Insights into China’s Extended Reality (XR) Market in 2023, Outlook for 2024

China’s 2023 VR market shipments mark biggest drop in five years.
Meanwhile, China’s AR smart glasses market thrived, with TCL-RayNeo and Xreal dominating.
Apple Vision Pro to inject some positive energy into China’s VR segment in 2024, AR smart glasses market set for further growth.

China’s Virtual Reality (VR) market shipments dropped 61% YoY in 2023, marking its most significant downturn in the past five years. Conversely, Augmented Reality (AR) smart glasses shipments in the country surged 67% YoY. What factors drove this contrasting trend in China’s VR and AR smart glasses market? Looking ahead, what can we expect? This article aims to provide insights into these developments.

China VR Market Analysis, 2023

China’s VR market experienced a steep decline of 56% YoY in H1 2023, worsening to 65% in H2 2023. VR headset shipments in China decreased by 4% in H2 2023 from that in H1 2023. Demand in China’s consumer segment weakened during H2 2023, while demand in the enterprise segment remained relatively resilient.

Exhibit 1: Market Share (%) of Top OEMs in China’s VR Market

Source: Counterpoint China XR Market Tracker

Shipments of Pico VR headsets in China witnessed a 19% sequential decline during H2 2023, severely hurt by its parent company ByteDance’s strategic shift to reduce investments in XR. Sony’s shipments tumbled 46% sequentially in H2 2023 as the sales momentum of the PSVR 2 faltered in China. DPVR experienced an uptick in sales during H2 2023, with an impressive 121% sequential growth, primarily due to its focus on providing solutions for the enterprise market.

Other developments in China’s VR segment seemed rather subdued.

China AR Smart Glasses Market Analysis, 2023

In contrast to the weakness in China’s VR segment, China’s AR Smart Glasses market thrived in 2023, experiencing a remarkable 64% YoY growth. This growth can be attributed to several factors, including the aggressive release of new products by leading OEMs throughout the year, advancements in optical technologies and ergonomic design, enhanced compatibility with more devices, as well as OEMs’ offline expansion and increased marketing investments.

Exhibit 2: Market Share (%) of Top AR Smart Glass OEMs in China

Source: Counterpoint China XR Market Tracker
Note: In Counterpoint’s sales tracker, AR smart glasses include glasses that enable optical see-through functionality only. Smart glasses without a display are not included in this classification.

TCL-RayNeo and Xreal maintained their market dominance in China throughout 2023.

TCL-RayNeo topped China’s AR smart glasses market in 2023 with an impressive 126% YoY growth. The company primarily focused on promoting three key products during the year – the RayNeo Air 1S, RayNeo Air Plus, and RayNeo Air 2. These products quickly rose to the top of China’s best-selling AR smart glass models list within their respective promotional periods.
Xreal ranked second in China’s AR smart glasses market, achieving 135% YoY growth in 2023. Throughout 2023, Xreal focused on promoting the Xreal Air, Xreal Air 2 and Xreal Air 2 Pro. The company excelled in extending the life cycle of its products through an aggressive marketing strategy.
Rokid, a pioneer in the enterprise AR segment, maintained its position as the third leading OEM in 2023. Meanwhile, INMO, an early adopter of waveguide solutions for commercial AR products, experienced over 200% YoY growth.
Alongside the established leaders, several new entrants made strides in China’s AR smart glasses segment in 2023. These newcomers included Meizu with its MYVU glass, ARknovv and its A1 glass and LAWK with its Meta Lens S1 glass.

China’s AR/VR Market Outlook

Apple’s foray into the VR segment in 2023 failed to ignite a new wave of “Metaverse” enthusiasm in China. However, the Chinese industry anticipates that the availability of the Vision Pro in the Chinese market in 2024, along with innovative applications developed by Chinese developers, will inject some positive energy into this segment. Chinese internet giants such as Alibaba and its subsidiary Dingtalk, Tencent, Trip.com, and gaming company miHoYo, have all announced plans to develop spatial computing-based applications for Apple’s Vision Pro. Nevertheless, we expect the Vision Pro, as well as other new VR/MR(Mixed Reality) products set to be released in China in 2024, to only have a limited impact on boosting the sales volume in this sector.

We expect China’s AR smart glasses market to see continued prosperity, although from a relatively small base. We expect more products featuring waveguide-based solutions to be commercialized in 2024, offering an enhanced experience for various outdoor applications and life assistance scenarios. With the ongoing advancements in AR display and optical solutions, processing chips, wireless connectivity with other devices like smartphones and PCs, as well as improvements in user interfaces and applications, the AR smart glasses market is poised for further growth.

South Korean Tech Players Boost XR Development to Welcome Spatial Computing Era

South Korean companies, particularly Samsung and LG, have played pivotal roles in driving technological advancements and market maturity, starting from the early development stages of the global mobile phone and smartphone industries. However, in the XR (eXtended Reality) domain, despite Samsung’s initial efforts in developing the Gear and Odyssey series headsets, its presence in today’s global XR industry has been relatively subdued.

