CITIC Securities: Seven Questions and Answers on the Core Issues of Apple Vision Pro

Zhitong App has learned that CITIC SEC has released a research report stating that Apple Vision Pro is a crucial milestone in its core strategy, extending from personal computing and mobile computing to spatial computing. It serves as a productivity tool and entertainment terminal, with the initial headset positioned in MR but also serving as the starting point for Apple's long-term evolution towards AR. With further optimization in weight, battery life, and future upgrades to enhance voice interaction, there is optimism for the combination and complementarity of AIGC+MR/AR in the long run. This is expected to drive headset hardware shipments to tens of millions, highlighting Apple's iterations and leading role in the VR/AR industry. It is recommended to focus on investment opportunities in core components of the industry chain and device end.

▍Key points from CITIC SEC:

Question 1: What is the positioning of the Vision Pro product, and how is the sales volume expected in the short, medium, and long term?

Vision Pro (hereinafter referred to as AVP) is one of Apple's core strategies for the next 5-10 years, marking its extension from personal computing and mobile computing to spatial computing platforms. It expands from traditional human-computer interaction on devices like phones and PCs to multi-dimensional interactions involving people, machines, and the environment. AVP is an important endpoint for transitioning from 2D to 3D computing, combining productivity tools and entertainment device attributes, breaking through the application limitations of traditional VR headsets focused on gaming and video.

Another positioning is as a significant starting point for Apple's long-term upgrade to AR glasses. AVP may maintain an iteration cycle of about 2 years, with shipment volumes comparable to the iPhone and Mac. According to Canalys, iPhone shipments reached 20 million units per year after 3 years of launch and about 70 million units after 5 years; MacBook shipments reached about 7 million units per year after 3 years and about 13 million units after 5 years. Based on current supply chain capacity (full production capacity of about 100,000 units per month), it is estimated that Vision Pro will have shipment volumes of approximately 6/30/90 million units in 2024-2026, with the potential to reach tens of millions to hundreds of millions in the medium to long term.

Question 2: What are the hardware innovations of Vision Pro?

1. Chip: Apple's self-developed chip, using a combination of M2+ custom R1 chip.

2. Display: Internal Micro OLED + external curved OLED configuration.

3. Interaction: No controller design, using gestures, voice, and eye movements for interaction.

4. Optics: Using the 3P Pancake solution to provide the best display effect, balancing optical experience and product weight; adopting industry-leading infinite, automatic, single-eye interpupillary distance adjustment module to accommodate different users.

5. Acoustics: Based on high-performance sensors, equipped with audio beam tracking technology to provide immersive spatial audio experience.

Question Three: What are the outstanding features of Vision Pro?

1. High-definition 3D video experience: According to iFixit, the pixel density of the AVP screen reaches 3386 PPI, while similar products like HTC Vive Pro are around 950PPI, and Meta Quest 3 is about 1218PPI. Watching videos on AVP can achieve a level close to a 4K screen with no obvious pixelation.

2. Natural eye and gesture interaction: The product abandons traditional headsets' controllers and uses eye tracking as a mouse, with six defined gestures for functions like selection, zooming, moving, sliding, and rotating.

3. Real-world interaction with AR-like features: AVP can open multiple application windows simultaneously (e.g., a movie window in the living room, a timer window in the kitchen), with windows locked in place and mapping the user's movements, creating the effect of placing a movie screen and timer in the real world.

4. VST provides high-definition and low-latency, approaching a naked-eye effect.

Question Four: What are the areas where Vision Pro falls short in user experience?

1. The initial product weighs over 600g, affecting comfort: Currently, the main body of AVP weighs around 600-650g (similar to the Apple iPad Pro 12.9-inch version at about 680g), with an external battery of over 300g, making it still not suitable for long-term wear.

2. There is room for improvement in clarity with VST: Viewing electronic screens like phones and watches with AVP still lacks clarity. Additionally, image noise is more noticeable in low-light environments, leading to a decrease in display quality.

3. Battery life is 2-2.5 hours, requiring external power for long-term wear.

4. Limited application scenarios for EyeSight, providing a mediocre user experience.

5. Limited internal space in AVP does not support nearsighted users wearing glasses, requiring adaptation with contact lenses or custom Zeiss lenses.

6. Accuracy of virtual keyboard input needs improvement.

7. Currently, AVP is a single-user experience device, lacking in shared experiences.

Question Five: What are the potential upgrade directions for second-generation and subsequent products?

1. Reduce the weight of the AVP main body; 2) Further upgrade VST functions, with room for improvement in the field of view; 3) Improve battery life; 4) Adapt for nearsighted users to enhance the wearing experience, such as automatically adjusting the focus distance for different users; 5) Cost reduction on the hardware side: The current overall BOM cost of AVP exceeds $2000, with silicon-based OLED costs around $700, external displays and 3D glass around $200, and the main body frame around $200. Future upgrades may involve introducing secondary suppliers or reducing redundant modules to lower costs.

Question Six: How do you view the application landing of Vision Pro?

Overall, in terms of applications, AVP will advance simultaneously in the B2B and B2C sectors, transitioning from weak stickiness and easy portability to strong stickiness and customized development.

1. B2B applications: In the short term, there will be a high-definition and 3D transformation of mature 2D flat applications, such as office and video conferencing. In the medium term, productivity tools tailored to spatial visual and interactive features may emerge, such as medical teaching/operations and industrial product design. Long-term focus on virtual work/teaching scenarios.

2. C2C applications: Video, games, and multi-person interaction based on Persona are likely to be the first to land.

Question Seven: What are the differences between Vision Pro and non-Apple products?

1. Lower application development threshold and cross-platform implementation, offering developers low learning costs and high cost-effectiveness. Non-Apple headsets mainly use Unity for 3D content development, while AVP provides a complete set of development frameworks and languages, including SwiftUI commonly used in iOS development for 2D interface development. 3D transformation is achieved through RealityKit or Unity, with a lower development threshold. Applications developed using Apple's development kit have cross-platform capabilities, allowing one set of code to run on platforms such as iOS, iPadOS, and visionOS simultaneously.

2. Interconnected with iPhone, iPad, and Mac, creating a more complete hardware ecosystem. In addition to running applications from iOS and iPadOS on AVP, AVP can also play 3D photos or videos taken by the iPhone, and serve as a virtual external screen for Mac, collaborating with Apple's original hardware products.

Investment Strategy:

At the current stage, focus on two investment themes of AVP: 1) As the hardware terminal shipments evolve from small batches to millions and tens of millions, customers are more concerned about the supply chain companies' capacity assurance and economies of scale. Component and equipment companies are expected to consolidate towards leading companies with stable positions in the industry chain ecosystem; 2) Focus on companies benefiting from significant functional changes or market share improvements in the second generation and subsequent products, such as silicon-based OLED, diopter adjustment, VST upgrades, battery upgrades, and related areas.

Risk Factors:

Global macroeconomic fluctuations; changes in the international industrial environment; escalating trade frictions; risks of Apple Vision Pro sales falling short of expectations; risks of XR product technology iteration progress falling short of expectations; risks of hardware manufacturing yield falling short of expectations; risks of software ecosystem development falling short of expectations; risks of application development falling short of expectations; risks of downstream demand for consumer electronics falling short of expectations; intensified industry competition; exchange rate fluctuations, and more.