Hi, everybody. I'm Austin Moeller, the Senior Aerospace and Defense Technology Analyst here at Canaccord Genuity. And today I am speaking to Michael Murray, the CEO of Copen. So, Michael, I guess just to start out, can you talk a little bit about Copen's background as a company and how it's evolved over the past few decades and the core focus today of micro displays within the business?

Sure. So many of the investor meetings that I start off usually start with, oh, I know Copen from 1996, 2006, 2016, because Copen's a 40-year-old company started by Dr. Fan out of MIT Lincoln Labs. I took the company over just over four years ago now. By background and introduction, I'm a turnaround CEO by trade. I spent over a decade at a company called Analog Devices here in Massachusetts. I did a little bit of work with the NSA in type 1 cryptography thereafter and worked at a company called Ultra Electronics, which most of you don't know, but it's a 100-year-old defense company out of the UK, which we sold to Advent here in Boston for $2.5 billion, which they just actually resold for $10 billion, so they did all right in that. But Copen right now is focused on micro-display development. We build four different types of micro-displays here in the United States, LCD, OLED, ferroelectric, liquid crystal, and silicon, and micro-LEDs, which is our big franchise that we're developing. We invented a fifth kind, Austin, which is the bidirectional micro display called Neural Display, which actually was the birthplace of our Neural I.O. chip, which we partnered with our friends over at Fabric AI to develop, which is a 1.6 terabit AI GPU transceiver.

Can we talk about brightness, energy use, and other advantages of using micro LED displays in headsets and other applications versus OLED or liquid crystal and silicon?

Sure. So brightness as a spec, the displays that you're all probably looking at right now, roughly speaking, I'm going to use a rough term in terms of nits. It's about 1,000 nits of brightness that you're looking at right now. That's a common LCD type of brightness. OLED, very bright. We can get up to roughly 20,000 nits of brightness with the top end device that we can build. The problem with organic light emitted diodes is they're organic. They're like your teeth, your bones. If I push a lot of current through them, they will start to degrade over time. It's just physics. So the more current and brightness you push through an OLED, the dimmer it gets over time. If you're flying an aircraft, that's a real bad thing. So you want to move to a micro LED. Our current micro LED that we actually demonstrated here at our tech day yesterday is capable of 1.8 million nits of brightness, which is 3.8 foot Lamberts of brightness. So that's basically a laser, for lack of a better term. Because these tiny little pixels act like a laser, that's why we can use them as a data-centric type of medium.

Can we talk about the micro-LED production line established for Soldier Born Mission Command and its current throughput and the capability to scale that capacity with more defense industrial base investments?

Sure. So for those that don't know, COPEN received a $15 million Industrial Base Analysis and Sustainment Act award, which is basically the Department of War reshoring a lot of capability here in the United States that necessarily we may not invest in on our own. So that production line is now being assembled in Westboro, Massachusetts. We received our custom-made bonder actually last quarter. It's now being implemented at its peak with the current structure that it is. We believe it can turn out about 160,000 wafers per year. Depending on the size of the chips that we will produce on those wafers, we could receive up to, you know, several million units per year.

Can we discuss Copen's involvement in building displays for FPV headsets for the drone dominance program? And then how many headsets would be needed for a specific quantity of drones as part of that?

Yeah, great question. One that I got pretty much every investor meeting today. So our friends from UMAC aren't here yet, so I'll talk badly about them first. So working with the drone dominance program with the Pentagon, essentially these are all focused one-way drones or OWDs. Essentially they're bullets, folks. They're not coming back. So those types of drones, the U.S. government wants to build around 3 million drones next year of this class. And the drone dominance program is all online. You can actually look it up and see the drone dominance gauntlet winners. Currently, Copen is supplying headsets to one of the top three. They've already supplied 6,000 drones to the Pentagon, and we've supplied headsets to go along with them. Copen right now is in five of the top ten in the current gauntlet. What we've learned is the ratio, depending on the size of the drone, if it's a one foot and below, the ratio is about one to ten drones. So one headset for every 10 drones. If it's a foot or bigger, it's about a 1 to 20 relationship. So one headset for 20 drones. And the reason that is is the ordinance and the size of the drone itself and the use cases that we see. So it's public knowledge that Ondas and UMAC are investors in Copen, as well as a company called Theon International, who most of you probably do not know. They are a Greece-based company and a major supplier to NATO. We're working with all three companies on headsets to drive, essentially, and pilot their drones. To give you a sense, next year we're guiding to about $10 million of revenue, at least in our first-person viewer drone goggles. But if more of the drone dominance competitors win that use our headset, that could go to $50 million of revenue next year. But we don't know who's going to win the next gauntlet. That's up to them. All we can do is supply them our headsets and wish them well. Did I answer your question?