A turning point emerged around 2023, with the launch of Apple’s Vision Pro. We have since witnessed South Korean tech giants significantly increasing their investments in the XR segment, trying to capitalize on potential opportunities in the emerging spatial computing era.

In the following sections, we will summarize the noteworthy developments and strategies adopted by these South Korean companies, and analyze their impacts on the global XR landscape.

Samsung Electronics

During the Mobile World Congress (MWC) 2024, Samsung Electronics unveiled a collaboration with Google and Qualcomm to develop its new headset aptly named “XR” for now. This reflects these companies’ ambition to revolutionize the world of AR (Augmented Reality), VR (Virtual Reality), and MR (Mixed Reality) experiences. The anticipatedly significant partnership is expected to set a new benchmark within the Android ecosystem, leveraging the leading capabilities of these three companies in device development, component and chip design, as well as software and Operating System (OS) innovation.

Image source: Samsung Electronics

In addition to advancements in the development of end devices, Samsung has also ramped up investment in XR components through its 2023 acquisition of eMagin, the world’s leading Micro OLED technology provider. eMagin is known for its directly patterned RGB OLED microdisplay technology, which presents a higher entry barrier but holds distinct advantages in brightness, module thickness, and power consumption compared to the relatively mature WOLED+CF solution. This acquisition is expected to offer competitive advantages to Samsung Display (SDC) and Samsung’s XR headset businesses once the display panels developed by eMagin and SDC become commercially available. Apart from the advanced displays, Samsung is also reportedly developing the Low Latency Wide (LLW) IO DRAM, which boasts more efficient processing of real-time data for applications in XR, Gen AI and gaming-related devices.

We expect Samsung’s new “XR” device and these advanced components and technologies to debut in 2024/2025. While Samsung will collaborate with Qualcomm for its new “XR” device, we expect that its fabless subsidiary Samsung LSI may venture into designing its in-house XR SoC or co-processors as the global XR market gains momentum going forward.

LG Electronics

LG Electronics is also actively investing in allocating resources to the XR segment to capitalize on future opportunities.

LG Display (LGD), one of the subsidiaries of LG Electronics, reportedly partnered with Meta and SK Hynix to develop Micro OLED displays starting in 2023. In another development, LGD also acquired MicroLED-related patents from a Taiwanese company Ultra Display Technology, with the majority being transfer process patents, aiming to bolster the development and manufacturing maturity of MicroLED panels. These initiatives demonstrate LGD’s ambition to close the gap with current market leaders such as Sony and JBD, to become a prominent leader in the supply of advanced display panels for XR devices.

LG Innotek, another subsidiary of LG Electronics, has made strides in the XR optical components domain by investing in the Taiwanese lens manufacturer AOE Optronics in 2024. This strategic move aims to harness LG Innotek’s optical design expertise and process automation capabilities, complemented by AOE’s proprietary materials, mold processing, and precision lens manufacturing technologies. By synergizing these strengths, LG Innotek aims to seize business opportunities in the global automotive and XR industries.

We expect the proactive initiatives of LG Electronics’ affiliates to synergize with LG Electronics, bolstering the company’s unique strengths and positioning it as a key player in the global XR segment. Recently, Meta announced a strengthened partnership with LG Electronics to develop the next-generation XR device, leveraging LG’s expertise in hardware as well as its content and service experiences in the TV sector. This collaboration signifies an important step forward for LG Electronics, and we look forward to witnessing the innovative advancements that will result from this partnership.

LG CEO William Cho and Meta Founder and CEO Mark Zuckerberg met at LG Twin Towers in Yeouido, Seoul
Image source: LG Electronics

Policy Makers, Local Associations and Telecom Operators

Recognizing the immense growth potential of the global metaverse economy, the South Korean government published the Immersive Economy Development Strategy (Beyond Reality, Extend Korea) in 2020. In 2021, South Korea’s Ministry of Science and ICT (MSIT) founded the “Metaverse Alliance,” which includes member companies such as Samsung, LG, Kakao, and Hyundai Motor, to develop a “metaverse” platform and enhance XR technology applications across industrial sectors. Building on these initiatives, in 2023, the South Korean government took a further step by establishing the XR Convergence Industry Alliance. This alliance aims to foster inter-sector cooperation in technology and business, explore joint R&D opportunities, and develop infrastructure to create a convergence ecosystem for the XR industry in the country.

South Korean telecom operators SK Telecom (SKT), KT, and LGU+, which were among the world’s first to commercialize 5G networks in 2019, have also been among the earliest movers globally in promoting XR and the metaverse services. In their latest development, SKT introduced its self-developed metaverse platform, the “Ifland”, in 2021, and collaborated with local gaming companies to co-develop VR games compatible with Meta’s Quest devices. To date, SKT has continued to strengthen its metaverse efforts by expanding international partnerships for the “Ifland” platform. KT also launched an open beta version of its metaverse platform, the “Genieverse,” in 2023. Furthermore, KT plans to provide content empowered by GenAI technology, such as AI motion dance and AI avatar messages, to the “Genieverse” platform. As for LGU+, it introduced a metaverse-based platform targeting young children, called “Kidstopia,” in 2023. In 2024, it established a partnership with Dong-A Science Reproduction to collaboratively develop metaverse experience content, to enhance the competitiveness of the “Kidstopia” platform.

