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May 12, 2020

Microvision (MVIS) Stock: Too Big For Microsoft To Let Fail!

[Alpha Stock News]

Microvision, Inc. (NASDAQ: MVIS) is flying in the market this morning, trading on gains of more than 15% in the premarket. The most recent news from the company was its quarterly results reported on Friday.

While the company is struggling financially, the stock has been trending up since the results were released. That’s because Microvision is just too big for Microsoft Corporation (NASDAQ: MSFT) to let fail. In fact, there’s a strong chance that MVIS and MSFT will be in the midst of a transaction relatively soon. Here’s why:

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Investors Send MVIS Stock Up On Potential MSFT Deal

For a little over a week now, Microvision has been a hot topic among the investing community. There has been a rumor stirring that Microsoft is interested in acquiriing the company. Of course, if that happens, it will likely happen at a strong premium, creating incredible returns for investors.

So, why would Microsoft be interested?

Many, including executives at Microsoft see HoloLens as the future in tech. This augmented reality product is basically a pair of glasses that gives the user a futuristic look at the world, with the ability to pull apps out of the air and use hand gestures to make things happen in a world that’s mixed with what we’re really seeing and digital images.

However, HoloLens requires the use of components that were developed, and therefore, are proprietary to, MVIS. So, it’s fair to say that MSFT is dependent on the company for HoloLens to become what they want it to be.

There’s a good chance that a transition of some sort is already happening. We saw one big clue of that in the company’s quarterly earnings call. In fact, Sumit Sharma, CEO of the company, reiterated the company’s previous report that it has licensed out production:

WE HAVE COMPLETED AN AGREEMENT WITH OUR APRIL 2017 CUSTOMER TO TRANSFER RESPONSIBILITY FOR COMPONENT PRODUCTION AND TO SELL PRODUCTION ASSETS WITHOUT SELLING ANY INTELLECTUAL PROPERTY.

While MVIS hasn’t yet told us who they have transferred component production responsibilities to, there’s a very good chance that it is Microsoft. In fact, the United States Army has thanked Microsoft for taking over and streamlining production of key products associated with Augmented reality, products that were produced by HoloLens.

So, while the company hasn’t said that Microsoft took over production, but the Army has!

At the same time, now is a great time for MSFT to act. As mentioned above, Microvision is struggling. In fact, the company has taken multiple actions to spread out its financial runway, including reducing its workforce by 60%. Considering the company’s struggles, even with a strong premium, Microsoft may be getting a serious discount in any deal.

Interestingly, Mr. Sharma gave us clues as to what’s likely happening behind closed doors. In fact, based on a key statement in the quarterly earnings call, I believe that there is a conversation between MSFT and MVIS surrounding the purchase of intellectual property having to do with the HoloLens product. In a statement, Mr. Sharma said:

HOWEVER, GIVEN THE IMPACT OF THE COVID-19 PANDEMIC ON THE GLOBAL ECONOMY, DECREASING CONSUMER DEMAND AND THE DELAY OF AN EXPECTED OEM PRODUCT LAUNCH IN 2020, WE HAVE SHIFTED OUR FOCUS TO EXPLORING STRATEGIC ALTERNATIVES, INCLUDING A SALE OF PART OR ALL OF THE COMPANY. I WOULD LIKE TO CLARIFY WITH AN EXAMPLE. ACQUIRING ONE OR MORE PRODUCT VERTICALS MAY BE MORE APPEALING THAN ACQUIRING THE ENTIRE COMPANY FOR CERTAIN INTERESTED PARTIES.

The last part of this statement is the most important bit in my opinion. Mr. Sharma pointed out that any party interested in acquiring the company, may have more interest in acquiring specific verticals of the company, rather than the whole thing.

That makes sense from the standpoint of MSFT. While the company likely sees incredible value in the IP surrounding its HoloLens product, chances are that it’s not so interested in the rest of the company.

As such, while a full acquisition may be on the horizons, there’s also a good chance that even if Microsoft doesn’t acquire the entire company, it will acquire IP relating to HoloLens, which would give MVIS the cash it needs to get through these tough times and provide a runway for the company to make it to several key catalysts ahead.

The Bottom Line

The bottom line here is that Microvision is struggling, there’s no denying that. However, we hear too big to fail quite often. For Microsoft, MVIS is too big to fail.

Microvision holds the key to Microsoft’s future when it comes to their HoloLens product. As such, while MVIS has been struggling, MSFT has already stepped in to handle production. Moreover, key research and development employees at Microvision that have to do with HoloLens components have been hired at Microsoft.

Production has been pushed to Microsoft without Microvision losing any rights to IP.

EVERYTHING IS LINING UP FOR A BIG DEAL BETWEEN THE TWO TO TAKE PLACE!

Considering all of this, it only makes sense that a deal is around the corner. So, there’s a good chance that gains in MVIS stock are far from over.

By Joshua Rodriguez

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