Yeah, I think so. All right. What does the competitive landscape look like for Copen today? Are there manufacturers that have similar technology in the U.S., or is it primarily in Asia-Pacific?

Primarily in Asia-Pacific. Are we talking drone dominance or micro-LED?

Mostly micro-LED.

Okay, micro-LED, really there's four competitors. When we think about supplying the United States or AI infrastructure and AI factories, there's basically four competitors that we consider. The first one actually is a company out of the UK called Plessy. Plessy is a very viable competitor in micro-LEDs specifically. This crappy company at a Cupertino called Apple invested a lot of money into them to build a micro-LED for their watch. Unfortunately, Plessy and the UK government did something that I think is really silly, is they actually sold that company to the Chinese government. So, hey, I don't make it up. It is my thing. So the point is, Plessy, from our standpoint in the United States, isn't really a competitor because they can't support the United States government since they're owned by the Chinese government. Moreover, last week, this is very important to our friends at Fabric AI as well as Copen, the United States government basically initiated an enactment that says that even data center interconnects cannot come from China. That includes micro-LEDs and fiber optics and copper. That's a big deal for us. Now, that's opportunity one, or competitor one. Competitor two, a company called AMS Osram out of Germany. We know them very well. They do have a micro-LED. I think the competitive nature with that, with us, is their micron pixel structure is about 25 microns. Ours is about 7 to 9. So we're a little bit smaller, actually a lot smaller. And because we're smaller, we can switch faster and actually receive better brightness, which is an advantage for an AI chipset, as an example. Competitor number three, MojoVision, a company in California. You probably have also heard of this company called NVIDIA. They invested a timely amount of $2 billion into Matt Murphy's company, a company called Marvell. Marvell invested $150 million into MojoVision out of California. MojoVision is an MIT startup. They still use the MIT FAB, which, by the way, used to be my FAB when I was at Analog Devices here. We know the structure that they're working with in micro-LEDs very well. We think we have about an 18-month to 24-month advantage on MojoVision. And the fourth manufacturer of micro-LEDs is Copen.

Well, I guess we should talk about the AI infrastructure opportunity. So can you just go into detail on the AI infrastructure partnership with Fabric AI and the need for micro LED based optical interconnects to replace copper wire and laser inside of data center racks and chips?

So Josh is here. James is here. Great partners of ours. They see the vision in what I see as well, which is copper has had its day in data centers. Unfortunately, the reason why you need copper in data centers is there's no other alternative other than a fiber optic laser. Now there is an alternative, and it's a micro LED. Copper, at its best, can probably hit 800 gigahertz of frequency range. But unfortunately, when you listen to Jensen Wang and NVIDIA, he's already talking about 1.6 terabits to 3.2 terabits of data transfer. That's clearly not fast enough. Therefore, you have to have multiple lines of copper to achieve that rate. When you have multiple lines of copper, it's expensive, the density's higher, and it takes a tremendous amount of energy to cool that system because you're pushing a lot of current through it. That's why you need liquid-cooled data centers. So what to do? You can actually use a fiber optic laser. Unfortunately, fiber optic lasers have an MTBF that's really, really bad. Secondly, they need to be calibrated. And thirdly, they're physically bigger, and you need a fiber optic loom to go outside of it. So micro-LEDs and our partnership with Fabric AI is a great solution to provide a transceiver at 1.6 terabits in one chip. and Fabric has funded Copen to build that chip with them and for them. They have exclusive right to the hyperscaler part of this market. Copen is leading with a defense first posture where we'll work on the same chip set but with NIST, DISA, NSA, CIA, etc. Of course the Department of War who needs these chips as well and will be utilizing the same production line that the Department of War has already invested in Copen. Then that Department of War production line will also produce the chipset for our friends over at Fabric AI.

So I would assume that the Pentagon likes that they can probably get a better price point on the micro LEDs for their helmet mounted displays by building it on the same production line as Soldier Born Mission Command with the the data center optical interconnect?

