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Forget the iPhone X, Apple May Be Looking Ahead to This

Chris Neiger, The Motley Fool

There's lots of buzz around Apple's (NASDAQ: AAPL) new iPhone X right now, and there should be. The device has an amazing edge-to-edge display, is powered by a new A11 Bionic neural engine chip that can perform 600 billion operations a second, and users can unlock the device by just looking at it. 

iPhone sales are responsible for about 60% of Apple's top line (it varies by quarter), but it's inevitable that there will come a time when smartphones are no longer its most important devices. That's just how technology works. The iPod superseded Apple's computers as its biggest revenue driver; then the iPhone took the iPod's place. At some point, another Apple device will come along and take the lead.

iPhone X with water splashing behind it.

Image source: Apple.

And that's what makes this Bloomberg article so intriguing: The news service is reporting that Apple is working on an augmented reality (AR) headset that could hit the market as soon as 2020. This isn't the first time rumors like this have surfaced, but this report adds more color to a possible Apple AR device, including these assertions:

  • The device will be ready by 2019 and could launch in 2020.
  • It will be a headset with its own display (i.e. it will not use smartphone as its screen, as some VR headsets do).
  • It'll run on a new system-on-chip developed by Apple, which will likely include a CPU, graphics processor, and artificial intelligence processor all packed together.
  • It will run a new software platform called rOS (reality operating system) that's similar to iOS.

Apple develops lots of test products, and it scraps many of them, so there's no guarantee that this AR headset will make it to market. But Apple's already doing plenty in the AR space, which means such a headset is a potential candidate to be the company's next big release. 

Knee-deep in augmented reality

Augmented reality is expected to become a $61 billion market by 2023, and Apple CEO Tim Cook has already made it clear that it's becoming increasingly important to his company. When asked about AR earlier this year, he said, "I think it is profound. I am so excited about it, I just want to yell out and scream."

In 2017, Apple also launched its ARKit, a platform that allows developers to create all of those AR apps for the iPhone. This has already led to the creation of more than 1,000 apps for the company's devices, and it's just getting started. Here's what Cook said on Apple's latest earnings call:

The launch of iOS 11 also made iOS the world's largest platform for augmented reality. There are already over 1,000 apps with powerful AR features in our App Store today, with developers creating amazing new experiences in virtually every category of apps aimed at consumers, students and [business] users alike. Put simply, we believe AR is going to change the way we use technology forever. 

Could this really be Apple's next big product?

In July, before the latest Bloomberg report, a longtime Apple analyst who recently started his own venture capital firm, Gene Munster, said that AR glasses (or possibly, a headset) will slowly take the place of the iPhone.

"We expect iPhone will account for 48% of sales in FY22. In 10 years, we expect the iPhone will be around but be a much smaller part of Apple's business as Apple Glasses slowly gains market adoption," Munster wrote in an investor note. He also speculates that Apple's AR device may cost $1,300 when it launches.

When we add all of that to the new rumors Bloomberg reported, and consider the fact that Apple is firmly in the AR software space already, an Apple AR headset looks more and more plausible. 

Skeptics will point to Cook's comments in an interview last month when he said that the AR glasses hitting the market right now aren't up his company's standards, and that the technology to make good headsets isn't quite there yet. That's not an admission that Apple isn't working on such a device, nor does it mean that the company doesn't expect to come up with a better solution over the next couple of years.

What's clear is that Apple has big plans for AR, and considering Cook's enthusiasm, it would a little surprising if the company isn't working to release a new device that's built from the ground up around augmented reality. We'll likely hear more rumors about an Apple headset in the coming months and year, and with the augmented reality market just starting to take off, I think investors should be looking ahead with high expectations.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.