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Wednesday, May 14, 2014

CEO Sculley's Remarks: eMagin CC : The text is hard to read but if you feel like wading through it

eMagin (EMAN) Q1 2014 Results Earnings Conference Call May 13, 2014 4:45 PM ET
Andrew Sculley - Chief Executive Officer and President
Thanks, Paul, and thank you, everyone, for being on the call today. I’ll begin with some corporate highlights, and then Paul will discuss our financial results. Following Paul’s remarks, I’ll update you on recent developments, and we’ll open the call up for questions.
As we announced during the first quarter, we received notifications to stop shipments from three customers pending a review of possible interconnect problems. Our investigation says that the three customers have a similar issue, but each resulted from different mechanisms. One customer had a few failures over many thousands of displays shipped. This was our largest display volume, largest runner.
Even though this was likely a low-risk variation, we’ve taken steps to implement improvements in our processes. These improvements involve new equipment for more accurate material placement and new materials. We have resumed shipments to this customer.
Shipments to the second customer are expected to resume in late June. We’re working on the qualification of the new processes that I mentioned for this customer. The third customer has a very high environmental requirement that goes beyond our maximum rating. However, the customer is very interested in using OLED.
We’re implementing the improvements I mentioned before, and are working to make the interconnect fit this demanding environmental profile. We expect to meet these needs in late July. Please note that this very difficult environmental requirement has not been a problem for our OLED and OLED seal system, which confirms our confidence in these systems.
I’ll mention here that we’re implementing our improved seal system. This seal system has passed the test of 85 degrees Centigrade - that’s about 180 degrees Fahrenheit - and 85% relative humidity, for 1,000 hours. We’re aware of one well-known OLED company that has stated that a test of 60 degrees Centigrade, or 140 degrees Fahrenheit, and 90% relative humidity for 100 hours, results in a 9-year life.
Thanks, Paul. As a reminder for those of you who are new to imagine, our active matrix OLED microdisplay technology - and sometimes you see that written in the industry as AMOLED - this technology leads the industry in a number of important areas. First, we offered the highest brightness in both monochrome green and also yellow, I should mention, and color. These displays have very high contrast, even at the extreme end of the luminance.
These high luminance displays have the advantage of lower power for normal luminance and longer life times. That is, a 5x improvement in power and a 13x improvement in lifetime for the monochrome displays running at a normal luminance.
As we have mentioned before, we are working on an ultrahigh brightness color display. For reference, the highest high-brightness color display we have today, called the XLS, is rated at 1,000 candelas per meter squared, or [nits]. And just as a reminder, your television is probably 350 nits, or if it’s a very bright one, maybe 450.
The new technology, this ultrahigh brightness color, will be above 5,000 nits. Today, we are working on a low resolution demonstration that we expect during this half of the year. Next will be high-resolution prototypes that we expect to be available in the second half of the year.
We’ve already demonstrated our technique of patterning for two colors, so we feel confident that this is a successful path forward. We are very excited about this. Our progression for our technology is illustrated by these new technologies. Often, we produce new products for military use. Today, fighter jets and helicopter pilot helmets use monochrome green displays. Our displays will work very well here, because of the high contrast.
Today, the fighter pilots use LCOS displays, which is liquid crystal on silicon, and they’ve complained about the LCOS displays that are in the helmets today. They’ve asked the military to eliminate the green glow when the display is turned up bright. This screen glow is the result of relatively low contrast, and by that I mean very simply, when the display is running brightly, you can’t turn off precisely all the other pixels, so everything appears a little greenish.
And that’s because the contrast ratio of an LCOS display is about 1,000:1 at best. Our monochrome green display has a 50,000:1 contrast ratio. That is, you can turn off the pixels, even when it’s running at 17,000 nits and above. And it also has about 100,000:1 contrast ratio at normal luminance. Again, these fighter pilots want to see these very bright icons during the day, and they want to see night vision at night, so you have to have a full range with these displays.
To our knowledge, this performance beats any display in use today. The companies working on avionic helmets have also asked us for color, hence our ultra brightness color displays will work for these avionics applications. But here, we need to continue to extend the brightness range for color beyond 10,000 nits. You’ll recall earlier I said our first displays will be 5,000 nits and above.
