Magic Leap seeks a breakthrough as Big Tech invests in augmented reality

Magic Leap, the once-touted augmented reality company, is looking to give its high-tech optics business a spin at a time when bigger rivals like Meta and Apple are entering the market.

The Florida-based start-up was valued at $6.4 billion in 2018, having secured funding from investors including Alibaba, Google and Qualcomm. But low sales of its consumer-oriented headphones have led to layoffs, a restructuring and a focus on corporate customers.

Its valuation dropped to $2 billion in late 2021, when Saudi Arabia’s Public Investment Fund bought a controlling stake in the company, infusing it with more cash and bringing total funding to $4 billion.

Since then, the company appears to have stumbled upon a new revenue stream: manufacturing and licensing the intellectual property of crucial components in AR devices that overlay images onto their real-world surroundings.

The biggest value, the hardest and most complex area, is optics, said Peggy Johnson, who led business development at Microsoft before taking on Magic Leap’s CEO role in 2020. And it’s hard to replicate. . So we’re generating interest from the industry for our intellectual property, our manufacturing know-how, our capabilities and our high rates of return.

While Magic Leap said it couldn’t comment on specific partners, the company said it has signed pledges to license its intellectual property and produce optics for multiple companies.

The Financial Times reported in June that Facebook’s parent company Meta, which spends $10 billion a year on projects to create an avatar-filled metaverse, had been in talks with Magic Leap to produce optics for its future devices. .

The company said its focus is still on its headphones, the latest of which start at $3,299, but this new line of business could be significant.

Apple, Microsoft, and Snap are all in various stages of developing AR glasses, a product widely recognized as more difficult to make than virtual reality headsets. Google ended its decade-long Glass project in March, but is still reportedly hoping to build an AR software platform, while Microsoft recently scaled back its HoloLens team.

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Apple reinvigorated industry excitement after unveiling the Vision Pro headset, a mixed reality device that can fully immerse users in a digital world or show a video feed of the real environment containing other digital images.

Big tech companies’ long-term goals are to make much thinner AR glasses, which may need to use technology pioneered by groups like Magic Leap.

LexisNexis Intellectual Property, a group that measures the competitive impact of patent filings, gives Magic Leap an industry-leading mixed reality score of 9.5, nearly double that of Microsoft and four times that of Meta .

Basically, they have an optical system that’s significantly ahead of everyone else’s, and they have the patents to support it, said a person familiar with Magic Leaps technology. Whether or not they can turn it into a business is Peggy Johnson’s challenge.

How important this guide is remains to be seen. Company executives admit that the AR industry is still in a key development stage, referring to the first mobile phones.

Jeri Ellsworth, chief executive officer of Tilt Five, a 3D gaming company that makes its own AR glasses, called the Magic Leap one of the worst offenders out there for overestimating what the device could actually do. She said she wasn’t convinced her optics were much better than the competition.

Magic Leap declined to comment on its revenue or how many units the Magic Leap 2 headphones have sold since they became available last year.

Two people close to the company said that while the sales numbers aren’t impressive, what would matter is if the company could secure corporate customers who are still testing its headphones and may find future uses. Its factories have the capacity to build optics for 3 million devices a year, far above current demand.

Magic Leap says new uses will come from both its software and hardware. Its advances have already allowed the product to shrink from what was once a refrigerator-sized wearable prototype in 2012 to a reasonably comfortable headset attached to a backpack placed on its hip that offers more than three hours of battery life. drums.

These advances are showcased at the 250,000-square-foot headquarters in Plantation, Florida, which sits above five facilities where major parts of the manufacturing process are fully automated.

Part of the production takes place in clean rooms, using manufacturing techniques more commonly associated with semiconductors. For example, the glass lens, technically a liquid crystal display on silicon, is engraved with tiny patterns 3,000 times thinner than a human hair that allow images to be projected into the wearer’s field of vision.

These diffractive structures are what allow us to take a projector pointed at the world and essentially direct light at your eyeball, but still allow you to see the real world, so it’s a transparent display, said Scott Carden, head of the eyepiece engineering.

Magic Leaps’ IP extends to the machines that make the lenses, which are also designed and manufactured from scratch, thanks in part to a 2015 decision to buy the non-semiconductor business of Molecular Imprints, a nanoimprint lithography group in Texas.

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 woes.

All I was working on were complex systems, completely new fields of technology, he said. And I was thinking, why shouldn’t we have this know-how in the United States? Why do we export all this know-how abroad? It made no sense to me.

As tech companies are under pressure to shorten their supply chains in the wake of the coronavirus pandemic and to reduce the risks of their exposure to China, Magic Leaps 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 evolve, we want to make sure we educate Hill about what it can do, he said.

AS [having factories in the US is] not only is it an advantage from a technical point of view, because our engineers are seated on the upper floor and the production plants are two floors down, but in this environment it is certainly an advantage.

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