One of the more disconcerting aspects of VR is the fact that you, as an outsider, in the same room with a VR headset wearer, cannot see the wearers eyes, which means you have not visual clues as to where they might be looking, and to a lesser degree, what their full facial expression might be.  While some VR headsets have externally mounted cameras that allow the VR headset wearer to see his or her surroundings, others nearby have no idea where the user’s next move might be or whether they have any idea that someone is in the room with them.  Apple (AAPL) has discovered this quirkiness and has added a feature set to the soon-to-be-released Vision Pro headset that they feel would solve the problem, although we expect not everybody might agree.
According to developer literature for the Vision Pro, when the user first purchases the headset, they go through a procedure similar to a developing an avatar where the user holds the headset in front of their face and takes a series of facial ‘shots’ including a number of expressions.  The system then creates an avatar based on the ‘shots’ and when the user puts the headset on, the avatar is projected on the front faceplate.  This looks, to someone on the outside, as if the users eyes are visible, although it is actually the eyes of the avatar, which, while it has relatively limited resolution, Apple uses some effects to hide the quality of the image.
“EyeSight” as Apple calls it, seems to be unique to the Vision Pro, and will likely be used for other even more unusual effects by developers after the device is in actual circulation.  The question is, is it more disconcerting not to know where the users’ eyes are looking or to see the visual image shown below.  We make the assumption that the system is able to track eye movements with enough speed not to make the avatar’s movements jerky or unnatural, but there is still something a bit creepy about the feature.  We are not sure if the Apple solution is the ultimate one, and we do give Apple credit for identifying the issue and proposing a logical solution, but it still seems a bit disturbing.
Here's the link to the short (50 sec.) avatar set-up video.
https://twitter.com/i/status/1724539857752519028
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The metaverse is still around, despite the tech refocus on AI, and VR headsets are the gateway to this world of make-believe, but until the metaverse is something substantial enough to attract even a modest portion of consumers, the VR space will have to rely on gaming to generate headset sales, with headset brands hoping that a more robust macro environment will help to boost sales this year, after a dismal 2022.  According to published numbers, which vary considerable from source to source, VR headset shipments declined ~20% last year, for the first time, after years of large gains, albeit on smaller bases in the early years.
There are many factors that come into play when it comes to VR headset sales, however there is one facto, aside from price, that might be considered the ‘elephant in the room’, and that is weight.  VR headsets are complex devices, containing considerable optical and electronic components, along with batteries (in some cases), cameras, displays, and fans, all of which add up to what can be a ridiculously odd looking and weighty headset that can become quite fatiguing.  As each headset brand is looking to provide its own combination of features and visual quality, much effort is placed on squeezing in as much necessary equipment as possible into the average headset, and while all brands try to keep headset weight in mind, headset developers are usually big fans of VR in general and are likely willing to accept a heavy and bulky headset than the average consumer.
Our VR database shows that the average weight of a VR headset is trending down, albeit slowly, with the average for headsets either released this year or expected to be released, is ~382 grams, or the equivalent of a loaf of bread with a few slices missing, so imagine playing a game with an almost full loaf of bread on one’s head, and it becomes easier to understand why VR headset weight is a significant factor for VR users.  [Note that the Hi/Lo range scale is on the left side of the chart, with this year’s heaviest headset weighing in at 625 oz, or the weight of a healthy squirrel.]
While all brands are interested in reducing the weight of their VR headsets, it is a tradeoff against technology and features, with many looking toward those characteristics over headset weight, but there are those that are working toward making VR headsets more than (less than?) the bulky devices they are today.  One company in particular has taken the weight challenge to heart and will be releasing its first VR headset this year that will clock in at a mere 127 grams, 1/3 of the average 2023 VR headset weight, and only 20% of the weight of this year’s heaviest headset.  While the company Bigscreen (pvt) has been around since 2014 and has released only a beta headset in 2016, the new ‘Beyond’ headset, which ships in 3Q, is designed to be the lightest and smallest VR headset available, and while it will certainly play games it comes with an interface box that allows the user to rent 3D movies (200+ available through the company), browse TV channels, watch live events, or do more conventional game playing (Twitch shared) and work oriented collaboration using Bigscreen software, which can be used on other VR headsets and is free.
The Bigscreen VR headset is not cheap, with a starting price of $1,000 (pre-order) and $100 for the audio strap, but when compared to other headsets, regardless of price, the ‘Beyond’ headset looks, by far, the most comfortable to wear for an extended period.  The only issue that might become a problem is that the company decided not to make the headset IPD adjustable.  IPD, or Inter-pupillary distance, is the distance between a user’s pupils, which is obviously different for each person.  Many Vr headsets build in mechanics that can change the IPD to match the user, a particularly necessary detail, as an incorrect setting can cause blurry images and rapid eyestrain.  Bigscreen did not want the heavy and bulky IPD adjustment hardware in the headset, so they will custom set the IPD for each user on order.  This solves the problem but will slow production and raise costs considerably and will limit the headset’s use to one individual.
All in, while the Bigscreen headset has not been field tested yet, the company’s more practical development direction gives hope that VR brands understand that they have a number of major hurdles to cross before VR headsets are everyday items.  Developers want all the bells and whistles, but that is not always what the average consumer wants, and they certainly don’t want a headset that feels like a squirrel is sitting on their head.  Image quality is certainly a major consideration with VR headsets, but some of the add-ons make only minor improvements and add to the bulk of the headset.  Absolute size and weight comparisons are hard to make without having the devices in physical reach, but we compared the images of the Bigscreen Beyond against the Sony (SNE) Playstation VR2, which sells for $550 and weighs 550 grams, and the Meta (FB) Quest Pro, which sells for $1,000 and weighs 722 grams.

