​According to the Japanese Trade press, the South Korean government will create a database of both Korean nationals and foreign engineers that work in the country’s semiconductor industry, including those that work for local subsidiaries of foreign companies.  The list will be used to monitor movements of those personnel as they move across the South Korean border, to prevent key chip technology from falling into competitive hands.  Given the country’s expertise in semiconductors, battery technology, and OLED displays, the government has designated 12 national core technologies that it has made part of its 5 year IP protection plan including those mentioned above.
According to data from the government, over the last five years there have been 397 technology leaks that have been at the cost of South Korean technology companies, particularly Samsung Electronics, who maintains the county’s superiority in the OLED space and in semiconductors.  As part of the tracking program the government has also added stiffer penalties for such infractions, including a 3 year minimum prison sentence for violators and is expected to lower the threshold for close inspection of foreign companies that own a stake in South Korean companies that are in any of the ‘protected’ technology segments.  Previously such examinations were put into effect if foreign ownership was greater than 50%, with the new threshold said to be 30%.

Micro-displays, as the name would suggest are small versions of the type of displays that would normally be used for almost any visually oriented device.  Typically they range from under 4” (diagonal) to under .25” depending on the purpose.  Size however is not the only consideration concerning micro-displays, with the application determining most of the other factors, particularly resolution and brightness.  In applications where the display is being used near-eye, such as an AR/ VR headset, there is a necessity for higher resolutions in order to prevent the ‘screen door’ effect that occurs when the spaces between pixels are large enough to be seen, as described in our 01/31/22 note. 

