Handset/IT Parts Industry (3): XR Device Market to Expand at CAGR of over 100%


The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. — Ed. 

 

XR device market to expand at CAGR of over 100%

The XR device market (includes VR and AR devices) is estimated to expand at a CAGR of over 100% from 6.77mn units in 2020 to 13.73mn units in 2021, 27.96mn units in 2022, and 51mn units in 2023. By type, VR devices took up roughly 92% of the market as of 2020. Having stood at 62% in 2020, the portion of standalone VR devices is predicted to keep rising.

Oculus is the largest XR company

By company, Facebook’s subsidiary Oculus is the largest player, with a 53% share of the XR market in 2020, followed by a 12% market share for Sony and 5~6% for DPVR, Pico, and HTC. Among AR device makers, Microsoft, the seller of HoloLens, showed the highest market share of 2%.

Apple’s market entry to intensify competition

While Oculus’s market share is expected to expand further in 2021 thanks to the success of the Oculus Quest 2, if Apple rolls out its XR devices as planned in 2022, competition between Oculus and Apple should heat up from 2023 onwards.

Among XR devices, the Oculus Quest 2 showed the highest sales of 2.39mn units in 2020, accounting for around 38.6% of the market, and the PlayStation VR took second place with sales of 0.8mn units.

Apple XR device to kick-start mainstream adoption

Apple’s iPhone ushered in era of smartphones Among Apple’s many products that have had a tremendous influence on the global IT market, we believe that the iPhone’s release in 2007 is the most significant. While the first generation iPhone was not the world’s first smartphone, we note that those released before it (such as RIM’s Blackberry series) were used by a relatively limited group of people, such as office workers. But, the iPhone ushered in the mainstream smartphone era, in which people use them so heavily that some have even become prone to smartphone addictions.

Current XR market reminiscent of time before iPhone’s rollout in 2007

We believe that the current XR market is reminiscent of the smartphone market just before the release of the iPhone in 2007. Of note, the VR device market has begun to post meaningful growth thanks to the release of the Oculus Quest 2. But, expected to arrive at a mere 14mn units in 2021, related shipments have yet to expand in earnest. Even in the game industry, in which VR devices are frequently used, VR gamers represented a mere 2% of overall users on the Steam platform in 2020. Also, Microsoft’s HoloLens 2, a product that has shown stronger sales than other AR devices thus far, is being used by a limited group of people (such as participants in corporate training programs), as was the case for Blackberry in the past.

Apple device to change XR market landscape

But, what will happen if Apple launches an XR device? Noting that Apple’s smartphones, tablets, and wireless earbuds have caused innovative changes in the IT market landscape, we believe that an XR device from the firm would drive full-fledged growth in the XR market, helped by the firm’s differentiated technological capabilities and its loyal iOS consumer base.

Apple could release XR device in 1H22

Apple could release its own XR headset that will enable both VR and AR features as early as 1H22. It is known that Dan Riccio, who served as the senior VP of Apple’s hardware engineering team, moved to oversee Apple’s AR and VR headset development team in Jan 2021.

AR glasses in 2025 and AR contact lens around 2030 or 2040

Based on information available so far, it is expected that Apple will release its first XR headset in 1H22, AR glasses after 2025, and AR-enabled contact lens around 2030 or2040. We note that Apple took over AR startup Vrvana, the developer of the Totem virtual reality headset, in 2017.

Apple’s XR headset to feature microLED display and 3D ToF module

Apple’s XR device will likely be designed to work as a standalone unit. It is expected that Apple will install displays and chips of the highest specification, in order to overcome the weaknesses of current VR devices. Even featuring an 8k microLED display and 12 or more cameras equipped with 3D ToF Lidar, Apple’s new device should be much lighter (by 300g or more) than existing headsets.

Price to be set around US$1,000-range

However, such a device is likely to come with a high price tag. Due to the complicated design for the realization of both AR and VR functions and the high-end hardware specification, the device is likely to be priced around the US$1,000-range. And, the initial model is expected to operate on Wi-Fi networks only.

XR devices to evolve into leading-edge IT gadgets

Future direction ofXR devices 1) high-resolution microLED 2) high-spec computing power 3) high-precision sensing

Excluding Microsoft’s HoloLens and PlayStaion VR, standalone XR devices (eg, Oculus Quest 2) run on Android and are similar to smartphones in many aspects, except the fact that smartphones enable mobile telecommunication. However, XR devices are expected to evolve into leading-edge IT gadgets boasting: 1) high-resolution microLED displays; 2) high-spec computing power; and 3) high-precision sensing capability so that they allow users a strong sense of immersion.

1) 8K microLED

XR devices will likely sport microLED displays with resolutions as high as 8K to make XR experiences more immersive. The majority of recently-released XR devices come with 2K LCD displays that are also used in smartphones, but higher-resolution displays will be essential to boost the sense of immersion and resolve vertigo issues. Apple is predicted to use 8K display for its XR devices.

2) Computing power that is greater than that of gaming PCs

We also foresee that computing power will be enhanced sharply so as to allow users to smoothly play high-end games or view high-end videos. Of note, as the Oculus Quest 2comes with the Snapdragon XR2 (Qualcomm’s XR platform) and 6Gb of DRAM, users face difficulty playing high-end VR games on the gadget. Accordingly, we believe that VR devices require computing power that is greater than that for gaming PCs to enable a strong sense of immersion.

3) High-end cameras and 3D sensing modules

XR devices’ sensing capabilities will improve to an extent that they can scan the user’s surroundings, body movements, and facial expressions, thereby enabling a fully immersive experience. Currently, the majority of VR devices use four to six low-pixel cameras and infrared LED to track users’ surroundings and physical movements. But, Apple intends to release high-end XR devices, and to enhance user immersion, it will need to add a number of high-end cameras and 3D LiDAR modules. Recognizing such needs, Apple is expected to use 12 or more cameras and high-end 3D LiDAR modules for its XR devices.



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