussion we go in-depth Kopin’s Pupil optical technology. I personally believe that the combination of Kopin’s tiny AMLCD panels and Pupil optics will enable John to repeat what he did with HBT in the emerging head worn wearables market. I think Pupil optical technology may become a primary enabling component for discreet smart glasses people will wear to access Second Screen AR content.

John explains Pupil and why it is so important, “People want something discreet which is why our Pupil optics were created. Pupil was not actually originally our own invention. It was invented more than 15 years ago by Olympus but they could not find an application for it in the consumer space. Olympus is well known for their endoscopic optical devices and they have around 80% share of that market. I always found it a miracle that this little fibre can transmit a clear image from inside your body – the optics are amazing. So I asked Olympus how they were able to create a large clear image from such a small light guide. I thought it would be very useful for wearables where you need a very large virtual image out of a very small form factor. They told me they also had something new in the lab but it could not be used and they could not figure out how to commercialize it. So I said, if you can’t use it, why not just license it to me? Once we licensed it, I hired the inventor as well.”

Kopin Pupil Image

In my opinion, anyone who dismisses Pupil and Second Screen AR as proposed by Kopin does not understand the technology. I have used Pupil in multiple configurations including seeing the new nHD resolution version of Pupil on my visit to Kopin. In John’s words, here is why Pupil is a game changing optical device for AR, “The display itself is very tiny and the Pupil optic is a small light pipe focused into your pupil. The pupil is where you access all of the optical nerves, it is very sensitive and does not need much light. More importantly, the projection focal point is much smaller than your pupil so the rest of the nerve area can still see around the projected display. The optical nerves combine the virtual image and real world to create a see-through display.”

In addition to advantages in size and power efficiency, John reminded me of another area where Pupil eliminates a problem for AR, eye strain. As John notes, “Another thing about Pupil optics, because it is so small like a pinhole camera it is essentially independent of focus. There is no need for the eye to re-focus which means very little to no eyestrain when moving from the virtual image to the real world around the virtual image.”

Following Dr. Fan’s description of Pupil, I have newfound appreciation for the importance of Kopin’s Pupil optical technology. Prediction: I now believe the Pupil module, which also includes Kopin’s AMLCD panels and backlights, will be to consumer AR smart glasses what the HBT transistor was to Qualcomm’s CDMA architecture in 1995; a key component enabling a massive market of billions of connected devices.

MAINTAIN SITUATIONAL AWARENESS. When people become claustrophobic they react predictably. The AR experience must preserve contact to the real world by not obstructing five senses.

I took the discussion toward the current trend of connectivity and how moving notification and social media interaction from our phones to a heads-up, hands-free mode could be beneficial if someone can provide such a solution.

This provided John an opportunity to elaborate on how he sees the overlap of our physical and digital worlds and safe spaces: “If you look at people now, its very interesting, even when you go to a Starbucks everyone is sitting there with a computer. Human beings have our physical world and a personal space or circle around them and are very sensitive when someone comes too close to that space. But now with the internet and connectivity, we all have a broader digital space and digital social circle or personal space. The digital space is infinite. You can go everywhere now. But people still need their own space which is the digital social circle. Even at home when you are connected to the digital world, you can still be very lonely. You would rather sit in a coffee shop and see people around you. You may not even know them, but you are situationally aware. You are looking at your screen to interact with your digital space so your friends can contact you. You need both of these spaces, your digital sphere and your physical space.

Here is the important message about situational awareness, “So, whatever the smart eyewear has to do or smart watch has to do, they need to provide for both spaces. Humans needs to stay connected but must have situational awareness so they can protect their own personal space. If you can satisfy that you will be fine.”

Kopin’s new Solos device observes this rule, “It is connected and allows you to see your physical space. Solos also has a group chat function that does two things: notifications allow the user to stay connected to their digital social circle such as Facebook as well as connect to all of your friends via in the physical world via voice. This allows you to maintain both spaces. The digital awareness is so important – we cannot be delinked from our digital space.”

Dr. Fan also delved into VR and how it relates to his Five Rules, “If you look at VR, the way VR is done today, it violates every rule. You cannot see anything around you, you cannot wear it for more than 15 minutes, you are so nervous about it. The only way to do it is to go to a separate room, your own personal room with no interference and you feel safe. But then you have this tracking as you move around in the room that again can be dangerous.”

“My feeling is that if you do not take care of the situational awareness, or what is digital awareness or physical awareness, and make the user comfortable providing the social media circle they need then you neglect the human nature. You treat the person like a robot. Thats why I say the First Rule is: Humans First, Technology Second. Right now people look at technology and try to solve a problem. The outcome is very clear to me. Again, billions of dollars have been lost and people are saying this is not a good category. This is not really true, its just that people have not observed this first rule.”

I am impressed by the depth of knowledge of these issues at the leadership level within Kopin. As we observe and evaluate the trail of failed AR and VR products from even the largest technology companies, Kopin clearly has an advanced understanding of what it will take to succeed in AR and VR.

VOICE IS THE NEW TOUCH. Keyboards and touch screens require compromise. In AR, as in the real world, audio is the most effective and proven channel for command/control as well as transmitting and receiving information.

Regular readers of my work will know that I believe Kopin has outflanked a number of companies on noise cancellation with their Whisper chip and related IP. I continue to be surprised that they have not secured a significant design win yet as I believe this area of their business will be huge. I pressed John a bit on when we will see a significant design win for Whisper …

“Its a very good question. I am looking at this from more than just the technology side. Whisper is new and we have over 30 patents now. The technology is very new and differentiable. But why are people not yet using it for consumer? I think that is your question. As we gain more and more experience in this area, we realize the requirements of the technology is greater than we thought.”

