Magic Leap seeks change as Big Tech invests in augmented reality

Magic Leap, the once-hyped augmented reality company, is looking to make a splash with its high-tech optical technology at a time when bigger rivals like Meta and Apple are entering the market. school.

The Florida-based startup was valued at $6.4 billion in 2018, thanks to funding from investors including Alibaba, Google and Qualcomm. However, poor sales of its consumer-facing headsets have led to layoffs, restructuring and a shift toward enterprise customers.

Its valuation fell to $2 billion at the end of 2021, when Saudi Arabia’s Public Investment Fund bought a controlling stake in the company, pumping more cash into the company and bringing its total funding to $4 billion. USD.

Since then, the company seems to have embarked on a new revenue stream: manufacturing and licensing the intellectual property for key components in AR devices that overlay images onto real-world surroundings.

“The highest-value, most difficult and most complex field is optics,” said Peggy Johnson, who led business development at Microsoft before taking on the role of Magic Leap chief executive in 2020. . “And it’s hard to replicate. So we are getting interest from the industry for our IP, manufacturing know-how, capabilities and high margins.”

While Magic Leap said it could not comment on specific partners, the company said it has signed commitments to license its IP and produce optics to “multiple” companies.

The Financial Times reported in June that Facebook parent company Meta, which spends $10 billion a year on projects to create a “metaverse” filled with avatars, had held talks with Magic Leap to produce optics for its future devices.

The company says it’s still focused on its own headphones, the latest of which start at $3,299, but this new line of business could be important.

Apple, Microsoft and Snap are all in various stages of developing AR glasses, a product widely understood to be more difficult to build than virtual reality headsets. Google killed its decades-old Glass project in March but reportedly still hopes to build an AR software platform, while Microsoft recently downsized its HoloLens team.

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Apple has sparked enthusiasm for the sector after launching its Vision Pro headset, a “mixed reality” device that can fully immerse users in the digital world or display feeds Video data of their real environment contains other digital images.

The long-term goal of Big Tech companies is to create much thinner AR glasses, which may require using technology pioneered by groups like Magic Leap.

LexisNexis Intellectual Property, a group that measures the “competitive impact” of filed patents, gives Magic Leap an industry-leading mixed reality score of 9.5, nearly double its with Microsoft and four times more than Meta.

“At their core, they have an optical system that is superior to others, and they have the patents to support it,” said a person familiar with Magic Leap’s technology. “Whether they can turn that into a business is Peggy Johnson’s challenge.”

How important this leadership issue is remains to be seen. Company executives admit the AR industry is still in the “bricks” stage of development – a reference to early mobile phones.

Jeri Ellsworth, chief executive of Tilt Five, a 3D gaming company that makes its own AR glasses, called Magic Leap “one of the worst offenders for overstating what the device actually does.” can do”. She said she doesn’t believe its optics are better than its competitors.

Magic Leap declined to comment on sales or how many Magic Leap 2 headsets have sold since its launch last year.

Two people close to the company said that while sales were not impressive, what matters is whether the company can ensure business customers are still testing its headsets and can find the right ones. intended for future use or not. Its factories have the capacity to produce optics for 3 million devices per year, far exceeding current demand.

Magic Leap argues that new applications will come from both its software and hardware. Its advances have now allowed the product to shrink from its 2012 non-wearable prototype, which was about the size of a refrigerator, into a fairly comfortable headset linked to a wearable pack. The hip offers more than three hours of battery life.

Those advances are on display at the 250,000-square-foot headquarters in Plantation, Florida, which is located across five factories where core parts of the manufacturing process are fully automated.

Some manufacturing takes place in “clean rooms,” exploiting the more common fabrication techniques associated with semiconductors. For example, the glass “lens” – technically a “liquid crystal on silicon” display – is etched with tiny patterns 3,000 times thinner than a human hair allowing images to be projected into the wearer’s field of vision. .

“Those diffraction structures allow us to point the projector toward the world and essentially direct the light back into your eyeball but still let allows you to see the real world so it’s a transparent screen.”

Magic Leap’s IP extends to the lens-making machines, which were also designed and manufactured from the ground up, thanks in part to the decision to acquire the semiconductor business of Molecular Imprints, a lithography group nano in Texas in 2015.

Magic Leap’s unusual level of control over its manufacturing processes is a legacy of founder and former CEO Rony Abovitz, who left in 2020 following the company’s financial troubles. .

“Everything I’m doing is complex systems, completely new areas of technology,” he said. “And I thought, ‘why shouldn’t we have that know-how in America? Why are we exporting all that know-how abroad?’ It doesn’t mean anything to me.”

As tech companies come under pressure to shorten their supply chains in the wake of the coronavirus pandemic and reduce the risk of their exposure to China, Magic Leap’s factories in Florida are proving to be an asset, according to Johnson. .

“We spend a lot of time in Washington DC, because as this technology continues to develop, we want to make sure we educate the Hill about what it can do,” she said.

“Therefore [having factories in the US is] Not only is it a technical advantage, because our engineers sit upstairs and the manufacturing plants are two floors below, but in this environment it’s certainly an advantage.”