The consumer electronics industry is not known for long product cycles and as the number of brands offered on a global basis continues to grow, many CE products are released on yearly cycles in order to maintain product differentiation.  Brands are want to encourage consumers to upgrade each year by adding attractive product features that add élan to a particular brand or product, and with plans and incentives that make it easy and marginally less costly to do so.  The CE space has been trending toward increasingly shorter lifecycles over the years to meet those competitive challenges, but at the same time that push drives up development costs which include a wide variety of support services, many of which are particular to a specific model year or product type.  With the average smartphone lasting 2.75 years before replacement and the average laptop lasting only 3 years, brands expect consumers to play the replacement game and always have the objective of making sure marketing has something ‘improvement’ that they can hang a “…New & Improved” tag on.
As a subset of the CE space, the display industry is also fiercely competitive, and panel producers are like sharks, always on the move toward feeding orders into the massive capital investments that are necessary to maintain a position of strength in the industry.  While progressively shorter product cycles over the years seems to present more opportunities for display product wins, those wins are relatively short-term in nature and panel producers must feed the beast regularly.  As these product cycles shortened, display producers looked for customers that might have more sustainability in terms of product cycles and as far back as 1986 the automotive industry began including touch screens and infotainment systems which carried high margins, very long product cycles, and relatively light competition.

A number of display producers saw this as an opportunity to create a more sustainable customer base, and while the development and deployment cycle was years longer than typical CE products, product production cycles were also vastly extended, giving panel producers a long-term look  into their production window.  The development of OLED displays gave the automotive display industry a shot in the arm as LCD displays tend to be produced on rigid substrates, making they hard to configure in vehicles whose design lines ‘flow’, while OLED panels are typically made on flexible substrates that can conform to almost any interior shape, and the digitalization of a number of automotive components, such as mirrors, and the availability of displayable sensor information have increased the demand for automotive displays.
While widespread use of driver oriented informational automotive displays are just beginning to be part of the ‘automotive experience’, given the long product development lead times, more advanced automotive display products are already in development including some that use AR (Augmented Reality) to make it easier for the driver to see such information without having to take their eyes off the road.  By using AR HUD (Head’s Up Display) a wide variety of information can be displayed right in the driver’s field of view and with combined with an eye-tracking camera, the projected display can follow the driver’s focus wherever it may be.  We note that Huawei (pvt) claims to be the producer of the world’s first mass produced AR HUD system, used in the SAIC (600104.CH) Feifan R7, which is expected to be released in September.
Chinese panel producer BOE (200725.CH) has a subsidiary (BOE Varitronic (710.HK)) that has developed a similar product, or at least a road-tested prototype as part of OEM funded development project that is expected to move to mass production sometime in the near future.  The system projects a navigational picture ~60” wide at a virtual distance of ~25’ ahead of the vehicle, along with vehicle condition, ADAS information, warnings and other helpful information that is now available to the driver.  The projector is said to be 75% smaller than conventional HUD projectors and is based on Micro-LED that can generate peak brightness of 10,000 nits, allowing it to be used in bright sunlight, while other in-vehicle BOE displays are based on OLED and Mini-LED display technology depending on the application.
As panel prices decline to pre-pandemic levels, panel producers once again step up their efforts to find ways to generate more stable sales with automotive displays one of the most lucrative, but competition is increasing, with almost all LCD producers offering at least a few stock automotive panels, while Everdisplay (688538.Ch), JOLED (pvt), and Futaba (6986.JP) offer OLED automotive displays ranging in size from 3.5” to 14”, although we believe LG Display (LPL) is the share leader, with Mini-LED and Micro-LED displays and HUD projectors more of a custom market.  One point of synergy here is that HUD projectors function similarly to AR headset projectors, although headset projectors are orders of magnitude smaller, but both categories will benefit from technological developments, increased silicon production, and more advanced optical systems, where VR is impractical for automotive applications, other than as entertainment in autonomous vehicles (a scary prospect in itself).  As AR and VR are technologies looking for major applications, we expect automotive HUD to be one that can help to drive AR development over the next few years as more advanced displays and projectors help to make automotive HUD systems more commonplace while consumer AR gains recognition based on the benefits of those HUD displays.

