Currently, the global shipments of virtual reality (VR), augmented reality (AR), and mixed reality (MR) products are increasing year by year, but the penetration rate of the head-mounted display market is still low, and the global shipments of VR equipment are not enough to exceed the shipments of smartphones. 1% of the volume.
Although from the perspective of the industrial structure, Meta (the parent company of Facebook) has occupied more than 80% of the head-mounted display device market, the market has not yet seen epoch-making products from 0 to 1, such as the iPhone 4 in the smartphone field and the new energy vehicle field. Tesla Model 3. There are three main core pain points of head-mounted display products: first, the feeling of dizziness when used; second, the interactive device is not portable; third, insufficient content application. The core of these pain points lies in the imperfection of the underlying hardware technology.
Apple’s first head-mounted display product, Vision Pro, released in June 2023, directly addresses these three major pain points in terms of hardware innovation, making it expected to become an epoch-making product from 0 to 1 in the field of head-mounted display equipment.
In terms of display function, Apple Vision Pro has built-in Micro OLED and external OLED, which can alleviate dizziness and achieve lightweight. Vision Pro glasses have higher requirements for resolution, brightness and power consumption. The key to near-eye display lies in the clarity of imaging and persistence of vision indicators. The high-resolution Micro OLED screen equipped with VisionPro is currently the solution with the most outstanding performance advantages that can be mass-produced. Comparing Micro OLED with Fast-LCD, it has the advantages of high resolution, fast response, low power consumption, and high contrast in terms of display performance parameters.
In terms of optical technology, it uses Pancake technology to achieve lightweight and broaden the visual range. Its optical technology solution effectively reduces the volume of AR/VR lenses by folding the optical path. With ultra-high-quality materials such as aluminum, glass, and carbon fiber, Apple’s first-generation MR is expected to weigh only 450 grams, which is much lighter than other mainstream VR headsets, such as Oculus Quest2 weighs 500 grams and Sony PSVR 2 weighs 600 grams. The strict lightweight design makes them another highlight to attract users in addition to hardware parameters. In terms of field of view, Sony PSVR 2 achieves the largest 110° field of view on the market. Apple MR further marginally improves the horizontal and vertical field of view, providing a 120° field of view that exceeds similar products and can basically cover the human eye. The viewing range allows users to basically not feel the existence of the edges of the picture, and also reduces picture distortion.
In order to solve content pain points, Apple VisionPro launched “intelligent interactive innovation + M2 + R1 chip + Vision OS system” to break through content obstacles. Insufficient application content and too narrow application fields are one of the core pain points of the rapid popularity of current head-mounted display devices. The derivation and expansion of content are inseparable from the innovation of perceptual interaction technology and the underlying support of high computing power of chips. Through computer vision and machine learning, Vision Pro achieves freedom from the hanging control of handles, cross-device screen switching and smooth UI real-time feedback. Intelligent interaction innovation makes Vision Pro different from all other VRs, extending the user’s sensory experience. Bring the possibility of content innovation through intelligent interactivity and immersive upgrades. Moreover, Vision Pro is equipped with M2+R1 chip, which can meet high computing power requirements and support high-quality graphics rendering and high frame rate output. In addition, Vision Pro uses Vision OS as its operating system and shares core modules with Mac OS and iOS, which can improve content advantages and user stickiness (Table 1).
Not just MR: it is the entrance to virtual and real interaction, a key part of the metaverse
Table 1: Comparison of Apple Vision Pro product parameters and core advantages
Data source: Wind, Guotai Junan Securities Research
Apple Vision Pro is expected to become an epoch-making product from 0 to 1 in the field of head-mounted display equipment.
As a portal for virtual and real interaction, mixed reality products have become another key puzzle piece for the conceptual realization of the primary form of the metaverse. As one of the metaverse entry interfaces, MR is the manifestation of metaverse computing, communication, perception, interaction, artificial intelligence and other technologies. Different from the carrier of smartphones, MR transforms the two-dimensional flat online world into a more visible and operable three-dimensional world, allowing users to bridge the physical world and the virtual world, and more easily meet the needs of high-frequency interaction and immersive simulation. Real features, compared with screen-based devices, it has more advantages in information transmission.
At the same time, MR also puts forward higher requirements for the underlying technology, providing an essential carrier for the production and consumption of content.
