Will the “leading big brother” Meta lose market share?
Recently, Ming-Chi Kuo, known as “the strongest Apple analyst on the surface”, lowered his forecast for Meta VR shipments. As an analyst of Tianfeng International Securities, Ming-Chi Kuo has been researching the Apple industry chain and the information technology industry for a long time, and has a great influence in the information technology industry.
A stone stirred up a thousand waves.
After Ming-Chi Kuo lowered his forecast, the stock prices of companies in the upstream industry chain of Meta crashed. Shortly after the opening of the market on June 22, the stock price of Goertek fell sharply, and finally closed at the limit-down price. At the same time, there are also different views in the market, thinking that Ming-Chi Kuo’s prediction is more pessimistic.
Perhaps due to the succinct style of postings on social media, the logic behind the above predictions has not been fully demonstrated. In this regard, a reporter from “Daily Economic News” had an exclusive interview with Ming-Chi Kuo via WeChat today (June 25).
“From a global (scope) perspective, China is definitely one of the most suitable markets for the development of headsets/Metaverses, and I don’t think at all that if Meta has any order revisions, it will have any impact on this long-term trend. What’s more, Meta’s revision order is a comprehensive business adjustment, not just for VR.” Guo Mingchi told the “Daily Economic News” reporter.
The predicted decline in Meta VR shipments is based on a comprehensive judgment of multiple factors
On June 22, Ming-Chi Kuo released a VR product shipment forecast for Meta (META, stock price of $170.16, market value of $460.5 billion) on social media platforms. It was this prediction that caused an uproar in the capital market.
“Metaverse hardware/headset business slows down. 1. Meta cuts its 2022 shipment forecast by 25-35% (from 10-11 million units to 7-8 million units). 2. Meta delays All new headset/AR/MR hardware projects after 2024,” Ming-Chi Kuo said on social media.
On June 22, Goertek (SZ002241, stock price of 33.47 yuan, market value of 114.344 billion yuan) fell by the limit, and Luxshare Precision (SZ002475, stock price of 32.41 yuan, market value of 229.6 billion yuan) also fell by more than 5%.
On the same day, Ming-Chi Kuo released another message explaining that the shipment forecast was based on his own investigation and judgment, not official data.
“I lowered my 2022 forecast for Meta VR/headset shipments by 25%-35% to 7-8 million units. Order reductions are mainly in the second half of 2022, given Meta’s reduced hardware investment and recession risk, I lowered my forecast for Meta VR/headset shipments in the second half of 2022 by 40% to 50%, and believe that Meta headset shipments originally scheduled for after 2024 will be delayed .”
When a reporter from “Daily Economic News” asked “what facts and logic are based on the downward revision of Meta’s VR shipment forecast”, Ming-Chi Kuo replied: “My forecast is a combination of Meta’s external speech, Meta’s financial report and related industry research and A combination of parts market information.”
In Ming-Chi Kuo’s view, the downward revision of Meta’s VR equipment shipment forecast is more based on one of the comprehensive adjustments made by Meta in response to the macroeconomic downturn and the challenges faced by the core business.
“I also mentioned in my latest report that Meta’s investment in other hardware businesses has decreased, which means that Meta’s businesses that are currently unable to generate positive cash flow continue to tighten, not just for VR.” Ming-Chi Kuo told reporters.
Will the “leading big brother” Meta lose market share?
Meta was renamed from Facebook, and this name change also implies its strategic transformation from pure social media to the Metaverse. After the transformation, Meta established a virtual reality laboratory (Reality Labs) for the Metaverse business.
Image source: Screenshot of Meta announcement
According to Meta’s financial report, in 2020 and 2021, the company’s Reality Labs business achieved operating income of approximately $1.14 billion and $2.27 billion, respectively, and operating profits of approximately -$6.623 billion and -$10.19 billion, respectively. In the first quarter of this year, the loss situation has not improved. In the first quarter of 2022, Meta’s Reality Labs business achieved operating income of approximately $700 million and operating profit of approximately -$2.96 billion.
Although Meta’s Reality Labs business continued to lose money in terms of financial results, its VR equipment market share was unrivaled.
Image source: Screenshot of Counterpoint research official website
According to Counterpoint Research, a research institute, by the end of 2021, the cumulative shipment of Meta Quest 2 will exceed 10 million units, making it the first VR device in the world to exceed 10 million shipments. times.
In other words, Meta spent money in exchange for a leading market share and became the “leading brother” in the field of VR equipment.
On April 27 this year, on Meta’s first quarterly earnings conference call, the company’s CEO Zuckerberg said: “Over the next few years, from a financial perspective, our goal is to generate sufficient operating income growth through the APP family to provide Reality Labs’ investment growth provides funding while also improving our overall profitability. Unfortunately, given the headwinds on the top line, this won’t happen in 2022, but in the long term, it is our goal and expected.”
On the conference call, Meta expects total spending in 2022 to be in the range of $87 billion to $92 billion, down from its previous forecast of $90 billion to $95 billion, with spending growth mainly in the APP family, followed by Reality Labs. But at the meeting, Meta projected capital spending of $29 billion to $34 billion, unchanged from its previous estimate.