Announced products and released products can be very different animals in the CE space and more so with AR/VR headsets, which have a tendency to be announced with considerable fanfare and drift off into the nether world of ‘things to come’.  Some of this is due to the fact that many AR/VR headsets are developed by small companies, whose resources are stretched and whose financials are based on weak funding sources.  That said, this year to date there have been 4 new AR headsets officially announced and 7 AR headsets released, with all coming from 2021 announcements, with the average time between announcement date and release date for those released this year being 126 days, with a low of zero and a high of 237 days.  Last year there were 21 announcements but only 12 releases, with an average time between announcement and release being 139 days, with a low of zero and a high of 820 days.  In 2020 there were 8 announcements and 10 releases, with an average time between announcement and release of 227.4 days, with a low of zero and a high of 620 days.
If nothing else, the time between announced AR headsets and their actual release is declining, and that is a good thing for keeping the public interested in the AR/VR space.  That said, there is also the issue of price, and our data suggests that the average price of released AR headsets has been declining each year since 2018, including 2022 to date, which we see as a key factor toward the commercialization potential for AR, and while we expect the rate of change will slow, as the AR space finds more ways to accomplish such mixed reality without the need for bulky or odd looking headsets, the public will have an easier time accepting their use, especially when compared to VR, which requires that the user be stationary, or at least limited to a small space.
We believe we are still a distance away from the concept of everyday folks walking the streets with AR glasses, and the need for world class applications will really be the driver for AR (see our note of 5/12/22 for details) but at the least, AR headsets are getting less expensive and closer to the necessities that are demanded of popular CE products, like actually releasing a product some time close to when it is announced, and not causing its users to become motion sick or quickly fatigued.  AR is really a tool that does not require major content creation or a Metaverse for support, just high quality, unobtrusive hardware and consequential applications, all of which seem to be getting closer to creating a syzygy (today’s word of the day[1].  Everyone is waiting for Apple…we are waiting for applications….
 


[1] Syzygy - a conjunction or opposition, especially of the moon with the sun.
"the planets were aligned in syzygy"
 

​There has been an endless outpouring of speculation, rumors, and flashy mock-ups of what is expected to be Apple’s (AAPL) first official announcement concerning the potential unveiling of its first AR headset and its ‘realityOS’ operating system at the Worldwide Developers Conference that begins today at 1:00PM ET.  The virtual event is expected to give information on iOS 16, iPadOS 16, macOS 13, watch)S 9, tvOS 16, and possible hints toward some hardware for the MacBook Air, the MacPro, and the long-awaited AR/VR headset that has been rumored for the last few months.
It seems however, that word has gotten out that Apple has told its suppliers to hold production until October, which would push out the release of any such product until 2023, rather than later this year.  Apple could still announce the reality OS at today’s event or in the near term, as developers need time to modify existing apps for the new headset, with Apple supposedly working on a migration tool to help developers adapt applications more easily.
While much excitement surround the potential for Apple’s entry into the AR/VR world, we believe if Apple is serious about the category as a major product line, it will take a considerable amount of time and product iterations to come up with what would be a practical AR/VR product.  With the category still in its infancy, and a trail of relatively unsuccessful products from other companies in its wake, we expect Apple to tread slowly and carefully, leaving as much time as necessary to its product development team before releasing even an early model, as this first iteration would be. 
To us, the real question is will the first release be an actual consumer oriented product or one designed to give app developers a platform on which to develop AR/VR content that would take advantage of the feature set that Apple will include in the reality OS, that will set it apart from others and allow Apple to create another proprietary ‘world’ of Apple AR/VR products to maintain a loyal customers base.  Apple’s delay (should that be the case) should not be looked at as a negative but more of an attempt to get their first product reveal as close to a practical product as possible.
While Apple has never been a technology leader in the sense of rushing to market with technological advances, their customer base seems to rely on them to make sure a technology is stable and benefits the user before they begin to capitalize on the trend.  This was quite apparent with Apple’s adoption of small panel OLED display technology which first appeared on the iPhone X in late 2017, over 10 years after the technology was used in early smartphones. 
We expect Apple is in no rush to jump start it AR/VR effort until it meets at least three goals.  First it needs to be technologically sound and reliable, second, it needs to serve a valid and practical purpose, and third it needs to be ‘cool’ looking, so postponing a potential release until issues are resolved would satisfy the first goal, allowing developers a physical and software development platform on which to work, could satisfy the second goal, while the 3rd will likely take a release that Apple might not consider ‘the actual product’ until it is able to apply its unique design qualities to make AR/VR its own.  We are not making excuses for a potential delay, but applying many of Apple’s historic principles to a new product line.  Maybe Apple will reveal all today and will prove us to have overthought the situation, but the company thinks differently than most.

