As the entry-level hardware of the Metaverse and a key industry in the digital economy in China’s 14th Five-Year Plan, AR has become the most intriguing technology nowadays. The continuous advancement of core technologies including algorithms, optics and displays and the increasing maturity of the industry ecosystem have allowed futuristic AR technology to be applied in various scenarios and available, no matter for business or customers. China, the world's fastest-growing market, owns a number of AR companies with strong strength, broad vision and great ambitions, aided by its preferable policies and strong support and demand for technology. Going outside is a must way for Chinese enterprises to lead the trend in this emerging trillion-dollar market.
In order to help AR companies aspiring to enter the international market to know better about the real market condition, EqualOcean held an online roundtable discussion with the theme of "Opportunities and Challenges of Globalization in China's AR Industry". Our guests included Fei Chen, Vice President of LINGXI-AR; Haitao Cui, Chairman of Goolton Technology; Guanhua Huang, Managing Partner of CHUANG HOUSE CAPITAL; and Weijun Liu, Investment Director of GP Innovation Capital.
The following is a transcript of the roundtable discussion, edited by EqualOcean without changing the semantics.
EqualOcean: What is the current development situation of the global AR industry? Has the AR market changed compared to 2017 and 2018?
Fei Chen, Vice President of LINGXI-AR: The global AR industry is on the eve of an explosion. 2017-18 saw the AR industry fall into a lull in terms of funding and production conditions. With the rise of the Metaverse boom last year and the increased investments of tech giants in the AR field in the past two years, the industry has received significant attention. No matter startups or industry giants, they all have started to realize mass production of newly-developed products and pursue faster technology iteration under an increasingly full industry chain. LINGXI-AR has focused on AR technology, especially the optical waveguides, for a long time. We can clearly feel that higher and deeper attention to the industry from investors, consumers and developers in the past two years. People used to focus more on the application scene, sales amount and other superficial phenomena, but now they are more concerned about the development and implementation of core technical capabilities such as optical technology.
Haitao Cui, Chairman of Goolton Technology: Although the industry has not seen a qualitative leap in terms of shipment volume and other indicators in the past two years, practitioners, like me, can feel the momentum waiting to happen. At present, domestic and foreign Internet and manufacturing giants have started to enter the AR industry, and so have many small companies. What we see may only be the tip of the iceberg, and when the time is ripe, everyone will realize the scale of the AR wave. One thing I am glad to see is that in the past two years, people have become more pragmatic in their understanding of AR, and knew better about what technologies are needed to be translated into products. AR is no longer limited to being the replacement of mobile phones. Qualcomm also announced that it will launch XR2, a chip for XR devices, based on wireless transmission solutions in the first half of 2024, which will change the definition of AR glasses and the way to interact with them. I believe that the next few years will bring revolutionary and unexpected changes to the AR industry.
Guanhua Huang, Managing Partner of CHUANG HOUSE CAPITAL: At present, the AR industry is relatively mature on the business, while the consumer is still in the exploration stage. I have focused on AR since 2013. 2017 and 2018 were indeed the industry's silent low periods. Starting from 2020, AR products' indicators and parameters have been greatly improved, the core devices can be delivered in small batches, and the industry is iterating in a direction closer to the cost of consumer electronics. From the customer level, many companies are trying to expand their business model. Many state-owned and national enterprises are piloting AR solutions in combination with their application scenarios, and have placed large orders to many startups such as Rokid. There are also companies now transitioning to a general-purpose market from their vertical segmentation scenarios such as swimming. At the international level, Apple, Meta and Microsoft are deeply digging into AR, so are Domestic tech giants such as Xiaomi and OPPO. In terms of the industry chain, both hardware and software are developing. Not only is there established companies like Qualcomm in chip manufacturing, but there are also startups entering. A number of head companies have emerged in the field of spatial measurement technology such as slam. At the level of investment institutions, there are now teams within institutions that focus specifically on AR. From being afraid to make a move in 2017 or 2018, to moving towards a wait-and-see approach, and then to the active attention of capitalists now, all reflect the market's growing confidence in the AR industry.
Weijun Liu, Investment Director of GP Innovation Capital: The AR industry has turned over a new leaf. It is a good time to invest. Compared to five years ago, the internal and external conditions of the industry are more mature now. At the level of external conditions, the country's layout of 5G is relatively mature. 5G communication network plus cloud construction will provide basic support for AR glasses and bring great development space. For consumers, their replacement rate of mobile phones is now significantly decreasing, and they are all looking forward to a new generation of consumer electronics to bring a new consumer experience. At the same time, the technologies in the AR industry chain have also made great strides and have the potential to meet new expectations. I believe that in business applications, good products will emerge in the next 1-2 years, while the consumer may still need to wait for tech giants like Apple to release their products. I am very optimistic about the development of the industry in the next ten years, and I am looking forward to AR products bringing a new experience to our work life and learning.