average guy or gal in the street might not know much about this 5-day event, or even care.  In most instances there is little reason for the average Apple user to pay much attention to what is discussed at the conference, as they will likely not see the actual changes to their devices until much later in the year if they notice them at all.  But this year could be different in that not only will Apple present developers with a new version of iOS (iOS 17), and new versions of iPad OS, MacOS, Watch OS, and TV OS, as they typically do, but the company is expected to announce the long-awaited XR headset that has been rumored for years.
Apple’s XR development program has been around in its current form since 2017, but Apple has been making acquisitions relating to AR/VR since 2014 (see below) and allows developers access to a number of tools and resources that they can use to create AR and VR applications for iOS and iPad OS and have access to the Apple Store.  But Apple itself has not championed a physical XR headset, disappointing developers and fans a number of times in the past.  The most recent ‘rumored’ device, the Apple Reality Pro, would be Apple’s entry into the XR hardware space, and would be a driver for the industry, that in the long run, would likely have even more impact than Meta’s (FB) Quest series of VR headsets, as Apple’s
hardware following, with over 2 billion active devices, to Meta’s ~20m Quest headsets sold.  Of course, Meta has over 2b active Facebook users, along with Instagram, Messenger, etc., but hardware is Apple’s thing.
If Apple does decide to make an announcement concerning an XR device, it will be to stimulate developers to build or modify apps to operate under what will likely be a new sub-OS specifically designed for Apple’s XR hardware, seemingly called xrOS.  This code will work under iOS and will allow the device to communicate and process applications that reside on a secondary device, such as an iPhone or iPad.  Making the headset a ‘non-standalone’ device, reduces the bulk, weight, and computing power on the headset itself, making it more comfortable to wear, a concept not lost to Apple developers who are likely following many Apple design mantras that are consumer oriented over technology oriented, while tethering also means at least one other Apple device must be purchased or owned for the headset to be operated.
Expectations are that the headset battery, which in some headsets is in the headset itself, will likely be external, perhaps a belt or pocket clip-on, with a cable to the headset, while the communication between the headset and the paired device could be a cable or wireless, but the Apple XR device is also expected to not sport controllers, which would be a departure from the norm.  It has been suggested that Apple will use gestures to control the headset, with a large number of cameras scanning body movements, eye movements, area mapping, and even facial expressions for information that the xrOS can use to keep the user’s field of view correct.
The displays are expected to be something close to 4K micro-OLED displays, with on-board processing through Apple’s own SoC, either the M2 or a specially designed processor, with a focus on power efficiency given the battery-driven nature of the device, but while developers will be interested in the internals, consumers will be more concerned with how it looks, how it feels, and can it do things other AR/VR headsets cannot, and the idea that the device can operate as both a VR and AR device is not new.  Other VR headsets allow a black mask to be removed from the headset, allowing it to operate as an AR device through cameras, so the proof will be in the applications themselves and how easily the headset operates. 
​As we have noted recently eye-tracking is becoming  more popular as it facilitates foveated rendering, and movement tracking are common, so it will be incumbent on Apple to devise a gesture system that is intuitive for consumers, but on an overall basis, for Apple to have a successful product, especially on that is expected to cost between $2,500 and $3,000, it must be able to provide functionality, as while there will be an initial rush from ‘I always buy the newest Apple product’ people, it better provide more than ‘coolness’, and much of that will come from applications.  While the iPhone is a well-designed device, as are most Apple products, it also serves as a communication hub for its users, and while we do not expect an Apple XR headset to become as ubiquitous as an iPhone in the near future, it has to be able to do more than play games or allow you to buy things in the Metaverse.  We keep our expectations low but our hopes high.