Outside the military, there are many companies working on augmented reality near-eye applications. You may have heard at least of one company, if you follow microdisplays. At CES earlier this year, we saw about 30 companies discussing their augmented reality near-eye headsets. Our color displays of 5,000-plus nits will work well here.
Many of the current headsets use LCOS displays, and for consumer applications, they will experience the same issue that the fighter pilots do, caused by low contrast, hence our color displays with their outstanding contrast, low power, and great environmental stability will have a great advantage here too.
I should mention that as far as we know, no other OLED companies can produce ultrahigh brightness color displays of 5,000-plus nits, and at our very small pixel sizes. To the best of our knowledge, the other microdisplay companies do not have a viable direct patterning technique for OLED, and the companies producing cellphone or TV sized OLED displays cannot pattern the OLED at our small pixel sizes. We are uniquely qualified to advance in this market for ultrahigh brightness displays.
Now, I’d like to update you on our other progress. We have a digital SVGA display that we’re discussing with customers. This display will provide our customers with all of the advantages of the latest technology we have built into our digital displays, including things like automatic correction over luminance and temperature for color, full dynamic range for low luminance, and the virtual elimination of motion artifacts.
This display will ultimately take the place of our SVGA Plus display, which is our largest seller today. It is in qualification testing and we expect to release it for production this quarter. We already have delivered prototypes to a number of customers who are looking at the display for their next-generation equipment.
The SXGA096 is a 9.6 micron SXGA, hence it is smaller than our current SXGA. Its size is about the same as our SVGA Plus. Again, that’s our current major selling display. This means that ultimately it will be similar in cost, but at a higher resolution. We have samples that we are evaluating. Our customers are also interested in looking at these.
On the last earnings call, I mentioned that we have delayed the SXGA096 to capture a contract to build a custom display, and we, fourth quarter, successfully built this custom display. It’s in the hands of the customer for evaluation with an ultrahigh brightness OLED structure and the customer’s evaluations are going well. We anticipate the customer and we taking the next steps on this display.
Our color OLED XLS technology provides the highest brightness for color OLED microdisplay available in the marketplace today. It provides, as I mentioned earlier, 1,000 nits in full color, and is capable of a contrast ratio of 100,000:1. This allows our customers to use our display in see-through, augmented reality applications for military such as training and simulation, as well as commercial apps such as gaming, wearables, etc.
We have made some recent improvements in this structure. We never rest here. We’ve made these improvements that extend its lifetime. The full qualification of these displays with the new lifetime chemistry products remains on track for completion in the third quarter. We see very strong interest in this display from customers.
As a reminder, this OLED stack technology is available to all of our resolutions, from the VGA all the way up to the WUSGA. One other very important customer need for this very high brightness display is we have some customers that have outstanding optics in every facet, except they’re inefficient, and therefore the very high brightness OLED takes care of that inefficiency.
Not only is it high brightness, but it’s also power efficient, so it matches well with an inefficient optic. Of course, it matches well with an efficient optic.
We continued deliveries of microdisplay products to more than 85 domestic and international customers. These include display shipments for the FELIN soldier modernization program in France, BAE’s OASYS FLIR in Sweden for three industrial thermal camera electronic viewfinders, and BCF’s technology in Scotland, for ultrasound goggles for a large animal veterinarian.
We continue to see strong demand for OLED microdisplays in our key market segments over the next few years. We anticipate higher average revenue for quarters going forward in 2014 than we saw this quarter, based on successful implementation and resolution of the stop ship orders, and continued improvements in manufacturing processes, and also the new products we’re introducing.
Last week, we presented at the Sidoti Microcap Conference. We saw interest in the investment community in our ultrahigh brightness display potential for augmented reality applications and other applications. Those applications can obviously both be for not only augmented reality in the military, but consumer applications, and also avionics.

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