These glasses leak light in the sides so it's best to have blockers. Apple could have something that is a level above this. Given that 4K displays are too expensive just now, maybe they have variable resolution screens or tiled screens where the resolution is higher in the middle so the yields are better. Then work with this form factor and build it out into a visor that is secure on the head. It can use an A18 chip to bring costs down and will cut power draw in half vs M2.
If a small company can sell a product like this at a profit for $500, Apple with its huge resources can build a much better implementation of this and sell it at $1499-1999.
Is there any proof that XREAL has made any profits? I don't think they have.
https://www.linkedin.com/pulse/xreal-announces-usd-60m-strategic-fundraising-round-ahead-air-wvjfc "Beijing, China, Jan. 29, 2024 -- XREAL today reinforced its mission to bring spatial computing to global consumer markets, announcing that is has secured an additional USD $60 million in funding in a new strategic round. This brings XREAL's life-to-date fundraising to USD $300 million. ... Earlier in January, XREAL announced it had shipped an industry leading 350,000 AR glasses to date."
Assuming an ASP of $500, that's $175m in revenue, while they have raised $300m. I have not seen how much cash in hand they have, but needing to continue to raise money implies they are underwater, need further funding rounds, and need another 5x to 10x in sales to be able to self-fund from those sales.
AR glasses that have a pair of microOLEDS, lens/waveguides, and a custom chip probably has a BOM of $400 to $500. Hard to believe it would be in the low hundreds. My basic rule of thumb for a profitable product is BOM x 3. If the BOM is $500, they need to sell for $1500. 33:33:33. A third for the BOM. A third for the cost of selling and supporting. A third is the gross margin. So, XREALs ASPs likely have to double while driving down BOM, or other ratio to get an actual profit margin.
A new company has to raise capital to build the products. If it's $400 BOM for a $500 product, they can only make gross profit of 350k units x $100 = $35m but to manufacture this many units, they need 350k x $400 = $140m plus staff costs, marketing etc.
They should probably increase prices if they want to be able to self-fund their operation but having investors cover costs initially is a standard way to go. Amazon made losses for over 15 years and had investors cover the costs and it worked out eventually.
XREAL isn't a service or ad company. I was questioning your statement that XREAL was making a profit off their $500 AR glasses. That's really doubtful. They use microOLEDs and lens/waveguides. The BOM for those 4 things alone may be $500. If they were making a profit, the necessity for another funding round in 2024 becomes much less needed, and to me that is evidence there gross margins are currently negative.
Sony's PSVR2 is $550, and it is probably breakeven to making single digit profit margins (after a million units?), but it uses OLEDs with about a quarter of the AVP resolution, Fresnel lens rather than pancake lens, has a lower sensor count, and doesn't have the equivalent of a MBP14 with M2 Pro in it. It does have hand controllers as part of that $550 though. Probably $20 to $30 BOM for each controller.
Just seems impossible that any company can make a competent AR or VR headset for a profit at $500, and they all need to be $1000, minimum.
There's a BOM estimate for the Quest 3 and AVP here from a supply chain researcher:
This would imply a production cost under $220. But they've managed to pull it off.
This isn't enough profit per unit for a small company to build the next product iteration. They need $140m+ of operating capital. But they don't need to sell an AR product at $1000 minimum to be profitable, same way iPads, smartwatches, iPhones don't need to be $1000 minimum.
Similarly, Apple's AVP build costs can come way down to make a profitable device under $2k.
As I said, if a Meta Quest 3’s BOM is $430, it will need to be sold at about $900 to break even. Basic rule of thumb is the cost of selling and support the device is about the same as the BOM. To actually make a profit and to do R&D on the next gen product, they need to sell at about $1300. 1/3:1/3:1/3 for product BOM, cost of doing business, and gross margin.
Meta is most definitely selling Quest headsets at a rather large loss. They would actually advertise a positive gross margin in financial reports if Quest headsets had one as that would be a very positive sign for the division. Instead, Meta reports losses at about 6x to 8x their revenue.