EqualOcean: The development of terminal devices in the AR industry cannot be achieved without the breakthrough of upstream core technologies such as optical modules. As a unicorn company in the field of optical technology, what breakthroughs have Goolton Technology and LINGXI-AR achieved in R&D and what difficulties have they encountered?
Haitao Cui: Goolton Technology has been working on optical waveguide technology for 5 years, and currently has mass production products in optical waveguide diffraction and geometry. Our geometry and volume holographic 1D ( one-dimensional) and 2D products can be shipped in bulk. During the research and development process, we have encountered many challenges, especially in the near-eye display optics. Originally, we all unilaterally concentrated on certain recognized indicators, such as field of view, thickness, etc. However, with the launch of the whole product, our understanding of optical-related indicators goes deeper, we think these indicators also include how to maintain a high brightness display under low-power conditions, how to ensure a clear view under different people and wearing situations, how to reduce costs and improve production yields, how to simplify the production process, how to simplify the production process, how to automate inspection after production, etc. Goolton Technology is also exploring new directions such as metasurface and LBS(laser Beam Scanning), as well as different combinations based on existing technologies, in order to bring unexpected experiences. Now our diffraction and geometry products can achieve FOV 60(Field of View) degrees or more which are very advantageous in power consumption and have many options in product packages.
Fei Chen: LINGXI-ARis still mainly focuses on the downstream productization needs. In 2019, we took the lead around the geometric array optical waveguide to set up a production line in Wuxi. In the past two years, we have been able to achieve a 90% yield at the level of 1D pupil expansion optical waveguide products. We have already established a mature cooperation mechanism for the shipping of the ultra-miniaturized 10g, 28 degrees AW70 series, as well as the application of the top-down structure for helmet headgear, and the optical technology solution for 1D pupil expansion at around 40 degrees. On this basis, LINGXI-AR is also pushing forward with further mass production of 2D pupil expansion solutions. This year, we have launched a 60-degree, 17g or less 2D pupil expansion array optical waveguide solution, which will be unveiled at this year's Shenzhen Optical Fair. Last year we released a 40+ degree, 8g or less 2D pupil-expanding optical display module. So our company is still mainly focusing on the needs of downstream customers, trying to develop lightweight and miniaturized products with large field angles. Array optical waveguide technology is the most suitable one for productization among the three optical waveguide technology solutions. In the future, we will continue to develop lightweight, miniaturized, product-oriented, larger-scale and low-cost optical system solutions.
EqualOcean: The development of downstream terminal devices in the AR industry is indeed also a topic of great concern. Mr. Liu, please share with us your views on the development of consumer-grade AR glasses in China and the challenges it will face from the investor’s perspective.
Weijun Liu: Now domestic companies that can deliver real products in consumer AR glasses are Nreal, Rokid, INMO, GUANGLI VisionTechnology and LA.WK. Generally speaking, consumer-grade AR glasses can be divided into two categories: wired and wireless. Wired products, such as Rokid and Nreal, need relatively large computing power to support. This means consumers have to drag a wire to connect them with mobile phones or other peripheral terminals to provide power and computing support. Wired products are mainly used to watch movies and play games, and they also have some real-time Slam capabilities. As for wireless products, INMO, GUANGLI VisionTechnology and LA.WK have different niche scenarios. For example, LA.WK is for cycling, GUANGLI VisionTechnology is for swimming, and INMO is mainly for daily outing accessories. The batteries of their wireless products are not large, about 100 mA, in order to allow consumers to wear them comfortably. The battery working time is around 2-4 hours. So their function will be relatively limited but provide consumers highly immersive experience. Xiaomi, OPPO and other big manufacturers who have professional R&D teams will follow up the suit once Apple launches related products. Technology manufacturers can rely on mobile phones to drive sales of AR glasses. But the disadvantage is that if they still use AR glasses as a peripheral to mobile phones, the sales of glasses are estimated to be only one-tenth of that of headphones and smartwatches. However, if glasses are sold as a separate electronic product, it is possible to replicate the glory of smartphones in the future. Mobile phones are highly homogeneous products, while the decorative attributes that come with AR glasses will certainly make the market more diversified and less concentrated. I believe that the AR glasses market will be blossoming in the future.