Breakthroughs in hardware entrances can provide possibilities for the application of underlying technologies and provide soil for the cultivation of content. For example, the advent and rapid penetration of smartphones has brought about the emergence of popular content-side applications, such as Douyin, King of Glory, etc., which have also brought about high growth in global data traffic, as well as the capital of operators and cloud manufacturers. A cycle of high growth in spending. Similarly, as an entrance to virtual and real interaction, brain-computer interfaces focus more on the medical field. Through innovative human-computer interaction models, the human brain can exchange information with the outside world. In the future, it will benefit from the maturity of interactive technology and is expected to be used in medical and entertainment fields. Explore more application scenarios that intersect with AR/VR in fields such as education and education. Therefore, what MR brings is not just a breakthrough in the head-mounted product itself and investment opportunities in the corresponding Apple industry chain. From the perspective of the metaverse as a whole, MR, as a hardware entrance for virtual and real interaction, fills a key link in the metaverse and is expected to bring Further breakthroughs in underlying technology and content.
At the same time, the combination of software and hardware of AI and MR is expected to bring 1+1>2 performance. The launch of large language model products such as multi-modal models represented by ChatGPT has brought breakthroughs in artificial intelligence content generation (AIGC). The launch of MR is expected to be organically integrated with the development of AI. On the one hand, AI brings the richest and cheapest content ecology to MR. The new AI model Segment Anything Model (SAM) released by Meta will open up a new space for AI GC applications. The unimaginable virtual world created by AIGC is a perfect complement to the MR content ecosystem. If AIGC evolves into a generated real world, it will once again open the door to a new world.
On the other hand, MR will bring the most realistic and operable hardware support to AI, and a large number of high-quality customers can provide the best profit environment for AI APPs. MR can provide authenticity and operability that AI cannot provide. As the strongest product form for interaction between people, the information world, and the real world, MR’s authenticity and operability are unshakable advantages of the AI software side. As a terminal hardware company with over one billion active users worldwide, Apple has the advantages of a mature and stable ecological content model and excellent customer payment capabilities. It can be called the largest access port and provider of a profitable environment for terminal AI APPs. MR will bring hardware support, a massive customer base and a stable ecological content environment to AI. Therefore, virtual, casual and real “AI+MR” products will promote the collaborative development of the industry.
Not just the Apple industry chain: it is the new catalyst for the TMT metaverse market
Analogous to the advent of Apple’s iPhone and Tesla Model 3, breakthroughs in product capabilities and verification of sales are the key to market interpretation.
This time Apple’s MR innovation directly hits the pain point and may become a hot product from level 0 to level 1, and is expected to start the industry trend of head-mounted display equipment. Historically, Apple’s iPhone and Tesla’s Model 3 can be called successful products that drive the smartphone and new energy vehicle industry chain. Under popular products, there are two key factors for market interpretation. One is the effective breakthrough of product strength, and the other is the verification of sales volume. If a new product is launched and the breakthrough in product strength is recognized by investors, the stock price will often be the first to respond, such as the release of iPhone 4 and iPhone 4s; if it is not recognized by investors, the stock price reaction will be relatively dull, such as the release of Model 3 products. If subsequent sales are less than expected, the stock price will begin to correct, such as the release of the first-generation iPhone. Similarly, if the market did not expect a breakthrough in product strength in the early stage, then the final sales volume’s verification of product strength will also become an important driver of the market. , such as Model 3 products, which are increasing in volume. Even if the early product strength is expected, if sales exceed expectations, it may still ignite the market again, such as the release of iPhone 4s. Therefore, we believe that the current market focus will be on the breakthrough of MR product strength, and whether sales volume can be verified will be the core of subsequent attention.
With the release and subsequent shipment of Apple MR, a real wave of industrialization of head-mounted display devices led by MR is expected to come, and the upstream infrastructure and downstream applications are expected to benefit simultaneously. We can compare the trend changes and the sequence of market interpretation in the smartphone industry from 2013 to 2015 to deduce the characteristics of market interpretation under the trend of the head-mounted display equipment industry.