Look everything in semiconductors is about utilization rate and throughput. The more wafer we ship through our fabrication plant in Westboro, the lower our costs become because our absorption rate of that factory goes up. The more wafer we push, the lower the costs of the Fabric AI chip, the lower the costs of our color micro-LED for Soldier Born Mission Command. And if you recall, the only competitor we have on Soldier Born Mission Command is a company called MojoVision on the West Coast. So Copen's producing fabric AI chips, Copen's producing our own chips that support the government and our production line and our production line for other headsets. We're still building color micro LEDs for other customers, of course, and Soldier Born Mission Command. We feel like we'll have about a 25% to 35% cost structure advancement and edge over our competition, and it will all be built here in the United States, which for the government and a lot of data center users now is very important. So, yes, the government's very happy with our choice to partner with Fabric AI, build this technology in the United States, and support the Department of War.

And I guess, can you just talk about how important it is that you can achieve significant power reductions, both in the power that has to be pushed through the optical interconnect and the cooling that's needed in the data center, just given there's a lot of public acceptance issues around data centers and their energy use?

Absolutely. So one of the theses that we worked on actually with James and myself and Bill Mufusi and a couple of the whiz-bang scientist kids that we have working for us is how much money can you save by switching to a micro-LED? And the numbers that we came up with was 27 kilowatts per rack per month, which turns into around $25,000 of cooling savings per rack per month. That is millions of dollars of savings for the average data center. And the amount of data centers you would know better than me, but there are many data centers out there and many, many racks. So this is a significant overall system savings of power. That is one piece of the puzzle. I know our friends at Fabric AI are working on some other pieces. We also have another company that Copeland's working with called Heat2Power that takes power from heat generation from the data center and turns it into electricity. So we're working with that company on a few new technologies as well. But this is one of the big advancements for micro-LEDs. And I believe Lip Boutan, the CEO of Intel, on Friday came out and said they're putting $1.6 billion to work for United States-based fiber optic and micro LED technologies for U.S. companies to build that to save the costs of the data center. So all of these companies are now putting money to work. NVIDIA put $6 billion to work, and they're going to put another $2 to $3 billion, I'm told, into co-packaged optics and near-packaged optics before the end of the year.

If we just think about the defense budget opportunity for helmet-mounted displays and FPV headsets, how could an additional reconciliation package, whether you want to call it Reconciliation 3.0, 4.0, increase the available budget capacity either for night vision goggles, home-mounted displays, or for the FPV drone headsets?

I think the budget itself is structured and it is adapting to what we're learning in Ukraine. I think that's number one. Number two, the amount of spending in first person viewer drones, I think the government's actually been very explicit that they're going to build 3 million drones next year and increase the amount of drones every year, especially in that one-way direction type of drone technology. So for us, we follow the budget lines very carefully. We see the available budget for things like aircraft HUDs, so that could be F-35, F-47, and certainly all the rotary wing, so that would be Apaches, et cetera. Those technologies are being upgraded from old LCD technologies to micro LEDs. And we have a number of programs of record that we're working on right now. Too early to tell if we'll win them, but they're significant. So that's number one. Number two, we're seeing thermal weapon sites also be upgraded from LCD to micro LED as well. And, of course, the big one, Soldier Born Mission Command. And that's a combination of daytime use and nighttime use. That's a $350 million to $500 million contract to me, to COPAN, that we're vying for right now and we'll have a good bead on in November. So the budget process and all those things I just talked about, we have direct line of sight to lines in the budget that are going up, not down. The big iron programs that we were on, like Abrams Tank as an example, still don't know what's going to go next with that because we don't know whether or not tank warfare and the Abrams program, what it's going to be in the future, and who's going to pay for it. So that's a lot of data to throw at you. But otherwise said, micro-LED is going up because we know the Chinese have that capability, which means they can see us before we see them, and that's a bad thing.

Can you discuss the NDA requirement that all defense components need to be sourced from outside of China, preferably in the U.S. by 2030, and how that plays into how you're thinking strategically about the data center market, which I assume the focus is on government data centers in the D.C. Beltway.

