Apple’s mixed reality headset is still virtual. Here’s what we may know about it.

Big Tech is trying to shove the internet in my face again. This time it’s Apple, which will reportedly unveil a $3,000 “mixed reality” headset with a hip-mounted battery pack at its global developer conference on June 5.

For me it’s a pre-no. I already start reaching for Apple’s (Ticker: Apple) phone, watch, and earbuds every morning. If I add a Space Visor to the mix, I worry I’ll accidentally turn on full RoboCop mode and not be able to shut it down.

But Wall Street expects Apple’s new category of devices to have at least moderate commercial success. Goldman Sachs says the company will grow earnings by a low single-digit percentage beginning in 2025. BofA Securities projects earnings contribution of 36 cents per share through 2026, about 5% of the consensus estimate — and much more with “meaningful execution.” ”

Perhaps I underjudged virtual reality — for example, by comparing Meta Platforms (META)’s Oculus Quest 2 to a toddler’s forehead-mounted toilet seat. I bought the massive Sony PlayStation VR a few years ago to see what the fuss was about. It gave me almost an hour of entertainment, mostly on the first day.

These two devices aim to create a virtual reality where users are immersed in a digital world while the real world is hidden. Augmented reality refers to the overlaying of digital information with the real world, as in the game Pokémon Go, where players use their phone screens to find virtual cartoon characters in real-world environments. There were problems. A Purdue University article titled “Death from Pokémon Go” found a disproportionate increase in real-world car accidents near virtual PokeStops.

Mixed Reality enables the interaction between the digital and the physical world. Buyers can see what new furniture will look like in their home. Manufacturers can cheaply tinker with factories and machines. Colleagues can meet as holograms without all the formality of blazers and Zoom shorts.

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Until now, virtual reality headsets have hardly been a breakthrough – even in gaming. And there are already mixed reality devices like Magic Leap 1, Google Glass Enterprise 2 and Microsoft HoloLens 2. But Apple could have a head start in virtual reality. It has a massive ecosystem of hardware users and app developers, as well as a sprawling retail operation that promotes its new products.

There’s also a sense that Apple is patiently waiting for others to fix the problems with their devices, and then coming up with more refined products to gradually build a dominant market share. The Apple Watch, the company’s last major entry into a new category in 2015, was initially outperformed by FitBit. Today it accounts for around three quarters of the installed smartwatch base.

Apple has not confirmed any details about the headset or when it will be launched. This has left the media relying on patent filings, leaks, rumors about leaks and leaks about rumors, and vague management comments. Summarizing the most reliable/plausible of these, Goldman predicts that a device called the Reality Pro will be available later this fall. It will be light – like ski goggles, the Wall Street Journal reports – and feature at least a dozen cameras capable of capturing facial expressions and body movements, as well as lidar for depth detection. Users can switch between virtual and augmented reality. The device could have displays inside and out to show the user’s face to others nearby. And there will be a battery pack connected to a cable to take weight and heat off the face.

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So far, the use of headsets has been dominated by gamers. Reality Pro could tie into games and many other Apple projects. Opportunities include immersive concerts, sports, and classes for Apple’s music, TV, and fitness products, according to Goldman; interactive city models for maps; and FaceTime calls, photo sharing, and office whiteboarding in virtual reality.

The money will not be in the hardware. The BofA assumes that only 200,000 units will be sold this year. By 2026, it’s projected to be eight million a year, once average selling prices have dropped to $800. Until then, operating margins should only be 6%. But the ratio of software to hardware sales is likely to be 2 to 1, and software could have a 50% margin, says BofA. If the headsets are a success, it’s estimated that they could account for a third of App Store sales by 2026.

All of this is of course much more virtual than reality for the time being. But Apple could use some excitement. Its suffering shareholders are up just 35% this year, while some AI members are up much more — Nvidia (NVDA) is up 163% this year and Meta Platforms is up 114%.

Calling Apple cheap here may require special goggles. It’s trading at 29 times forecast earnings for calendar 2023, compared to 19 times for the broad S&P 500 index. The BofA rates it as Neutral. Goldman says buy, forecasting a rise to $209 within a year from last $175.

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Or just buy the new headset and keep it in the plastic and maybe it will become a collector’s item in the future. An original iPhone sold for over $63,000 this year, a 33% annual return. If it doesn’t work out, it won’t be the company’s biggest waste software release. Apple sold a gold watch for up to $17,000 in 2015 and stopped updating its software in 2018.

Beyond the headset announcement at the Worldwide Developers Conference, Apple is expected to unveil updates to its software and new MacBook computers. The phones will have to wait until after the summer, but don’t get your hopes up too high. “Our research indicates that the specifications of the next generation iPhone will be broadly similar to those of the iPhone 14,” writes UBS. That’s potentially a problem since phone sales are already down.

Making it big in a clunky category where many others have flopped sounds too stupid for Apple, which makes me think the new Reality Pro, or whatever it’s called, could be a real genius. But it’s also possible that Apple is just trying to find a new hit.

Write to Jack Hough at [email protected]. Follow him on Twitter and subscribe to his Barron’s Streetwise Podcast.


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