EqualOcean: Mr. Huang, how do you think the opportunities and challenges of AR hardware from an investor’s perspective, and what are the similarities and differences between USD funds and CNY funds in terms of investment strategies and areas of focus in the AR industry?
Guanhua Huang: There are always opportunities and challenges. In terms of opportunities, we all believe that AR devices are the next computing platform and a trillion-dollar market with the same volume as mobile phones and mobile internet. AR is a niche market with great potential to be tapped. There will be continuous output in the next 5-10 years. As for challenges, the first thing is that everyone is still not sure when the industry will explode. We think this tipping point is expected to come in about 3 years when the technology will be more mature and some companies with millions of sales will appear. Secondly, in terms of upstream technology, there is still a lot of debate about the technological routes for displays and optical waveguides. It is impossible to falsify and verify them. Thirdly, we need to prepare for the challenges and competition brought about by giants in the future. At the specific technology level, there is also much to be improved and iterated in the coming years. The challenge for the terminal comes from how to make the best of a product, find the rigid application scenarios and achieve the matching of hardware and software.
The preferences of USD and CNY fund institutions are still quite different. USD funds prefer explosive growth companies with higher risk tolerance and seek 10-20 times or even higher investment returns. CNY funds, on the other hand, place more importance on revenue, profit, and the possibility of real application, and have a lower risk appetite. Different institutions pursue different returns, and some may be willing to invest if they can gain 5-10 times investment returns. Combined with the AR industry, in the upstream stage, both CNY and USD funds are concerned, and many USD funds cannot find a company that meets the explosive growth at the moment, so choose to wait and see. While CNY funds have a higher probability of making a move in the display and optical waveguide sectors. There is also a lot of industrial capital joined in them. Overall, USD funds invested more. At the chip level, USD funds are probably more interested in companies that develop available XR technology used in AR, just like Qualcomm. In addition, strategic capitals are more concerned about industrial synergy and industry chain layout. In short, the positioning and focus of different institutions are different.
EqualOcean: The AR industry is still at an early stage of technology development in both domestic and international markets. Compared to foreign companies, domestic companies are no less advanced in their research and development technologies and are even ahead of the world. Please share with us your understanding of globalization in the AR industry based on your own and your company's experience. First of all, Mr. Chen, may I ask your views on the differences and commonalities in the current market environment for optical modules at home and abroad?
Fei Chen: In the development of globalization, we found that the three technological paths of optical waveguides have typical regional characteristics. The optical waveguide technology was first proposed by Lumus more than 20 years ago, and they subsequently placed all their mass production layouts in Asia. Their earliest cooperation partner is with Crystal Optech, and now they mainly rely on Quanta. Among the domestic optical waveguide enterprises, China and even the whole Asian region have more advantages in the direction of array optical waveguide technology, especially in the traditional direction of optical cold processing. European companies and US companies dominate the field of surface relief gratings. Microsoft and Magic Leap's early core engineers and optical systems mainly came from Nokia. Surface relief lenticular core processing direction is micro and nano processing. European companies and American companies are more advantageous in optical design capabilities, mass production layout and their own industrial composition. US companies also have the advantage in terms of volume holography solutions. However, in the process of globalization, what the big manufacturers pay attention to is which solution fits the product positioning better and has greater mass production capability within the right price range rather than particular technology paths when launching AR C-tier products. Therefore, the next core direction of Ling-xi AR is to meet the customer requirements of products and lower the prices of the product.
EqualOcean: The global demand for optical waveguides, a core component of AR, is very considerable. Mr. Cui, please tell us the core considerations of Goolton Technology in its globalization strategy for both domestic and overseas markets, as well as the challenges experienced and the opportunities found in the process of the company's globalization.
Haitao Cui: Chinese companies have a unique advantage in terms of manufacturing and industrial chain, and have a great opportunity to seize the high ground in the industry and achieve a rapid breakthrough in the process of going abroad, but also face many problems. First of all, when entering overseas markets such as Europe and the US, they lack patent awareness. Foreign markets have very strict requirements for Chinese products, so Chinese enterprises need to raise awareness to seize intellectual property rights overseas. Secondly, cultural challenges. When expanding to business, we are unable to establish a sound local service capability abroad, so we have to rely on overseas partners who have the ability to standardize and provide solutions to achieve. Chinese companies also face a number of challenges when it comes to expanding the consumer market. Cheap consumer glasses that are simply applied to scenarios such as movie watching may be fine, but when it comes to independent expensive consumer products, we lack a sound product ecology, making it difficult to serve overseas developers. Chinese companies are supposed to learn from foreign companies who have certain segmentations and service fields and provide corresponding products and tools. This may be a good path to expand the abroad market. In addition, prices of real AR products abroad are relatively high, while the overall manufacturing cost in China is much lower. This also means a promising prospect of going abroad.
