Good morning, everybody, and welcome to poLight's fourth quarter presentation. Together with me today is, as usual, Alf Henning Bekkevik, CFO. He will talk us through the financial review and support me on the Q&A session. My name is Øyvind Isaksen. I'm the CEO of poLight.
As normal agenda, key events, a quick introduction to poLight for those who are new, update on the market side, Alf Henning through the financial review, and then outlook statement, and hopefully a massive Q&A session. The quarter gave us design- win for the first augmented reality case, extremely strategically important for the company. We also got a design- win in the barcode area, specifically related to manufacturing line application, which is kind of different from the kind of EX30 long-range scan engine application.
We finally had a breakthrough and won the VAT case, which implies a NOK 12 million cash effect in January, so that will not be shown as cash this quarter. We also did a subsequent share issue, and that raised NOK 12.8 million. Opportunity pipeline is definitely improving. Post-quarter, we also got a follow order related to the scan engine EX30.
EX30 is a unique product, which means a lot for Honeywell. Quickly then, poLight, a global player in tunable optics. Tunable optics is definitely being more and more talked about in different industries. As we all know, poLight's focus is mobile, industrial, specifically related to barcode and augmented reality. There are other cases like the webcams, like medical, which step by step will grow.
It's been a long journey, started in 2005, and since then we have developed a unique competence in tunable optics, MEMS, polymers, and imaging applications. Strong IP. We have 16 worldwide patent families, 10 pending. We spend a lot of time and money on protecting our IP. We are growing as an organization, and coming back to that, we are today around 34, including what we call long-term consultants.
Headquartered in Horten outside Oslo, offices in Finland, China, and representation in France, U.K., U.S., Taiwan, Russia, Korea, and Japan. Small organization, distributed, but extremely efficient. In short, the uniqueness of poLight's technology is extremely fast speed, very compact solutions, constant field of view, no pumping, and also for many applications, importantly, very, very low power consumption.
We are already, if you only go a year and a year and a half back, we have already achieved a lot. We have now different customers and customer wins, the smartwatch, the webcam, also smartwatch from Xiaomi, the Honeywell EX30, two other barcode-related projects for assembly line and direct marking, and also finally augmented reality reference. This platform will step by step be more solid.
We're gonna penetrate different verticals. We're gonna expand in different verticals. Having this as a situation as of today means a lot compared to when we were out in the market with blank sheets. Now we have references. We know we can deliver. Customer trust customer can buy products and test it. It's really a different platform we are starting when we are selling to new customers, having these references.
Yeah, we talked about it already. Definitely smartphone is a key focus area for the company. Largest, today's biggest volume market for sure. Therefore, it is important for poLight to have a breakthrough there, and that will happen. Barcode is also a very interesting high-value segment we are focusing on, and augmented reality. Those three market segments are kind of the focus every day in the company.
There are other opportunities, which kind of come along, which we continuously evaluate to explore or not. Two of those at the moment, I would say, is medical and webcam accessories-type products. Okay. Let's go through the market review. Let's start with smartphone. I know that many of you are extremely interested in what is happening there. What I can start to say is that it's happening a lot.
We have an organization which is in, I would say, peak load trying to penetrate this market. We are already engaged in many cases. This Add-In TLens design, where TLens is inside the lens stack, as I mentioned before, really generated a lot of opportunity and interest. We do feel that this solution is definitely an extremely important feature or what you say, design, which should enable us to enter this market.
We primarily now are focusing on the selfie camera because that is what we say a sweet spot for our technology. It's not easy to make a good solution with minimizing screen size penalty with other technologies. That's definitely the focus, but we also think that will evolve using TLens in a back cam structure.
Back camera structure today is not one camera, it's typically multiple cameras, and we do see definitely opportunities for TLens to be a part of that structure also. Several PoCs. I would say a good progress. Customer is showing a strong willingness, and not only willingness, also heavily investing both money and time to qualify the use of TLens.
They are extremely thorough. Coming with new technology into the smartphone market is difficult. They are testing, their test regime is very tough, and they are kind of profiling typically themselves that the robustness and the quality of the phone is kind of top class. That's why all the components going into this type of application will be very thoroughly tested.
That is especially with new technology and also camera being so important function that this is a really tough battle. I would say even though there are battles to be overcome we feel that we are progressing every day. Also every week, there's a new problem we have to address. Most of that we are able to solve, and hopefully that also will be the situation going forward.
In number-wise, there are five ongoing PoCs. I would say that there are three design- win candidates for the kind of next 12 months, and there are five planning PoCs. This is an extremely important area. The majority of the company resources is being used in this segment. It's definitely an important area for us when it comes to addressing volumes.
That's why I'm happy to say that progress are significant during the quarter, but still things to be done. AR, first design- win announced during the quarter and more opportunities to come. The product which we are now confirmed to be in, and we also got the first small mass Production PO, is planned to be launched in 2022. We cannot say more or be more specific, and we cannot also mention the name of the company. But what I can say is that it is one of the players which people will typically know about. We hopefully are able to expose which one, when times are getting closer, definitely after market release. The key for us in...
