Virtual reality (VR) refers to a fully immersive experience, isolating the user away from the physical world, while augmented reality (AR) emphasizes the overlaps of virtual information and the real environment. Users can directly or indirectly observe real scenes through AR technology, and digital elements are superimposed on real-world objects and backgrounds. In another word, AR augments the real scene, but does not completely replace the real scene, as what VR does, and enhances the user's understanding and feeling of the real environment through the fusion of virtual and real.
Dr. Christopher Liao, the co-founder, president, and CEO of HiAR (Chinese: 亮风台) -- a leading AR firm in China, said to EqualOcean that with the development of computers, from the first generation ENIAC to the fourth generation, the user base of computers has expanded from professionals to white-collar workers. Following that, with the further evolution from computer to smart phone, users have further expanded to include all kinds of ordinary citizens.
The logic behind this is the decreasing of cognitive load which refers to the amount of working memory resources used. Dr. Liao believed that AR will be the next stage in the ongoing revolution, moving the image from 2D to 3D, reducing cognitive load and expanding the number of users.
Luo Yonghao, a Chinese entrepreneur and Internet influencer, announced he was quitting all social platforms on his Weibo account on Sunday midnight. The reason behind this is that he is going to pay all of his attention to the AR industry after several failures in his entrepreneurial career. He believes that AR’s sales will at reach billions of units in the future. But with the limits on technology, application and ecosystems, the AR industry is still in the embryonic stage.
The AR market is smaller but growing faster than the VR market at present
According to IDC, 2021 global VR/AR hardware shipments reached 11.23 million, up 92.1% year on year, among which VR headset shipments were 10.95 million, and AR headset shipments were 28,000. To date, AR headset shipments have been way lower than VR shipments, however AR has more potential. After 2020, the investment in VR/AR tended to shift to China market, and the amount exceeded investment in global markets in 2021.
Dr. Liao told us that VR is the next generation of video game platforms but AR will be the next generation of computing platforms. The major application of VR is in video games, therefore, the global sales of VR will be compatible with the video game console’s global sales which reached 48 million units in 2021.
Compared to the global market, the AR market in China has always kept in high market scale and Compound Annual Growth Rate (CAGR) than VR market in China. IDC predicts that, by 2025, China's AR headset shipments will reach nearly 4 million units, possibly the largest market in the world. Because the immature technology in AR industrial chain and unclear application scenarios of AR headsets to consumers, currently shipments of AR headsets are lower than those of VR headsets.
With the flourishing of the AR industry in China, related companies, no matter whether they are giants or start-ups, have started their strategic deploy on sectors in AR industrial chain.
An exploration of AR industrial chain
Dr. Liao organized AR industrial chain to the hardware side and software side. The hardware side includes components, Original Design Manufacturer (ODM)/Original Equipment Manufacturer (OEM), and operating systems. The software side includes platform, content, toolchains and applications. We categorized AR industrial chain into four major parts which are AR technologies, components, AR hardware, and AR content, based on Dr. Liao’s idea.
According to above four parts of the industrial chain, AR glasses are mainly divided into main modules such as display module, optical module, sensor, camera, audio and network connection, and Computing Processing Unit (CPU). According to different function and module types, the modules of AR glasses could be categorized to computing, optical, and sensor. A mature AR product needs not only support from sectors in the industrial chain, but also technology innovation on major components.
Hardware in the upstream is the core driving the rise of AR products. The System on a Chip (SoC) is mainly responsible for the operating system, simple local rendering, some network connections, and sensor back-end algorithms in AR headsets. Currently, the main provider of SoC is the Qualcomm. Qualcomm unveiled a new Wireless AR Smart Viewer Reference Design powered by the Snapdragon XR2 platform in May. With the absolute leading market share in the mobile phone industry and the success of the Snapdragon XR series, Qualcomm is expected to continue its dominance in the AR field, therefore, it is hard for Chinese companies to compete with Qualcomm on chips.
