Qualcomm (NASDAQ:QCOM) is already the top mobile chipset maker in the world, but it's been expanding aggressively into adjacent markets like Internet of Things (IoT) devices, wearables, drones, and connected cars. That push also includes chipsets for the growing augmented and virtual reality markets.

Today, the AR and VR markets are still limited by pricey headsets and limited software. But between 2018 and 2023, Markets and Markets expects the AR market to grow from $11 billion to $60 billion, and for the VR market to expand from $7.9 billion to $34 billion. Let's see how Qualcomm could profit from the growth of those next-gen markets.

A woman using Lenovo's Mirage Solo VR headset.

Image source: Lenovo.

The Snapdragon 835 and 845

Last February, Qualcomm introduced the Snapdragon 835 VR development kit. The headset in that kit included a two-megapixel per eye display, 6-DoF (degrees of freedom) controls, monochromatic VGA global shutter cameras for eye tracking, Aqstic audio, Wi-Fi and Bluetooth connectivity, 4GB or RAM, 64GB of storage, and an external trackpad.

Simply put, the reference design gave companies everything they needed to launch a stand-alone VR headset. This February, Qualcomm upgraded that reference design with a Snapdragon 845 chipset, which the company claims offers 30% better graphics performance and 30% more power efficiency than its predecessor. The upgrade also added room-scale position tracking and forward cameras.

HTC's Vive Focus and Lenovo's Mirage Solo both run on the Snapdragon 835. Facebook's Oculus Go, which was developed earlier, uses the older Snapdragon 821 chipset. Qualcomm's new 845 design will reportedly be used for HTC's Vive Wave API, which connects third-party headsets to the Vive ecosystem.

The Snapdragon XR1

In late May, Qualcomm launched the Snapdragon XR1, which it calls the "world's first dedicated XR (extended reality) platform." The chipset features 3-DoF and 6-DoF interactive controls, along with support for 4K video at 60fps, 3D overlays, and dual displays. It's also compatible with popular graphics APIs like OpenGL, OpenCL, and Vulkan.

Its Spectra image signal processor reduces noise and clarifies images, while audio technologies like Qualcomm's 3D Audio Suite, Aqstic, and aptX enable high-fidelity sound. A special audio system, called "Head Related Transfer Functions," also gives the user the impression that sounds are originating from specific places. The chipset provides an "always listening" feature for verbal commands.

Qualcomm's growing list of XR1 customers include HTC, Vuzix, Meta and Microsoft -- which might use the chipset in its second-generation HoloLens. Various reports indicate that eagerly anticipated headset could arrive in early 2019.

Microsoft's HoloLens.

Image source: Microsoft.

Its partnership with Himax Technologies

AR and VR discussions often center on headsets, but smartphones remain a major part of that market. Simple AR games like Niantic Labs' Pokemon Go popularized the concept among mainstream users, while cheap VR headsets for smartphones gave them a taste of simple VR experiences.

To stay on top of that market, Qualcomm partnered with Himax Technologies (NASDAQ:HIMX), which produces various optical components for AR and VR devices. Last August Qualcomm and Himax introduced a SLiM (structured light module) 3D sensing solution, which merges Qualcomm's Spectra image processor with Himax's optical components, drivers, and modules in a "total camera system solution" for depth-sensing smartphones.

Himax revealed the first Android phones equipped with SLiM at the Mobile World Congress in Barcelona in February. Those devices sport similar depth-sensing facial recognition technology as Apple's iPhone X, which enables the development of new security and AR features.

Staying ahead of the tech curve

Qualcomm's AR and VR efforts won't move the needle for the company over the next few quarters. But over the long term, they'll help Qualcomm stay ahead of the tech curve, and potentially dominate the AR/VR markets in the same way it conquered mobile devices.

Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Leo Sun owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Facebook. The Motley Fool owns shares of Qualcomm and 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.