The key for the AR customers is several things with the TLens. Low power consumption. If you think about the future where very compact glasses is gonna be used and the space for battery is definitely limited.
Power consumption is one of the key parameter our customers are highlighting as a benefit of TLens. But also, the insensitivity to gravity is also important. You know, we are wearing glasses and you're moving your head and having no gravity sensitivity is also super important. You have the normal attributes like the speed and the compactness, of course, which is highlighted also as key benefits.
We do feel that, when it comes to the AR space, poLight is, at an early stage, a player which everybody knows about. We are in the beginning, and we are part of the beginning of this kind of, call it, reference design and next generation AR glasses. It's a fantastic opportunity for the company. Definitely in the beginning, it will be low volumes because it's more the professional use cases like the healthcare, like the logistics, like the education, like manufacturing. Step by step, as form factor cost is going down, it will be a consumer product. Yes, it is important today to go into the smartphone area, but it's extremely important to take a position in the AR space to secure tomorrow's volume market.
If you look at the numbers side of it on the bottom of the slide, there is one design- win already announced. There are two design-ins, meaning there is a project which has started with product development, having TLens as planned to be used. That's design-in. Design- win is when that customer confirms we are in a product to be launched to market. Two design-ins and actually hot from the press, recently some hours ago, we actually also got another confirmation of design-in of another AR case. Actually today as we speak, there are actually three design-ins. And then there are many, many ongoing PoCs with well-known names, tier one players and four more planning. Quite an impressive pipeline is building up in the AR space.
Of these PoCs, of these activities we are doing, there are actually four which are related to consumer products. Those will typically not be released this year, maybe even not next year, but maybe 2024 and 2025. That's when people believe there is a market for consumer glasses. Again, there are two use cases for TLens in the AR space. It's being a part of the world-facing camera, and it's being a part of the laser display.
Those are the two use cases. Also when it comes to the world-facing cameras, it could be one TLens, it could be two TLenses, and of course, laser displays can be on both glasses, and then it will be two TLenses. It's one glass is not necessarily only one TLens.
In addition to be a per unit high volume market in the future, it's also a significant potential for that there will be more than one TLens per unit. Super, super important long term, but for next coming years, it will be more a strategic positioning game with relatively low volume, but very important to secure future consumer business.
Okay. Barcode. Yeah, we got another design- win in barcode. We are starting to get quite known in this space now, which has been dominated by other technologies. If you look at the EX30 from Honeywell on the right side of the slide, that scan engine is quite a unique scan engine, long range, and strategically important for Honeywell to get new accounts and for keeping accounts.
Below that, you see different OEMs who have been starting to implement this scan engine. We just bought one of the Urovo RT40, which we use for demonstration. It's a really impressive performance of that scan engine, from close to far distance, up to 20 m. A really impressive scan engine.
No doubt that that scan engine and poLight being inside that scan engine has raised a lot of interest, and we are involved in several activities. We have three design- wins already. We have two design-ins. There are six PoCs. Of those six, two are barcode, there are also other activities. When I say others, it could be like, say sensor for industrial use, that could be typical laser-based sensor system.
There are nine planned PoCs, which four are barcode. This is typically not. If you look at the EX30, accumulated today is around NOK 5 million order intake. There is good feedback from the customer, but it is not a high number as such, but it is a high value. Typically, you have much higher prices in this market than you have in typically a consumer market. And also, as I mentioned before, interesting because also a product can last for, say, five years, whereas a smartphone case is like, say, you have finalized your supply within six to nine months. It is as we build this market, it will be the foundation, a very healthy foundation of the company.
You can then maybe look at that as a little bit like a recurring business, which is making the fundament. Low volume, important even though. Healthcare. Yeah. What could we say? Not a focus area of the company, I would say, because those we have mentioned, smartphone, AR, industrial. In a way, that's the focus.
We do see that there are clearly other areas where we are fitting well, and one of those areas are related to healthcare. We do see some interest in this what we call compact surgical equipment. You know, we have already one design-in, if you look at the bottom, which is a surgical device, and we are in dialogue with others for similar application.
We also see that there is an increasing interest in what you say, disposable units due to the cost of cleaning and risk of infection. There is a trend that kind of things going into your body is one time use, which means that every time they use it, they need another TLens. I think it will take time to build this business.
The case like we are already in is hopefully being launched to market in 2022. It's long processes, a lot of approval processes you have to go through. As we go, it could potentially be equally as important as what we call the industry. Even more like the industrial market, because here also, given disposable trend, could actually be a significant higher volume than the typical barcode cases.
I've classified a design- win. We haven't made a big splash about it, but in a way, when we see the way Kavli Institute is using our technology, you know, they have these stacked TLenses, where they're using for their research purposes. So they are basically buying now on regular basis TLenses for making new instrument, for new tests and for new research. So it basics is in, call it commercial slash research use. That's why it's, I think it's fair to classify it as a design- win. We relatively recently got a new purchase order for from them. But also this Kavli, which is a very famous Moser Team, has definitely increased the interest for our TLens.