Opportunities for Chinese companies in the AR industrial chain
Other than chips, there is still a chance for Chinese companies in AR industrial chain. The Bill of Material (BOM) cost of AR glasses mainly include the cost of electronic components, optical and display modules, and others. According to Yole, a market analysis group, the cost of optical modules, the core item in BOM of AR, accounts for 30% to 50% of total cost of AR glasses, while the cost of electronic parts and cells accounts for 30% to 40% of the total cost.
Current technologies used as display screen on optical module include Micro LED, OLED on Si, Micro-ElectroMechanical System (MEMS) Mirrors + laser, and Liquid Crystal On Silicon (LCOS), among which, Micro LED will be the future trend. With its excellent performance, Micro LED is expected to become the most widely used technology for micro-screen display by 2027, with a market size of USD 2.6 billion, according to Huaan Research.
For Chinese corporations, Sanan Optoelectronics (600703.SH) has started to focus on the deployment of Micro LED chip production through fixed increase in capacity; BOE (000725.SH) and other major panel manufacturers are also stepping up the research and development of Micro LED technology; Jade Bird Display mainly develops micro-display panels with Micro LED for AR/VR Head-Up Display (HUD) near-eye display.
Another key factor for optical module is the selection of optical solutions, among which, the optical waveguide scheme has advantages in clarity, field of view, volume, and light penetration, and is the best optical solution in AR glasses. Yole predicted that the market penetration of waveguide that is used in AR headsets will increase from 38% in 2021 to 99% in 2027.
According to the manufacturing process, optical waveguide is divided into Refractive Optical Elements (ROE), Diffraction Optical Elements (DOE), and Holographic Optical Elements (HOE). With the iteration of the mass production process, the decrease in display cost will bring about an increase in the penetration rate of optical waveguides and an increase in AR glasses shipments.
Chinese companies are competitive in the world
LLVISION (Chinese: 亮亮视野) is one of the top Chinese AR companies who focuses on enterprise services, R&D on optical module, and manufacturing of AR glasses. The L-PAT series ROE optical waveguide modules have advantages comprising lightweight and paper-thin glasses, high visible transmittance, high contrast, long endurance, and its light leakage is less than 0.5. L=PAT series has achieved mass production since 2018.
The shipments amount of LLVISION’s AR hardware has reached 40,000 units and is expected to double the number during next year. The revenue of LLVISION is leading in the industry. Taking advatadge of the steady price and self-developed optical modules, the company would achieve break-even point within 1-2 years.
The R&D on optical module decides the cost of manufacturing a VR glasses, which make optical module manufacturers an important part in AR industry chain. As a high-tech firm in China, NED+ (Chinese: 耐德佳), in the field of AR/VR optical modules, is basically on the same line with the international companies, and even takes the lead in some technologies. Except Carl Zeiss AG and Epson, NED+ is one of only a few companies that are able to mass produce free-form surface displays.
The products currently available for bulk shipment of NED+ include the free-form surface AR series, of which the free-form surface diamond series has a light efficiency of 92% in terms of light energy utilization and transmittance, which was recommended by Qualcomm as a reference design solution. Current capacity of NED+’s free-form surface AR optical module has reached 2.6 million pieced per year and is expected to continue growing.
Sectors in the AR industry chain are interdependent, the innovation and development of upstream technologies improve terminal products, at the same time the increase in the application of terminal products will rise the demand of upstream components. Based on this idea, Dr. Liao of HiAR believes that platform, as a connection between upstream and downstream of industrial chain, is an opportunity.
The company’s AR cloud service platform HiAR Cloud is deeply involved in vertical industries and provides three core cloud services of A+B+C: AI/AR algorithm service, BigData data service, and Connection communication service. The cloud promotes the establishment of GIS-BIM-Object three-level physical world digital twins.
The application of AR is mainly to business side at present. However, as they explore the application of AR in consumer-facing products,, AR-related companies have expanded their business and product direction toward public consumers, especially companies in China have already started their deployment. With the improvement in maturity of core components like chips, optical modules, and cells, the cost of manufacturing a AR glasses will be reduced, the practicability for consumers will be optimized, and the best solutions for AR will be chosen.