ederico Capasso, a former Bell Labs (NOK) applied physicist who was one of the inventors of the quantum cascade laser, and now a Senior Research Fellow at Harvard, came up with the idea of using metasurfaces for flat optics in 2016 and has been leading research in this new field since, with over 70 US patents and over 500 peer-reviewed journals (not all on metasurfaces).  The idea of metasurfaces, or sub-wavelength thickness structures that are placed in a horizontal manner, is similar to that of more typical optical lenses that focus light using refraction, while metasurface optics use small nanostructures to scatter light and by capturing and changing a number of optical characteristics, including phase, polarization, and spectrum, can be used for a number of optical processes that are typically done with glass or similar medium.  The shape and patterning of these nanoobjects determines their optical characteristics, opening an almost infinite range of possible shapes, sizes, and materials for these lenses, which are typically in the range of 100nm thick, or 1/100,000 of the equivalent optical lens.

What makes metalenses important is that they are produced using photolithography or ALD (Atomic Layer Deposition), both of which are used in the manufacturer of semiconductors and a few years ago MIT scientists developed a computational technique that determined the optimal makeup and arrangement of metalens elements, enabling designers to meet specific optical parameters, reducing prototype and rework timelines.  As, in theory, the process by which the metrastructures scatter and re-emit the source light is !95% efficient, such lenses are thought to have an advantage over conventional glass lenses in terms of cost, size, weight, and performance.  Further a single refractive lens (glass) can project an undistorted image onto a curved surface, but in order to project on a flat surface, additional lenses are needed to eliminate the curvature distortion.  As much in the image sensor world is flat, only a single metalens is needed for a flat (2D) surface, such as in a smartphone, eliminating the need for the lens ‘bumps’ seen on most smartphones.
Companies like Imagia (pvt), NIL Technologies (pvt), and Metalenz (pvt) are developing applications that try to simplify the optical stacks used in a number of consumer electronics’ applications.  STMicro (STM) is using a metalens in its 6/22 release of a ToF (Time-of-flight) module, using Metalenz technology that is produced on STM’s silicon lines.   The device uses two metalenses that substitute for the more typical optical lenses and has a power consumption of 31.3% less than that of the optical version in continuous mode.

