Double Vision -- Microvision's Commercial Promise Is Still Years Away, But Investors' Rewards Are Already Here.

Patience seemed a pretty important trait for Microvision investors back in 1996.

During that summer, as the Seattle startup prepared for its first public stock offering, chief executive Rick Rutkowski told tales of promise for a new technology that uses lasers to "paint" a picture directly onto the back of a person's eye. Rutkowski warned that perfecting the technology could take years.

Investors, it turns out, haven't needed that patience.

Late last summer, Microvision's stock price jumped more than 300 percent, from below $5, where it had lingered for months, to a high of nearly $19. Its stock increase for the year, 250 percent, was the second highest percentage gain among all Northwest stocks in 1997. Shares since have settled around $14.

The journey comes compliments of a promising technology called virtual retinal display, or VRD, that Microvision licensed from the University of Washington's Human Interface Technology (HIT) laboratory, which patented the earliest inventions.

VRD uses low-level laser beams, generated by a computer, to "paint" rows of data across a person's eye, creating the sensation of looking at a computer screen about an arm's length away.

The technology is still being refined. But in coming years, Microvision hopes to use it for everything from systems mounted in helmets that let combat pilots look at flight information, to broadcasting images from the end of a cellular phone directly into a

caller's eye.

The key, Microvision officials say, is that VRD could be more portable and have a higher quality - brighter, clearer, better resolution - than miniaturized monitors used today in televisions, laptop computers and smaller electronics.

Several key Microvision deals so far - with Boeing, Ericsson Saab Avionics, the Air Force and the Army - have focused on prototypes.

Microvision has a $1 million contract with the U.S. Army to replace a laptop computer monitor with a one-pound,head-worn device for soldiers in the field. The Army is also paying $4 million for a prototype of a helmet-mounted visual display for pilots. The idea is to let a helicopter pilot see flight and combat data while flying.

Now the question is whether Microvision can convince these customers to buy into its technology for the long term. And, ultimately, whether products that "paint" laser-pictures into peoples' eyes ever see the light of day.

"It's kind of, at this point, a wait and see attitude," says Tom Metzler, project commander for the U.S. Army's Aircrew Integrated Systems division, which is working with Microvision on the helmet systems.

Over the next several months, the Army will weigh the company's offering against two systems using smaller versions of the flat-panel technology used in laptops, bid by giant competitors Honeywell and Kaiser Electronics.

"A lot of things you can imagine look good on paper, but when you build the first prototype, that's when the real proof comes through," Metzler says.

A cautious approach

Microvision is still a small company by many standards. With 5.8 million shares of stock outstanding, it has a market capitalization of roughly $80 million (stock price multiplied by the number of shares outstanding), putting it among the smallest publicly traded firms in the Northwest.

Since it first issued stock in August 1996, the company has crowded windowless labs and a network of rooms in the ground floor of an Airport Way South office building. It has grown from eight employees in 1996 to 70 today - mostly engineers to tweak the technology, plus sales and marketing executives to keep looking for customers.

Rutkowski and other Microvision leaders have a simple plan: work first with government and big business to refine the VRD. Next, the company hopes to answer other industrial needs, perhaps in the medical community, before turning to mass consumer markets.

Investors are left wondering whether Microvision's bet will pay off.

"This is a developmental stage company, and it almost needs to be looked at in the same way that somebody would look at a biotechnology start-up company," says Peter Jacobs, an aerospace and technology stock analyst at Ragen MacKenzie, in Seattle.

Microvision has nearly $10 million in cash. The company projects that it could land contracts worth roughly $10 million this year, $25 million or $30 million the next. Profits, though, are likely years away.

"It is very, very difficult to project what the future prospects of this company will be in terms of revenue and earnings," Jacobs says.

But there don't appear to be any direct competitors to VRD, and Microvision holds the exclusive licenses from the University of Washington to several key VRD patents, with more of its own pending.

Microvision "can take a deliberate and cautious approach to perfecting the technology before it approaches the market place," Jacobs says. "One could say it has a little bit of breathing room."

Unrealized potential

The virtual retinal display was the brainchild of research conducted by Tom Furness and colleagues at the UW's HIT lab during the early 1990s.

The technology works like this:

A computer transfers an image to a device called the drive electronics. That analyzes the characteristics of the image - its color, brightness and resolution, for example - and sends instructions to another machine, which creates a laser beam.

