meta pads (dead 1.21%) was partnered with Qualcomm (QCOM 4.39%) For years to develop virtual reality (VR) applications, the two companies have now taken another step to strengthen their relationship.
On September 2, Qualcomm and Meta announced at the IFA 2022 trade fair in Berlin that they had signed a multi-year agreement under which the former will manufacture dedicated chips to power the Meta Quest devices. Qualcomm will use its Snapdragon XR extended reality platform to make custom chipsets for future Quest VR headsets.
It’s worth noting that Qualcomm is already running the Meta Quest 2 headset, and this long-term collaboration means the chip maker is now well positioned to take advantage of a huge opportunity. Let’s take a closer look at the details of this partnership and see how it could favor both tech giants of the future.
Qualcomm can make big profit from the fast-growing VR headset market
IDC estimates that demand for VR headsets is set to take off over the next few years. The market research firm expects VR headset shipments to reach 13.9 million units in 2022, up 26% from last year. By 2026, IDC expects annual VR headset shipments of nearly 35 million units. This is not surprising as the VR headset will be the gateway to the metaverse for users looking to transport themselves into virtual worlds to work, play, socialize, study or collaborate with other users’ virtual avatars.
As it turns out, Meta is currently the main player in this market with an estimated 90% share thanks to the popular Quest 2 VR headset that uses Qualcomm’s Snapdragon XR2 platform. So, Qualcomm really has a foot in this fast-growing market. And now, its status as a supplier of custom chips to market leader Meta for future VR headsets and other products bodes well for Qualcomm’s Internet of Things (IoT) business.
Although Qualcomm does not say how much revenue it gets from selling chips based on the Snapdragon XR platform, it does include sales from this product line in the IoT segment. The good news is that the company’s IoT segment is doing very well. Its revenue increased 31% year-over-year in the third quarter of fiscal 2022 (for the three months ending June 26, 2022) to $1.83 billion.
Qualcomm advances multiple sectors through its IoT business, such as industrial applications, consumer devices, wireless communication, and robotics. The impressive growth of this sector indicates that the chip maker is doing well in these areas, and the virtual reality platform is likely to be another major gear in the future growth of the IoT business thanks to Qualcomm’s induction partnership.
Meta Platforms aims to maintain the dominance of its headphones
We have already seen that Meta is the dominant player in the VR headset market with a near-monopoly situation. This indicates that its reliance on Qualcomm chips to power its VR headsets has paid off well so far. Which is why Meta now needs Qualcomm more than ever for a new competition like the apple Reaches.
Mark Zuckerberg, CEO of Meta, said developing custom chips for VR headsets in partnership with Qualcomm will allow the tech giant to push the envelope and “build more advanced capabilities and experiences for virtual and augmented reality.” It’s no surprise to see why Zuckerberg is focusing on improving the virtual reality experience for users.
The company’s revenue from the Meta Quest store has quadrupled in three years. The store launched in 2019 and exceeded $1 billion in cumulative revenue in February 2022. Notably, the average monthly revenue from the Meta Quest Store was $51 million in February of this year from $12.4 million in mid-2020.
This indicates that Meta Quest users are increasingly spending more money on games, apps, and other VR related content. That’s why it will be important for Meta Platforms to maintain its dominant position in the headphone market – there is a huge content opportunity for the company to capitalize on.
The virtual reality software market could generate approximately $5.5 billion in revenue by 2027 compared to this year’s estimate of $2.4 billion. The overall virtual reality market, including sales of both software and hardware, is expected to grow 15% year-on-year through 2030.
As such, there is a huge incentive for Meta to retain its number one position in the emerging VR headset market considering the fantastic end market opportunity on offer, as success here could give its growth a good boost in the long run.
Randy Zuckerberg, former director of market development and spokesperson for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. cruel shuhan He has no position in any of the mentioned shares. Motley Fool has positions at Apple and Meta Platforms, Inc. And Qualcomm recommends it. Motley Fool recommends the following options: long calls in March 2023 worth $120 on Apple and short calls in March 2023 worth $130 on Apple. Motley Fool has a disclosure policy.
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