Conclusion

While South Korean tech companies have dominated the industrial vertical since the time of the early mobile phone industry, the XR landscape presents a different picture. Here, Chinese players, including device OEMs like Pico, Xreal, and TCL-RayNeo, and supply chain players like Goertek, JBD, SeeYa Technology, and Sunny Optical, have already secured a head start.

However, South Korean companies are rapidly closing the gap. They are accelerating innovation through R&D investments, organizational restructuring, cross-border acquisitions, and partnerships with US tech giants such as Qualcomm, Google, and Meta. With government efforts to drive inter-sector cooperation and telecom operators’ initiatives to boost content and platform development, we expect a significant boost in South Korea’s XR industry in the coming years.

Global XR (AR & VR Headsets) Market Share: Quarterly

Access our quarterly data for XR headset shipment market share. This data covers both AR and VR headsets.

Counterpoint Quarterly

Wearables Q4 2023

Global XR (AR & VR Headsets) Market Share: Quarterly

Published Date: Mar 14, 2024

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Global XR (VR&AR) Market Share Q4 2023
Brands	Q4 2022	Q1 2023	Q2 2023	Q3 2023	Q4 2023
Meta	83%	51%	51%	46%	72%
Sony	0%	33%	29%	30%	15%
Pico	7%	7%	6%	8%	4%
Others	10%	9%	14%	16%	9%

Source: AR & VR Headsets (XR) Quarterly Model Shipments Tracker: Q1 2020 – Q4 2023

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Highlights:

• The global XR headset market showed annual shipment growth of 20% in Q4 2023. However, for the full year of 2023, it declined 19% due to the lack of compelling offerings and use cases.

• After three years, Meta introduced a Quest 2 successor in the holiday season of Q4 2023. Seasonality, holiday offers and price cuts made the Quest 2 an attractive VR offering during the quarter. All this helped Meta and the overall XR market to perform better.

• Due to the PSVR 2, standalone VR contribution decreased to 79% of the total XR market shipments in Q4 2023, compared to 94% in Q4 2022.

• Meta continued to dominate the XR headset market with its Quest 3 and Quest 2 models. However, its market share decreased during the quarter compared to Q4 2022 due to the presence of Sony’s PSVR 2.

*Data on this page is updated every quarter

This data represents a repository of quarterly data for the global XR (AR & VR Headsets) shipments market.

For detailed insights on the data, please reach out to us at sales(at)counterpointresearch.com. If you are a member of the press, please contact us at press(at)counterpointresearch.com for any media enquiries.

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The global XR headset market share numbers are from:

XR (AR &VR Headsets) Quarterly Model Tracker: Q1 2020 – Q4 2023

Excel File

Published Date: March 2024

This is a comprehensive database of Extended Reality (XR) headset model level shipments by quarter including retail price and 30+ specifications and features. It covers tethered as well as standalone Virtual Reality (VR) and Augmented Reality (AR) headset models. We are tracking 35+ XR brands and 70+ headset models by memory variants.

Apple’s XR Investment Is An Insurance Policy

Apple Vision Pro (AVP) is an engineering masterpiece. It marks a significant advance in consumer electronics and is the most complex device ever made, far outstripping competitors in terms of technical competency. Apple starts to ship the headset today, 2nd Feb 2024. AVP swiftly sold out once pre-orders began on January 19, starting at $3,499 for the 256GB memory variant, seven times what the 128GB version of the Meta Quest 3 costs. Whether the few hundred thousand units in initial volumes are followed by a sustained demand will demonstrate the device’s appeal, or a lack thereof, beyond developers, early adopters and Apple’s die-hard fans.

Apple positions Vision Pro not just as a headset, but as a new spatial computing platform with its own operating system, user interface paradigm and digital content delivery. This strategic shift aims to move the discourse beyond mere headset competition and towards competition between entire ecosystems, signalling Apple’s long-term commitment to this new product line. One surely needs to believe in Apple’s long-term commitment since the use cases demonstrated by Apple were generic and interesting at best. Showcasing familiar experiences like watching movies, working on large virtual screens, and teleconferencing raises questions about whether AVP is a solution seeking a problem (though this criticism could be applied to many VR devices).

While the over 600 apps developed for Vision Pro add to the 1 million+ compatible App Store apps, the lack of “killer apps” remains a concern. Despite touting entertainment as a major attraction with partnerships including with Disney, Apple suffered setbacks with popular video and audio platforms like Netflix, YouTube, and Spotify choosing not to launch dedicated apps. Without compelling use cases or major first-party apps, Apple’s launch of AVP seems predicated on hope. Apple appears to rely on developers creating the “killer apps” that will replicate the success of the iPhone and iPad App Store. Even if Vision Pro doesn’t gain mass adoption, Apple’s entry into the segment has generated popular awareness regarding the eXtended Reality (XR) industry.

