By Eric J. Savitz
Apple's annual Worldwide Developers Conference is right around the corner -- the keynote will be June 6. Expect the company to finally unveil its first products for virtual and augmented reality, little discussed by the company, but widely anticipated by analysts and investors. But given the many stumbles from other players in this category, and reports that some insiders aren't convinced this is a good idea, there is some nervousness about whether this will be the game-changer than bulls hope.
As the Wall Street Journal reported earlier this month, this will be an unusual launch for Apple -- an early stage product in an unproven category. As my colleague Connor Smith noted recently, the AR/VR space is marked by a long series of product flops. Investors would be wise to keep expectations in check.
TD Cowen analyst Krish Sankar weighed in Friday with a research note laying out his forecast for sales, and pointing out some potential issues for the new Apple (ticker: AAPL) device.
Sankar thinks the first device will be in a related category called XR, for "extended reality," which blends elements of the real world with virtual objects and experiences. He expects the first device to be priced at $3,000, and to initially appeal to early adopters and software developers. Sankar's forecast is for sales in 2023 of between 500,000 and 1 million devices. If he's right, that would imply a boost of well under 1% to annual revenue.
Sankar says an analysis of AR, VR and XR content in the App Store suggests gaming and 3D design applications will be more than half of the software available at launch. He thinks health and fitness applications, tied to sports and medicine, as well as lifestyle applications, like shopping, tourism, kids and social networking, "could be key sources of future monetization upside."
Underrepresented app categories such as Health & Fitness (sports and medicine) at 5% of apps surveyed and Lifestyle (kids & family, social networking, shopping, tourism) at 10% could become incremental growth drivers as headsets gain critical mass.
The Cowen analyst thinks Apple will follow up next year with a VR headset, which presumably would compete with market leader Meta Platform's Quest headsets. He expects that device to be priced at $2,000, which is about twice the price of Meta's high end Meta Quest Pro.
Sankar thinks the bill of materials for the XR headset will be about $1,800, with display and optics accounting for about 60% of the total. He says sensors will account for 15% of the total, with related chips at about 8%. He says that "fieldwork" leads him to conclude that suppliers will include Sony, for the display; Taiwan Semiconductor $(TSM)$, for both display and system-on-a-chip components; and contact manufacturers Pegatron and Hon Hai.
Sankar maintains his Outperform rating and $195 target price on Apple shares. On Friday, Apple shares are 1.4% higher at $175.46.
Write to Eric J. Savitz at eric.savitz@barrons.com
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(END) Dow Jones Newswires
May 26, 2023 12:22 ET (16:22 GMT)
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