I think already now we have more than, say, 1.5-2 million kind of POs for this market. We're talking only a handful of TLenses. So high value. It's not in a way for the money. If you look at the university research, that will in a way not be for the money. For us, it's more like a brand building in that space, and also for contributing to important research, which we all have a responsibility to do if we can. That brand building, though, we think will have some visibility, will show TLens, will show poLight, which could mean that more commercial applications like endoscopes will be aware of TLens and start to implement it into their future next generation equipment. Okay.
This is the table we have been using for some time now. You can see we have totally 8 design- wins, as opposed, compared to five last quarter we spoke. Projects, meaning that is what we call design- ins. Five which is down two, which is because somebody has moved to design- wins. We have completed PoCs 44, compared to 39.
Ongoing PoCs 27, compared to 21. Planning PoC 29, compared to 18. I think this says it all. There's no doubt that this technology, this company, has a lot of traction in different segments, and this table is kind of showing you that and show the trends. Okay, Alf Henning, financial review. Will you please join me?
Sure. Thank you, and good morning to you. Deliveries of TLens and ASICs to commercial use and customer development projects gave NOK 3.9 million in revenue, compared with NOK 1.2 million the same quarter in 2020. EBITDA loss of NOK 5.7 million in the quarter, compared with NOK 10 million in loss in the same quarter in 2020.
The decrease in losses are mainly explained by the fact that we won the VAT appeal case that gave NOK 12 million in reduced expenses in the quarter, offset by an increase in accrued Social Security related to the share option plan because of the increase in the share price of poLight. On the balance sheet, the cash position at the end of the year was NOK 158 million, compared with NOK 77 million in 2020.
A subsequent share issue gave approximately NOK 13 million in the quarter. On the cash flow, we started the quarter with NOK 164 million in 2020. Explaining that, in 2020, we received NOK 8.2 million in VAT receivables as a result of being re-registered in the VAT register. We used NOK 1.2 million in investing activities in the previous period. We received NOK 11.6 million in financing activities due to the subsequent share issue and ended up with NOK 158 million in cash deposit at the end of the year 2021. Thank you.
Thank you, Alf Henning. Outlook statement. Summary of the quarter, two design- wins, overall good progress in all market segments. The opportunity pipeline is developing nicely, with developments in the AR space being maybe particularly of high interest long term. Smartphone customer and we are putting a lot of effort into maturing cases and qualifying TLens for commercial use. It is a demanding process. We always had it, and that's also why we have used so many years to get where we are today. There are encouraging progress during the quarter. Having said that, hurdles to be overcome.
It's like this, when you're getting close to a real launch of something, there are even the test regime and the people who are involved in testing and qualifying a new technology is increasing. It's starting with kind of an R&D group looking at advanced technology, step-by-step doing different PoCs, and then getting attention from product management and management being a part of, in a way, a project plan.
Then it starts to escalate the number of resources they are using, what they want to go through of testing. During that process, there will always pop up things, so we shouldn't be surprised at that. So far, we have been managing that, but there are still, I'm sure, hurdles we need to overcome.
It's all about having a technology and organization who's capable of handling that, and that's what we are planning with. Also, making our supply chain ready for different application is demanding, especially in these days where the capacity and component is restricted. We are luckily been able, due to our financial situation, to take commitments a long time ago, which put us in a position to be able, from a material perspective, to deliver.
Organization is being strengthened due to basically foreseen activity increase. Also being able to address all the kind of challenges we have and we will have going forward in a good way with competent personnel, experienced personnel being in the right place in the world. The organization needs to be step-by-step built.
I have to say, I'm impressed to see how we are able to attract highly skilled, experienced people into poLight. That in itself is proof of something. Tunable optics is getting more and more attention. poLight is definitely one of the key players. There are others. We are definitely a part of, a big part of an important technology space.
Focus will be important now. We actually, more now than before, need to consider seriously to address or not address certain opportunities. Now it's all about making sure that we're getting success in smartphone, claim the space in AR, and step-by-step build the backlog. Thanks a lot. Alf Henning Bekkevik, will you join me for Q&A?
Sure.
If time allows, we will try to answer all questions. If not, make sure that you leave your contact details so we can come back to you with answers offline.
Okay, first question. Regarding new people joining the company, how do you get hold of these people with such a good track record?
I just mentioned it. I think normally it is basically cherry-picking, and it's very often people we know and people we have been exposed to during the process of communicating poLight and TLens technology. I think it's basically the many people see that this is an interesting opportunity because it's new technology, it has the future, it has many different verticals.
Somebody has maybe always been working only on a mobile space, and they want to also be exposed to a company who are doing different things. I think we are basically an interesting company to be with. I think we have built an extremely dedicated and passionate team, which if you You can feel when you come inside that this is the place to be with, but still run fast.
Can you say something about interest in applying to recent positions in poLight?
We are normally posting the positions, but those are. I would say, the success we have is when we go in and pick and address kind of people we know could be interested. We just had, as an example, an open position on IT. We want to have a young, dynamic lady or guy to be with us to make new fantastic manufacturing data system. That has been super difficult to find, strangely enough. We have tried a lot now. If any of you know some young and promising IT people, contact us and we will give the most exciting job in Norway.