Apple, we believe, is essentially using Vision Pro as an insurance policy. iPhone is the core of Apple’s almost $3-trillion market cap (at the time of writing). For years, speculation has pointed to augmented reality devices as the potential successor to smartphones as our primary interface with digital life. So far, the XR market has been disappointing – generating a few 10s of millions of unit sales but limited consistent usage outside niche enterprise applications. Furthermore, the technical challenge of making true augmented reality glasses has proven to be beyond the capabilities of even the most technically gifted companies. Therefore, the slow-developing XR industry doesn’t pose an immediate threat to Apple.

For Apple, the worst-case scenario would be a booming XR market with no Apple product in the game. Even if the market fails to materialize despite Apple’s multi-billion-dollar investment in XR development, the cost, while sizeable, would not significantly impact its cash reserves.

So, Apple made the logical choice to invest in creating the Apple Vision Pro. In the process, it has amassed an impressive patent portfolio that strengthens its position.

Should the XR market finally take off, Apple will be ideally positioned to capitalize on the opportunity. However, even if it remains a niche market, Apple has secured its place with a product that will serve as a benchmark for future competitors.

XREAL Air 2 Pro First Impressions: Promising Entry-level XR Glasses

2023 was the most exciting year in the Extended Reality (XR) space since Counterpoint Research began its XR service more than three years ago. While the most amount of public interest was generated by the announcement of Apple’s foray into the segment through the Vision Pro, its first Mixed Reality (MR) headset, the launch of Sony’s gaming VR headset PlayStation VR2, and the launch of Meta’s MR headset Quest 3, a significant amount of meaningful progress was also made by lightweight and competitively priced AR glasses. We at Counterpoint have been testing one such product – XREAL Air 2 Pro.

Initial thoughts

The XREAL Air 2 Pro with its lightweight and well-balanced design offers comfortable usability. The high image quality, combined with a 120Hz high refresh rate and improved audio, positions it as a good competitor in its category, especially for streaming.

It has several other intriguing features that users in certain regions – surprisingly including the US where it is officially available – are prevented from experiencing to the fullest extent. Overcoming these hiccups and adding more apps could make it one of the most interesting AR glasses in 2024 when Apple’s MR headset finally becomes available, and more consumers seek the XR experience without necessarily wanting to shell out $3,500.

Lightweight and comfortable design

The Air 2 Pro packs some upgrades into a visibly thinner and noticeably lighter frame compared with the original 2022 Air. XREAL achieved this by reducing the front face thickness by around 14% to 19 mm. The Air 2 Pro weighs 75 gm, a noticeable reduction from the Air’s weight of 79 gm. The weight distribution has also been improved, with the front/rear weight ratio going from 63:37 to 50:50. The Air 2 Pro also comes with multiple soft zero-pressure nose pads which would help users pick one that fits them better, compared to the metallic ones offered with the original Airs. However, sometimes the glasses need to be worn further out on the nose to prevent the lower part of a video, particularly subtitles, from falling outside the visual area.

Display: Bright, crisp and vivid

The Air 2 Pro comes with three levels of electrochromic dimming, taking immersion from 0% to 35% to 100%. A 25% increase in brightness, to 500 nits, allows for a better viewing experience, even in brighter conditions. The latest 0.55 Micro-OLED panel from Sony with a 21% higher PPI (pixels per inch) of 4032 also contributes to the increased image quality in the Air 2 Pro. The new device comes with a refresh rate of 120Hz, which has also been added to the original Air through software updates.

Audio: Loud enough for a personal viewing experience

The overall viewing experience also benefits from XREAL’s second-generation sound system which makes audio more immersive. Directional audio reduces sound leakage, although it is still quite noticeable, unless in loud outdoor environments. There are two speakers, one on each side of the temple, making the audio sufficiently loud in most environments.

XREAL Beam: Connectivity hub for reduced latency

The Air 2 Pro can be used with Beam, a handheld accessory that looks like the Apple iPod. It comes with a built-in battery that can offer a continuous runtime of up to three-and-a-half hours. With a 27W fast charger, it can be charged up to 50% in 30 minutes, while also allowing users to use the Air 2 Pro while charging.

Built on XREAL’s proprietary spatial computing technology, it can project an equivalent of 330 inches of portable screen in the Air 2 Pro for streaming, gaming, or productivity. Gamers may also use it to connect with PlayStation 5, Xbox One, Nintendo Switch, Steam Deck or even the ROG Ally to mirror the screen on the Air 2 Pro for an immersive gaming experience. The Beam also comes with 32GB of built-in memory, allowing users to sideload Android app APKs.