And no, I totally disagree with you on the XREAL AR product having less advanced components. It has 2 microOLEDs and 2 waveguides+lens. Those 4 components itself could have a BOM of $500. They are more advanced and expensive components than the Quest’s LCDs and pancake lens.
I think the BOM of an iPad 10th gen is about $140 to $160, about 40% of the MSRP. It’s been in production for 2 years, mostly using older components that are amortized across multiple product lines. 40% leaves some room for profit if they manage the business well.
To actually make a profit and to do R&D on the next gen product, they need to sell at about $1300. 1/3:1/3:1/3 for product BOM, cost of doing business, and gross margin.
Cost of doing business comes out of gross margin, manufacturing cost is built into component costs for BOM, all that's left is assembly. Apple's gross margin is 40-45%:
Cost of doing business is the difference. The ratio is more like 60:20:20 for BOM:cost of business:net margin. If Apple was building the Xreal glasses with the same parts, they'd only need to sell them at $699 to have healthy margins ($200 more than Xreal sells them at). I don't know why Xreal doesn't sell them higher, I think they'd get away with a $699 price point, maybe they will raise the price once they are more established. Maybe Meta is making it difficult for them by pricing their products so low. If their product was $699 and Meta Quest is $499, they'd lose sales.
Meta is most definitely selling Quest headsets at a rather large loss. They would actually advertise a positive gross margin in financial reports if Quest headsets had one as that would be a very positive sign for the division. Instead, Meta reports losses at about 6x to 8x their revenue.
Meta losses were reported to come from mismanagement of product development and they have 17,000 employees in this division. That's easily $2b+/year in payroll.
They are investing in neural interface R&D and AR products that haven't come to market. It would be interesting to see a detailed breakdown of where the money is going because it's a lot of money being spent.
40% of the Reality Labs cost is for VR but this isn't being lost on direct hardware costs, it's through mismanagement of their business, cancelled products, hiring and firing large teams with no return on the investment.
Xreal is very small by comparison with ~500 employees ($50m payroll).
BOM = $400 x 350k = $140m, payroll = $50m, marketing = $50m. Company operating costs + COGS = $240m. Revenue = $175m. To have 25% net margin like Apple, they need revenue to be $300m, which they can get by selling Xreal at roughly $799. Instead they rely on investor funding to make up the difference.
Comments
https://www.macrotrends.net/stocks/charts/AAPL/apple/gross-margin
Net margin is 20-25%:
https://www.macrotrends.net/stocks/charts/AAPL/apple/net-profit-margin
Cost of doing business is the difference. The ratio is more like 60:20:20 for BOM:cost of business:net margin. If Apple was building the Xreal glasses with the same parts, they'd only need to sell them at $699 to have healthy margins ($200 more than Xreal sells them at). I don't know why Xreal doesn't sell them higher, I think they'd get away with a $699 price point, maybe they will raise the price once they are more established. Maybe Meta is making it difficult for them by pricing their products so low. If their product was $699 and Meta Quest is $499, they'd lose sales.
Meta losses were reported to come from mismanagement of product development and they have 17,000 employees in this division. That's easily $2b+/year in payroll.
They are investing in neural interface R&D and AR products that haven't come to market. It would be interesting to see a detailed breakdown of where the money is going because it's a lot of money being spent.
40% of the Reality Labs cost is for VR but this isn't being lost on direct hardware costs, it's through mismanagement of their business, cancelled products, hiring and firing large teams with no return on the investment.
Xreal is very small by comparison with ~500 employees ($50m payroll).
BOM = $400 x 350k = $140m, payroll = $50m, marketing = $50m.
Company operating costs + COGS = $240m.
Revenue = $175m.
To have 25% net margin like Apple, they need revenue to be $300m, which they can get by selling Xreal at roughly $799. Instead they rely on investor funding to make up the difference.