The development of smartphones follows the path of “3G construction – hardware iteration – application explosion”, and the market outbreak sequence is synchronized as “infrastructure side – hardware side – application side – software side”. In 2008, infrastructure construction such as 3G was rapidly improved, and then the iPhone 3G, iPhone 4, iPhone 4s and other series came out, benefiting companies related to the A-share Apple supply chain. Around 2012, the sales of products such as Xiaomi and Huawei Honor increased significantly. The moment of domestic thousand-yuan mobile phones came. Mobile phone shipments increased rapidly, and hardware iterations accelerated, driving the corresponding consumer electronics sector. With the maturity of hardware performance and the accelerated penetration of smartphones, the emergence of popular apps such as WeChat and Alipay has brought about a continuous explosion of content. Mobile games, short videos, social networking, shopping and other content applications are experiencing explosive growth. At this time, the media and computer sectors began to receive excess returns.
This market interpretation rhythm has its inevitability. On the one hand, 3G construction is the basis for the accelerated development of smartphones. Smartphones need to have greatly improved data transmission capabilities and image processing capabilities in order to have three major characteristics: an excellent operating system, the ability to freely install various software, and a completely large-screen, full-touch screen operation. However, 2G networks can basically only meet these requirements. Text transmission needs, therefore, the emergence of 3G is a prerequisite for the rapid development of smart phones. The intensive construction period of my country’s 3G was from 2007 to 2010. Domestic telecom operators issued 3G licenses at the end of 2008. Investment peaked in 2009 and basic coverage was achieved in 2010. Then in 2011, domestic smartphones began to rise.
On the other hand, smartphone software development is basically a process from scratch. The operating system is the soul of a smartphone, and software development must be based on the operating system. What’s more worth emphasizing is that smartphones have pioneered mobile devices. Therefore, the exploration of content-side applications has also gone from 0 to 1, which has led to the fermentation of the hardware side earlier than the software side.
Table 2: Overview of suppliers within the MR industry chain
Data source: Wind, Guotai Junan Securities Research
However, most head-mounted displays other than MR are still equipped with Android systems, which means that the exploration of applications will not start from scratch. At the same time, successful application examples on smartphones also provide imagination for the implementation of MR applications. space, therefore, compared to the development history of smartphones, the development and prosperity of MR applications may appear faster.
Overall, under the trend of the MR industry, the infrastructure side, hardware side, and software side are expected to catalyze each other. Compared with the gradual development of the last round of smartphone market, the market interpretation of this round of infrastructure side, hardware side, and software side is expected to be more rapid. for synchronization.
Product innovation brings new investment opportunities, and the three core lines deserve attention
With the release of Apple MR and the subsequent increase in shipments, in the core tracks related to complete equipment, optics, display and acoustics covered by the industry chain, companies in some subdivisions have become more capable due to technological innovation and product iterative upgrades. Smooth stock price upward logic. Leveraging China’s accumulation in content and scenarios, coupled with Apple MR’s new needs in media, new marketing and other fields, media targets have greater flexibility. In addition, under the flood of data, the physical world is fully digitized and will be highly dependent on low-latency network transmission and underlying computing technology, further driving the demand for upstream cloud infrastructure construction.
We believe that the core of the main line of Apple MR investment this time has three parts: first, the MR supply chain-related targets corresponding to the supply chain first, you can focus on Apple MR supply chain-related components, production/testing equipment, complete machine assembly companies, etc.; second, the content The derived prosperity corresponds to the promotion of downstream applications such as games, focusing on application development companies such as digital people and virtual reality games that benefit from the continuous improvement of content ecology; the third is the guarantee of infrastructure corresponding to communications, computers and other network system-related industries, mainly focusing on cloud Optical modules, optoelectronic devices, and sensor device companies related to infrastructure construction.
From a sequential perspective, initially the supply chain comes first. Apple’s MR industry chain covers key chains such as complete equipment, optics, display and acoustics. With the release of MR and the subsequent increase in shipments, the demand for orders in the hardware industry chain has increased, and companies in core track segments are the first to benefit (Table 2 ).
The second is the prosperity derived from content. Games and movies are the core application scenarios of MR. The launch of MR will revolutionize game play and generate new demands. In addition, generative AI technology may improve the research and development costs of in-game art and dialogue content, and game manufacturers that bring new interactive experiences to users will be the first to benefit.
Finally, there is the protection of infrastructure. The enrichment of content and scenarios depends on the upgrade of the underlying architecture, which will also significantly increase the level of data processing. The construction of upstream cloud communication infrastructure may become one of the deterministic investment directions, and attention can be paid to optical lenses, sensors and other optoelectronic devices. fields, communication device field, network communication equipment field such as optical chips, optical modules and wireless equipment, and optical communication device field, etc.