​The Apple (AAPL) world is once again abuzz with rumors that Apple is getting ready to announce a long awaited AR/VR headset device in the near future, with much of the stimulus coming from a report that Apple board members were treated to a preview of the device at a recent board meeting, which was taken to mean that such a device (codename N301[1]) is in an ‘advanced stage’ and that a second AR only device (codename N421) is under development, along with an XR operating system (codename rOS[2]) under which the platforms will run.  Some have liken the potential release of an Apple AR/VR product to the announcement and release of the Apple Watch back in September 2014 and released in April 2015, the last new product category released by the company, but we have a great deal of trouble equating a digital watch, a form of device that has been around for more than 150 years, and a device that has been around commercially since 2013 and is still under considerable development. 
The rumor mill has been churning out ‘details’ about Apple’s AR/VR development project team (codename TDG for ‘Technology Design Group’), which has been said to consist of up to 2,000 Apple employees operating out of one of Apple’s Sunnyvale R&D centers since 2015, especially after Apple stepped up bonuses for key employees at the end of last year to stem Facebook’s (FB) talent poaching to broaden Meta’s own XR project (codename ‘Project Cambria’).  However there have been many false starts concerning Apple's AR/V’ development, with a number of loose timelines for an announcement and release passing by years ago (First was 2019?), so leaked progress reports, renderings, a component ‘details’ continue as the project winds on.  Excitement usually builds as we approach the Apple Developers Conference which starts on June 6, during which bits of code that might reference such an operating system or application for AR/VR are revealed during sessions or leak out ‘accidentally’, and this year is no different given the ~92% expansion in AR/VR units seen in last year, but also putting that in perspective, it equates to ~11m units, while smartwatch shipments reached over 127m units last year of which Apple has a roughly 50% share. 
While we can cite all sorts of potential features and component specs that have been speculated on in reference to a potential Apple XR headset, we expect Apple to push both design and performance specifications when it finally makes such a device available, but even the mighty marketing machine at Apple likely recognizes that aside from a ‘cool/hip’ design, any commercial XR product needs a very compelling application to make it a ubiquitous product, and asking customers to fork over somewhere between $1,000 and $3,000 for a headset that tells them how much further they have to run before they meet their daily goal or how much that handbag in the window costs on Amazon (AMZN) might be a hard sell.  The Metaverse is an attractive incentive for hardware manufacturers but the Metaverse is still a conceptual idea rather than a practical one and has little intrinsic value other than as a publicity tool. 
We do note that Google (GOOG) does seem to understand that in the real world applications sell hardware (see or note 5/12/22), especially for relatively new product categories, and while we expect Apple to capture significant market share in the XR space when it finally enters and will add considerable legitimacy to the space leading to market expansion, there still needs to be a reason for consumers to want to wear even a sleek and hip looking headset for an extended period of time.  VR’s entertainment value is obvious, although far from mainstream and so we look toward AR as a more realistic approach to the extended reality space, but again passing curiosity does not sell millions of units but practical applications do.  Did you buy your first smartphone so you could watch chimpanzees in Uganda from a secret encampment or did you buy it so you could speak to colleagues, friends and family whenever you were away from a ‘landline[3]’?


[1] You know its real if it has a codename, right? 

[2] The ‘r’ in ‘rOS’ stands for ‘reality’, another codename adding additional ‘code name cred’ to the story…

[3] For the younger generation, a ‘landline’ is a telephone that is connected to a carrier through a wire and is traditionally mounted permanently in a home or office and cannot be carried with the user.