Micro-Display resolutions can run from 1280 x 1440[1] to 2560 x 2560, but the more important metric is PPI, or pixels per inch, which is a measure of pixel density across a display, so a higher resolution across a larger display is not necessarily better than a lower resolution across a smaller display.
Example:  A 0.23” display with 640 x 400 resolution has a higher PPI than a larger 0.5” display with a resolution of 1280 x 960, or a 0.5” display with a resolution of 1600 x 1200 has a higher PPI than a 0.7” display with a resolution of 1920 x 1080.
As the PPI or pixel density increases, the distance between the pixels becomes smaller and the ‘screen door’ effect becomes less, especially given that such displays are so close to the users eye, so micro-display companies are always striving for the highest pixel density possible.  As those pixel densities increase the pixels obviously need to be smaller and as they become smaller they become harder to pattern on a display and therefore more costly, but there is another factor that also plays into producing a high value micro-display and that is brightness, which is a far greater issue for AR than VR.  As AR headsets can be used indoors or out, they require ultra-high brightness displays to compete with sunlight, while VR headsets compete against the opposite, a black background, but still need to generate enough light to make a scene look realistic and detailed, somewhere between 500 nits and 3,000 nits for current VR headsets.  As LCD displays generate their brightness through the backlight, they tend to be inherently brighter than self-emissive (OLED) displays and are less expensive to produce, particularly as most OLED micro-displays employ WOLED technology, a single color (white) OLED sub-pixel with a color filter, a process that reduces light output, but considerable work is being applied toward upgrading the process toward RGB OLED micro-displays, essentially smaller and more compact versions of OLED smartphone displays.
While these and other display details are essential for the AR/VR space to become truly viable, the companies involved in the development of micro-displays vary considerably in size and scope.  Much of the early development for micro-displays was done under government projects with a bias toward military applications, and only within the last 5 years has the focus broadened to include AR and VR applications.  Such military projects were intended to develop relatively low volume, high priced specialty items, and many smaller micro-display companies still retail such a customer base. However the attraction of a higher volume consumer oriented product has attracted some more recognizable names to the micro-display market, such as Sony (SNE), Samsung Display (pvt), BOE (200725.CH), and Japan Display (6740.JP), which has pushed some of the smaller companies to look toward more specialized micro-display technology that can give them an edge over those that are in the mass production business.
Micro-display development companies like eMagin (EMAN) and Kopin (KOPN) have been in the public market arena for a number of years but recently a company located in France filed a registration statement likely the basis for an IPO on the Paris or other Euronext exchanges, but more to the point, it gives some insight into the inner workings of such relatively small micro-display companies and the development of their products..  The company Microoled (pvt) which has been in business since 2007, specializes in micro-OLED displays, with applications ranging from the abovementioned near-eye products to those used in camera viewfinders or surgical (endoscopic) tools and a variety of defense and security applications.  The company also has its own line of displays designed for sports glasses (ActiveLook®) that are used in a number of external brand applications.   Between 2018 and 2020 security & defense applications generated ~60% of sales while sports optics generated ~30%, with the remaining 10% from high-value small run products, with two distributors, Creator Technology (pvt) in China and Collins Aerospace (RTX) in North America, representing ~61% of sales in 2020.  A proposed JV with Creator to build out a dedicated production line would likely influence that split if finalized.
MIcrooled uses STMicroelectronics (STM) and X-Fab (XFAB.FP) to create the TFT backplane necessary for its displays but does the OLED deposition on its own production lines in Grenoble, which has the capacity to produce 4,000 wafers/year (between 200,000 and 2m displays, depending on size) and is developing plans for a new line to be put in service in 2023.  The in-house lines are responsible for OLED material deposition and encapsulation, then passing on the displays back to STM or Toppan (7911.JP) in Japan, where the color filters are applied, then to Chinese or Taiwanese (lower end displays) contractors for assembly and final test, with the company overseeing the final steps for premium displays.
Product cycles are long for micro-displays used in non-consumer applications, with customer testing and product iterations taking 4 to 5 years in the defense space, and another extended waiting period between final approval and order placement, however this does give the company visibility of about a year and a long tail once the initial order has been secured, with the 2022 order book at ~$20m US..  To illustrate the sales development cycle for a project, Microoled offers the ENVG III night vision rifle sight project timeline and revenue stream in Figure 3.  While the tail can be as long as 5 years for such projects, one can see the attractiveness of consumer products, whose timelines are appreciably shorter and volumes higher.  This pushed Microoled into developing a micro-display module that contains a micro-display and optical system that projects a virtual transparent image a few feet in front of the user, and is specially designed to fit on the nose bridge of glasses.  The company’s proprietary low power, high brightness micro-display, allows the display to communicate with a smartphone or smartwatch via Bluetooth Low Energy, drawing minimal power that would give the device a 12 to 15 hour lifetime with a weight of 7 grams (.25 oz.) (module), as opposed to typical VR headsets that weigh between 180 grams (0.4 lbs) and 700g (1.5lbs.) and typical AR headsets that weigh between 50g (0.11lbs.) and 250g (0.55lbs).
If and when the company issues public shares they will use some of the capital to bring the color filter process in house, a 3 year process including 18 months to develop a color filter pilot line and another 18 months to develop a color filter production line. As mentioned above, additional capital will go toward the development of a 3rd production line, toward the formation of a JV with Creator to build a dedicated production line, and to expand the ActiveLook ecosystem through the company’s US subsidiary, Engo Eyewear.
While we have looked at the company’s financials in detail, we will not show or comment on such here so as not to give the impression that we are favorable or unfavorable to the company’s prospects, but the idea here is for investors to better understand how the micro-display industry segment works, at least for smaller companies, and to better understand what that will mean for the industry should the Metaverse grow rapidly as some predict.  That said, micro-display companies have been around for years and have seen commercial cycles come and go, so just because the CE industry wants the Metaverse to become the next ‘internet’ doesn’t mean it will or in any reasonable timeframe.  The good news is that the headlines generated by Metaverse talk, has led to an increasing number of funding sources, and while this has also led to increased valuations, it will help to push the development of micro-display technology along a bit faster. 
“Any fool can know. The point is to understand.”
― Albert Einstein
Note: SCMR LLC, has no interest in or any connection to any companies mentioned herein and any information presented is either from public sources or our proprietary research.  We have not public opinion as to the value of companies mentioned here and offer the information presented for educational purposes only.