However, the server industry research report of existing brokerages believes that although Meta has maintained its capital expenditure forecast, it has begun to turn conservative in AI infrastructure investment.
In Ming-Chi Kuo’s view: ” Meta loses money selling VR headsets and takes advantage of price advantages to gain a high market share, but this strategy will be unsustainable in the face of the risk of core business recession, which will benefit (benefit) other existing VR brands in the market. share growth .”
Ming-Chi Kuo believes that the market shares of existing VR headset brands such as Sony, Pico, and HTC are expected to benefit from Meta’s slowdown in hardware investment. Apple, which has a competitive advantage, is a game-changer in the headset industry.
Ming-Chi Kuo said in the research report: “Sony’s influence in the game/multimedia entertainment industry is higher than that of Meta. PS VR2 is expected to be released in 1Q23, and supply chain shipments of about 1.5 million units in 2H22. It is expected that more AAA game masterpieces will support Sony’s development in the future. PS VR2 will boost the influence of VR headsets in the gaming/multimedia entertainment industry.”
Regarding Apple, Ming-Chi Kuo said: “Although Apple has repeatedly reiterated that its focus is on AR, I believe that Apple AR/MR devices that support video see-thru can also provide an excellent immersive experience. The introduction of Apple AR/MR headsets will further drive the demand for immersive gaming/multimedia entertainment. Apple is an industry leader with a significant competitive advantage and does not need to join the Metaverse Standards Forum now.”
China is one of the markets suitable for developing the Metaverse
“Meta’s revision order does not mean that I have a bad view of the headset/Metaverse. On the contrary, my latest report is still optimistic, and I believe that Meta’s reduction in VR hardware investment will help domestic brands to sell overseas (such as Pico). China’s headset/Metaverse hardware, content/service market is entering a period of rapid growth. Therefore, assuming that the macro economy will not deteriorate in the second half of the year, I expect the domestic brand Pico’s VR headset to ship with China as its main market. This year, it will increase by 40% to 50% year-on-year.” Guo Mingchi told the “Daily Economic News” reporter.
Ming-Chi Kuo believes that in the past 2 to 3 years, Meta lost money selling VR headsets and actively promoted the VR business, which is one of the keys to the rapid growth of the VR industry. Even if Meta slows down its investment in Reality Labs/VR business, the VR industry/ecology has matured, so it will not hinder the continuous growth of the VR industry.
“The demand for VR in games/multimedia entertainment has been verified, and the continuous growth of the VR industry is a clear trend.” Guo Mingchi said.
It is worth noting that for the optimistic outlook of the industry, it is not only Guo Mingji who holds similar views. According to the forecast data of the well-known consulting firm Digitimes, the global VR/AR product shipments are expected to reach 19.1 million units in mid-2022, a year-on-year increase of about 67.5%, and the average compound annual growth rate from 2022 to 2025 is expected to reach about 59.2%.
Ming-Chi Kuo made it clear to reporters that he is optimistic about the Chinese VR market: “From a global perspective, China is definitely one of the most suitable markets for the development of headsets/Metaverses. I don’t think Meta has any orders for repairs. Long-term trends have any impact.”
Many suppliers in the industry chain are also “eating meat and drinking soup” with the “leading big brother” Meta.
According to statistics from Soochow Securities, a number of A-share listed companies have participated in the major fields of chips, optics, displays, complete machine assembly and other components of VR equipment, and one of the most important companies is Goertek.
According to the previous announcement of Goertek, it has become the core foundry of Sony PSVR and Oculus, the two major VR hardware manufacturers since 2016. In the same year, the shipments of mid-to-high-end VR/AR products accounted for more than 70% of the world.
“With the accumulation of acousto-optical technology accumulated over the years, the company’s self-made components (including acoustic components, plastic parts, metal parts, die-cut parts and optical lenses, etc.) account for 30% of the output value of its VR foundry products.” Goertek said.
Due to the explosive growth of VR, from 2018 to 2021, the operating income contributed by Goertek’s intelligent hardware products also increased rapidly, about 6.6 billion yuan, 8.5 billion yuan, 17.7 billion yuan and 32.8 billion yuan respectively.
Goertek stated in its 2021 annual report: “During the reporting period, thanks to the increase in demand for smart hardware products such as VR virtual reality, TWS smart wireless headsets, smart wearables, smart home electronic game consoles and accessories, and related precision components. Continued growth, the company’s operating income and net profit have also achieved relatively significant growth.”
Compared with Goertek, Luxshare Precision’s layout is relatively late. The company said in an investor survey in May this year: “In the entire development process, the company has grown so many times from the beginning of its listing to the present. It may be a little slower in some aspects, because there are really not too many resources to take care of. In all aspects, but the company will never be absent from this market, whether it is parts, modules or systems. The AR and VR parts have not shown much in the report this year, but we can see it more clearly next year. I believe we cannot miss this competition. road.”
In addition, Ming-Chi Kuo is also optimistic about companies in the Apple industry chain. Ming-Chi Kuo said: “Apple AR/MR is the most complex product Apple has ever designed, so many existing suppliers are also in the Apple AR/MR supply chain. Benefiting from the innovative experience of Apple AR/MR headsets, Apple and Apple’s supply chain will likely be re-rated in the next 2-3 years and help the stock price.”
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