Suppliers are backing away from Apple AR, says Kuo

AppleInsider

With news of Pegatron moving AR headset production to a subsidiary, analyst Ming-Chi Kuo says firms are "gradually withdrawing" from working with Apple AR.

Apple's headset could arrive at WWDC

Kuo has most recently predicted a spring 2023 launch for Apple's augmented reality (AR) or what is more often now being called mixed reality (MR) headset. He's also at times predicted late 2023, and the typically accurate analyst was once consistently predicting 2022.

His latest survey of sources within the supply chain doesn't include any information about release dates. However, it does claim that development will move from Luxshare ICT and Pegatron, "in 1H23."

Kuo reports that a Luxcaseict, a joint venture predominantly led by Luxshare, "will take over this product's subsequent design and production."

On the positive side, Kuo believes this "will lead to the subsequent acceleration of reducing the cost of the headset," and says this is "what Apple expects."

"Pegatron is a shareholder of Luxcaseict, so Luxcaseict's profit will be beneficial to Pegatron," writes Kuo, "but essentially, Pegatron is gradually withdrawing from Apple's headset business."

AppleAR/MR / Luxshare ICT likely to lead development and production of Apple's first-generation AR/MR headsethttps://t.co/ff1h6smoM9

-- (Ming-Chi Kuo) (@mingchikuo)

February 24, 2023

Kuo notes that Luxshare is unlikely to profit from the headset as "the shipments of Apple's first-generation AR/MR headsets are [expected to be] extremely low." However, "Luxshare ICT's growth in 2023 and 2024 depends entirely on Apple's orders... Therefore, if Apple expects Luxshare ICT to take over the headset, it will be difficult for Luxshare ICT to refuse this request."

"I think this could be a potential warning sign for Apple," says Kuo. "Despite repeatedly stating that it is optimistic about AR, why can it not make suppliers willing to continue cooperating with Apple to develop this product?"

"In the past two years," he continues, "why have some Apple suppliers been more willing to invest in new businesses, such as electric vehicles, than cooperate with Apple's expansion/investment?"

Kuo has no answers to these. But he does further note that Apple's second-generation headset "has two high-end and low-end models," and that the low-end one will be made for 2025 by Foxconn.

Apple's first headset is currently predicted to be announced at WWDC 2023 in June.

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genovelle

I wonder if Apple is moving to suppliers they may have more direct influence over to keep the constant leaks about their every move for such an important product from being plastered on the internet daily. 

Remember what happened when he leaked that Hyundai was in talks about building Apple’s car and the CEO confirmed it publicly? The next leak was that talks were abruptly ended. 

williamh

I don’t understand the role of these companies.  I thought Apple designed the stuff and these other companies assembled them.  It sounds like the Pegatrons and Luxshares are designing or helping to design?

sloaah

williamh said:

I don’t understand the role of these companies.  I thought Apple designed the stuff and these other companies assembled them.  It sounds like the Pegatrons and Luxshares are designing or helping to design?

Designing a product and preparing a commercial manufacturing line for them are two very different things. There are lots of technical hurdles and bespoke machinery required to build Apple's products, because they're constantly pushing boundaries.

melgross

sloaah said:

williamh said:

I don’t understand the role of these companies.  I thought Apple designed the stuff and these other companies assembled them.  It sounds like the Pegatrons and Luxshares are designing or helping to design?

Designing a product and preparing a commercial manufacturing line for them are two very different things. There are lots of technical hurdles and bespoke machinery required to build Apple's products, because they're constantly pushing boundaries.

While true, Apple usually provides any custom designed machinery as well as training people to use them, so that’s no good reason to back away. I wonder if he’s really understanding what’s happening here. He usually gets most things right, as far as product details go, but often gets production dates wrong. This could just be another time when he doesn’t get the production concept correct.

chadbag

I think it is design and development for production.  Apple has the prototypes and these companies optimize them for mass production including designing processes for production, optimizing the steps anf perhaps layouts for production, etc.  Apple’s engineers are involved with these companies in the process. 

That is my take. 

It’s not development of the base product but taking apples base product and developing a mass producable product from it.  

blastdoor

Apple essentially pushes a lot of risk onto suppliers by granting them very low margins. The only way it makes sense for suppliers is if the volume is great. So if the suppliers think the product is going to flop, they won’t go for it. 

That’s partly why intel declined to fab the iPhone SOC — they thought apple wouldn’t have the volume to justify the low margins. 

If apple believes in the product they could just give the contractor more money up front, thereby taking on more risk for apple. And of course apple can afford to do that. But maybe apple is starting to really question the viability of the product too.