Regarding AR glasses, are there PoCs with Add-In design?
Yes. Actually, I just mentioned now that hot off the press a few hours ago, we got the confirmation of the design-in in AR space, and that is actually a case where there will be Add-In and not only that, but it actually will be two TLenses per glass.
poLight
I think future also due to the compactness, which is an Add-In design when it comes to the lens will give you. I think Add-In design is of high relevance for the future AR.
poLight seems to get traction in many segments. Has there been contact with new players in different markets now after getting references in more verticals?
Yeah. As I said in the beginning, having a reference platform now, which is steadily increasing, is maybe the most important sales tools we have. Yes.
You have been mentioning sensors as possible field of interest. Can you go further in detail on use case here?
These cases are developing very slow and we are kept at the arm's length distance minimum. But what I can say is typically laser-based systems. That's what I can say.
Why has it taken so long time to get design- win within smartphone?
I understand that question. This is a long story. How can I do it short? We came out with a product in, say, 2014, 2015, around there. We did the testing and qualification internally. We came out to the customer with great confidence. The test regime we were exposed to, especially in the smartphone world, was tougher and different from what we had been learning before. We failed. We had to go back, upgrade the product, do a new qualification round. We came back out in the market a year or two after, successfully passed the testing. What happened? We focused on the selfie camera. What happened?
Well, suddenly the screen was more important. It should be as big as possible, as small hole as possible. A nice high-performance camera in the selfie was on the second priority compared to a bigger screen. We had to go back again and say, you know, "How could we make the notch smaller in the selfie camera?" Then we came up with this Add-In concept, which needed a ecosystem to move. We couldn't do that alone. After a year or two, somebody grabbed that idea and made this Add-In design, and now we are where we are. It's been a tremendously long journey, but now we are there.
You said in the third quarter report that the medical case, you are doing more than just delivering the TLens. Can you say more about this?
Yeah. It's typically that if you take the Kavli as an example, what we do in that kind of application is that they are going to make a microscope. But the optical power they need is typically much higher than a single TLens can do. So for those kind of research institutes, we are taking their kind of microscope fixture, and we are packaging a number of TLenses into that, test it, qualify it. We do different coatings to be sensitive for different frequencies, and then we ship. So we deliver more like a system.
Also, when it comes to the design-in we have in the surgical equipment, we don't use many TLenses, but we typically also integrate the TLens into the tip of the instrument, because we have the competence to do that. It's an optically very sensitive device. To make that right with the right tolerances, it takes the qualification we have. Many of these kind of equipment providers, they don't like to do it. There we integrate more. We deliver more like a system than only a component.
Moser and the Kavli Institute's TLens microscope has now in February presented a breakthrough in brain research. How will poLight describe the importance of TLens being central to more and more scientific discoveries? Do this mean that even more medical customers will make contact in other areas?
I think I answered that during my presentation, I hope. When it comes to that particular reference system, I'm not so sure they're using the same instrument we are using, to be honest. Maybe it's a different one. It's brand building. It's creating visibility of TLens and poLight. We have seen many other universities which we are now preparing to supply to similar things. It is brand building and reference and hopefully visibility into the more commercial side.
poLight is currently working on a lens with a larger aperture, the so-called MOU project. Can you say something about which players you work with here? For instance, is it mainly a camera module supplier or a smartphone customer who has taken the initiative for the processor?
First of all, we have delivered that project according to our scope. In our books that is closed, and the revenue has been recognized already last year. That's it, anyway. That was one concrete case. What the customer is doing, we don't know in detail, to be honest. I think that our customer was a camera module supplier, and if a camera module supplier is not having a push from an OEM, they probably very often don't move. We don't know what's happening there. From our side, it's a closed project, but it's not a closed concept.
poLight has been granted a patent for TLens with a larger aperture this January. Can you explain how this is intended to be activated?
Yeah, activated. Yes. Good question. This is related to the last question. We are obviously trying to protect our IP. I think it's not granted. I think it's still an application, and it's basically two glass membranes with polymer in between, which can be quite big aperture size-wise, but it needs an external mechanical actuator. That's how we need to realize a system like that. It's an external mechanical actuator. It could be VCM. It could be other things.
Can you say something about how the total transmission of light through the TLens is?
My God, it's starting to be very advanced, these questions. Transmission is quite good. It's around, say, typical values around 97%, meaning 97% is going through without any reflections. That will be as we step by step improve the TLens and the manufacturing processes that we suspect will be even better in the future.
Can you say something about the feedback from the barcode product that was released on the market in December?
Only that we know that the customer has been supplying to only selected customer, and that we haven't heard any negative.
Can you say something about the AR glasses that were announced design- win in December?
No, not more than I said in the presentation. We hope that it will launch to market this year. It is a professional kind of use case, medical, education, manufacturing, logistics. More than that, I cannot say. Just, let's wait in excitement when it comes out.
Can you say more about the customers related to AR PoC projects?
