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Microsoft (MSFT) Wins $22B AR Headset Contract From U.S. Army

Microsoft MSFT recently secured a U.S. army contract worth $21.88 billion, spread across 10-year period.

The tech giant is committed to furnish 120,000 AR headsets for the Army based on their Integrated Visual Augmentation System (IVAS) design requirements. The modified design enhances robust augmented reality (AR) capabilities of HoloLens 2 with customized upgrades.

The headsets are anticipated to secure and empower U.S. army soldiers while combating real-life challenging conditions with seamless information sharing, enhanced awareness of field situations and real-time decision-making.

The contract follows close on the heels of the $480-million contract clinched by Microsoft in 2018, the terms of which stated that it is likely to eventually lead to an order of more than 100,000 HoloLens headsets.

Upon the closure of rapid prototyping phase, the top focus of the IVAS program in its production phase is on the production and rollout of the new IVAS headsets on-field.

HoloLens 2 technology-based IVAS headsets leverage Microsoft Azure cloud services, making them even more effective.

This is a huge win for Microsoft, which remains optimistic about this association with the U.S. Department of Defense. The deal wins instill investors’ confidence in the stock. Notably, shares of Microsoft have returned 17.1% in the past six months compared with the industry’s growth of 9.9%.

Robust Capabilities Make HoloLens 2 a Winner

Microsoft’s HoloLens 2 offers mixed reality (MR) technology, which gained significant adoption from developers, ranging from defense (US army, Israel army), healthcare, architecture, construction industries to scientific research domain. Notably, the term “mixed reality”, coined by Microsoft, implies a merger of AR and Virtual Reality (VR) technologies.

Currently, Microsoft is exploring various use cases of HoloLens 2 to strengthen its integration with Dynamics 365 (D365) offering. This move is in line with its efforts to get ahead of the curve by adding innovative MR techniques in the CRM and ERP domains with MR technology-based glasses in D365.

With focus on enterprise, the company is investigating various use cases of this ergonomic device’s services. These include transforming the health sector with enhanced surgeries, the utility sector with an improvised construction technology and asset management with its robust industrial equipment monitoring techniques to mention a few.

Moreover, it must be noted that the gadget’s Windows Hello facial-recognition option feature for logging in with eye tracking on a real-time basis along with holographic lenses offering an immersive view makes it a compelling option. The headset utilizes Qualcomm’s QCOM Snapdragon 850 processor.

Further, the growing clout of hologram technology (superimposition of digital holograms or digital logos onto the real physical world) among enterprises and at workplaces favors the prospects of this latest headset.

Markedly, HoloLens 2’s field view is magnified twice the capacity of the previous device and is claimed to be “three times more comfortable”.

Additionally, the increasing spending on AR/VR tech presents alluring market opportunities. Furthermore, the coronavirus crisis triggered the spending on AR/VR tech owing to work-from-home, online learning and stay-at-home trends amid social-distancing norms. In fact, IDC forecasts the overall global spending on AR/VR to hit $72.8 billion by 2024, seeing a CAGR of 54%.

Notably, Statista projects sales of AR and VR headsets to touch 26 million units per year by 2023.

We believe, Microsoft’s focus on improving its products with the emerging technologies including AR, VR or MR, IoT, AI among others is helping the company explore new use cases for its offerings. These initiatives in turn assist in snapping up contracts including the one under discussion, which are anticipated to boost the company’s top-line growth going forward.

The aforementioned factors are expected to help the company compete against its fellow industry giants in the broader headset market, such as Alphabet GOOGL and Facebook FB.

Microsoft carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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