Yeah, so I have a couple of use cases that are kind of fun to talk about. So I'll start with the last one first, if that's okay. So let's think about large language models for a moment and think Austin is a GPU. I'm an input, you're all the output, okay? If I were to start to integrate data into the input of a GPU that states that people with A plus blood do not need a vaccine for SARS or any sort of disease that could be out there. So I'm training Austin to not worry about people with A plus blood, right? He's doing his large data model set, and he comes up with a vaccine that states that we don't have to worry about people with A-plus blood. So Johnson & Johnson and Roche, they start producing all of their vaccines, and they're not worrying about people with A-plus blood. Guess what? The people with A-plus blood are now vulnerable to that disease. If you want to target regime change, you can target a human genome. You can target a person based off of a pacemaker. You can do the same thing using large language models and actually induct regime change through learning models, and that is a very scary thing. The reason we think about this is we've done it as a country. Stuxnet as a program is exactly that. It's a large language model that looked for certain aspects of Iran's nuclear power plants and how it worked, and when it found those specific things, it turned them off. Large data models are no different than a virus. But if you inject it in the beginning on the input, the downstream output is yours, and that is catastrophic. That is why NIST, NSA, are all working now to provide data and technologies that are built in the United States that do not have backdoors in them. That's very important technology to get right. So if you're not going to allow GPUs to be built in China, you certainly shouldn't be allowed to build interconnects in China because A, they have a processor, B, they have memory, and three, they control your entire system on the input of your large learning model. That's catastrophic. I can't stress that enough. Okay? So that's the scary one first. What was the other one? Drones, okay. So drones, same problem. But that's more of a source of supply, right? So having a source of supply that isn't coming from China is critically important so that they don't turn it off if there were some sort of activity, one. Two, I can tell you, if you come to my shop, I will show you the active processors that are in every single micro-display in the world. These are active components. They're not dumb. The TVs that you have at home have a microprocessor in them. They have a Wi-Fi connection, a Bluetooth connection, and a speaker. that's all you need a micro display has all of those things except for the speaker so it's a system that you can hack through if it's built in China and you put in the right back doors that's also bad so for those two reasons the United States government has mandated that AI transceivers co-packaged optics and micro displays need to be built here in the United States and that will be the source of supply for drones, AI infrastructure and certainly AI interconnects And I think that to your point, we could just talk about the recent news that I guess the UK Ministry of Defense had some unmanned surface vessels that I guess had Chinese firmware on them, and they were transmitting all of their data back to China. Yeah, I mean, a perfect example. So this isn't new, folks. Of the things that we learn, and my background from doing work with the NSA in type 1 cryptography, the things that you read in the paper, there's 10 other ones that you don't read. and won't know about, right? So these things, unfortunately, are invented by us and our adversaries learn them because we use them against them, right? That's where Stuxnet came from. We actually used it against the Iranians. The Iranians used it against us. That's fair, but the point is, when you think about where the MDA is now and NATO is now, we've learned time and time again that chips coming from China have a back door and they call home. So we've got to get this right. And I think we made a major mistake offshoring a lot of our production and manufacturing capability, not only as an economy, but certainly from a national security perspective. And allowing access into our data centers is just horrific and catastrophic. So I'm glad to see that the US government is mandating that we build these chips in the United States.

Do we have any audience questions for Michael?

Yeah, great question. So it's a very intimate design cycle. There's no question. So I'm going to answer the question in three parts, if that's okay. The first part is we've learned a lot between the two companies recently that these transceivers, a standalone transceiver, does need to sit very close to a GPU, and the intermediary between those two are three ways. Over the air, through a fiber optic connection, or through what's called a wave guide, basically a piece of glass between the two. But they actually do sit today very close to one another. If you look at a very dense H100, as an example, or multiple H100s, they're actually very close in proximity. So the distance between that we need to go isn't that far. And I don't want to speak for Fabric AI. They're here if you want to talk to them. But we have a number of demonstrations that we want to do over the air through a micro optic like a waveguide and certainly using fiber. We're capable of all three of those capabilities and modalities. So that's one. And two, when we think about some of the technologies that we're focused on, chip-to-chip is very short-run. Board-to-board, which in a rack, it looks like a pizza rack, so you have a 19-inch rack, one GPO here, one GPO here, you've got maybe two inches between those two boards. That's not a long run for a micro-LED, not at all. We think we can actually do that today. So rack to rack or anything above about 300 millimeters, it gets really, really tough for us to transmit at that level. You can receive at that level, but transmit's really tough. So I would say short runs, yes, we can have glass or fiber optic or over the air. That's all doable with our chip set that we're developing right now, and we hope to demonstrate that and will demonstrate that at CES in January. It's about an 18-month design cycle from there to get into the next generation of boards. That's about the right level, in my experience, about 18 months to get into production. And then secondly, one of the very interesting data points that we learned from our white paper that was just announced, we actually had over 200 downloads in a week, but they were from really interesting companies that I didn't expect. They're more of the belts and suspenders type of companies that provide racks and services like Celestica, Foxconn, Penguin, companies that we've never really dealt with before, nor did I think would be interested in this technology, but they are because they're the ones that are structuring the communications of the racks themselves. So it's been a really interesting learning experience thus far. Yep, I think that's fair. And Josh and I have to have a conversation with James to see do we want to speed that up because one of the big things that we were concerned about was the receive side of our chip. Copen had never done that before, but we figured that out and we're actually going to buy it. We're not going to build it. So we have a great supplier on that now, so that risk has been retired. Now it's building LEDs, and we do that better, I think, than anybody in the world. So our risk just went down. Our speed just went up. Maybe we should go monolithic right now and still do the demonstration, but get to that, you know, tape out as quickly as possible and shorten that 18 months because we have an 18-month lead right now and I don't want to give that up. So I hope that's helpful.