[1] 2021 released VR product catalog.

While we already have a production schedule for Chinastar’s (pvt) T9 LCD fab in our model, sources in South Korea confirm that the company has placed orders for the equipment necessary for the new Gen 8.6 fab, which was announced las June.  The construction part of the project, which will have a capacity of 180,000 sheets/month when fully built-out, is expected to cost $565m US, with a total fab project cost of ~$7.2b, which we believe also includes a 60,000 sheet/month Gen 8.5 ink-jet printing OLED fab that will be built next to this new fab at a later date.  Charm Engineering (009310.KS), a South Korean company that produces inspection equipment (AOI) for LCD, OLED, and LED displays, and laser repair and die transfer tools (LIFT), has acknowledged that it has received a $11.2m order from Chinastar for the new fab, along with Top Engineering (065130.KS) and DMS (068790.KS). 
Based on the timing of the construction and the equipment orders and lead time, we pull in our Chinastar phase 1 production expectations for 2024 and push out expectations for production in 2025, although the amount of the change is relatively small.  Given the plans to begin construction of the T8 IJP OLED fab after the T9 project has begun commercial operation, and the fact that T8 will be using IJP instead of typical deposition methods, we keep a production date for T8 open for now.

Last week the Ninth Circuit Court of Appeals issued a ruling in reference to a case from the US District Court of the Eastern District of California.  That decision, which denied the plaintiff’s (American Cable Association, CTIA, NCTA, The Broadcast Association & the US Telecom Association) request for a preliminary injunction and upheld the lower court’s decision, was a step forward in California’s battle to reinstate the California Internet Consumer protection and Net Neutrality Act of 2018 (SB-822), a state regulation that would be restored after the FCC, under the Trump administration, decided to move broadband internet services from operating under common-carrier regulations (Title II), to ‘information services’ (Title I), which terminated  federal net neutrality rules.
The plaintiffs had sought an injunction to keep California’s attorney General from enforcing the state’s Net Neutrality rules, which codified the original FCC Net Neutrality Rules, under the conclusion that the FCC lacked the authority to preempt state rules because they had changed the classification of broadband services from Title II (regulated) to Title I (unregulated) which also caused them to lose the authority to regulate the states.  This was sort of a catch 22, as the deregulation of broadband services made in 2018 by the FCC actually took away their ability to supersede state broadband regulations, which leaves the state’s to decide on a state-by-state basis, whether they want to reestablish net neutrality rules.  Under the ruling, if it stands, the only way the FCC could force the states to abide by its 2018 ruling ending net neutrality would be to reinstate broadband to Title II, which would also reinstate federally mandated net neutrality, hence the Catch-22.
What the ruling does however, is to open the idea of reinstating net neutrality to state governments, who will likely face challenges from carrier associations that promote the idea that services such as speed or price should be applied based on the customer’s content, equipment, location or other factors.  This puts an end to carriers being able to ‘throttle’ certain customers who are using high bandwidth levels but paying lower fees and giving that bandwidth to its highest paying customers.  The battle is certainly not over, but the pathway toward net neutrality is once again unblocked for now.  The next step would be the Supreme Court, who will also look at the concept of net neutrality from a legal standpoint rather than a practical one, as opposed to the way the average user looks at internet services.  The general public has indicated in polls that it favors net neutrality but that will have little influence on the Supreme Court’s decision, if it makes it that far, as their decision will be based on precedent, or at least their interpretation of precedent, which means that a Catch 22 like the one above could set the tone for the internet for years to come, rather than viewing it as a public service.  Justice can be blind…

Last month we noted that Samsung Electronics (005930.KS) has established a new and updated presence in the Metaverse during CES called “My House” where potential customers could create (sort of) their own digital home for “millennials and zoomers”, complete with avatars they designed, and stocked with a wide variety of Samsung products that they can interact with.  This new interactive site, which is an upgrade to the “Galaxy House Experience” that Samsung introduced last year, where visitors could interact with some of the company’s smartphones and connect with members of the K-Pop group BTS, gives users the ability to customize their ‘house’ through the same Zepeto (035420.KS) platform.  Samsung has indicated that the new iteration has reached a cumulative total of over 4m visitors since its release on January 5.

