Meta Platforms (META -2.77%), the tech giant formerly known as Facebook, has never revealed any exact shipment figures for its Oculus virtual reality (VR) headsets. But it's dropped plenty of hints along the way.
Two years ago, CEO Mark Zuckerberg set a long-term goal of hitting 10 million VR users to become a sustainable software platform for developers. This August, Meta's AR and VR chief Andrew Bosworth said he was "convinced" it would hit that threshold earlier than it "had initially expected."
Meta didn't say anything else about hitting that target during last quarter's conference call, but it attributed the 195% year-over-year growth of its "others" segment to "strong Quest 2 sales." However, Qualcomm (QCOM -1.01%) seemingly let the cat of the bag in a recent investor day presentation, when CEO Cristiano Amon casually noted that Oculus had shipped 10 million Quest 2 headsets since its launch last October.
In a subsequent statement, Qualcomm said that figure was actually based on third-party estimates and wasn't "meant as an official disclosure of sales numbers by Meta or Qualcomm." But even if those numbers weren't official, they give investors a much clearer view of Meta's opaque Oculus segment.
Why does Meta want to sell 10 million headsets?
Meta bought Oculus VR in 2014, and it launched its first commercial headset, the Oculus Rift, in 2016. However, the Rift remained a niche gaming device that needed to be tethered to a high-end PC.
To address those limitations, Meta launched its first wireless VR headset, the Oculus Go, in 2018. It wasn't as powerful as the Rift, but it didn't need to be tethered to a PC or mobile device. It followed up the Go with the more powerful Oculus Quest in 2019, and it launched the Quest 2 -- which was even more powerful, lighter, and had better controllers -- last year.
The success of the Quest headsets enabled Meta to sell more VR games and experiences on the platform. Last May, it said the Quest platform had surpassed $100 million in VR content sales. This January, it said that over 60 Oculus Quest titles had surpassed $1 million in revenue. This October, it said Beat Saber -- the hit VR rhythm game it acquired in late 2019 -- had exceeded $100 million in lifetime sales on the Quest platform alone.
Those sales figures are tiny compared to Meta's estimated revenue of $117.8 billion this year. Ten million headsets might also sound paltry compared to other gaming platforms. Nintendo, for example, has shipped nearly 95 million Switch devices since 2017.
However, the Quest has still set up the foundations for Meta's push into the "metaverse" -- which already includes new augmented reality (AR) devices like its new Ray-Ban smartglasses and Horizon Workrooms, which enable remote workers to hold VR meetings with digital avatars. The expansion of that ecosystem could gradually tie together its social networking, AR, and VR platforms, while significantly extending its reach beyond PCs and mobile devices.
Why is Qualcomm talking about VR headsets?
Qualcomm's chipsets power the Oculus Go, Quest, and Quest 2 headsets. The Go and first-generation Quest both used Snapdragon mobile system on chips (SoCs), which were commonly used in mobile phones.
However, the second-generation Quest used the new Snapdragon XR2 SoC, which was specifically designed with VR and AR devices in mind. The chipset can be tethered to seven concurrent cameras to track a user's motions and gestures, supports 8K 360-degree videos, provides 3D audio, and supports AI processing features for voice commands.
Qualcomm is selling more VR/AR chips to diversify its core business away from the smartphone market. That market is heavily commoditized, and it's facing intense competition from rivals like MediaTek as well as first-party chipsets from original equipment manufacturers (OEMs) like Apple, Samsung, and Huawei.
That's also why Qualcomm has been rolling out new specialized chipsets for wearables, cars, drones, and other Internet of Things (IoT) devices in recent years. None of these chipsets are significantly reducing its dependence on the smartphone market yet, but that could change over the next few years.
For example, the global AR and VR market could grow at a compound annual growth rate (CAGR) of 46% between 2021 and 2025, according to Technavio. But the global smartphone market might only grow at a CAGR of 1.7% between 2021 and 2026, according to Mordor Intelligence.
We should take those estimates with a grain of salt, but it's easy to see why Qualcomm is so keen to develop new VR chips for Meta. If VR headset sales tale off over the next few years, Qualcomm could dominate that platform with its chips in the same way it became the market leader in smartphone chips.
Setting up the foundations of the future
Qualcomm's revelation, official or not, indicates Meta's VR business is growing rapidly. It isn't as large as the top gaming consoles yet, but it's gaining momentum and forming the foundations of its metaverse business.
Investors shouldn't expect Meta and Qualcomm to generate significant revenue from those efforts in the near future. But over the long term, they could significantly transform the business models of both companies.