Hardware: Near-term focus on AR/VR devices
The metaverse should eventually bring profound changes to the entire TMT sector, perhaps none as soon or as extensive as in consumer electronics. In this report we examine the special demands of the metaverse on AR and VR devices where companies are expanding resources and innovation.
We also believe the metaverse will drive upgrades to capabilities required on almost all hardware devices involved, and may even lead to some dedicated “killer” hardware products, such as the iPhone was for the 3G (mobile data) era.
Key pieces of the technology evolution include better lens and display technologies, sharper on-device sensing and faster processing, higher network data rates and lower latencies allowing cloud compute resources, changes to studio content production, and machine learning. We expect global AR/VR headset unit sales of 42 mn units (US$12.6 bn revenue) by 2025, representing a 48% shipment CAGR (and 36% revenue CAGR) over 2020-25.
We believe that three factors can drive additional growth in the next few years:
- A disruptive AR/VR headset maker emerges amid more applications for enterprises and consumers.
- A better integrated hardware-software platform emerges to drive penetration.
- Technological improvements such as micro-LED and fast LCD enable a better price-performance product.
The demanding performance characteristics of metaverse applications have effects up and down TMT beyond consumer electronics makers.
Semiconductors are levered to the ever-rising trend to create, store, transmit, and analyze data—we estimate the metaverse will drive a 100- 300 bp tailwind to our base 6-8% forward revenue CAGR for the sector. Cloud, infrastructure, and telecom companies look set to benefit too, with a fully immersive metaverse experience challenging servers with a 100x harder compute task than an AAA game server hosting Fortnite today, and telecom access networks facing 24x more traffic in a decade (with more demanding latency requirements to boot, likely demanding edge compute and small cell deployments).