The “My House” experience starts with the ‘front yard’ where visitors can speak to other visitors or walk to other houses that have been customized (colors, finishes, etc.), albeit with the same layout, where you can walk through the front door and enter the living room, kitchen, laundry room, office, bedroom, or bathroom.  Each room has its requisite Samsung appliances that you can pick up, turn on, or see or feel the output, or even play games on the living room TV or office monitor, but surprisingly there is little information about the products, and most offer just short loops of images on the screens or allow your avatar to touch random keys on the game keyboard while the game loops on the TV.  There are choices that can be made, such as selecting a particular type of Samsung TV to watch, but it is a far cry from visiting a real Samsung booth at CES (pre-COVID) where product information was first and foremost and booth ‘helpers’ were willing to show you how anything worked and point you toward senior staff if you looked like you had corporate buying power.
As the Zepeto platform is available for smartphones, it is visualized in 2D[1] and is essentially a relatively simple walk-through with a few interactive points, much like a simple game or social site, so calling this the Metaverse is like calling a house cat a ‘wild carnivore’ because it eats meat based processed canned cat food.  So we place little credence in this Samsung attempt to step into the bold new world of the Metaverse.  If one looks at the evolution of selling on the internet, one of the most innovative advertising tools was the ability to spin an image in any direction to see parts of the item that were not visible in the static image, and most product channels still do not have that capability, with most using multiple clickable image views, so a cartoonish avatar that can hold a descriptionless vacuum cleaner while listening to a radio does little other than act as a curiosity that Samsung marketing feels obligated to present.  If Samsun were willing to offer up the real data on site visitors, such as age, lead generation, sale completions, and return visits, it might offer some insight into the characteristics needed to actually sell items in the Metaverse, as opposed to just promoting the idea that the company is a hip and happening Metaverse participant.


[1] We thank The Verge for providing My House screen shots.

​It is not new news that the Chinese government has been pressuring large technology companies to avoid tactics that might be considered monopolization, especially in light of Alibaba’s (BABA) $2.8b fine, but while the Chinese government press highlights the ‘equalization of prosperity’ that such fines are said to cause, there is another game being played that gets little government coverage.  Chinese billionaires, particularly founders of some of China’s largest technology companies, have been setting up and contributing to charitable foundations that will ‘redistribute’ some of their wealth to the Chinese population.
The most recent was the donation of ~62.4m shares of JD.com (JD) class B shares to a charitable trust made by the founder and CEO Richard Liu Qiangdong during this week’s Chinese New Year holiday, with those shares having a value of ~$2.2b, a chunk of his estimated $16.3b fortune.   He is certainly not alone as Lei Jun, the founder of China’s Xiaomi (1810.HK) donated $2.2b last year, Pinduoduo’s (PDD) founder Colin Huang donated $1.9b in company stock, and Meituan’s (3690.HK) founder Wang Xing, $2.3b in stock, just a few days after the abovementioned Alibaba fine was recorded, with a number of interim donations from Alibaba, Tencent (700.HK), and others being made on an ad hoc basis for flood release or similar issues.
While giving is certainly a good thing, and giving in the amounts reflected above is even better, much of the giving seems to be a result of the pressure from the Chinese government and to charitable projects that are favorites of China’s all-encompassing Chairman, Xi Jinping.  One might draw the conclusion that these donations are to garner favor with the Chairman and reduce the focus on the unequal distribution of wealth that the digitalization of China might bring, or maybe they are just trying to emulate the Bill Gates philosophy of “…you can’t take it with you..” (or you can’t take it all with you), but it seems that the donations continue with the Qiangdong donation filing this week, so it would seem that the pressure I still on, and the donation phones keep ringing.  What’s a few billion among friends anyway?