​While metalenses sound game-changing, and they are to a degree, they have two flaws.  The first is that they are small.  Achromatic lenses, meaning that the color remains the same through all parts of the lens, is relatively easy to do with glass, essentially making the lens thicker as it gets larger.  Metalenses are achromatic when small (few hundred microns), but have color aberrations as they get larger, which limits them to very small applications.  There have been positive lab results using a large number of such lenses to stich together a wide-angle image, but with no commercial application yet.  The efficiency of metalenses is the 2nd flaw, and while such is over 80%, meaning 80% of the light that enters the metalens is ’converted’, Fresnel lenses (plastic on glass) and pure glass lenses are higher, and as noted below, this can be an important factor in some applications.
One area of particular interest is VR, where complex optics add considerable weight and bulk to headsets.  Flat metalenses can be less than 1mm thick and are rectangular, which matches the format of most digital image sensors.  With pixel pitch below 10um, such lenses allow pixel or even sub-pixel beam steering and can replace optics that require a number of lenses or steering mechanisms.  Since VR displays are small, typically 1” or less, the size issue is less of a factor, but efficiency is more so, as the clarity of the image in VR is key, but considerable research continues and as better materials and patterns are found, there is considerable hope that higher efficiencies can become available, with a recent lab process having 94% efficiency, albeit not in a commercial setting.  The use of DUV (Deep Ultraviolet) patterning has led to higher efficiencies but work still needs to be done to move those results from the lab to commercialization.
All in, if metalens research is able to conquer a few limitations, they open a whole new world for AR/VR and a host of other applications that rely on physical optics.  Glass manufacturers and optical component companies do not have to worry about their business yet, as metalenses are still primarily a highly specialized field that has potential but no guarantee that it can be competitive with 3-dimensional optics, but every ounce of weight that can be removed from a VR headset will make them more compatible with the general public and metalenses are trying to fill that bill.

Ultra-high-resolution displays are difficult to make, but necessary for VR headsets to avoid what is called the ‘screen-door effect’ that comes from being able to see the spaces between pixels.  As VR displays are extremely close to the user’s eyes, screen pixel density (pixels/inch) becomes a major factor in the quality of the image, and the desire for ultra-high-resolution displays.  The problem is that the more pixels you try to squeeze into a small space, the smaller and closer together they have to be.  RGB OLED displays are produced by placing three (red, green, and blue) sub-pixels together to form a pixel, with each color being deposited through a metal mask, essentially a screen with very small holes.  While the mask material is particularly rigid, the more holes you cut in a sheet, the more flexible the mask becomes, and if the mask is even the slightest bit warped at any point, the display will not function correctly while making the mask thicker will cause ‘shadows’ that will misplace pixels and make the display unusable. 
 
These issues and more limit the pixel density of current VR displays and even a small amount of ‘screen-door’ can contribute to rapid fatigue for users, so display manufacturers continue to push the limits of display technology to move VR ahead.  As display technology moves forward, techniques for rendering images become more sophisticated, and higher display refresh rates that reduce motion blur, are now up to 120 times/second.  However the computing power needed to refresh the screen more frequently will drain the battery faster than a slower refresh rate, and that can be problematic for VR headset users.  Adding to the problem is that higher resolution displays inherently require more processing (more pixels) power for shading, artifact detection and removal, and a host of other functions, all of which require increased computing power.
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Some VR device manufacturers have come up with a solution taken from the human eye.  In the human eye, the retina, the portion of the eye that contains light sensitive receptors, ~7m cones and ~75m to 150m rods.  The cones respond to bright light and resolve color information, while the rods respond to low light with less color accuracy, which is why you see less color definition in low-light situations.  The rods and cones are not spread across the retina evenly, with a small (0.5mm) area, known as the fovea, covered only with cones that are packed tightly together, making it the point in the eye with the highest visual acuity.  As the eye focuses on an object, it uses that specialized region to provide the best possible image information to the brain, while the periphery is less detailed.  

VR designers have taken this cue from the human eye and used it to maximize the systems computing power on rendering exactly what you are focused on, while reducing the rendering quality for the edges of the image, and reducing the overall power requirements of the system  In theory this should work exactly as the human eye does, which rations the ‘brain power’ needed for things on the edges of your vision, but the human eye can do one thing that is absolutely necessary to make this concept work, and that is movement.  The human eye optical system moves eye focusing structures, constantly refocusing whatever you are looking at on that most sensitive portion of the retina, the fovea, but VR displays are static, which makes it impossible for the system to reduce processing in areas where you are not focused, as it does not know where you are looking at any given time.

