The Backstory on Google’s Investment in Google Glass Micro-Display Supplier Himax

With 10,000 Google Glass “Explorer Editions” out today, and a broad consumer release said to come in 2014, the question is how many people will be wearing computers on their faces next year.

Google seems confident that the controversial devices will proliferate, and it just invested in a key supplier so it can expand capacity.

Shares of Himax, the Taiwanese maker of micro-displays, are up more than 36 percent today, to $7.05, after an announcement that Google will buy a 6.3 percent stake in the company’s display subsidiary in order to fund production upgrades so it can make more of the chips and modules used in Google Glass.

Previously, it wasn’t known for sure that Himax was a Google Glass supplier.

Himax said Google has the option to buy up to 14.8 percent of Himax Display Inc. within a year of the deal’s closing.

Shares of Himax are up 342 percent for the year, during which informed speculation ran high that Himax was supplying liquid crystal on silicon for Google Glass’s head-mounted displays.

Google confirmed today that Himax Display had been a partner for “several years.”

Said a Google spokesperson, “Himax Display has been a great partner for several years now. This investment is an extension of this partnership, which we hope will allow the team to continue to develop their operations.”

Other Himax Display Inc. shareholders include Kleiner Perkins Caufield & Byers, Khosla Ventures and Intel Capital, Himax said in its press release today.

But it doesn’t seem that the Silicon Valley venture capitalists made a direct investment; their stakes are due to Himax Display acquiring their portfolio company Spatial Photonics, a stealthy micro-display startup, last year.

Spatial Photonics had reportedly raised at least $34 million, with big-name VCs John Doerr and Vinod Khosla on its board.

There’s a theme here. Doerr is also on the board of Google, and he co-created the “Glass Collective” with Google Ventures and Andreessen Horowitz to invest in applications built on the Google Glass platform.

Meanwhile, a relatively little-known analyst, Mark Gomes of Pipeline Data, had pinpointed the relationship between Google and Himax before it was public in a March article for Seeking Alpha that has been credited with driving the stock up earlier this year.

In an interview today, Gomes said his company had identified Himax technology as a Google Glass component, based on frame-by-frame analysis of Google co-founder Sergey Brin’s presentation of the device, and then had noted a corresponding LCOS shipment increase in Himax’s quarterly earnings last year.

“Himax’s appeal is not their bleeding-edge technology, it’s more the ideal price-to-performance technology,” Gomes said. “You could use OLED for this, but it’s cost-prohibitive.”

Gomes said he estimates that Himax has an annual capacity of two million micro-displays, and he believes it could grow to seven million, at a cost of $25 million to $40 million.

He said the alternative LCOS supplier would be a company called Syndiant, but it’s privately held and doesn’t have a record of being part of large supply chains.

As for how many Google Glass units might be produced from this expanded capacity, that’s not necessarily clear. Gomes said he believes Himax will also be supplying micro-displays for Microsoft Xbox’s upcoming augmented-reality goggles.

However, LCOS has not been a huge part of Himax’s business to date, Gomes noted. The company’s primary business is integrated circuits for various devices, including smart TVs.