Limited app ecosystem with availability issues across regions

With the app ecosystem playing a critical role in the success of a product, capable hardware needs to be complemented with enough apps for various use cases. At Counterpoint, we used the device in our US, China, and India offices. We were able to successfully connect it with an iPhone 15, Samsung Galaxy Z Fold5, MacBook Pro 16 (M1 Pro), and a Windows 10-powered Galaxy Book2 Pro 360 where screen mirroring worked well. Using the Nebula app on macOS, we could use three virtual desktops, but only a screen mirroring option was available with a Windows laptop.

We wanted to try some apps, but both the US and India teams could not download any as the Nebula app on Android was not available in those regions. Despite software updates, XREAL Beam (China market version) currently offers only four 2D applications – document management, Bilibili (video APP), iQiyi (video APP), and Alibaba Cloud Drive.

User experience

The Air 2 Pro comes pre-installed with Netflix and Amazon Prime Video apps, and we were able to successfully log in and watch TV shows and movies without a hitch. The experience was immersive and better than expected. Logging in to Netflix and Amazon Prime Video was a bit of a hassle, especially for someone with limited experience of using such devices. This was exacerbated by a dissatisfactory cursor experience as the cursor kept sliding into one of the corners and sometimes failed to appear on the display at all.

After logging in, however, the experience of watching a couple of episodes of ‘Secrets of the Great British Castles’ on Netflix was quite exciting. After some adjustments, the first entire episode could be watched in a single sitting with relative ease. The experience was quite immersive with the drone views of the castles being especially superior on these glasses.

Pricing and availability

The XREAL Air 2 is priced at $399, whereas the XREAL Air 2 Pro comes for $499. They went on sale in October 2023 in the US, UK, Germany, France and Italy. The glasses’ companion handset accessory, the XREAL Beam, sets users back by another $120.

XR Gets Apple Vision Pro Boost, Market Set to Bounce Back in 2024

XR headset shipments are expected to increase by a record 3.9 million units in 2024, marking a high double-digit YoY growth from a small base.
Major releases in 2024, including Apple’s Vision Pro, will sustain the momentum generated by Meta and Sony in 2023 with the launch of Quest 3 and PlayStation VR2 respectively.
AR is projected to grow from a very small base, driven by successful launches like XREAL’s Air 2 and Air 2 Pro.
North America, the biggest XR market, will further widen its lead in 2024 as Apple’s Vision Pro is exclusively available in the region for much of the year.

Seoul, Beijing, Boston, Buenos Aires, Hong Kong, London, New Delhi, San Diego – January 9, 2024

Extended Reality (XR) headset shipments are projected to increase by a record 3.9 million units in 2024 to clock a high double-digit YoY growth, according to the latest Counterpoint Global XR (VR/AR) Forecast. Apple’s Vision Pro, which goes on sale in the US on February 2 (with pre-orders starting on January 19), will generate user interest and industry movement which will benefit incumbents. 2024 will also carry forward the momentum from 2023, marked by several launches from major players like Meta and Sony.

Commenting on the market dynamics, Senior Analyst Harmeet Singh Walia said, “Apple’s highly-anticipated entry into the XR space has long been expected to mark a watershed moment for the industry. However, we expect Apple to sell about half a million units of Vision Pro, its $3,500 mixed reality (MR)* headset, in 2024. This makes up a low single-digit share of the 2024 global XR market. The first iteration of the Vision Pro headset will primarily attract die-hard Apple fans, developers, early adopters and enterprise users. A more optimistic scenario could unfold if Apple successfully boosts the supply of key components for the headset and experiences higher-than-expected interest from the end market. Moreover, the consumer interest Apple’s entry is generating will benefit market incumbents offering competitively priced headsets, towards which many enthusiasts who wish to try the technology without incurring Apple’s hefty price tag would gravitate, boosting the global XR market.”

2024 will see the continuation of another trend – the transition from pure virtual reality (VR) to MR* as major players, both existing and upcoming, rush to launch MR products or add passthrough to successors of their pre-existing headsets. Since Counterpoint considers such headsets as part of its VR category*, it remains dominant. The standalone form factor is preferred and is likely to remain so despite Apple’s Vision Pro requiring a wired connection with an external battery case.

Augmented Reality (AR) is projected to grow by 54% YoY in 2024, bucking the trend of three years of consecutive declines. This growth will be driven by XREAL’s Air 2 and Air 2 Pro AR Glasses, which quickly became the best-selling AR glasses in China. Besides XREAL, which targets the larger consumer segment, AR will be driven by high-spec and high-price products in the niche enterprise segment. At just about 2%, AR, however, will remain a small contributor to overall XR shipments.

Commenting on the regional performance, Senior Analyst Karn Chauhan said, “North America was already the biggest contributor to XR shipments with nearly 70% of the best-selling Meta headsets shipping in the region. This will grow further in 2024 as Apple’s Vision Pro is available for sale exclusively in the US for most of its first year. While Europe remains a major market, as with its economy, its share of the XR market is expected to lag further behind North America due to slower adoption and limited content. Streaming not taking off as a use case, strict gaming regulations, and the education and enterprise segments, in which XR is popular in China, being niche, growth in China too will remain sluggish in 2024. The rest of Asia-Pacific benefited from the launch of Sony’s PlayStation VR2, which did well in its home country of Japan, among the few major XR markets in the region together with South Korea, Australia and New Zealand that will continue performing strongly in 2024.”