No, only that we have an extremely good feeling about it, and all the companies we talk to seem to be very interested and feels that this is a good fit. We are working with all the, I would say, major players and others in that segment, as you can see from the overview. More than that, it's difficult to say. It's not gonna be a walk in the park.
I'm sure there will be challenges we do not see today which will come in that space also. From the opportunity pipeline, it's quite interesting. Also, I just want to say that if you take this space and compare it to what we have gone through in the smartphone world, there's a huge difference.
In this case, we are in the beginning, more or less. In smartphone, we came after many years. There was an established technology, VCM, which was used in all cameras, and that so that was different. You had to compete with an incumbent technology. In this space, in the AR space, it's different.
poLight has a lot of ongoing projects activities. Are there any of your customers who have many projects or are there mostly different OEMs? I also wonder if a single project can lead to several design- wins from the same customer.
Yeah. It's a mixed bag. There are some customer which also have different kind of PoC or planning PoC for different function in the mobile phone, as an example. But there is if you look at the names on our customer list, it's a good handful of different names. Some of them have different type of activities related to TLens.
If not confidential information, how many TLens have been shipped so far?
Yeah. It's at least close to confidential. What I can say is because we report numbers and if you meaning dollars or Norwegian krone, if we also report number of units, we are exposing us to competition that they can calculate what kind of pricing we are using. Anyway, what I can say, still early days for poLight when it comes to that, but we have actually now a good handful of, say some 100K has actually been delivered already to different customers.
How is competition progressing? Do you see any new emerging, any copycats?
No, we don't see any copycats. That may come, but it's gonna take them some effort and time and they will be visited by us. We haven't seen that. We do see competition, but nothing new during this quarter. It's basically the biggest competition we have is incumbent VCM, I would say.
Then in tunable optics is different types of liquid-based technology, which is out there. Like if you take the industrial market and you look at liquid is more used actually and have more references, much more references than poLight TLens in those markets. In that sense, we are a kind of fighting through an incumbent type liquid technology.
We think that our technology has some advantages, but we also have some disadvantages like aperture size, optical power. Yeah, for some cases we are best, for some other cases, maybe the liquid is best. Nothing obviously new during the quarter.
Do you encounter demands for true exclusivity from customers in order to do business with them?
Yeah. That is typically something which come up now and then, and so far we have said, "Thank you, but no thank you.
What is the strategy to cope with second source requirements? Are customers already asking for this?
Good question. That is one of the hurdles that if a customer decide to use tunable optics from poLight, there is no other ways to go and that they don't feel confident in that. There are other tunable optics like liquids, so that helps. Also you can say there are different camera module players which kind of, still they will source TLens from us. Yes, that's a topic, it can be solved over time if it becomes a problem by having licenses and stuff like that. Today, we don't see it as a showstopper, definitely not. It can, it's an important question we need to follow.
Do you face any problems or restrictions in simultaneously serving different markets considering trade sanctions?
Yeah, we are also, of course, carefully monitoring the situation between U.S. and China, and so I don't think that's good for anybody. So far it hasn't stopped any cases for us.
How about IPR, new applications, possible infringements, and poLight's freedom to operate?
Yeah, we do this quite carefully. We have advisors working with us on a quarterly basis to go through kind of mapping the landscape. I have some fantastic shareholders, which is giving me a lot of information on a weekly basis. So we spend a lot of time here. We protect ourselves as good as possible. We do patents, we do publications. So it is a big area which is actually costing. We are using millions a year to on this protecting us on the IP side. Freedom to operate on regular basis, we do freedom to operate.
I mean, what this means is that before we, on a regular basis, scan the market, the patents, and see that the TLens is used in such and such way, is there somebody stopping us. That's what we're checking on a regular basis.
With the recent funding, have you, for instance, increased the number of customer projects or further developments? If so, does this mean increased cost base, new staff, et cetera?
I think without the funding which shareholders been enabling for us, we couldn't do what we do today. We are preparing a lot of material. We're taking a lot of assembly development costs. We are supporting a lot of customer with dedicated personnel. We are increasing in headcount. Definitely that funding which we have been given by our shareholders has been super important to have a solid base to build poLight.
Do you anticipate reaching positive cash flow within current funding? If so, when?
I only would just want to repeat what we said in the guidance a few quarters ago, that 2025, we will be $500 million with a EBIT of ± 20%, that is of course, given that the breakthrough, you remember the operating milestones, which was the basis for that statement, is happening. If, say, if things are delayed, of course, then that will not happen. Or it will be delayed. What I can say, currently, there is no plans for raising capital.
The ramping up of shipments will increase capital binding and just need for financing. Which financing facilities are you contemplating?
Mm.
Can you still see need for additional equity funding?
Yeah. Start with the last one. We could never rule that out, but there is no concrete plan. In our plans, factoring is a means of financing. Also when we start to be at that stage where we have significant revenue, obviously other financing through banks are possible.
Do you still work on developing the TLens material, the polymer, and piezo parts to improve, for instance, optical properties like refractive index, optical power, and increased lens size, aperture size?
We do and we have a lot of things we would like to do. Having said that, as I write in my report, there is no doubt that the organization of today I will say 99% busy with helping customer to integrate poLight's TLens into products.
