Apple needs to take its time with augmented reality

Apple’s long-rumored augmented reality headset may finally see the light of day soon. Ming-Chi Kuo, an influential analyst with TF International Securities who is well sourced in Apple’s supply chain, reported last week that the company is likely to announce the device this spring or during its developer conference in June, with a launch in the later half of the year. Bloomberg News also reported over the weekend that the company is planning to unveil the product this spring.

Whenever it comes out, an AR headset from Apple has a tough road ahead. Augmented reality technology has continued to bedevil both richly funded tech startups as well as the biggest names in the industry. Microsoft, Facebook and Google have all taken serious cracks at the technology and have so far come up short. Facebook has even renamed itself as Meta Platforms in its pursuit of building a so-called metaverse, for which augmented reality and virtual reality would be key conduits. But the company reportedly canceled a project for commercial AR glasses last year, while its efforts in VR are burning a hole in its sizable wallet. Meta’s Reality Labs segment that includes VR generated $9.4 billion in operating losses in the first three quarters of 2022.

Apple’s knack for designing intuitive and attractive products should give it an edge in coming up with a face-mounted computer that the masses would actually want to wear. But it remains a tall order even for a company with Apple’s chops. The company has been working with the technology since at least 2016, when Chief Executive Tim Cook said on an earnings call that Apple was “high on AR for the long run."

But all that time may have culminated in a product that still has limited appeal. The Information, a tech news site, reported last week that the version going through early production at Apple’s suppliers resembles a pair of ski goggles, requiring a cable to an external battery pack that the user will also have to wear. And key elements still seem to be a work in progress. Mr. Kuo said in his series of tweets last week that Apple’s AR headset is running behind schedule “due to issues with mechanical component drop testing and the availability of software development tools." He had originally predicted the company would unveil the product this month.

Apple has generally been willing to take its time to get things right. The company might feel some extra pressure to get something new out the door this year, though, given what is projected to be a weak showing in its other businesses. Wall Street now expects iPhone revenue for the fiscal year ending in September to be flat with last year, in part because of the Covid lockdowns and social unrest in China that have disrupted the company’s manufacturing facilities there. Meanwhile, service revenue is expected to grow in the single-digit range for the first time ever, while Mac revenue is projected to slip 5% following three straight years of pandemic-boosted, double-digit growth. Total hardware revenue—which still accounts for 80% of Apple’s total business—is expected to rise barely 1% this fiscal year, according to estimates from FactSet.

Apple’s AR device would have to be a major home run to move the needle for a company projected to cross the $400 billion revenue mark this year. Market research firm IDC projects total VR and AR headset sales will hit around 12.9 million units in 2023, which would be a generous jump of 32% from estimated sales last year. Even if one assumes Apple captured fully half that amount, and at a price tag double what the market-leading Meta Quest 2 currently sells for, it would lift Apple’s total revenue barely 1% for the year.

And even if Apple shows off the AR device this spring, it might be a while before customers are able to strap one on. The company typically likes to unveil products close to their sales launch, but it has allowed for wider lags for new device families that need content from external developers. The first iPhone was shown off six months ahead of its retail launch, while the Apple Watch got eight months of cushion. Given the lack of killer apps that have yet to emerge for AR in general, a disappointment from Apple would send the message that even the world’s most well-capitalized design studio can’t crack the code for mass adoption of the technology. That reality would really bite.