Most surveys are a bit biased in our view as many of those willing to spend the time on surveys are doing so because they have already formed opinions on the subject andthere foire do not represent the public in general. However when we see such surveys we feel a bit obligated to present the data to investors, who then can formulate their own level of credibility, especially for some of the more narrow consumer device polls.  One such survey we have come across is focused on AR or Augmented Reality, a type of system that allows the user to overlay digital oimages of objects on a live visual image.  This isususally accomplished while wearing AR glases that allow the external visual image to pass through while tiny projectors and focusing optics project the digital image on the user’s eye where they combine with the actual visual image.
Rather than go through the history of AR products, we p[resent a few slices of the survey data, which profiles US consumer AR users.  We note that AR applications are typically commecial ranther than consumer, at least so far, as the usefulness of AR in the commercial space is high, particularly in the design and maintenance segments, where seeing an image of a device in front of you while you are looking at one that needs to be repaired can be a godsend.  Consumer applications however are a bit more limited, with directional information and product details some of the more common applications.  As retailers become more familiar with AR/VR, there are more instances where consumers can look at an object, say a piece of furniture, in a store or on-line, and place it into an image of their living room or bedroom to see how it would appear.  Similarly AR systems do the same foir clothing, giving the user a way to try on clothes visually.
AR systems are still evolving and are getting lighter and more natural looking, almost the same as regular glasses, so as the quality and style of AR glasses improves, we expect the consumer usage will also increase. That said, there is a big difference between what AR glasses ‘should’ look like for consumers vs. those used commercially, with the consumer challemges more difficult to achieve, so we expect slower AR growth on the consumer side until packaging challenges are solved, although they have progressed substantially over the last two years..
The survey data samsles shown below point to a number of peculiarities among US consumer AR users, most surprising are the mobile usage patterns (daily, weekly, monthly, a few times/yr, and once), all of which have declined on a linear trend line basis, which we attribute to the release of various Ar devices by Microsoft (MSFT), Google (GOOG) and Facebook (FB) over the last few years, which have not been as consumer oriented as hoped.  More obvious however is the US user age profile data that shows 82% of US consumer AR users are under the age of 45, but less obvious is that50% of consumer AR users are in families having income of $50,000 or less, and only 17% of those in the $100,000+ income bracket have used consumer AR.  The breakdown by gender was also a bit surprising as 46% of consumer AR users were women, higher than we might have expected.
All in, while we still see the survey data as leaning toward those that already formed opinions about the technology, we do note that we do expect that to lessen over time as more consumers become aare of the progress being made in consumer AR.  The willingness of younger consumers to try AR leads us to believe that overall usage will begin to increase over the next few years, especially as the Metaverse hype continues, even though that tends to be a fully immersive experience that requires VR rather than AR.  Consumer applications for logistics, such as prescription AR glasses that you could wear while driving that acted as a HUD (head’s up display) would have the ability to become viable consumer products for drivers that do not have such functions built into the vehicle as long as they are light and do not restrict peripheral vision, while those oriented toward sports applications, particularly running, could become almost as ubiquitous as common sport’s bands in the future.  So while consumer user usage frequency is still light, there is still hope for consumer AR, especially given that while the commercial AR segment is willing to pay higher premiums for more specific devices and applications, the potential consumer market for AR is large and open to new entrants that can solve those issues that commercial developers are less focused on.