EqualOcean: From the perspective of an investor, Mr. Liu, how do you think where is the focus of domestic AR glasses manufacturers' overseas strategies? Facing the differences between domestic and international markets, how will Chinese AR glasses makers deal with the challenges in the process of globalization?
Weijun Liu: The number of domestic AR glasses manufacturers is not high. For example, Nreal is bundled with operators for sales overseas and has already reached 10,000 units shipped. Rokid will crowdfund on Kickstarter when issuing new machines, which is also the practice of China's cutting-edge consumer electronics. Rokid has also cooperated with GameStop from the US for some offline sales. INMO has been sold through Indigogo and Kickstarter. The industry is still in its early days and the product is still mainly for enthusiasts. So offering new machines on crowdfunding platforms is a good way to boost sales and cultivate a following. There are no similar platforms in China yet. At the moment, Chinese companies have the advantage of leading the world in the entire industry chain except for chips. AR will likely replicate the glory of Chinese companies in the smartphone sector and even reach new heights.
EqualOcean: From the perspective of an investor, Mr.Liu, how would you judge whether an AR company has the strength to stand out in the overseas market?
Guanhua Huang: Firstly, the team members need to be international in order to cope with various needs and problems from the international market; secondly, the product needs to be the best. Overseas markets for developed countries must rely on hard power. In the field of consumer electronics, a good example of a Chinese company that has made it to the sea is DJI. Thirdly, rich resources from friends and the industry chain and excellent financing capabilities. Fourthly, excellent originality. Companies are supposed to have their own patents. Fifth, a sound ecology. Therefore, on the whole, I think the challenges of globalization outweigh the opportunities. Companies should gain a foothold in China first before going international and meeting the challenges of international giants. Specifically, the consumer market has higher requirements than the business market in terms of AR application.
EqualOcean: As a fast-growing country, China also needs the globalization of its companies to drive its development. Could you please share with us your views on the short-term and long-term development trends of the global AR industry, and what role China's AR industry will play in it?
Fei Chen: The development of AR is still driven by business demand. It lags a few years behind the development of VR. Global companies in VR have already started the content ecological layout, while AR is still focusing on the hardware side of the ecological layout, and the application side is also mainly for business. As Mr. Huang said, the current challenges are greater and the business has a greater chance of success. I think China has a good chance of leading the world. On the C-side, China will probably be a late bloomer and a first mover.
Haitao Cui: AR glasses are still mainly in the form of split or as mobile phone accessories, mainly due to the demand for mobile phone giants to strengthen the ecology. But in the long run, it must be developed into an independent all-in-one device. Secondly, as a wearable, AR will definitely be like myopic glasses, becoming a personalized, lightweight and free product with diverse choices. Thirdly, the logic of breakthrough must be laid in segmentation scenes. China's market is vast and in great demand, perfect for entrepreneurship. Moreover, China's AR industry alliance is very synergistic, which can easily form an integrated competitive advantage. Chinese entrepreneurs also have the quality of determination and persistence. I believe China will definitely be in a leading position in the future.
Weijun Liu: The next decade will witness the era of Web 3.0. New terminals should emerge. So the next decade is a good time for the industry to develop. At the same time, the next ten years will also be a time for China to upgrade its industry iterations. The overlap of the two trends is bound to give rise to technologies and companies that will lead the world. Central and state-owned enterprises also have a huge demand for their products in the Belt and Road Initiatives. Once the technology matures, Chinese companies will bring Chinese AR products to form a new industry model. At the C-side level, China will lead the world in 5 to 10 years when AR glasses are connected with the Cloud.
Guanhua Huang: In the long run, AR glasses will develop towards the general C-side and will become the next computing platform, thus squeezing the usage time of mobile phones. Looking at the development cycle of consumer electronics, it is expected to take ten years to complete the balance of AR, mobile phones and PCs. We believe AR will further squeeze not only mobile phone usage time but also PC time, as AR will have a large PC-like screen. In the future, multi-tasking systems in line with AR terminals and the ecology of large screen interaction will also continue to mature towards an all-in-one form in the Cloud. China's supply chain and basic implementation advantages, aided by the large market, will surely give rise to a leading global AR industry.
The booming AR industry is a technology hotspot that cannot be missed. We hope the brilliant insights shared by these four guests at this roundtable discussion will inspire more Chinese AR practitioners. This is EqualOcean. We will firmly accompany Chinese brands to achieve globalization and assume the responsibility of bridging China and the world.
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