By Sean Peasgood, Sophic Capital
Have no doubt, virtual reality (VR) will be a multi-billion dollar market. These mysterious, bug-like headsets that immerse us into computer-generated worlds could disrupt numerous verticals including: real estate, education, medicine, and entertainment. Gaming will likely be the first commercial market; I attended three gaming conferences in 2015 and the increased number of VR hardware companies “wowed” me. Gamers want VR; major consumer electronics vendors like Samsung, Sony, Microsoft, Facebook (who bought Oculus for $2 billion) and HTC want VR; the only thing that seems to hold back gaming VR is the lack of content. That and only a handful of companies (including Samsung, Google, and Vuzix) have commercial head-mounted devices (HMDs) available for sale.
VR Kills the Smartphone?
I may be dating myself, but I remember when I carried a phone, camera, and MP3 player in my pocket. I still marvel at how these three critical tools have consolidated into one smaller, lighter, and faster device. Unless smartphones integrate 3D cameras, I don’t think many people will carry those bulbous, multi-lens cameras to record real-life events. Nor do I envision many people wearing a HMD in public to watch their content. Even if you disagree, it doesn’t make sense that VR will eliminate smartphones, especially when HMDs like Samsung’s Gear VR and Google Cardboard use smartphones to work.
The Key to Mr. Luckey’s Quote
Several media outlets and bloggers interpreted Mr. Luckey’s remarks (bottom right) to mean that VR is the death knell of smartphones. I’m the first one to admit that Palmer Luckey is a VR legend who’s lived and breathed more VR in his short 23-year life than I will over my next few decades. I could be completely wrong here, and I offer full apologies to Mr. Luckey if I am, but I don’t believe he was predicting that VR will eliminate smartphones because he references two little letters – “AR” or “augmented reality.”
Why AR is Important
AR is kind of the opposite of VR. AR is the projection of computer-generated images and info into our world. It uses clear glasses. VR requires a dark screen to block us from the real world. High-end HMDs also have integrated headphones to eliminate real-world audio. Will people slip on VR HMDs in public to game or watch content? If so, then police departments and hospitals around the world should anticipate increased tourist muggings and car accidents.
I Think AR Will Kill Smartphones
I value my safety and wouldn’t leave my physical self vulnerable to the real world while my mental self immerses into an imaginary universe. But integrating AR into a VR HMD allows me to conduct all of my affairs through a clear screen. I could film my family’s vacation then wait until I am in a safe place to watch the VR replay. You guffaw? This type of technology already exists - I’ve met with three companies doing exactly this. But although AR is a bigger market than VR, it’s years away from adoption because consumers will want form factors aren’t right. Consumers will want AR glasses to look like reading glasses. They’ll also want integrated phone, camera, video, music, and VR functionalities - magical glasses with lenses that change from clear to dark and back again so that we can switch between AR and VR with ease. Goodbye smartphone.
A Way to Invest in VR AND AR
Believe it or not, cables represent a way to play the VR and AR markets. High-end gaming HMDs will be tethered to gaming computers or platforms by a cable (wireless HMDs using smartphone processors won’t be able to handle high-end gaming). High-end AR glasses will be cabled to a wearable computer.
However, those lengths of shrouded copper are a big problem in these disruptive technologies. The issue is a standard, engineering problem: the faster the data, the shorter the distance it can travel without distortion. For HMDI data, VR HMDs could get away with maybe a meter of passive copper cable before pixilation and video lag causes motion sickness. But playing an immersive shoot-‘em-up game with a three-foot cable connecting your head to a PC on the floor isn’t a great experience. ”Amplifying the signal will fix the signal,” you may reply. True, but this adds more complexity and cost to the electronics. And we haven’t addressed another problem – cables are thick and heavy. Those HMD audio, video, data, and power cables –they weigh down your head and make you look like Medusa.
Enter Spectra7 Microsystems
Palo Alto’s Spectra7 Microsystems, a Sophic Capital client, doesn’t build VR HMDs or cables. Their specialty is interconnect chips that make electronic products smaller, lighter, clearer, faster, and less expensive. Spectra7’s VR7100 chip, geared to the VR industry, consolidates 4 cables into one smaller diameter yet longer (up to 7.5 meters) cable without compromising signal integrity. Although Spectra7 doesn’t disclose customers, an iFixit teardown of Oculus’s DK2 uncovered the VR7100. CEO Tony Stelliga is an industry veteran with a history of building and selling companies. Bob Dobkin, a Linear Technology co-founder and legendary analog semiconductor designer, is a Spectra7 Director and investor. Ron Pasek (Altera’s CFO) is Spectra7’s Chairman. And as an added bonus, Spectra7 also has its AR7050 cable equalizer for AR systems. So it doesn’t matter which gaming VR HMDs survive or what percent of market share each OEM wins. It seems Spectra7 has a key component that each cabled VR OEM needs. This makes Spectra7 a VR industry gatekeeper. Should you agree and choose to invest, the company trades on the Toronto Stock Exchange under SEV. SPVNF is also its over-the-counter ticker.
Editor's Note: Sophic Capital’s President and CEO, Sean Peasgood, enjoyed a successful career as a sell-side analyst for over eight years. As an analyst, he covered a diverse set of clean technology and technology stocks, including hardware and software companies that ranged from micro-cap to large-cap stocks.
Sophic Capital is a Toronto-based capital markets advisory services firm for technology and clean technology companies that develops complete capital markets strategies, provides access to the right investment professionals, and lowers clients’ costs of capital.
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