The augmented reality startup Magic Leap is looking and considering a sale After they raised over $2.5 billion to build an augmented-reality device, the Florida-based company is weighing options on a possible partnership or stake sale.
What is the presumed goal for Magic Leap? Hoping to gain a valuation of around $10 billion if the company ends up selling. They were in early talks with social media giant Facebook, but it did not develop into a formal sale process, says the Bloomberg report. Johnson & Johnson is another company that has shown interest in the startup.
In the meeting with Facebook, according to reports, the two companies never progressed on deal talks. Facebook is already facing rising tariffs and with the coronavirus raising concern all over the world for its own virtual reality headsets, the social media platform is not interested in Magic Leap’s business at this moment.
Magic Leap has been able to obtain funding from major investors in the past, like Google and Alibaba. Among the company’s other big-name investors are Japan’s largest wireless operator NTT Docomo Inc., Saudi Arabia’s sovereign wealth fund PIF, Singapore’s state-owned investment company Temasek Holdings Pte. and AT&T Inc.
These investments have helped finance the research and development that led to the release in 2018 of the Magic Leap One. What are those, you ask? Well, they are a pair of smart goggles that project digital imagery over the real world.
However, during the rush and race to bring the product to market, Magic Leap burned through around $50 million per month as of March 2018 according to a Business Insider report This past December, the startup told Variety that it was in the process of seeking additional funding. Plus, Scott Henry stepped down as CFO last November.
To add to their problems, they accused the founder of Nreal – a company that debuted $499 mixed reality glasses at last year’s CES – of stealing AR secrets from his former employer, Magic Leap. The accusation contains wording that suggests ex-engineer Chi Xu exploited confidential information to “quickly develop a prototype of a lightweight, ergonomically designed, mixed reality glasses that are strikingly similar” to the Magic Leap One headset. The lawsuit also accused Xu of breach of contract, fraud and unfair competition.
Lots of not so good news surrounding Magic Leap within the past ten months.
To make things worse, the Magic Leap One headset has so far struggled to catch on with consumers. According to a report by The Information, sales have been lagging behind the company’s estimates.
In obtaining the $2.5 billion in investments, Magic Leap lured investors with a promise to make a headset using spatial computing technologies that offer consumers high-end augmented reality experiences. Also, tools to support remote working. Magic Leap is not the only company chasing the use of this technology; Microsoft developed its own device, HoloLens.
Seven years after being founded, Magic Leap unveiled its $2,300 headset after years of selective work. Plus, the company promised to deliver technology rivaling television or the telephone in “social impact.”
These bold promises made by Magic Leap have been the subject of skepticism by critics, who say the company has failed to deliver on its early promises and hasn’t met its own sales goals. Many say attracting an investor with deep pockets could buy the company time to roll out future productions while allowing investors to cash out.
For Magic Leap, the valuation of the startup will be a large question mark because potential suitors may have to take a long-term bet without substantial near-term revenue, said Jitendra Waral, a Bloomberg Intelligence senior analyst.
“One thing to keep in mind with AR hardware is we do anticipate mainstream adoption being a few years away, so whoever buys them [Magic Leap] needs to have the financial capacity to carry products through as AR is still evolving, said Waral.
Which leads to the company’s Magic Leap 2 product.
Omar Khan, Magic Leap’s chief product officer, said in an interview that the company’s Magic Leap 2 product will be released next year, stating that it will “help build a consumer presence.” He also expects the company to develop a disproportionate share of the market, which he said will top $100 billion within several years.
Chief Executive Officer Rony Abovitz, who led the company to gain investors and raise the multi-millions, says the Magic Leap 2 “is a major new platform packed with sensors, and advance optics.”
Time will tell if the second adaptation will become a success; the first headset only sold around 6,000 devices.
Abovitz added that the device is now passing through “phase gates,” which are production equivalent build. Also, throughout 2020, Magic Leap plans to work closely with customers to perfect the Magic Leap 2. One advantage that the Magic Leap 2 holds over Microsoft’s HoloLens is the open and flexible platform that will easily integrate into Windows 10, AWS, Google Compute or Azure. The Windows 10 operating system is the only platform on the HoloLens.
“Think about the complexity of military needs and their security requirements,” says Abovitz. “Our strength is open and modular and ease of integration, something our DoD clients really like about us.”
If Abovitz and Magic Leap can find a buyer and/or investors, the sky is the limit when it comes to augmented reality devices.