Correct.

It's called interpolation or combination. That's a very tricky thing, and I'll answer it this way. I'm going to do hand signals. So if you have four LEDs, the ability for you to have four LEDs and transmit data It depends on how thick your LEDs are, the spacing between them, and how good you are at shooting against the receiver, right? So thinner is better. So if you have a 10-micron pixel, you need about a 20-micron spacing between them so that when you shoot the data, it doesn't hit the next pixel. Does that make sense? Beside that, you've got a receiver. So it looks like an inverse checkerboard. One checkerboard is black-white. The next checkerboard is white-black. So you're always transmitting and receiving data. Now, as you space those things out over time, the ability to hit that pixel becomes harder, because light tends to look like a flashlight. It comes out, culminated, and then does this. And as it does this, it hits a different pixel. When it hits a different pixel, things go bad. So that's the test that we're doing between distance and pixel size. And that's the experimentation that we're doing right now. Exactly right. Over the air, exactly right. If you use an intermediary or a medium, it's pixel-to-pixel, receiver-to-receiver, no big deal. But for us, we see a tremendous value of being over the air, as well as a low-cost optic being a waveguide or something along those lines. For those types of short-run applications, we think we have a very viable solution. And I was in California last week meeting several of the largest companies in the world, and they said, you've got the best transmitter in the world, by far. Don't worry about the receiver. Get it right for Fabric. It's going to be a great chip, and we think it's going to take a lot of that market, which is $63 billion worth of an optical interconnect market. So, you know, there's lots of room to play.

Is it way too early?

I mean, we have a spec with Fabric AI. I'm not going to go that's their spec. They can inform you on it. But what I can say, and Josh will beat me up if I go too far, But 1.6 terabit bandwidth, must have. Certainly the keying, we've figured that out, will be NZK. And we also know that from a structure perspective, it's going to be a transceiver, so transmit and receive. That is all on board. Now, pluggable, when you say pluggable, we could have a solution for that, because that's basically connecting to a cable or a fiber optic. right? Is that what you mean? Oh, to a CERDES? In some cases, we may not need a CERDES anymore. It depends on if you're in the processor. But if you're in the processor, you don't need to. You can take that data straight from the wire bond, and you're not even passing a CERDES. That's a co-packaged optic in that case, to be fair. It was a comparison against active copper CERDES. too early to tell but right now what we're focused on in development is spacing that product as far as we can until that interpolation becomes a problem so too early to tell how far we can go but I think the original spec was 300 millimeters. About a foot. You can run copper as long as you want. Oh no, but if you have a temp sensor on a board.

So look, how much of the inside of the rack market is available for home? I know, but normally the rack can be 7D. For a rack, you can only do within a single rack or an adjacent rack that's a very tight portion of the market. Yeah, but we're doing GPU to GPU. We don't have to have GPUs looking to hand off.

So that'll still be faster, more energy efficient.

There's two GPUs, GPU, and the app to design human, right? It depends on how the data center is already designed. It depends whether we're doing it over the air or putting some fiber in there, and how it goes on the data class itself versus the data setting, which there is. There's a lot of that. Well, I understand. But generally, to have widespread adoption, would one of the GPU or GPU vendors, just NVIDIA, have to design the way? No. I think you're also conflating two different things.

There's transceivers that can sit in a cable, like a 3M cable or a shot cable, and Microsoft has proven this, by the way. They have a cable with a micro-LED at the end, and it plugs into a rack. The end of that cable is another GPU, right? So that's a use case that you can actually look up. But that's a near-packaged optic. A co-packaged optic is what you're referring to, is a transceiver that's inside the actual package of a GPU. Two different things.

All right. Well, very engaging conversation. but thanks so much Michael for taking the time to speak to us about COPIN today and give us the latest updates Thank you very much for having us at the conference, it's been wonderful, we have a full day today and a full day tomorrow Awesome, well thanks so much for coming Thanks