Are waveguides applications for finding the ‘perfect wave’ at beaches across the globe, or are they those plastic things at the ends of sci-fi weaponry that help aliens shoot straight? No, they are neither of those but are a key component for XR products, especially AR devices.  While most folks are focused on the metrics of the display used in XR products, in AR the user must be able to clearly see what is in front of him, while in VR the display is the visual objective.  In order to get an image to AR glasses, the display image has to be combined with the actual visual image seen by the user, and that is done by optically combining the two sources.  The waveguide operates a bit light the optical fiber that brings entertainment to your home.  The display that carries the ‘overlay’ image into the waveguide which then reflects the image from side to side through the waveguide while moving it forward until it reaches the users eye.  While the waveguide is nearly 100% reflective on the interior, it is also transparent allowing the user to see both images at the same time.
In order to get the image to move through the waveguide it must be injected at an angle and the refractive index of the waveguide material must be high or the field of view will be relatively small, meaning you would be limited to a narrow left/right and up/down view.  That is where specialty glass producers such as Corning (GLW), who happens to be an investor in waveguide producer DigiLens (pvt) come in, creating such highly refractive glass that make waveguides viable.  There are a number of ways in which waveguides can be applied to AR products and other optical techniques can be used to create an AR system, such as mirrors and prisms, but waveguides are a hot topic in the AR world and  are considered one of the leading technologies for AR going forward, especially because they allow the display projection system to be small and less bulky that most optical combiners.
The problem with waveguides is they are more difficult to produce that typical display glass and must have uniformity and surface roughness metrics that are an order of magnitude better than those of display glass.  They are produced on wafers, which increases the cost of production but also allows for patterns to be etched in the glass that help to gather more light, and as such processes are more similar to semiconductor manufacturing, there is considerable room for advances to be made in production techniques.
DigiLens produces such waveguides and has just raised an additional $50m, bringing its capital from investors to $160m in 7 rounds.  Some of the investors in those rounds are Samsung Electronics (005930.KS), Universal Display (OLED), Dolby (DLB), and Corning, along with a number of US and foreign VCs, and will help push the company’s more specialized waveguide technology into volume production over the next year.  Given that their manufacturing process is scalable and cost effective while having better FOV and overall characteristics than competitive offerings, the company feels that they can dominate the waveguide space going forward.  We note that while there are other optical systems available to AR designers, waveguides are the most common in our AR database, especially among those AR devices that have been announced but not yet released.

Way back on 6/11/19 and again on 12/17/21, we noted a start-up company, Mojo Vision (pvt) that was developing a particularly unusual AR device, and when we say unusual, we mean not the more common ‘sunglass’ type but something pretty much undetectable to the outside world.  Mojo Vision’s vision is to create the first commercial AR device in ‘contact lens’ form, essentially an AR device that sits on your eye.  Mojo Vision is well funded, having recently raised $45m for a total of over $200m through both VCs and a number of well-known companies like Motorola (MSL), Dolby (DLB), Amazon (AMZN), and LG (066570.KS), and while the product is still in development, the company has revealed a bit more detail about the prototype of the Mojo Lens that it announced recently.
The basis for the Mojo Lens is a Micro-LED display that is less than 0.5mm (<1/50th of an inch) and has a PPI (Pixels/inch) of 14,000.  To gain some perspective, an Apple (AAPL) iPhone 13 has a PPI of 460 and the highest PPI we can remember seeing was 807 on the Sony (SNE) Xperia XZ Premium that was released in 2017.  A 4K UHD 65” TV has a PPI of 68, and a similar sized 8K TV has a PPI of 136, and the Mojo Lens display has a space between each pixel of 1.8µm, which is ~1/4 of the size of a human red blood cell, so you get the idea that there are a lot of Micro-LEDs squeezed into a very small space.  As the display can do little on its own, there has to be a backplane of circuitry behind each pixel that controls them, along with micro-optics that shape the display image to the eye itself.  This gives the system the ability to project text, graphics, and high resolution images on the user’s retina, which would be visible in any lighting situation, including when the user’s eyes are closed.
As we have noted before, there are a number of issues that make VR uncomfortable or even impossible for a segment of potential users, one of which is latency, or an inability of the system to keep the focus point of the image where the user is looking.  If the image does not track to the eye movements of the user, the brain begins to get confused and fatigue or more serious problems begin to occur, which makes tracking a user’s movements a key to a practical device.  The Mojo Vision prototype not only tracks using the usual accelerometer, gyroscope and magnetometer sensors that are familiar to AR/VR users, but uses a proprietary motion sensing algorithm that the company says is orders of magnitude more precise than current leading AR/VR optical eye-tracking systems and also contains 5G I/O and a 32 bit ARM Cortex-M0 processor.
Of course, all of this micro-hardware needs power, which means there is also a medical grade micro-battery and power management circuitry built-in to the Mojo Vision lens and a necklace worn by the user, which is designed to run the system all day and be wirelessly charged when removed.  The final product will have to undergo FDA clinical trials for safety and reliability, but when it comes down to a device like this the biggest question becomes, “What will it be used for?”  The eye-tracking features let the user interact with AR data or images just by moving visual focus so we know there will be interest in such a product from the retailing sector, where a user could look at an item, see how it might fit in a room, get specific item data, and by some means, such as a blink or nod, purchase the item within a few seconds.  However there are a number of other uses that might have less financial significance but could provide considerable help to users.
One such would be in sports training, where athletes would not have to look at a band or display and lose performance focus during training.  The company has partnered with Adidas (ADS.GR), Trailforks (pvt) for cycling, Wearable X (pvt) for yoga, Slopes (pvt) for skiing, and 18Birdies (pvt) for golf all relating to sports venues, while doctors being able to see patient data during an operation or in an ER without having to look at a device, screen or ask for information.  However the visually impaired, a group of ~12m in the 40 years or older category in just the US, face little help from most modern wearable solutions, such as headsets that feed the user audio information as to what he or she is looking toward, would certainly benefit from a development like the Mojo Vision Lens, which could help to augment sight related information to those who have impairments.  To that end the company has partnered with Menicon (7780.JP), Japan’s largest contact lens manufacturer to expedite the eventual trip through the FDA, and is expected to be testing the device on visually impaired subjects later this year.
The Mojo Vision Lens is still in development but as noted has recently reached the prototype stage.  There are still many issues to be resolved and regulatory goals to be met, but we are always intrigued by a practical application of a display technology, in this case Micro-LED, and one that does not force the user to stand out because of an external device.   Most of the other ‘electronic’ contact lens systems we have seen are more oriented toward drug delivery than augmented reality or improved vision so it is encouraging to see continued funding and actual progress toward such a product, and while the company is quite careful about releasing details, and rightly so, they seem to be on track toward a commercial product within a few years.  Hopefully the display technology will also improve during that time and higher resolution and less costly Micro-LED displays will be available when the device goes into commercial production.