​IC Insights (pvt), a Scottsdale based research firm, puts out a summary of semiconductor market performance each year, along with a forecast for the coming year, as do a number of other research organizations and industry associations.  As with much of the data we see, forecast and even past year data varies widely, usually based on inclusion specifications leading to outliers.   While we don’t keep our own semiconductor industry sales database, we do look at the data provided by others to get an understanding of how the industry is progressing on a monthly and yearly basis, and to see the variances in actual and forecasted data.  We sought out the IC Insight data because it breaks down the semiconductor market into two categories, OSD (Optoelectronics, Sensors/Actuators, and Discretes) and all other ICs, giving a bit more color to some of the smaller but more meaningful to CE product segments.
In particular the optoelectronics segment is of particular interest as it includes imaging devices, LEDs, OLEDs, and lasers, all of which play a significant part in CE devices, although that is not to say that other components are less necessary, as semiconductor sensors are the basis for the development of IoT and will see increasing applications in both mobile devices and static equipment.  However optoelectronic semiconductors, which convert electrical energy to optical energy (LEDs, OLEDs) or optical energy to electrical energy (image sensors) are key to devices with displays, which many consumer oriented devices use as the basis for communication to and from users.
2021 was a good year for the OSD segment, growing sales 18.0% y/y, while shipments grew 20%, far above the 10 year CAGR of 4.7%.  That said OSD grew less than the IC segment, which saw 28.8% growth in sales y/y and 22% in shipments (also above the 10 year CAGR of 7.4%).   While all three OSD segment components grew in 2021, optoelectronics was the underperformer, growing only 8.9% y/y, while sensors/actuators grew 27.9% and discretes, 26.6%.  We believe there were two factors that held back growth in the optoelectronics segment, the first being trade issues with China trade that caused brand share changes and lower overall mobile unit growth, and the second being the lower than expected demand for image sensors, which we detailed in our 01/14/22 note, with silicon based shortages adding to the slower growth.
Expectations for the OSD segment this year are less optimistic, calling for 10.9% y/y growth after 2021’s 18.0%, but in that composite, the optoelectronics segment is expected to grow 13.2% y/y, above last year’s 8.9% as mobile device demand increases and silicon shortages are reduced.  That said, we expect those expectations might still be a bit high, given that camera sales growth (image sensors) is less likely to be driven by an increase in the number of cameras/phone and more by the size and value of the image sensors used, but not outside of a range we see as possible.
In passing, just to be transparent, we note that the sales values we use for the overall semiconductor market are averages based on published data from a number of sources, and as averages, share values do not always add up to 100%.  That said, we also note that this year’s forecasted semiconductor market sales numbers vary by 13.5% from low to high, and while that might seem a wide range, it is far smaller than the 2021 variance of 35.8%, the 2020 variance of 18.1%, and the 2019 variance of 21.3%, which is indicative of both the value of individual estimates and the unknown inclusions and exclusions that (hopefully) account for the variances, and our the reasoning behind our use of averages for market values.