That is taking basically the whole organization and ramping. We have some funding from the research council historically and also hopefully this year. We have some plans of two stages. We have a plan for how to improve TLens as of today, what we call must improve. That goes in the direction of more optical power, bigger aperture size, better transmission, et cetera, et cetera.
Those are kind of things, more robust to drop tests, et cetera. Those are kind of things which we are working with, in a way, but I would say at a lower pace than compared to what we do for customers as of today. We have longer term like new products, based on the same technology platforms, which is also kind of in our plan and which we will execute on, when we have more capacity and we have built the organization.
Yes, there are plans, and particular for the short term improvements, there are very concrete plans. Of course, we need to balance the how much we can do and how much resources we can spend on that compared to making sure that we're winning new customers.
Have you any future plans of moving from being TLens component supplier to module supplier? Or do you consider it wiser to concentrate on developing TLens variants and improvements?
Yeah. Yet another good question. I think that we have a vision, and we have in our strategic long-term planning plans to and are willing to explore ways of moving up in the value chain, clearly. That could be different things in a way. In a way, there's no doubt that today the most important thing is to grow business based on TLens. In a way, that has +90% of the focus, get TLens out as many application as possible. Yes, we have a vision that we would like to be, when we grow up, to be something more.
Can you tell us about your work with your sales and project activities as well as distribution channels and how to further improve and expand them?
When it comes to our strategy on sales, it is clearly that we would like to be in important markets with local people with high competence. All my experience of 20 years plus being CEO in tech companies is telling me that you need if you are drinking coffee and tea with a customer on daily basis and you have high competence, the customer like to talk to you because you are knowledgeable and you are there, that generates relationship and that generates business. Sitting in Horten and only talking on Teams or only flying in now and then will not work. Our strategy is clearly to build a global organization where we have competent people in the important markets.
Has COVID been a significant obstacle for poLight?
It starts to feel like it is more difficult. Luckily, we have built that local organization, and without that, it would have been super difficult. We can see now that when we are ramping, and as an example, that we would like to have an easier access to send people to assembly partners, manufacturing partners, which has not been easy. In that sense, again, some of the kind of improvement processes we are working on could have been faster executed if we could send the right people when we wanted.
If the demand for TLens would be so big that you would be required to increase capacity several times in a year, how would you see this happen? How steep of a production increase do you think is possible over the next few years?
Yeah. Yeah, a good question. You know, there are different supply chains. We produce polymer in Horten, unlimited capacity. No problem. Can scale to whatever. We are using wafers from wafer fab STMicro in Italy. Definitely an issue to scale. Luckily, we placed a lot of POs there. We don't see the problem from that side in the foreseeable future, but maybe in two years we do. We need basically to be careful to plan that at the moment. Sooner or later, that will be a different situation. Today, it is doubling capacity, say, out of wafer fab, will easily take you a good year, I'm sure.
If you look at the assembly side of the supply chain, where they are making the complete TLens, the assembly partner as such can scale quite nicely in a way. It can scale, say, six months plus, nine months plus, something like that, depending on capacity, of course. The main bottleneck there is maybe the final test.
We have a very advanced machine which we are using to test all TLens, and all TLens are being tested, and that's a machine. That machine, depending on the situation in the market, can be everything from, say, six months to 12 months to get a new one. It's not a simple answer to that.
Yeah, it's a significant number of months to double capacity.
You say that customer demands are tough on the smartphone slide. Can you elaborate this? Are there any known obstacles?
I think there are many kinds of things they are doing testing, as I tried to mention when I walked through the presentation. I would say that one thing is definitely the reliability. Reliability is extremely important for the customer. Then you have other things like optical performance, quality, blah, blah, which is also, of course, important. In a way, reliability has for us been a big topic, and not only for us, for all technology going into this kind of market. I would say reliability is definitely something which we think we always need to work on.
We always need to work on how could we protect our product in the product itself, and how could we integrate TLens into different products in a way which also protect the TLens. TLens has a glass membrane, which obviously can break. That's what we need to kind of strengthen that product in itself by the way we design it. I think we can never lose sight and focus on continuously working on that, because a few years ago, they dropped at 1 m. Today, they're dropping it at 1.5 m, and they are tilting. You're dropping it into a rock with a tilt. There are extremely many g-forces which are impacting the TLens.
That is an area where we have to be continuously innovating improvements, and both in the product itself, but also how to protect when you integrate.
It's mentioned on the smartphone slide that the use of TLens in front cam may represent the route to back cam. Can you elaborate this?
Yeah.
Are companies interested in using TLens silver in back cam?
Yeah. What we mean when I say evolve to the back cam is that one of the things why we are not being used all over the place in a smartphone today is the fact that the camera engineers haven't used the technology before, and they're so used to VCMs in their brain that that's what they do, and that's what they know, and they know the weaknesses, and they know the strength of that technology.
They come to me with something new and say, "Why should we?" In a way it works as it works. You need to find the sweet spot where we can make a difference, a significant difference, which kind of wakes up the camera engineer. "Okay, let's try." That is the selfie camera.