​Not to be stymied, VR headset engineers came up with the idea of eye-tracking, by which using cameras , sensors, and infrared light sources to capture eye motion by reflecting a non-visible light source on the eye’s cornea and lenses, or in some cases the blood vessels of the eye.  This location information is fed to the system which then is able to lower the computing power needed to process the image outside of the user’s actual gaze, and as the user’s focus changes the system responds by shifting the ‘processing focus’.  Neural networks and Ai algorithms are also being developed that will ‘learn’ from the user’s movements and help the system to predict where the user’s gaze might move next to improve the system response time. 
While only a few VR systems use the concept of ‘foveated rendering’ combined with eye-tracking to improve VR performance, eye-tracking is becoming more the norm in the latest crop of VR headsets, which paves the way for the use of foveated rendering as a more common feature over the next few years.  Approximately 30.8% of VR headsets that have been or are scheduled for release this year will have eye-tracking and 62.5% of those already incorporate foveated rendering systems.  As eye-tracking becomes more common we would expect the technology to be adopted by most, if not all, mid to upper tier VR headsets, improving battery life or allowing for additional processing that will image quality.  As ultra-high-resolution displays push toward higher resolutions, such rendering systems will become even more important to VR designers who have to contend with the balance between battery power and the weight of a VR headset,
 

Way back in June of 2019 we noted that a small California-based company known as Mojo Vision (pvt) was in the process of developing a contact lens with a Micro-LED display that was to be 1/50th of an inch across, with a pixel density of 14,000 ppi (pixels/inch) that would allow users to see images and data superimposed on the user’s vision, without the use of AR glasses.  The company, which had raised $108m at that juncture, had the backing of Motorola (MSI), Google, LG Electronics (066570.KS) and Hewlett Packard (HPE), was in stealth mode at the time and we had little contact until last year when it showed a prototype of its AR contact lens, which included a power management chip, a communication module, motion sensor, accelerometer, gyroscope, magnetometer, and micro-processor, along with the Micro-LED display in a breathable plastic shell..

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Unfortunately the target market, the visually impaired, proved to small to support the necessary product development, so the company shifted focus toward the development of ultra-high-resolution displays based on Micro-LEDs and recently indicated that it had developed the technology far enough to reach a pixel density of 28,000 ppi, using sub-micron sized blue Micro-LEDs and quantum dots for color shifting.  As 14,000 ppi already would be the highest pixel density display available, the push to 28,000 ppi would be a significant leap ahead.  Mojo Vision has also developed the necessary backplane and bonding technology and advertises the ability to manufacture 300mm GaN on Silicon at high volumes.
Along with the shift in focus comes a 75% workforce reduction, as the contact lens project required further funding that became scarce as the company tried to miniaturize the battery and processor to include them in the device, as the prototypes used external power and processing, so Mojo Vision is added to the list of those that have tried to develop such a device, including Google’s parent Alphabet () that abandon a contact lens development project that could also monitor glucose levels in a user’s tears.  Hopefully Mojo Vision can capitalize on their Micro-LED technology, which seems closer to actual availability than the contact lens concept and would certainly be a step forward for Micro-LED AR displays if it can be produced commercially at a reasonable cost.