​Facebook (FB), now Meta, is a logical supporter of the Metaverse as an opportune way to create new data channels and stickier users, but as part of the Facebook/Meta Metaverse dream, the company had been ‘developing’ an in-house cryptocurrency since 2018 through a subsidiary named Calibra, under the crypto name of Libra, which along with the name of the subsidiary (changed to Novi), was changed to Diem in 2020.  The concept was to offer Diem through Messenger and WhatsApp to the “half of the adults in the world that don’t have an active bank account” and to the “70% of small businesses in developing countries that lack access to credit.”
Under the Facebook plan, Diem was to be a safe and private currency that can be used for any transaction, and was to guarantee that no data (except in limited circumstances) would be shared with Facebook or any 3rd party, although “if a Calibra product feature can be personalized or improved with data from Facebook”, customer permission will be requested, adding “We may also use customer data to conduct research projects related to financial inclusion and economic opportunity with, for example, academic institutions and NGOs, though any published results will only contain aggregated statistics.”
Facebook created the Libra Association  (changed to the Diem Association) to oversee the Diem network and was intending for the Diem to be a stablecoin, but not pegged to a single currency but rather a basket of currencies, which means that the value in local currency would vary, albeit likely less than Bitcoin or other unpegged currency.   The assets backing the currency were to be held by a ‘geographically distributed network of custodians with investment grade credit ratings’ in order to increase security, and Diem was to beinflation neutral as the number of Diem coins will be adjusted to the value of the exchanged currency, either by adding or destroying Diem coins, with Facebook and 3rd parties collecting interest on Diem reserves.
Unfortunately, Libra/Diem faced considerable opposition, particularly in Europe where Facebook and Google (GOOG) were facing substantial fines for anti-trust violations, with the French foreign Minister stating “It is out of the question” that Libra “become a sovereign currency, It can’t and it must not happen,” and the German European Parliament representative posting on his Facebook account that the company could become a “shadow bank” and that regulators should be on high alert.  With the scrutiny that Facebook’s original Libra announcement caused, and the added warnings from European regulators, Facebook postponed the launch of the currency and renamed it Diem, which seems to be a go-to concept that Facebook uses to deflect bad press or increased scrutiny. 
However on January 31, the CEO of Diem stated that the Diem Group’s assets and IP were being sold to Silvergate Capital Corp (SI) for $182m (+ $30 in associated costs), essentially selling the rights to the Diem stablecoin and the blockchain network associated with the currency, giving Silvergate its own stablecoin, although the press release seemed to indicate that the current Diem Association would be wound down, and the operations melded into Silvergate’s Federal Reserve Bank organization and the Silvergate Exchange Network, a 24/7 digital network that allows SEN network customers to move dollars to and from any other Silvergate customer account using a stablecoin. 
With the assets behind Diem, and the negativity of its association with Facebook, Silvergate has bought a way to provide a stablecoin intermediate for its customers, which is especially attractive given the release of the Fed’s “Money and Payments: The US Dollar in the Age of Digital Transformation” report which we highlighted in our 01/21/22 note.  The report favored stablecoins over other cryptocurrencies, although we expect the Fed is still a bit away from adopting a CBDC  (Central Bank Digital Currency) and has put much of the onus on Congress to pass legislation that would put such currencies into a federal regulatory framework that would give the public an understanding that such a currency would not require deposit insurance, but would be a direct liability of the Federal Reserve, with no credit or liquidity risk, something Facebook was not able to provide.

​A survey by SellCell.com has indicated that 20% of Android users intend to upgrade their phones to the Samsung Galaxy S22 line to be announced next week.  The survey, which had almost 11,000 Android owners participating, pointed to the Galaxy S22 Ultra, the company’s closest model to the now defunct Galaxy Note line, as their choice (44.4% of those making a change), while the standard S22 is the 2nd most popular at 30.1%, followed by the S22+ at 25.5%.  Over the last few weeks the Galaxy S21 Ultra, last year’s model, has become the most traded-in smartphone in the Android world, accounting for 22.3% of all Android smartphone trade-ins, which some conclude is a result of the popularity of the soon-to-be-available Galaxy S22 Ultra, but as the new phone is not yet available for pre-order we find it hard to correlate that data, especially as the Galaxy Z Flip and the Galaxy Z Fold are also on the top 10 most traded-in list, having only been released 5 months ago.
While 20% of Android users wishing to upgrade to a new model might seem like a relatively small number, the multiplier of Android users is ~2.8b globally, which would translate to 560m users willing to upgrade according to the survey, but as with most surveys, those answering the survey tend to have a pre-defined conclusion that draws them to the survey itself, rather than a man-on-the-street survey that randomly chooses participants, so we have to temper the overall survey results, but it does reflect a bit on a survey done last year that indicated that Android users were less likely to convert to an iPhone in 2021 than in 2020 as that trend continues into this year, or at least until the new Galaxy models are released.
The survey went a bit further, breaking down those who expect to upgrade by gender, with 30.4% of those expecting to upgrade being male while only 14.2% of women seem to be making that choice, with those intending to upgrade to a Samsung S22 model, 61.5% were men and 38.5% were women.  But the biggest segment of ‘upgraders’ came from the 25 to 34 year old segment, where 27.3% of respondents were expecting to upgrade, higher than both the 18-24 (21.0%) and the 36-44 (24.0%) segments, with the Galaxy S22 Ultra edging out the other models in all but the 18-24 year old group.
As we noted, we temper the results of such surveys a bit, but the seeming popularity of the Samsung Galaxy Ultra, likely the most expensive of the three flagship models, would lean us toward the popularity of the former Samsung Note line, which was equipped with the S-Pen, which we believe was its most popular feature.  While the S22 line is expected to have S-Pen support in at least one model, the S22 Ultra, there is the possibility that will also migrate to the S22+ or even the S22.  If so, that could change what is now a bias toward the top of the Galaxy S22 line, but for now the survey would indicate that Samsung’s S22 line will be well received by Android users.