Kopin Whisper Schematic

John on why Whisper is so important for broad AR adoption and where that will lead, “Yes, back to my Five Rules for AR, Voice is the New Touch. Voice will be the next user interface. There is no way you can use a touch screen on wearables, even on a watch it is very hard.In the next couple of years, voice will be everywhere. In a normal case when things are not that noisy, current voice with cloud connected AI will be fine the way it is. You probably wouldn’t even need Whisper. But, when you add noise or are outdoors, I think you will need better performance. Now, if the price is low enough, everyone will buy Whisper just for insurance. Whether its noisy or not, you will design it in just for piece of mind. So you need to get down to that price point so that they put it in the device for insurance. That will be a huge business for us. We are not there yet. In the meantime, we keep testing everything and improving backwards compatibility. So that the user experience is perfect.”

Following my discussion with John and Paul Baker the lead for Kopin’s Whisper Chip, I continue to believe it is winning “bake-offs” and it is only a matter of time before we see a large scale design win for consumer device. In fact, it appears that one area Whisper provides an advantage to device makers is in microphone spacing and placement. For example, by using Whisper for noise cancellation, designers can reduce the space between microphones for smaller form factors AND improve noise cancellation for ASR compared to competing technologies. A specific area where this could be beneficial would be reducing the length of the “stalk” on Apple’s AirPods or similar devices. Furthermore, Kopin Whisper may help move the entire headset industry toward low profile, true in-ear noise cancelled devices for hands-free voice control.

I believe prospects for Kopin’s Whisper Chip design-in activity are improving rapidly and will become an industry-standard noise cancellation technology. Prediction: Kopin’s Whisper noise cancellation technology will be to consumer voice devices what the HBT transistor was to Qualcomm s CDMA architecture in 1995; a key component enabling a massive market of billions of connected devices.

BALANCE DESIGN WITH BENEFITS. Do not overdesign by adding unnecessary features but design for clear, specific benefits to motivate adoption of AR.

I concluded our discussion by highlighting the lack of AR devices available in the market today despite all of the activity from companies of all sizes. We have seen attempts from Garmin, Recon Instruments, Google, Microsoft and others. What has prevented success of AR? This question fits well into this fifth rule Dr. Fan has proposed.

John summarized the first generation of AR, “Garmin did not quite succeed. Recon did not quite succeed. Google Glass didn’t succeed initially. These I call the first generation attempts. Our Kickstarter Solos although where we shipped close to 1,000 devices was not perfect either. So, for this first generation, collectively including Magic Leap and others, billions of dollars has been spent on initial attempts at AR and VR. My feeling is that the first generation is a learning curve. When it comes to devices like Hololens, the benefits are not clear. Back to my Five Rules, the design and benefit have to balance out.”

Expectations for the next wave of AR devices is higher according to John, “I think the second generation will be interesting and I think Solos is the result of what we have learned from all of these years in the business. That is why we have the Five Rules and Solos was designed with the Five Rules in mind. Now it depends on how we market it.”

The state of the market right now according to Dr. Fan is this: “There are lot of systems being built right now with technology advances, whether it be see-through or whether you have easier focus, but those are benefits of the technology. What is the benefit to the consumer? And how difficult is it to get there? How much compromise involved for the consumer to actually wear it? If you fail in these areas, everything is gone. It’s just a technology play with no understandable benefits to the user.”

HBT Redux: Kopin Components Inside Billions Of Wearables Devices

In my view, we are approaching a point when the transition from a single device (smartphone) to a distributed wearable ecosystem on our bodies will occur. Following my discussion with John, I now see a future where we have a CPU with wireless connectivity in our pocket or on our wrist and a head worn device serving as our primary user interface. This sea change will be as big or bigger than when we moved from the desktop to smart phones as our primary device for content consumption and interaction with others electronically.

This massive wearables disruption is already underway and companies like Apple are leading us there whether we realize it or not. With the Apple Watch and AirPods, they are slowly moving us from a computer in our pocket to a wearable ecosystem on our person. Others like Google are doing this as well. Still others will follow.

Here’s the thing, Qualcomm could not have launched CDMA and pivoted the world towards smart phones without a new type of power amplifier based on a new type of transistor. Similarly, Apple cannot move us to hands-free AR without a micro-display and flawless voice recognition enabled by noise cancellation.

Following my visit to Kopin and an hour-long interview with the CEO John Fan, I have evolved my position and enhanced my thesis. It is clear to me that John and his team have at least two components the wearables, hearables, AR and VR industries will need to drive consumer adoption and ship billions of devices:

  • Micro-displays for Augmented Reality, Virtual Reality, and Mixed Reality
  • Speech Enhancement technology for Wearables and Hearables

Prediction: I now believe John is about to repeat his 1995 HBT / CDMA disruption that sparked the entire smart phone revolution with Qualcomm’s  leadership. This encore performance will see Kopin disrupt the emerging wearable technology industry with at least two component classes covering multiple market segments. As with HBT, Kopin’s display and speech enhancement technology will become ubiquitous.

What’s that worth? What is fair value for Kopin today before the AR and VR gold rush? I am working on that, as well as what Kopin will be worth during the coming AR and VR gold rush!

I will be issuing my 2018 and 2019 revenue and earnings forecasts for Kopin in short order.

Disclosure: Please note that I have not been compensated in an way by Kopin or any related companies for any of my work. All expenses related to this visit were incurred personally. The same can be said about all of the work I have done reviewing companies involved in wearable technology. It is my hobby and, aside from some minor compensation from Seeking Alpha for published articles, all expenses are out of pocket for me personally with no reimbursement of any kind.

Disclosure: I am/we are long KOPN.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Tailwinds' Disclaimers & Disclosures: For a full list of disclaimers and disclosures, please visit http://tailwindsresearch.com/disclaimer/.

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