As analysts we pride ourselves on making the more accurate estimates possible for areas that we specifically model in the CE space and take care to define as much as possible as to outside estimates that we use in our notes.  That said, other than in our own models, it is difficult to know what is included or not included in CE product or market estimates, which can lead to vast differences between estimates and considerable confusion when trying to make comparisons.  Some CE product categories are relatively easy as they have been established for years and at least basic data is available if one knows where to look, however newer CE products can be quite difficult to track making estimates unreliable and conflicting, which tends to make investors (or should) nervous about putting capital to work in that area.
One of the more difficult of the new CE product categories is AR/VR, as distribution channels are varied, ranging from direct from manufacturer, brick & mortar sales, app stores, or distributors, and the inclusion of items like hardware or software development costs or consulting revenue can make market estimates unreliable.  That said, in some cases we can get a better definition as to what is included in estimates, and while that tends to not be the case in the VR/AR world generally as hype is a big part of this developing industry, there are some exceptions that we believe may lead to more reliable estimates.
We have seen recent data concerning AR revenue estimates that includes both consumer and enterprise categories, where we can get an idea of what is included or excluded from the data.  While we might agree or disagree on what should be included or not included, at least we have some understanding of what is in the numbers.  Here is what is in and out of the data:
Included

• AR Hardware – AR glasses
• AR Software – AR Application sales
• AR Ad campaign (paid Ad placement) - but not the production costs of the campaigns
• AR software sales that is used to facilitate purchases but not the value of those purchases
• In-App Purchases
• AR content creation software

 
Not Included

• Smartphone sales – Despite the fact that some AR devices need to be paired to a smartphone, the phone can be used for other purposes so the cost of the phone is not included.
• PC/Laptop/Game Console – Same as above
• Enterprise consulting revenue
• Development costs to produce AR content or applications
• Transaction value of goods purchased using AR – If you buy a chair using AR, the value of that transaction is not included as it would be a retail furniture sale not an AR related product.

Network costs
 
We take exception to the idea that ad campaign revenue should be included in such data and wonder about what the category entitled ‘Enterprise Productivity’ actually means as we don’t have the ability to drill down further into the data, but it looks to be ~1/3 of the revenue stated for 2021, which gives us cause for concern, although it grows far more slowly that the overall totals for each subsequent year.  That said, at least there is a basis for understanding what is included and excluded from the data, which gives it more value than most.  We have additional concerns about the fact that while the growth rate decreases, which is to be expected, the trend line for forecasted years is quite linear, which is rarely the case in the CE world, but for now we take the data as at least a legitimate attempt at understanding the ability of AR to generate revenue.  The CAGR during the 2020 to 2025 period would be 24.9% based on the data.