Has been for a long time. When they get into the selfie camera, and they see the performance, they see what they can do. They can do all in focus, they can do bokeh, they can do so much faster, much nicer FaceTime calls, et cetera, et cetera.
When they see that, the engineers are getting used to it, then they will come off in a way, relax a little bit and shoulder down, and they will start to innovate ideas on how could we use that fantastic technology on the back end. Now we know the technology, poLight can deliver, customer likes it. Why don't we use it also on the back? That's gonna happen.
Are there plans to take over larger part of the assembly process, or will you keep using other partners for the next few years?
Yeah. No plans for that. We will always also internally have competence in assembly process, definitely. We do today have capability in our new headquarters in Horten and a new clean room to assemble TLenses. That we do, and as an example for some of the medical use cases, we do everything in Horten. Those are not millions and hundred Ks. Those are thousands, in a way. Even less. That's that. We would always like to have that capability, and it wouldn't take us a lot to increase that capacity to more. Not millions, but to more. For high volume, we foresee the smartest thing is to work with suppliers.
Is it likely to see TLens in phones like Apple, Samsung, or Sony down the line?
Yeah. We don't comment on names, so I think I will not answer that question. Sorry for that.
You have previously had several issues to overcome in phones due to hard tests and requirements. Are there similar issues in the AR glasses, and have they been solved?
So far, AR is still in the early stage. Smartphone business is very mature stage. They are very different. I'm sure there will come up topics on the AR side when it comes to specific demands and reliability. It is for me, and take this as a statement from me without being 100% precise. For me, it's difficult to see that things we are able to solve on a smartphone is not having a high relevance for AR.
Do you still have no plans on a share split?
No, still no plans.
Do you have any projects like tablets? If so, do these go under the smartphone category, or is it under another category?
We are on and off being exposed to that market. If there are cases there, it would typically be in under what we call the consumer. Consumer is e.g. smartphone, but could also be other things.
How did the recent COVID outbreak in the U.S. impact poLight's attendance during CES?
Yeah, we were planned to be with three people, including myself. We ended up not being there. A lot of companies withdrew last minute from CES due to the COVID situation. Luckily, we had a local employee in the Bay Area. He was there. We got to meet those we could meet, and we had the Teams meeting from Norway to the U.S. during that week intensively. The reports back from those who have been there are that it was really low attendance and very few people compared to what usually is the case.
Are you feeling excited for the MWC Barcelona?
Normally, I would. This year, what we're hearing is that very few is gonna attend of relevance in Mobile World Congress. We normally are there in a relatively big way, but the way we see it today, that's not gonna happen. As an example, we don't know of any of the Asian customer coming to Mobile World Congress, as an example.
poLight is involved in several smartphone projects. How many different OEMs are we talking about?
It's a good handful, names, I would say.
What is the reason for changing the three design-in possibilities from the Q3 to three design- win possibilities in Q4?
I'm not sure what that means.
Okay.
Let me see.
Okay.
What is the reason for changing the three design-in possibilities? In which area? We need to come back to that. Sorry.
Smartphone. Is there three design-in now?
Well, we have an answer to that in the presentation, I hope.
Why can't we see any design-in in smartphone? Do you still mean that TLens will be shipped end of Q2?
Yeah, that's still possible. Designed in or a mature PoC is something we have to judge how we classify it. In the smartphone side, there has been great progress during the quarter. We still, I would say, would like to place it in the PoC category. That doesn't mean that we're gonna see TLens, say, in mid-year being shipped for real case. How we consider the situation, I think it's better to classify it as a mature PoC than the design- in.
Regarding the
Still test to be done.
Regarding the smartphone projects, are they from several different potential customers and/or several models from single customers?
Yeah, I think we answered to that already.
How many TLens are designed in to this, design- win AR case?
I think we all have answered to that. We have one design- win, and we have now three design- in. Sorry, how many? What was it?
How many TLens are designed in to design- win AR?
Oh, yeah. Okay, sorry, I misunderstood. Yeah, in the design- win is one TLens. No, let me think. Yeah. Actually, I started to build up, but I think it's one or two. I need to recap. Yeah, sorry.
Regarding AR and design-in wins, are TLens designed-in world-facing camera or laser displays?
We're going AR and design- wins are TLens design. Yeah. When it comes to AR, the design- win is world-facing. When it comes to the latest design-in which I talked about, which is not in the report as a design-in, that is also a world-facing camera. But we are involved in PoCs for the laser side.
Regarding the second fabs, why is only one purchasing or-
Producing.
Are Singapore fab qualified and ready and producing, or are there still things to be done there, and therefore not only using Taiwan still?
Yeah, we're not in Singapore, but we are in Taiwan, and we are in.
Philippines.
Philippines, yes. Why we have been producing only for one of them is currently due to the volumes we are running at the moment. We want to concentrate that in one place to be able to kind of get the yield improvement work as efficiently possible.
Have you heard the poLight podcast, and what do you think? Will you recommend it?
