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UBS: Apple already has 1,000 engineers working on AR in Israel and a new product may appear on this year's iPhone

Tim Cook
Apple CEO Tim Cook. Reuters/Beck Diefenbach

Augmented reality (AR) will likely be Apple's next major product innovation, according to analyst Steven Milunovich and his team at UBS.

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In a research note seen by Business Insider, Milunovich writes that Apple CEO Tim Cook has repeatedly "broken the silence on future products with regards to AR," citing numerous comments he has made about AR as evidence that the company is pursuing it as the next big thing.

"According to some industry sources, the company may have over 1,000 engineers working on a project in Israel that could be related to AR," the note also says. Apple has also made numerous AR-related acquisitions including:

  • PrimeSense (a 3D sensing company based in Tel Aviv).
  • Metaio (developed software that lets users look at products and then apply different colours and finishes, based in Germany).
  • RealFace (cyber-security and facial recognition, also in Tel Aviv).

Milunovich notes that Apple appears more interested in AR rather than virtual reality (VR), because the former connects people whereas the latter is often an isolating experience involving a headset that renders the user blind to the real world.

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AR, by contrast, takes the existing environment and adds a new layer of information to it. For instance, AR apps let you hold up a phone with images superimposed onto the real-world view seen through the camera screen.

This is why Apple is particularly well positioned to be the winner in AR, according to Milunovich. Rather than starting from scratch, Apple can implement AR technology via its installed base — the number of people who already own an Apple product such as an iPhone or iPad. Apple already has the hardware in place, in other words.

UBS expects Apple could implement new AR products as early as in the next iPhone, expected later this year, which could include "moderate 3D mapping ... and possibly an AR software development kit," the note says.

In an interview with The Independent earlier this month, Cook compared AR to the iPhone, in that it's "for everyone," "I think AR is that big. It's huge," he said

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Here's the summary of recent comments Cook has made about AR from the research note:

  • Noting AR is bigger than VR: "It gives the capability for both of us to sit and be very present, talking to each other but also have other things, visually, for both of us to see."
  • Comparing AR to the iPhone: "I think AR is that big, it's huge."
  • Calling for patience as there are "things to discover before AR is good enough for the mainstream."
  • Viewing AR like the silicon in an iPhone: "It's a core technology, not a product per se."
  • "Augmented reality will take some time to get right, but I do think that it's profound."
Apple Tim Cook
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