Kevin Dede: Okay. Can we take a step back and look at the AMLCD manufacturer? How did — how are you set up there? And vis-Ã -vis the press release in early January and — is an indication of — and Glenn’s question too, like where are you in the process of refining your manufacturing and streamlining it and restructuring?
Michael Murray: So I started in Q4. We’ve done a number of reviews of our internal AMLCD manufacturing processes. And specific to the clean room itself, we found some areas that we wanted to improve, which I hadn’t foreseen actually in the first little while that I’ve been at Kopin. So that was the major impetus for our raise that we accomplished in Q1 of this year. And the raise was driven by some CapEx that we’re going to be requiring for the fab. And more specifically, that CapEx is going into the areas where we’re able to build application-specific optical display assemblies. So that’s really the marriage between the display and the optics itself and that’s where we need to be very critical on how we manufacture these assemblies, because we can have things like particles that get in between the display and the lenses.
So those particles basically create a display that is usable. So that’s the area that we’ll be investing in this year, and we’ve got a plan to make those capital equipment investments that will improve our overall quality from the display itself, but also, and more importantly, in my mind, the overall application solutions. So that’s the entire assembly, not just the display.
Kevin Dede: Okay. And apologies for rehashing this with Michael, but where do you think you are in that process? Is this the fab that’s in Massachusetts? And when do you think you’ll be fully shipshape there?
Michael Murray: So the issue that we’re having is the lead time of the equipment itself. So we’re looking at Q3 this year is when I think we will be fully optimized on where I want to be in terms of the level of quality that I expect out of the fab. And certainly, the new equipment will be installed at that point. We should start seeing benefit from that. Now that doesn’t mean that we go from — that there’s no improvement now and then. There’s a lot of processes that we put in place, Kevin, like just the overall human process of downing, et cetera, and protocols. So that process is ongoing, along with a lot of education. So we’ve embarked upon that in Q1. And it seems to be improving. By the way, our on-time and full in some of these programs has increased.
I think when I started here, it was running around 63% on-time in full with one of the major programs, and we hit 89% sustainably over the course of this quarter. So that’s a digital step up in our quality improvement processes and like I said earlier, the other facilities are doing quite well. And the AMLCD for Collins hit 100% on-time in full all of last year. So it’s not all bad. It’s just that going into this application-specific solution space, we absolutely have to improve our processes, our protocols and some of our equipment. So I’d say Q3 of this year, we should be tucked up.
Kevin Dede: Okay. You offered Glenn the target of 5% margin. I’m wondering if that gross…
Michael Murray: Improvement.
Kevin Dede: Yes, oh 5% improvement, right? Sorry, apologies, yes. That slipped by the comment. I apologize, question. So is that a gross margin improvement, Michael or an operating margin improvement?
Michael Murray: That would be a gross margin improvement. So we’re targeting 5% to 10%. And that really comes from operating the two levers. The two levers are our costs, cost of goods sold. So the costs coming into the building, but also the quality of those materials coming into the building, then also working with our customers in terms of making sure that we either have the right price or raise prices to make sure that we’re covering our costs from the standpoint of inflation.
