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Did Qualcomm Just Reveal One of Meta’s Biggest Secrets?

Metaplatforms (NASDAQ:FB), the tech giant formerly known as Facebook, has never released exact shipment numbers for its Oculus virtual reality (VR) headsets. But it dropped a lot of hints along the way.

Two years ago, CEO Mark Zuckerberg set a long-term goal to reach 10 million VR users to become a sustainable software platform for developers. In August, Meta’s AR and VR chief Andrew Bosworth said he was “confident” it would hit that threshold sooner than “initially expected”.

Meta didn’t say anything else about meeting that target on last quarter’s conference call, but it attributed its “other” segment’s 195% year-over-year growth to “strong Quest 2 sales.” However, Qualcomm (NASDAQ:QCOM) seemingly the cat of the poke in a recent investor day presentation, when CEO Cristiano Amon casually noted that Oculus had shipped 10 million Quest 2 headsets since its launch last October.

Image source: Oculus.

In a subsequent statement, Qualcomm said that figure was actually based on third-party estimates and was not “intended as official disclosure of sales figures by Meta or Qualcomm.” But even if those numbers weren’t official, they give investors a much clearer picture of Meta’s opaque Oculus segment.

Why does Meta want to sell 10 million headsets?

Meta bought Oculus VR in 2014 and launched its first commercial headset, the Oculus Rift, in 2016. However, the Rift remained a niche gaming device to be tethered to a high-end PC.

To address those limitations, Meta launched its first wireless VR headset, the Oculus Go, in 2018. It wasn’t as powerful as the Rift, but it didn’t require tethering to a PC or mobile device. It followed up the Go with the more powerful Oculus Quest in 2019, and it launched the Quest 2 last year – which was even more powerful, lighter and had better controllers.

The success of the Quest headsets allowed Meta to sell more VR games and experiences on the platform. Last May, it said the Quest platform had surpassed $100 million in VR content sales. In January, it reported that more than 60 Oculus Quest titles had surpassed $1 million in sales. In October, it said Beat Saber — the popular VR rhythm game it bought in late 2019 — had reached more than $100 million in lifetime sales on the Quest platform alone.

Those sales figures are small compared to Meta’s estimated revenue of $117.8 billion this year. Ten million headsets may also sound meager compared to other gaming platforms. Nintendo, for example, has shipped nearly 95 million Switch devices since 2017.

However, the Quest still laid the groundwork for Meta’s push into the “metaverse” — which already includes new augmented reality (AR) devices such as the new Ray-Ban smartglasses and Horizon Workrooms, which allow remote workers to conduct VR meetings. with digital avatars. The expansion of that ecosystem could gradually connect its social networking, AR and VR platforms, while extending its reach significantly beyond PCs and mobile devices.

Why is Qualcomm talking about VR headsets?

Qualcomm’s chipsets power the Oculus Go, Quest, and Quest 2 headsets. The first-generation Go and Quest both used the Snapdragon mobile system on chips (SoCs), which were commonly used in mobile phones.

However, the second-generation Quest used the new Snapdragon XR2 SoC, which was specifically designed with VR and AR devices in mind. The chipset can be paired with seven simultaneous cameras to track a user’s movements and gestures, supports 8K 360-degree videos, provides 3D audio, and supports AI processing functions for voice commands.

Qualcomm is selling more VR/AR chips to diversify its core business away from the smartphone market. That market is heavily commoditized and faces fierce competition from rivals such as MediaTek as well as first-party chipsets from OEMs (Original Equipment Manufacturers) such as Apple, Samsung, and huawei.

That’s why Qualcomm has been rolling out new specialized chipsets for wearables, cars, drones and other Internet of Things (IoT) devices in recent years. None of these chipsets significantly reduces the reliance on the smartphone market so far, but that could change in the coming years.

For example, the global AR and VR market could grow at a compound annual growth rate (CAGR) of 46% between 2021 and 2025, Technavio said. But according to Mordor Intelligence, the global smartphone market can only grow at a CAGR of 1.7% between 2021 and 2026.

We should take those estimates with a grain of salt, but it’s easy to see why Qualcomm is so eager to develop new VR chips for Meta. If VR headset sales were to decline in the coming years, Qualcomm could dominate that platform with its chips in the same way it became the market leader in smartphone chips.

Laying the foundations of the future

Qualcomm’s unveiling, official or not, indicates that Meta’s VR business is growing rapidly. It’s not quite as big as the best game consoles yet, but it’s gaining momentum and forming the foundation of its metaverse business.

Investors should not expect Meta and Qualcomm to generate significant income from these efforts in the foreseeable future. But in the long run, they could significantly change the business models of both companies.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium consulting service from Motley Fool. We are fur! Questioning an investment thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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