Samsung’s re-entry into the segment, likely with an MR* headset in 2024, will also generate traction, but regardless of its launch price, it will contribute less than Apple to global shipment growth due to a late-year launch.

Pico, owned by TikTok’s parent ByteDance, is unlikely to fully recover from the setbacks its latest Pico 4 suffered in 2023. DPVR, another major Chinese player, while remaining strong in the Chinese education sector, will struggle to break out as a major global player despite having launched E4, its gaming PC VR headset.

*Counterpoint’s XR services currently divide the market into two device types – VR and AR. AR includes glasses and headsets with transparent displays. VR includes headsets that substantially or fully obscure the real world but may use video-pass-through (VPT) technology to feed real-world views to the wearer and/or combine them with digitally created environments, hence covering headsets (including Apple’s Vision Pro) commonly marketed as MR, which Counterpoint currently buckets under its VR category.

Feel free to reach us at press@counterpointresearch.com for questions regarding our latest research and insights.

Background

Counterpoint Technology Market Research is a global research firm specializing in products in the TMT (technology, media and telecom) industry. It services major technology and financial firms with a mix of monthly reports, customized projects and detailed analyses of the mobile and technology markets. Its key analysts are seasoned experts in the high-tech industry.

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China’s VR Shipments Declined 56% YoY in H1 2023 – Will Apple and Meta Revive it?

China’s Virtual Reality (VR) market declined by 56% year-over-year (YoY) in H1 2023, marking an end to the market’s two-year growth streak spanning 2020-2022.
Market leader Pico has chosen to strategically scale back its marketing investments since 2023 to ensure a healthier operation amid China’s tepid economic recovery, resulting in lower shipments target for its VR headsets.
Despite the bleak sales figure of the existing market, launch of Apple’s Vision Pro has ignited a wave of inspiration to drive the industry forward.

China’s VR market shipments declined significantly by 56% YoY in H1 2023, according to the latest data from Counterpoint’s China eXtended Reality (XR) research service. This marked the end of the Chinese VR market’s two-year growth streak, spanning 2020-2022, and reverting to a state of stagnation. The decline in China appears to be more severe than that observed in the global VR market, which fell 39% YoY in H1 2023. Consequently, China’s share of the global VR shipments in Q2 2023 accounted for only 10%, which is relatively low compared to its 20%-30% share in the global smartphone market.

Exhibit 1: China VR Market Shipments and YoY Growth, CY2018-H1 2023

Source: Counterpoint China XR Tracker, Q2 2023

Note: VR headsets referred to here exclude smartphone boxes that rely on a smartphone to serve as the display panel.

The subdued market demand in China can be attributed to several factors. Firstly, the market’s growth over the past two years was largely driven by the extensive marketing efforts of China’s leading VR player, Pico. After it was acquired by internet giant ByteDance in September 2021, Pico significantly ramped up its product promotion to drive sales. However, since 2023, Pico has chosen to strategically scale back its marketing investments to ensure its operations are more stable amid China’s tepid economic recovery. Consequently, this decision has resulted in a lowered shipment target for Pico’s VR headsets. Secondly, despite Pico’s efforts to educate consumers on the enjoyable and entertaining experiences offered by VR headsets over the years, the absence of killer applications and a robust content ecosystem remains a significant challenge in China’s VR industry, hindering user adoption and retention. Additionally, during H1 2023, the absence of enticing new products in China dampened consumer demand. While the sales generated by new models such as Sony’s PSVR 2 and the Pico 4 Pro showed promise, they were insufficient to counteract the noticeable decline in the overall market.

In terms of the competitive landscape, China’s VR market has seen significant consolidation, with just a handful of dominant vendors. As market leader, Pico holds a substantial market share of roughly 50%. However, even Pico experienced an over 50% YoY decline during H1 2023. Sony captured a 19% share of the market thanks to a significant sales surge following the release of PSVR 2, which attracted Chinese PlayStation enthusiasts to purchase and explore the product. Nevertheless, it is expected that the momentum of the PSVR 2 will wane during H2 2023. DPVR continues to lead in China’s enterprise segment due to its competitive pricing, but it also faces a decline due to a slowdown in spending on digital transformation by Chinese enterprise customers. Apart from the top three players, there are limited providers competing in China’s VR segment, with iQiyi withdrawing from the market due to operational difficulties.

Exhibit 2: Market Share (%) of VR Headset OEMs in China and YoY Growth (%)

Source: Counterpoint China XR Tracker, Q2 2023

Notably, Meta’s Quest VR is not yet officially available in the Chinese market, while Chinese smartphone OEMs such as OPPO, vivo and Xiaomi, despite their success in the global smartphone market, appear to be cautious when it comes to introducing a commercial VR headset.

Will Apple and Meta MR Headsets Revitalize Sales in China?