I haven't heard it. There are some rumors I will be invited to one podcast. What I'm hearing is that it's getting a lot of good credits, and thanks to those who have been spending time to do it, of course it's good for us, but it's also important to say that it's a podcast for well-educated shareholders and it's not a company podcast. I heard that for a couple of weeks ago they were on the top two list for downloaded podcast from Spotify, so it must be good.
Regarding smartphone, you mentioned three possible design- wins. Have these already qualified TLens through EVT and therefore are three design-ins?
No. As we said, I think we answered to that in the presentation, I feel. There are still qualification rounds ongoing. When there is a design-in, it will be a design-in, but there are of course some of the PoCs which are relatively mature.
poLight collaborates with two assembly partners in Asia. During the quarter, pre-production has been ongoing with only one of the suppliers. What is the reason?
Yeah, we answered to that.
Yes.
Does it never end?
No. Appreciate all that you do. Ratio of converting PoC to product is low. How do you explain that you have 113 projects ongoing with several completed PoCs, but poLight's only in a few customer products?
That's the pain of being a newcomer with new technology. That's basically the route you have to go. Hard work over time, but it will pay.
Are there any new concerns regarding supply chain or are things moving smoothly forward?
I think smoothly forward will be an overstatement. We have a lot of challenges, I feel, but they're being handled as good as we can. But in these days and in this world and the situation we have, supply chain is not smoothly at all. I just had a talk with a customer yesterday, and he is saying that for their products, they had to redesign the product continuously to cope with availability or lack of availability of components. Supply chain today is everything else than smooth.
Can you say something about how long it generally takes to go from PoC to design-in and from design-in to design- win?
Yeah. You know, good question, but it's impossible to give one answer. Some go directly into project, not even doing a PoC. You go directly into design-in and then that maybe six months, 12 months, you could be. With the smartwatches, it was a little bit like that. Then you have other companies which start with a very thorough PoC, maybe PoC for a year or two even, and then they go into get involved in a product phase. Maybe that could take a year or two. It's really a big difference between company and application.
The hurdles in the process of getting into smartphone. Is it smaller hurdles per customer or bigger obstacles that prevent getting into any smartphone?
I think we have answered that more or less during the other questions.
In a given case that the situation between Ukraine and Russia increases.
Yeah.
Heavy sanctions are imposed on Russia and the U.S. and EU, will that affect poLight since you are represented in Russia?
When we say we are represented in Russia, I think that is basically it. We have recently got one fantastic good guy, Vadim, in Russia, who has a history in optics, very good optical engineer, and he happens to live in Moscow, and so he's kind of working from there. He will be traveling here and there when needed, and potentially also transfer to other places. That's basically that. We have one very senior guy, principal engineer in optics, which is working with the optical designs for us. Again, it's an example where we move away from only being good at TLens to be able to design lens systems, where TLens is a part of it.
It's, in a way, a step towards being able to do more for our customer and come up with innovative designs. We don't foresee any problems as long as Vadim is safe in his home.
Any laptop interest now? Can you say anything about background for key people you have hired lately?
There are laptops coming. It's kind of on and off. I wouldn't say that is any significant activity at the moment in the company.
The background for key people.
Yeah. That's the background for key people is basically be with the right people, close to customer and market. That's very important. Like the Russian guy get inside poLight competence, which means that we can innovate system solution, not only TLens solution. This is typically the background for.
We also recently got in a team from Oxford, which has been working in smartphone world for decades. That of course is to get us system knowledge. We need to move from only knowing TLens to understanding how the different markets integrate and how the different markets work. That's why we take on these people.
How is the new facility working in Norway?
Very good.
Do you still see three possible design- wins in the second half of 2022?
I don't know which market Arne refers to here. I would say if it is smartphone, which I suspect, we definitely see design- win possibilities in 2022 in smartphone.
Now for smartphone. Are there mainly large or small players that are willing to launch in 2022?
I don't think I will answer to that, but what I can say is that typically customers will take TLens into a relatively low volume device to start with and then in a way, get experience and then run from there.
The question you didn't understand was related to smartphone design-in possibilities in Q3 to design- win possibilities in Q4. Then if we recap the first question, what was the reason for changing the three design-in possibilities from Q3 to three design- win possibilities in Q4?
Okay. I'm not sure what you're referring to, but of course when we don't—it's difficult for us to see kind of when a particular case will conclude. It's, in a way, not definitely only in our hands. That's why. When I kinda maybe for one quarter to another, it's delaying it with a quarter or two. It's kind of my just my best assessment, what I think is more likely now compared to last time. Yeah, and I may be wrong.
Actually, that was the last question.
That's fantastic. As I said many times before, having you asking so many questions, hopefully most of them were answered. I know myself, there were some of them we were lacking a bit, so we could come back to you offline on that. But hopefully most of them were answered, either on Q&A or through the presentation.
I appreciate very much the effort you do to make this into a more dynamic event than I would say normally. I'm starting to be completely exhausted, so the weekend will be good to come. Next event is annual report, 27th of April 2022. Q1 is 12th of May 2022. That will be the next time.
I'm sure some of you will be in contact with me long before that. Thanks a lot. Thanks for participating. Have a great weekend when it comes, and see you next time. Thank you.
Thank you.