Kopin (KOPN) buyers yesterday of 1000 January $7.50 calls for $5.20 to $5.50 to open and follows sellers in the April $7.50 puts earlier in the day. KOPN has 2,000 October $25 OTM calls in open interest and 2,000 March $17.50 calls from mid-February. KOPN manufactures components for augmented reality and virtual reality wearable products, including miniature active-matrix LCD displays, ferroelectric LCoS and OLED displays. Their primary end-market is defense applications (71% of sales) while consumer is the remainder and they have key customer relationships with Collins, General Dynamics, Google, L3 Harris, and Lockheed Martin. KOPN has a clean balance sheet with no debt and trades 25X sales and 56X cash. Earlier this week, they reported 60% revenue growth Y/Y and shipped their first 720p color microOLEDs.

Their military program is best-in-class in terms of wearables and they’ve got two notable program wins currently providing LCDS for pilot helmets (program running through 2030) and LCD eyepieces for thermal imaging rifles (early innings of monetization). Their backlog of programs in development is the largest in the company’s history including providing full color LCDs for Elbit Systems helicopters and replacing CRTs with modern displays in US army tanks built by General Dynamics.

The consumer side of the business has even greater potential. KOPN thinks the AR/VR market is set to grow into a $103B TAM by 2023 as we’ve pushed past the early adopter phase and now moving towards a decade of mass adoption. There are some big products like Google Glass and Panasonic VR that are moving into next-gen hardware over the next 1-2 years and they’ll likely become marketed much more aggressively for adoption. KOPN thinks they can win significant market share in the next wave of AR/VR products as their dual-OLED structure provides better color, brightness and clarity on the lens which makes a much more pleasurable experience for consumers. Their LED microdisplay is also much more complex than prior versions. Here’s the CEO on their 3/2 call as to why the market will shift towards micro OLED:

“My feeling is in the AR/VR space, the first thing to come in the consumer will be VR. The Oculus Quest 2 will indicate that. In the case of VR glass, that display they need, I can describe what the display people want, for the VR — the next-generation VR, its micro OLED to be bright – extremely fast and to be fast with no latency and also beautiful color and a big screen. And still, the eye glass, you can wear on your head. That’s why micro OLED will be perfect. Once we get into AR, especially once you got outside in the sunlight, you need much brighter specs. And current specs in AR is not very efficient. And people are looking at much higher cost — especially for color. So the color requirement, besides the brightness, easily [is the market] of what micro OLED is doing, which gives us a lot of activity because we are now on Facebook and everybody. “

Ladenburg with a $12 PT yesterday noting that the military business is a key driver this year with three programs likely to kick in during the second half of the year and then ramp in 2022. They also think industrial and consumer application could grow to tens of millions of units per year based on video game console sales.