While we are on the subject, we thought it helpful to share a few facts concerning the AR/VR space.  In 2022 15 VR headset models were released from 10 brands, down slightly from 2021 when 17 models were released, again from 10 brands, with 2022 seeing 2 new brands releasing product and two that released in 2021, skipping 2022.  In the AR space, in 2022 17 models were released from 15 brands, up from 13 models in 2021 from 12 brands, with 8 new brands entering the AR space last year.  As smaller (and sometimes larger) companies tend to announce new models with release dates in the future, we enter 2023 with 22 announced VR models, 5 of which were announced in 2023, 11 last year, and 6 in 2021. 
While carrying an announced but unreleased model since 2021 might seem foolish, the Sony (SNE) Playstation VR2 headset was announced in October 2021 and will ship (hopefully) in late February, 730 days after its announcement, so while some announcements might fade into non-existence, we carry them until we know they are officially withdrawn.  The AR space enters 2023 with 14 announced but unreleased models from 13 brands, with two announced this year, 10 remaining from 2022, and 2 left over from 2021. 
One factor for AR/VR headsets that we monitor is whether the devices are stand-alone or tethered,, with standalone meaning they do not have to be attached (either by wire or wirelessly) to a separate device, such as a smartphone or PC.  There are both positives and negative to each mode, with the tethered devices requiring less local (on headset) computing capacity and power, usually equating to a lighter headset, at the cost of being less mobile.  Of the VR devices announced but unreleased this year 63.6% are standalone, while last year that spiked to 80.0%, with 2021 coming in at 64.7%,averaging 69.4% over the current and past two years.  Given the computing and power intensive imaging necessary for VR headsets, we would expect standalone VR headset share to remain between 65% and 75% this year.
In theory AR headsets should be less computing and power intensive and should therefore show a higher rate of standalone vs. tethered devices, however that is not the case as the current and past two year standalone average for AR headsets is 56.5%, lower than that of power hungry VR devices.  That said, the sequential change goes from 45.4% standalone in 2021 to 52.9% in 2022, and 71.4% this year, which establishes a significant trend toward standalone AR.  While we expect some of that trend can be accounted for as we noted above, it is important for consumer AR glasses to be ‘good-looking’, which implies thin, light, and unobtrusive, which we expect has pushed AR headset designers to trade off extended battery life in lieu of a more normal looking device that allows the user full freedom of movement, leading us to expect the trend for AR headsets to be standalone to continue.
Headset price is an obvious factor that has considerable influence on both AR and VR headset sales, but the price range for VR and AR headsets can be so varied that the inclusion of a single high-priced headset can skew the average drastically.  That said, with that understanding, the average price of VR headsets continues to decline, dropping from $3,083 in 2021 to $2,249 in 2022, and $1,374 for those expected to be released this year, although we note that there are a considerable number of potential price variables for some VR headsets, with prices ranging from $300 to $38,500.  AR headsets are generally less expensive that VR headsets, with less display and optical hardware and a more simplistic frame,, but again there are big variations in prices, with a range between $99 and $3,300, including those we are able to price that are to be released this year.  The average price for AR headsets has remained between $965 and $1,002 in 2021 and 2022, inclusive of a relatively small sample of those for release this year.
Even with a large number of variable for both AR and VR headsets there are few consistencies.  Every VR headset for which we have chipset data, produced since 2019 has used a Qualcomm (QCOM) chipset, and while the models have changed over time from the Snapdragon 835/845 to the XR1 and currently the XR2, Qualcomm has established itself as the basis for VR processing.  AR is a bit less narrow, with an occasional Intel (INTC) or AMD (AMD) chipset showing up, but again, Qualcomm is the de facto leader in the AR space.
Displays, especially in VR headsets continue to evolve, with all display types (LCD, OLED, Mini-LED, Micro-OLED, and QLED) all represented in this year’s potential devices, a change from the almost universal LCD displays used in VR in previous years.  This year’s AR headset displays are also quite varied as to display types, but given the lesser display requirements of AR, AR displays, all display types have been common in those headsets for a number of years, including LCoS, which is not used in VR.  All in, we track over 35 variables for AR and VR headsets in our database, and while it can be difficult to get data from some brands, there are many discernable trends that become visible.  More to come…

