Apple’s First Headset to Be Niche Precursor to Eventual AR Glasses

Apple Inc.’s first crack at a headset is designed to be a pricey, niche precursor to a more ambitious augmented reality product that will take longer to develop, according to people with knowledge of the matter.

The initial device has confronted several development hurdles and the company has conservative sales expectations, illustrating how challenging it will be to bring this nascent consumer technology to the masses.

As a mostly virtual reality device, it will display an all-encompassing 3-D digital environment for gaming, watching video and communicating. AR functionality, the ability to overlay images and information over a view of the real world, will be more limited. Apple has planned to launch the product as soon as 2022, going up against Facebook Inc.’s Oculus, Sony Corp.’s PlayStation VR and headsets from HTC Corp., the people said. They asked not to be identified discussing private plans.

Apple’s typical playbook involves taking emerging consumer technology, such as music players, smartphones, tablets and smartwatches, and making it reliable and easy to use for everyone. This time, though, Apple isn’t looking to create an iPhone-like hit for its first headset. Instead, the company is building a high-end, niche product that will prepare outside developers and consumers for its eventual, more mainstream AR glasses.

The plans suggest that Apple’s first headset will be far more expensive than those from rivals, which cost about $300 to $900. Some Apple insiders believe the company may sell only one headset per day per retail store. Apple has roughly 500 stores, so in that scenario, annual sales would be just over 180,000 units — excluding other sales channels. That would put it on par with other pricey Apple products, such as the $5,999 Mac Pro desktop computer. An Apple spokesman declined to comment.

Apple is aiming to include some of its most advanced and powerful chips in the headset along with displays that are much higher-resolution than those in existing VR products. Some of the chips tested in the device beat the performance of Apple’s M1 Mac processors. The company has also designed the headset with a fan, something the company usually tries to avoid on mobile products, the people said.

The headset, codenamed N301, is in a late prototype stage, but is not yet finalized so the company’s plans could change or be scrapped entirely before launch. The AR glasses, codenamed N421, are in an early stage known as “architecture,” meaning Apple is still working on underlying technologies. This product is several years away, according to the people, though Apple has previously targeted as early as 2023 to unveil it.

The powerful processors and the inclusion of a fan initially led to a device that was too large and heavy with some concern about neck strain in early testing. Apple removed the space VR gadgets usually reserve for users who need to wear eyeglasses, which brought the headset closer to the face and helped shrink the size. And to address consumers with poorer eyesight, it developed a system where custom prescription lenses can be inserted into the headset over the VR screens, the people said.

This may expose Apple to regulations governing the sale of products with prescriptions. The company typically sells its devices in dozens of countries, many of which have different prescription rules. Apple is also discussing how it would implement prescriptions at the point of sale online and in retail stores.

Read the full story from Bloomberg's Mark Gurman

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