The sustainability of a technology relies on incremental improvements to an already established foundational technology. If the current technology isn't keeping pace with future changes and developments, a revolutionary technology will suddenly displace it. This is known as disruptive technology. For example, the long-established film photography technology was disrupted by the wildfire effect of digital cameras. Think Kodak, once a solid blue chip and now trading at a measly 31 cents. History provides even more examples with truly disruptive technologies appearing and causing major changes to business, society and economies.
However, disruptive technologies exist still today yielding non-linear effects on so many levels and at such a grand scale that it is very hard to grasp until after the dust settles. Augmented Reality (AR) is this type of disruptive technology shaking up what was once a firmly established sector.
Augmented Reality (AR) eyewear is the latest, most discussed feature of AR today. Most of it has to do with the upcoming coming out party for Google Glass (GOOG), but there is more development from other sources as well. AR eyewear are wearable computers, with operating systems (Android and iOS) that are capable of supporting a wide range of applications and programming languages. I see AR as an uncontrolled wildfire creating its own weather system, igniting more fuel within its path. It is this disruption that makes it so exciting about being on the ground floor as an investor.
The Chinese are Coming
China's largest search engine, Baidu (BIDU), is also in the AR eyewear race. Calling it the Baidu Eye, it will be similar to Google Glass offering LCD display, image recognition and voice function controls with bone conductive microphone and speakers.
This appears to be Baidu's response to Google's product to be released at the end of this year. Google Glass and I would imagine Baidu's as well will work as a standalone device having most everything it needs to function including GPS and a processor that runs a custom version of Android. These devices will require an internet connection so it will have to be tethered to a smartphone or connected to the internet through a Wi-Fi connection.
For all of these amazing features and benefits AR has to offer, it is the one company that is the smallest, offers the best battery life, and is the most efficient, that will take this new market and run. And, the smart investor is the one that can jump ahead of this fire storm to become an owner. It is always fascinating how just a quick look at recent history can provide examples for the future.
For example, a snapshot of companies like Nvidia (NVDA) and Advanced Micro Devices, Inc. (AMD) reveals two companies that have been in somewhat of a slump as of late due to lackluster PC sales. It's not expected to get better anytime soon with Gartner's latest forecast that has PC shipments in secular decline with mobile devices in strong uptrends though 2017. Gartner forecastS desktop and laptop PC shipments to decline 7.6% in 2013.
Because of a decrease in sales of hardcore gaming and PC sales, Nvidia is placing a big bet on its Tegra 4 and Tegra 4i chips, which integrates 4G LTE with the mobile processor. While the Tegra 4 will beat Qualcomm's Snapdragon 800 series on a speed basis, but it's still behind in power consumption. While AR eyewear hardware companies would like the best graphics they are more importantly looking for something that is efficient and that the user will be able to interact with for a longer period of time, thus giving Qualcomm the advantage.
AMD is doubling down on its efforts about low-power mobile processors, possibly in an attempt to position itself as a competitor to Nvidia and its Tegra family of mobile processors. As was reported by Reuters that former Qualcomm engineer Charles Matar, with expertise in low-power and embedded chip design, is to join AMD as vice president of system-on-a-chip development. Will this result in a turnaround for AMD? That is still to be determined.
While these chipmakers are only beginning to touch the mobile market, two other companies are ramping up full force to develop chips for the new iWatch and the new augmented eyewear. Both Qualcomm (QCOM) and Broadcom (BRCM) are making a push into the world of augmented reality.
According to FCC filings, the Explorer Edition of Google Glass is expected to rely on a Broadcom 2.4GHz 802.11 b/g Wi-Fi radio and a Bluetooth 4.0 low energy system for wireless connectivity. Broadcom is already making headway with use in mobile devices and finding a niche in augmented reality platforms, and the new Baidu Eye is reporting that it will use Qualcomm's technology for extending the Baidu Eye's battery life to 12 hours between charges. With Qualcomm currently trading around $65 and Broadcom around $33, both are poised at taking advantage of this new disruptive AR eyewear technology.
Qualcomm and Broadcom because they have embraced augmented reality, have technologically superior products, and have the customers (Google and Baidu). Qualcomm currently is trading around $65 and Broadcom around $33, are both poised to take advantage of this new disruptive AR eyewear technology.
These new high tech and low battery consumption chips will need the right software to help grow their market. Infinity Augmented Reality (ALSO.OB) is developing technology for advanced facial, image and mood recognition applications, some of the features most needed for AR glasses. Infinity AR trades at less than 50 cents and I would consider it a speculative stock with plenty of reward accompanied with plenty of risk.
Technological disruptions will continue and as they do, it is imperative that investors stay sharp of companies that have the most chance to grow. Augmented reality can be a true disrupter causing some casualties in which we will find out soon. I believe that as AR eyewear connected to tablets and smartphones take over the market, there will be consolidation in the chip industry with companies buying out or merging with companies that complement their businesses. AR eyewear is just the tip of the iceberg of this new revolution in technology. Don't go down like Kodak. Choose correctly and be ahead of the curve.