Envisions a $6 to $8 billion per year opportunity for Apple AR —and that’s without the glasses. Raises price target to $230.
From a 28-page note to clients by Wamsi Mohan et al. that landed in my inbox Tuesday:
Augmented reality (AR) adoption is set to grow materially with the newly introduced ARKit 2. In our opinion, revenue contribution can be significant even without Apple introducing any dedicated AR hardware. Specifically, we estimate that AR can add $1bn revenue by end of F20 from App Store downloads alone. Moreover, increased use of AR Apps will help drive higher sales of iPhones, especially post rear 3D sensing inclusion in 2019. We raise our iPhone estimates for F19/F20 by 2mn/8mn units as AR drives incremental iPhone sales.
In addition, if Apple were to introduce AR specific eyewear (not currently factored into our model) we conservatively size the cumulative revenue upside from such device sales at ~$11bn by F20. We think AR apps will command a price premium. We believe the inclusion of AR features will be appealing to consumers (for use in applications like Maps that can have an additional virtual overlay) as well as to Enterprises where employees can be trained and instructions can be conveyed in real-time. We reiterate our Buy on strong capital returns, continued strong growth in Services revenues and AR providing yet another competitive advantage…
There are a couple of different 3D sensing technologies that Apple may integrate in the next iteration of the iPhone, that are likely to significantly improve the AR capabilities of the iPhone. One of them is similar to the front facing 3D sensor – or TrueDepth. Current front facing TrueDepth technology is based on projecting a pattern of 30,000 laser dots onto a user’s face and measure the distortion to generate an accurate 3-D image for user authentication.
While TrueDepth is very good at detecting surfaces and details, it is limited to close proximity applications. To utilize room-wide AR applications, Apple will likely integrate a time-of-flight sensor system that is better suited to analyzing surfaces at longer distances from the iPhone. Unlike competitors, Apple designs both the hardware and software of the iPhone. Hence, adding 3D sensing hardware capabilities to the iPhone creates a competitive advantage in the AR smartphone industry, in our view.
My take: Mohan is the second top-tier-bank analyst in a week I’ve heard singing Apple AR’s praises. They must have seen a helluva demo.