Per a recent Loup Ventures Research report, Apple’s AAPL augmented reality (AR) glasses could be available for retail by the middle of fiscal 2020. Initially, the glasses will be priced at $1300 and are likely to sell 3 million units that year, representing 2% of Apple’s total revenue. By fiscal 2022, the share of Apple glasses (with the selling price coming down to $1000) could reach 10% or $30 billion of the company’s total revenue.

Though analyst Gene Munster of Loup Ventures was very optimistic about the AR glasses, he sounded pretty wary about the iPhone. As far as the iPhone is concerned, Munster stated that fiscal 2018 will see about 15% revenue growth (as ASP rises to $674 from $651 in fiscal 2017) or 12% uptick in unit sales driven by the rumored iPhone 8. Post that cycle, fiscal 2019 revenues from its flagship offering, iPhone, will be marred by tough comps. The AR glasses will begin to prove as a disruptive factor from fiscal 2020. Over fiscal 2020 to 2022, iPhone revenues are expected to fall 3% to 4% and by 2022, iPhone revenues expected to  be about 48% of total revenues, significantly down from high sixties range witnessed currently.

In his report, Munster stated “we expect a different growth curve for Apple Glasses vs. the iPad, and believe the product will continue to increase as a percentage of sales for the next ten years.” He added “In 10 years we expect the iPhone will be around, but be a much smaller part of Apple’s business as Apple Glasses slowly gains market adoption.”

Unlike confirming long-standing rumors about working on self-driving car technology, Apple has remained silent on AR glasses. Despite that, time and again, CEO Tim Cook has emphasized on developing this technology over the last few months. He has been quoted saying, "AR can be really great, and we have been and continue to invest a lot in this. We are high on AR for the long run.” He added that not VR but AR will be “the larger of the two, probably by far”.

Apple Inc. Price

Apple Inc. Price | Apple Inc. Quote

News of Apple mulling over foraying into wearables space first surfaced in November last year. Moreover, in January this year, tech blogger, Robert Scoble, citing a Carl Zeiss employee, stated that Apple is working on AR/mixed reality headsets and has partnered with the renowned lens maker.

Apple’s iPhone, the biggest contributor to the company’s total revenue, faces sluggish demand. With the tremendous hype surrounding the rumoured iPhone 8, Apple can relax for now. But competition from cheaper handsets like Oppo, Vivo and Xiaomi is highly unsettling.

Apple has been exploring newer growth avenues for long. Apple Pay, Apple Watch and Apple Music are some of the new ventures undertaken by the company. Notably, App Store revenues are growing. Apple is also foraying into original programming. It entered the home automation market with the launch of Siri-integrated HomePod.

With so much buzz created by the fast growing augmented reality/virtual reality (AR/VR) and artificial intelligence (AI) technologies, the company has started to focus on its development.

The market presents significant growth opportunity for Apple despite competition from Alphabet GOOGL, Microsoft MSFT and Facebook FB. According to a recent IDC report, global revenues of the AR/VR market will witness a CAGR of 198% over the 2015–2020 time period and will reach $143.3 billion by 2020. 

It is to be noted that Alphabet launched its AR glasses, Google Glass, way back in 2013. However, hefty price tag and problems with aesthetics/interface caused it to discontinue the product within two years of its launch. Analysts observe that if Apple intends to make it big, it needs to learn from these mistakes.  However, analysts add that Apple’s strength in industrial design will go a long way in helping Apple successfully foray into the wearables space. 

To ramp up its efforts, Apple recently acquired the German company, SensoMotoric Instruments, which specializes in eye-tracking technology. Earlier, the company acquired several smaller firms with expertise in AR hardware, 3D gaming and virtual reality software. These include Flyby Media, Emotient, TupleJump, Turi, Metaio and PrimeSense. This year, Apple scooped up Lattice Data Inc, a startup specializing in AI technology for reportedly $200 million.

In addition, at its WWDC this year, Apple announced ARKit that will help third-party developers to work on creating AR experiences for its iOS platform.

Not just AR/VR, the company is also working on developing self-driving car technology. However, Munster hasn’t included this factor in his five-year revenue model for Apple as the “Apple’s go to market strategy is unclear.” He added that Apple could either partner with someone to develop its car or develop its own autonomous car-driving software. Apple operating a ride-hailing service was completely ruled out by Munster.

Zacks Rank & Stock Price Movement

At present, Apple carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past one year, shares of Apple have registered growth of 49.8% compared with the Zacks categorized Computer Mini industry’s gain of 49.2%.

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