​Rumors and speculation continue to swirl around Apple’s (AAPL) plans for its entry into the world of AR/VR, with a multitude of hardware and options ranging from a relatively expensive (neighborhood of $3,000) and/or a low-priced alternative to compete with mass market VR headsets such as the Oculus (FB) Quest 2 or the Pico (pvt) Neo 3.  Apple’s entry into the AR/VR market will be a watershed event for the industry, but we see a trend that will blur the lines between AR and VR over the next year or two.  Currently there is a distinctive difference between headset designs for AR and VR, with AR headsets trending toward almost normal looking eyeglasses and VR headsets still more massive and obtrusive.  The technology behind AR was developed to combine the user’s view of the outside world, and an artificial image that can be superimposed on a normal visual image.  VR systems do not use external visual images, and in fact, require a darkened, enclosed space inside the headset to be fully effective.
This dichotomy is obvious in most cases but we have noticed that both VR and AR headset developers are more extensively looking over their shoulders and wondering if they each might be missing out on something.  In the vase of AR, we have seen a few systems that include technology that can darken the image an AR user sees, emphasizing the artificial overlay and reducing the impact of the pass-through image.  As the display overlay systems become more sophisticated in AR headsets, it seems AR developers are trying to gain at least some access to VR, albeit in a rudimentary way, as the AR market develops broader applications.
The same seems true for VR, where a number of systems either allow the user to remove the light blocking cover typically seen on VR headsets, which allows the system to function like an AR device, at least in a limited capacity and other systems use pass-through cameras to mix the outside world with VR.  While it might seem that giving a VR headset the ability to be used for AR is overkill, we expect the VR case is more likely used to allow a VR user the ability to intermittently ‘see’ someone or something in the user’s location, without removing the headset, but we expect the trend toward such mixed use devices will continue, making data collection a bit more difficult as AR and VR devices move toward each other’s home ground.
We believe both AR and VR headset developers will continue to improve this ‘mixed reality’ feature set and over the next two years, while there will still be dedicated AR and VR headsets, a greater number of new releases will gravitate toward becoming mixed reality devices, in order not to miss an unexpected growth path of application classification, and while Apple’s entry into the space seems to be inevitable, we expect Apple will be careful not to limit their market specifically to AR or VR.  Perhaps that might not be the case with the company’s first AR/VR iteration, but we believe Apple is smart enough not to pick a side and hope that consumers agree.

Still among the most popular VR headsets the Sony (SNE) Playstation VR headset is now 6.27 years old, having been released in October of 2016, but with the official release of the Playstation VR2 scheduled for February 22 Sony is offering the headset to Chinese customers starting yesterday, but there are some conditions.  Aside from the fact that the price in China will be the equivalent of $67 higher than in the US, you have to ‘register your interest’, which puts you in the queue to be ‘invited’ to pre-order the device, and not everyone will be invited.  While the ‘invitation’ is also a prerequisite in the other countries where the pre-order is being offered (US, UK, Germany, France, Netherlands, Belgium, and Luxembourg), in China you will be limited to one device and you will have to come back to the store to pick it up, as there will be no shipping of the new device to pre-order customers.  Hopefully you will enjoy your VR2 as the pre-orders are not applicable to the typical 7 day return policy, so if you don’t like it, you still own it.
The new device, for which stocks are estimated to be ~2m units, is certainly an upgrade to the older device, with two 2,000 x 2,040 resolution OLED displays vs. the previous model’s single 960 x 1080 display, and an improved field of view (110° vs. 96°), and an overall lighter headset that looks slightly less nerdy, along with three additional tracking cameras.  At $600 plus charger and other necessary accessories, the new model is ~$200 more expensive than the older version, but we expect gamers will welcome the upgrades despite the higher cost, and with the Oculus 2 now over two years old and the profitability pressure on Meta (FB), we expect the next ‘Oculus’ to also see a bit of a price hike.  While the global economy is weak and CE products are seeing mediocre demand, we expect the PD VR2 to sell out relatively quickly despite the higher price. .  

​It has been well-documented that Meta (FB) has been losing considerable sums by seeding the VR market with its Quest VR headsets, and while they are certainly the best-selling and most popular VR devices available to the general public, even the biggest proponent of the Metaverse, seems to have begun to understand that there is some point at which selling items below cost is not quite the best solution to developing a new market.  Meta’s Quest Pro XR headset is the company’s first attempt to create a device that has appeal outside of the traditional VR gaming market and while its considerably higher price ($1,500 compared to the $300 Quest 2) will certainly reduce unit volumes, we expect the company will actually be able to sell the Quest Pro above cash cost.
 