That beam is then passed through a scanner, which vibrates the beam back and forth. The vibrating beam travels through an optical lens and shines directly into a person's eye. The beam is weak enough, Microvision claims, that it does no damage to a person looking at it.

The folks at the UW knew they were on to something special. For years, as computers and telecommunications technology has increasingly gotten smaller, cheaper and faster, monitors and screens that let people read information haven't kept pace.

Larger monitors are made from the cathode ray tubes that work in television screens, others, such as those on laptops, from so-called flat-panel displays.

But both of those technologies have their problems. Among other things, they're often too heavy, too hard to shrink, or don't provide the brightness or clarity needed when on the move in daylight.

The UW-Microvision relationship is critical. The licenses to the UW patents, Microvision officials say, give them a distinct competitive advantage.

Even today, customers, analysts and Microvision executives say they're not aware of any competitor working on a similar idea. A spokesman for Sony, a company once believed to be a likely candidate for such work, says company officials reviewed the technology but decided against pursuing their own project for now.

The UW's HIT lab still has a handful of people working on further changes to the VRD technology, which it shares with Microvision. But Microvision officials say they now are doing most of their development in-house. The relationship between the UW and Microvision, Furness says, has been a "rocky road."

Furness has claimed he should have received more compensation from the company. Microvision says his claims are invalid and are not an issue. Furness, who has not taken legal action, says he hopes he can still resolve the dispute with Microvision.

And the UW and Microvision have argued over details of the license agreements as new technical advancements have been made. The UW is currently concerned about efforts by Microvision to trademark the "virtual retinal display" name, fearing the university wouldn't be allowed to use the name itself.

"We have some issues of interpretation (of the licensing agreement), but they're local, and we're local. We just call each other up and look to iron things out," says Greg Hauth, a licensing officer for the UW's Office of Technology Transfer.

"On the upside, this (partnership) has been enormously successful for the UW, for Microvision and for its shareholders."

Microvision's challenge, when it first struck the deal with the UW in 1993, and now, is to find ways to package the VRD that are light enough and cheap enough to put in helicopter pilot helmets, eyeglasses and cell phones.

Much of that work takes place in the ground floor of the Airport Way South offices, located next to a Starbucks roasting plant.

Here, on a table in the company's optics lab, Peggy Lopez uses lasers, fiber-optic wires, electronic circuits and high-speed modulators to test the resolution, brightness and other characteristics of the VRD display.

Engineers in the offices around her work on turning the VRD technology into working products.

One problem with VRD is that it is difficult to direct the laser beam onto the retina during high-speed, or unstable, situations - obviously not uncommon for fighter pilots.

For now, the plan with the helicopter pilot prototype is to mount the VRD into the helmet and project a laser image onto a small lens. That lens would hang in the pilot's line of vision, acting as a screen. The pilot could see the data, but also look through the transparent screen to the real world.

The moment of reckoning for Microvision, for the Army deal at least, comes late this summer when the Army chooses which of the projects - Microvision's VRD, or Honeywell and Kaiser's flat-panel solutions - it wants to pursue for the helmet display.

Metzler isn't concerned that Microvision, a fraction of the size of its competitors on the Army contract, can keep up.

"The bigger companies have a lot of resources, and they've got a history of having worked the problems," he says.

But "everyone on Microvision is looking toward one project," Metzler says. "In a one-month period of time, it was obvious (Microvision) had spent more than that studying this."

Matt Nichols, a relative newcomer charged with running Microvision's marketing efforts, says the company is weighing its next step.

The military, for one, has other potential uses for VRD if early trials prove fruitful. Nichols says, Microvision officials are meeting with medical-device makers to create head-mounted displays for surgeons.

The surgical systems could provide critical patient data during an operation.

The big payday, though, could come if Microvision's technology can make the transition to mainstream consumer products: cell phones, laptop computers or video games.

Microvision leaders point to failed efforts by others pushing the latest display technology - including Virtual I-O, a now defunct Seattle start-up - as reason not to move too quickly to the mass market.

"Reading e-mail (from a cellular phone) is a market that will break. I don't know when it's going to break," says Stephen Willey, a Microvision executive in charge of shepherding technical progress. "Our job is to read the market and be there."

Thomas W. Haines' phone message number is 206-464-2537. His e-mail address is: thai-new@seatimes.com