Magic Leap manufactures custom components, such as advanced lenses and related software, that are crucial for the development of a metaverse and augmented reality (AR).

Facebook’s parent company, Meta (NASDAQ: META), is reportedly in discussions with augmented reality (AR) start-up Magic Leap to establish a multiyear agreement. Meta, which is investing billions of dollars into its metaverse project, aims to create an online world filled with avatars. The potential collaboration between Meta and Magic Leap would involve intellectual property licensing and contract manufacturing in North America to aid in the development of mainstream AR products. Magic Leap specializes in producing custom components such as high-tech lenses and software, which are crucial technologies for building the metaverse. However, insiders indicate that the partnership is unlikely to result in a joint Meta-Magic Leap headset. (FT)

Magic Leap’s key asset is its advanced “waveguide” technology, which allows thin glass in front of the user’s eyes to produce realistic images at different depths. While Meta declined to comment on the discussions, Magic Leap acknowledged that partnerships were an important aspect of its business strategy. Meta’s interest in collaborating with Magic Leap aligns with a broader trend in Silicon Valley to reduce dependence on Chinese manufacturing for hardware production, particularly in the context of VR and AR headsets.

Magic Leap, founded in 2010, gained substantial funding from prominent investors such as Google, Alibaba, and Qualcomm. After the underwhelming sales of its Magic Leap 1 headset, the company shifted its focus exclusively to enterprise applications.

In 2021, Saudi Arabia’s Public Investment Fund acquired a controlling stake in Magic Leap. The company, led by CEO Peggy Johnson, released the Magic Leap 2 headset in September 2022.

Johnson hinted at new revenue streams, highlighting the interest received for IP licensing and utilizing their patented manufacturing process to support the development of mixed-reality technology by other companies.

Meta, with a market capitalization of $612 billion, faces investor concerns about the profitability of its metaverse project, especially considering challenging economic conditions and an advertising downturn. The company has undertaken restructuring and layoffs as part of an efficiency drive.

Although Meta currently dominates the VR/AR headset market with its VR Quest models, the overall market remains relatively small, with fewer than 9 million units sold in 2022. However, the market is poised for potential disruption with Apple expected to enter the space with its own “mixed reality” device in the near future.

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