Despite the bleak sales figures of the existing market, the launch of Apple’s first MR headset, the Vision Pro, along with the accompanying “spatial computing” concept, has generated a significant buzz in the Chinese technology industry. Apple has set an industrial standard for what an ideal product can be, and we believe that the Apple Vision Pro (AVP), though not yet available in the market, has ignited a wave of inspiration to drive the industry forward.

Since the release of the AVP, China’s dedicated VR companies have actively delved into its technology specifications and ramped up their R&D endeavors. They are particularly focused on optimizing ultra-low-latency color video see-through technologies, optical solutions, and hand tracking algorithms, aiming to bridge the technological gap with Apple.
Chinese smartphone OEMs (Original Equipment Manufacturers), previously cautious with a “wait-and-see” approach to commercializing AR/VR headsets, are now re-evaluating their investments. Fearing the risk of lagging behind in the “spatial computing” era, strategic initiatives have been launched within these companies to reassess their projections regarding technology development trends and potential breakthroughs in the consumer XR segment. Additionally, we’ve noticed several OEMs bolstering their XR research teams to prepare for their first commercialized product, forging closer partnerships with industry players such as Qualcomm and Google.
Meanwhile, China’s internet giants, some of whom had scaled back investments or disbanded their “Metaverse”-related departments in early 2023, are now re-entering the arena. Tencent, for instance, is reported to have recently established the XR Device & Content Business Group within its Interactive Entertainment Group (IEG) to oversee the development, sales, and promotion of its forthcoming XR products. The company is also in discussions with Meta regarding a potential partnership to localize the Quest VR and integrate Meta’s content ecosystem in China.
Chinese Augmented Reality (AR) companies also have a more optimistic outlook for their future development, thanks to the emphasis on Mixed Reality (MR) features by the AVP. They strongly believe in the significance of the interaction between virtual objects and the real world, which may position AR as the ultimate future solution. In contrast to the challenges faced by China’s VR segment, Counterpoint’s China XR tracker indicates robust YoY growth in China’s AR glasses market during H1 2023. China is also a global leader in the development and commercialization of consumer AR glasses, despite the relatively small market base at present.
In the software domain, Shanghai is among the cities where the Developer Lab for the AVP is located, alongside Cupertino, London, Munich, Singapore, and Tokyo. Apple has commenced hosting Chinese developers since June, supporting them to create and run their applications on the VisionOS platform. We expect this to invigorate the Chinese application ecosystem for MR headsets, creating new opportunities for applications beyond just gaming.

Despite the positive impacts that the AVP has had on China, it remains to be seen how tangible of a sales boost it will provide to the market. The product is primarily aimed at developers rather than consumers, with a price tag of $3,500. Additionally, the user experience of the AVP, which relies on the combination of Apple’s proprietary M2 System on Chip (SoC) and R1 co-processor, presents a significant challenge for Chinese hardware players to catch up in the short term.

Meta’s newly launched Quest 3 headset, the first MR product to hit the consumer market based on Qualcomm’s XR 2 Gen 2 platform, has emerged as a more attainable benchmark for Chinese companies in the near term. Based on the hardware specifications disclosed by Meta, the Quest 3 has demonstrated substantial improvements in MR features, which are poised to open up new avenues and application scenarios for developers. However, it also seems that the Quest 3 has not fully tapped into the best capabilities of the XR 2 Gen 2 platform. Consequently, there may be opportunities for improvement that Chinese latecomers can explore. We expect these opportunities to catalyze the launch of new products by Chinese hardware OEMs in 2024/2025.

Furthermore, the advancements made by Meta with both the Quest 3 and its upcoming products, coupled with the competition presented by Apple, are likely to expedite the closing of a deal between Tencent and Meta within the Chinese market. This presents a noteworthy opportunity to enhance the sales and adoption of XR products in China.

We will closely monitor the market to observe how the competitive landscape will be reshaped with the entrance of these newcomers.

Global XR Headset Market Declined in Q1 2023 With No New Quest Model

Global XR headset shipments (covering AR and VR headsets) declined 33% YoY in Q1 2023.
Consumers are losing interest in the XR market, as market leader Meta’s Quest series has not been refreshed in over two years.
Quest series has cumulatively shipped more than 20 million units as of Q1 2023, with the Quest 2 contributing 18 million units.
The newly released PSVR2 garnered significant attention from the video-gaming brand’s user base, leading Sony to capture the second position in Q1 2023.
2023 is the year of next-generation VR headset launches. The PSVR2, E4 and Vive XR Elite are some of the prominent launches so far. And then, of course, Apple has announced its Vision Pro.

London, San Diego, New Delhi, Beijing, Buenos Aires, Seoul, Hong Kong – July 5, 2023

Global extended reality (XR) headset shipments (covering augmented reality (AR) and virtual reality (VR) headsets) declined 33% YoY in Q1 2023, according to Counterpoint Research’s XR Model Tracker. Consumers are losing interest in the XR market, as Meta’s Quest series, the market leader, has not been refreshed in over two years. The performance of the newly launched next-generation Sony PSVR2 (PlayStation VR2), along with the price reduction of the Quest 2 by Meta, saved the global market from a more drastic decline.