Apple (AAPL) is expected to revolutionize the world of AR (Augmented Reality) later this year with the release of its first AR/VR headset, just as Google (GOOG) had intended roughly 9 years ago as noted in a piece published by Verizon (VZ) titled “How Google Glass Will Change Our Lives” or CNN’s (T) 2014 “Google Glass Signals a Wearables Revolution”, but while speculation toward such a device is never-ending, we look to some of the more obscure points that might make such a device more than just a shiny new toy for Apple aficionados.  One problem that plagues AR/VR users, and one that is not display related, is audio in the AR/VR world, an often overlooked item in the evaluation of the current state of headsets and AR/VR.
Typically AR/VR audio is delivered to a headset through a Bluetooth connection between the transmitting system, which could be a PC in a non-standalone device, or directly through headphones or buds that are part of the headset itself, such as with standalone devices.  As Bluetooth has a maximum bandwidth of ~1Mbps, and a lossless audio signal requires at least 1.4Mbps, compression techniques are used to ‘squeeze’ the audio into a Bluetooth stream, and those are under the best of conditions, which vary with source distance and obstacles.  It’s not to say that there are not some good codecs that can preserve much of the quality of an audio stream, but the ideal is always lossless transmission and in the case of immersive headsets, not only are the eyes sensitive to receiving misinformation, so is the body’s audio system.
In a sophisticated VR headset, perhaps one with eye tracking capabilities, the field of view is constantly being shifted as the user looks in different directions.  If those transitions are not made succinctly, the brain becomes fatigued or confused.  That same issue is also present for audio signals, where the sound source must change as the viewer moves his point of focus, and any inability to match those movements leads to the same problems noted for video with low latency in the audio signal critical in extending the number of users that can use such devices comfortably.  Wireless headphones stream data from a smartphone or similar device by cutting the audio data into packets and storing those packets in ‘buffers’ until the transmission stream is available.  Once transmitted to the earphones, the packets are again stored in buffers and then processed and reconstructed into audio signals for the headphones. 
While this process encompasses a few hundred milliseconds of time, the overall latency can be as much as 250 milliseconds, before any error correcting systems or additional compensation is added, but this should not be a problem for most audio as ‘time’ is not an issue for audio on its own.  However, when tying audio and video together, such as in a VR headset, that latency can become an issue.  Apple has recently been granted a patent that works toward solving this problem by adding an optical transmission system to a headset or buds, which does not need the packetization and buffering that a Bluetooth/codec system must use, transmitting raw data that can be immediately sent to the audio device.
There are issues that might cause the optical system to be unable to provide a complete connection from the source (say a smartphone) to the headset or buds, so an RF system would also be present with a sensing system that would evaluate the speed of the optical system and revert back to RF if necessary, but the overall result would be a ‘closer to lossless’ system that would be able to respond more naturally to the user’s movements in a VR system, and could provide lossless audio when used alone.  Whether Apple adopts such a system in its AR/VR device or even for its Air Pods remains to be seen, as with all IP, but such a system would go toward reducing or eliminating one of the issues that limit the AR/VR user base currently and towards Apple’s goal of providing lossless audio.