That said, while other VR brands struggled to produce VR headsets with similar features and such a low price, without bankrupting their companies, this new and more realistic pricing tier also gives others VR brands the opportunity to take on Meta’s unit volume domination and challenge the company for leadership in the VR space.  One such company that seems to have made such a challenge is Taiwan’s HTC (2498.TT), who announced their Vive XR Elite headset on January 5 and expects to ship units toward the end of February.  HTC generated ~$145m in sales last year, between it headsets, notebooks and smartphones, so they are no match for the seemingly endless resources of Meta, but have made the challenge regardless, despite Meta’s dominance of the market over the last few years. 
 
That said, it was not a great year for RA/VR sales in 2022, and unlike some who saw unit volume growth essentially flat, we estimate shipments were up ~14.8% y/y and revenue was up 24.1% based on our composite sources.  Regardless, those brands, and there seem to be ne ones popping up monthly, that are serious about the XR business, continue to churn out new and more sophisticated headsets on a regular basis.  Right now, we count about 18 announced but unreleased VR headsets and a similar number of AR devices from a variety of companies, both large and small, that are expected to be released this year.  Some, particularly those from smaller companies, could fall into 2024, but most are pushing for a release before Apple (AAPL) might announce some sort of XR device.  As the average time between announcement and product release was 193 days last year, in theory, all should be released before the end of 2023.
 
Back to the HTC/Meta battle…  based on what we know thus far here are some of the comparisons between the two devices:
 
·       Both are standalone devices, meaning they are not required to be tethered to a PC or smartphone but both can be connected to a PC via USB or Wi-Fi 6E
 
·       The HTC device has a retail price (including controllers) of $1,100, while the Meta device sells for $1,500
 
·       The Meta deice is based on the Qualcomm (QCOM) XR2+ chipset while the HTC device is based on the Qualcomm XR2, while both have a Kryo 585 CPU and Adreno 650 GPU.  The XR2+ is said to have 50% higher sustained power and 30% improved thermal performance (Company data), which, in theory, should allow for faster image processing and lower latency, while leaving room for camera image processing without raising latency.  As the XR2+ is quite new, real world usage metrics are still being developed, so we must take Qualcomm’s word for it for the time being.
 
·       Both use pancake optics, a system that allows lenses to be closer together, reducing the thickness of the device
 
·       We do not know what type of display the HTC device uses, although the 1920 x 2160 resolution is slightly higher than the LCD display used in the Meta device, with both having a 90Hz refresh rate
·       The diagonal field of view, meaning the width and height of the visual image field is 110° for the HTC system and 95° for the Meta, so close to the same, but every little gain in FOV helps to convince the brain that it is not seeing something that is confusing, which helps reduce fatigue and motion sickness for some.
 
·       The Meta device (inclusive of battery pack, etc.) is slightly heavier at 722 grams, while the HTC is 625 grams, which comes to 1.59 lbs. and 1.38 lbs. respectively
 
·       The Meta device does come out ahead when it comes to tracking, as it is able to track eye, face, and hand movements with dedicated tracking cameras, while the HTC can track only hand movements, and important factor in game play.
 
According to HTC the battery is expected to last15 hours, while the Meta battery is expected to last 2 hours, but we seriously doubt the HTC metric on an apples-to-apples basis.  Some brands give battery life metrics using hot swappable battery packs or low-level usage, so we do not see this as a valid comparison
All in. as these two devices are quite similar, real world performance and price will be the determining factor as to who will win the VR race in 2023, although with Apple as a major wild card, even a whiff that Apple has a product that will actually be released in 2023 (other than speculation) could push potential XR adopters to wait and see what Apple might release. 
 
While we expect unit volumes and sales of XR devices will rise this year, macro economics are not going to make for a stellar 1Q for the XR space, but there is some hope for the 2nd half, especially if Apple is ready to enter the space.  Even with Apple, the industry is still looking for practical applications that can drive hardware sales, and the Metaverse seems to have returned to a more sedentary state, rather than the hype it received earlier last year, so it is up to hardware brands to find those applications that will appeal to the public.  While there are many niche applications, we would hope that someone will create an inexpensive AR headset that could function as a dedicated translation device that could generate translated text for the wearer.  An application such as that, especially if priced right, would at least have the potential to become ubiquitous and help the public become more familiar with the potential that AR can bring.