Meta was the best-selling global XR headset brand during Q1 2023 with the Quest 2 as its long-time best-performing VR headset. The Quest series has cumulatively shipped more than 20 million units as of Q1 2023, with the Quest 2 contributing 18 million units. The Quest 2 continues to sell relatively well and to maintain its momentum, Meta is making the headset more affordable by lowering its price after last year’s price increases. Besides, Meta has announced the launch of Quest 3 later this year, which is expected to further boost sales and transition from the success of Quest 2.

Nevertheless, Meta’s shipment share fell to 49% in Q1 2023, the lowest since the launch of Quest 2 in Q4 2020. This decline was a result of the highly anticipated launch of Sony’s successor to its 2016 headset PSVR. The newly released PSVR2 garnered significant attention from the video-gaming brand’s user base, leading Sony to capture the second position in Q1 2023 with a 32% market share. Besides, the PSVR2 shipped 1.2 times more units than its predecessor in the first quarter of its launch.

Pico and DPVR took third and fourth places with market shares of 7% and 6% respectively. While Pico’s performance had earlier improved after its acquisition by TikTok’s parent company ByteDance, a lack of attractive consumer use cases and limited high-quality content resulted in a 38% decline in its shipments in Q1 2023.

DPVR’s shipment volumes are primarily driven by its enterprise partners, with whom it has established strong relationships. These partners regularly place orders for several thousand units. However, delays in orders from education sector partners led to a 40% decline in DPVR’s shipments in Q1 2023.

2023 is the year of next-generation VR headset launches. Sony’s PSVR2 , DPVR’s E4 and HTC’s Vive XR Elite are some of the prominent launches so far this year. Having advanced technology and features, these headsets are retailing at around or over $500, which will likely negatively impact their sales potential. It will also depend on how much value consumers perceive these VR headsets are delivering.

And then, of course, Apple has announced its Vision Pro, which has set a new high bar for consumer XR devices, though at a price above most people’s reach. Apple will nevertheless cast a shadow over the market ahead of the Vision Pro’s actual release.

Background:

Analyst Contacts:

Karn Chauhan

Peter Richardson

Harmeet Singh Walia

Follow Counterpoint Research
press(at)counterpointresearch.com

Quest 3 to Help Maintain Meta’s XR Dominance Even as Apple Entry Looms

Meta announced the launch of the Quest 3 headset on June 1. To be retailed at just under $500, it will be released in autumn. The Quest 3 will have both VR and MR capabilities.
The Quest 2 has also received a $100 price cut, with the entry-level variant available at $299 starting June 4.
Together with its newly discounted predecessor, the Quest 3 is expected to help the company maintain market dominance for now.
Meta’s announcement came days ahead of WWDC, where Apple will reportedly announce its own MR headset.

London, San Diego, New Delhi, Beijing, Buenos Aires, Seoul, Hong Kong – June 5, 2023

The announcement of Meta’s Quest 3 headset at $499.99 and the Quest 2’s $100 price cut to $299 just before the rumoured launch of Apple’s first mixed reality (MR) headset shows the social media parent’s determination to lead the extended reality (XR) headset market.

Meta described the Quest 3, which will have both VR and MR capabilities, as its “most powerful headset yet”. The announcement of a successor to the best-selling XR model in history after three years of no consumer-grade headset launches by Meta is an important step forward for the company as well as for the industry.

In line with the season’s flavour, mixed reality, the Quest 3 features the next generation of Qualcomm’s Snapdragon chipset and yet to be disclosed but likely superior display resolution, memory, battery life and weight.

The Quest 3’s launch in autumn, together with the price cut of the Quest 2, will be enough to maintain Meta’s market dominance in terms of shipments for the foreseeable future.

Apple’s expected announcement of a $3,000 MR headset during this year’s Worldwide Developers Conference (WWDC) on June 5 will create the biggest challenge to Meta since its entry into the segment through the acquisition of Oculus VR in 2014. If Apple succeeds in bringing the cost down and gaining a foothold in the market through successive iterations of the $3,000 headset, it may supplant Meta as the biggest revenue generator in the market which Meta has dominated thus far both in terms of revenue and shipments.

Background

Feel free to reach us at press@counterpointresearch.com for questions regarding our latest research and insights.

Analyst Contacts

Harmeet Singh Walia

Peter Richardson

Karn Chauhan

Follow Counterpoint Research

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Global XR (AR & VR Headsets) Market Share: Quarterly

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XR (AR &VR Headsets) Quarterly Model Tracker: Q1 2020 – Q4 2023

Initial thoughts

Lightweight and comfortable design

Display: Bright, crisp and vivid

Audio: Loud enough for a personal viewing experience

XREAL Beam: Connectivity hub for reduced latency

Limited app ecosystem with availability issues across regions

User experience

Pricing and availability

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