Metaverse:

A Guide to
the Next-Gen
Internet

Global TMT Sector

Authors
Manish Nigam Randy Abrams, CFA
852 2101 7067 886 2 2715 6366
[email protected] [email protected]

Adithya Metuku Kyna Wong

[email protected] [email protected]

Doug Mitchelson Matthew Walker

[email protected] [email protected]

Go Saito Michael Binetti

[email protected] [email protected]

Harvie Chou Pauline Chen

[email protected] [email protected]

Hideyuki Maekawa Phil Winslow

[email protected] [email protected]

Hiroyasu Eguchi Sami Badri

[email protected] [email protected]

Jerry Su Soyun Shin

[email protected] [email protected]

John Pitzer Stephen Ju

[email protected] [email protected]

Kenneth Fong Varun Ahuja

[email protected] [email protected]
Contents

Executive summary 4 Hardware: Near-term focus

on AR/VR devices 22

Understanding the metaverse 8 Semiconductors are a levered

metaverse play 27

Metaverse use cases are Metaverse rollout raises

expanding 19 demand for bandwidth 31

Global TMT Sector 3

Executive summary
More spatially immersive, compelling, and frictionless 3D web, viewable by virtual
reality (VR) and augmented reality (AR)

At this early stage in its emergence, there are of course

Understanding the metaverse varying views as to what constitutes the metaverse; in this
report we outline how leading companies Meta, Microsoft,
The metaverse is best understood as an evolution of the Google, Apple, NVIDIA, and Niantic conceptualise the
internet into a more spatially immersive, compelling, and metaverse, as well as perspectives from VCs and industry
frictionless 3D web, viewable by virtual reality (VR) and commentators.
augmented reality (AR), along with traditional compute devices,
with three key aspects: presence, interoperability and
Metaverse use cases are expanding
standardisation. There are five key vectors for metaverse
advancements, in our view: (1) hardware; (2) infrastructure;
As is usually the case at the start of most such technology
(3) content; (4) community; and (5) currency/settlement
evolutions, some existing applications leverage emerging
mechanism.
innovations to deliver a better and/or broader user
experience. However, eventually completely new-use cases
develop, as the technology evolves and matures and new
killer apps can take advantage of the better on-device

Figure 1: Essential components of the Metaverse

Metaverse
Evolution to a more
immersive 3D internet

Source: Company data, Credit Suisse estimates

4
processing and sensing, higher data rates, lower latencies We believe that three factors can drive additional growth in
and machine learning enabled by AI. At this stage, we see the next few years: (1) a disruptive AR/VR headset maker
developments across gaming, entertainment, work emerges amid more applications for enterprises and
collaboration, social media, virtual worlds, education and consumers; (2) a better integrated hardware-software
fitness. For businesses, we see advances in collaboration, platform emerges to drive penetration; and (3) technological
design, and commerce, with additional sector-specific improvements such as micro-LED and fast LCD enable a
benefits to healthcare, real estate, and manufacturing. better price-performance product.

Hardware: Near-term focus on AR/VR devices The demanding performance characteristics of metaverse
applications have effects up and down TMT beyond
The metaverse should eventually bring profound changes to consumer electronics makers. Semiconductors are levered
the entire TMT sector, perhaps none as soon or as extensive to the ever-rising trend to create, store, transmit, and
as in consumer electronics. In this report we examine the analyze data—we estimate the metaverse will drive a 100-
special demands of the metaverse on AR and VR devices 300 bp tailwind to our base 6-8% forward revenue CAGR
where companies are expanding resources and innovation. for the sector. Cloud, infrastructure, and telecom companies
We also believe the metaverse will drive upgrades to look set to benefit too, with a fully immersive metaverse
capabilities required on almost all hardware devices involved, experience challenging servers with a 100x harder compute
and may even lead to some dedicated “killer” hardware task than an AAA game server hosting Fortnite today, and
products, such as the iPhone was for the 3G (mobile data) telecom access networks facing 24x more traffic in a
era. Key pieces of the technology evolution include better decade (with more demanding latency requirements to boot,
lens and display technologies, sharper on-device sensing likely demanding edge compute and small cell deployments).
and faster processing, higher network data rates and lower
latencies allowing cloud compute resources, changes to Sector views
studio content production, and machine learning.
We discuss the implications in three sections on the areas of
We expect global AR/VR headset unit sales of 42 mn units potential for each sector:
(US$12.6 bn revenue) by 2025, representing a 48% (1) Content: Includes regional internet sectors (China,
shipment CAGR (and 36% revenue CAGR) over 2020-25. Korea, Japan, Europe and the US) and the US media,

Figure 2: The metaverse ecosystem map

Content Platforms
US: Warner Music Group,
Endeavor, Disney,
US: Alphabet, Amazon, Apple,
Meta, Microsoft, Roblox, Unity,
Metaverse
Ecosystem
Comcast, Netflix, Fortnite, Niantic
Software + Payments ViacomCBS EU: Ubisoft
US: Autodesk, Adobe EU: Universal Media China: Tencent, NetEase
Group, S4Capital, WPP,
EU: TeamViewer, Japan: Sony, Gree, Gung Ho
Publicis Group
OVHcloud Online, Imagica Group, Cybernet Telecom Services
Systems, Colopi, Gumi, Nintendo
China: China Mobile,
Korea: NAVER, Kakao Corp, China Telecom, China
NCSoft, Krafton, Netmarble, Unicom
NHN, Wemade, Com2us, Pearl
Abyss EU: KPN
IT Hardware Virtual Communities: India: Bharti Airtel, Jio
US: Arista Networks, Decentraland, Horizon, RecRoom, Japan: NTT, KDDI
Cisco Systems Sandbox Korea: KT Corp, LG U+
Asia: Inventec, Inspur, US: AT&T, Charter,
Unisplendour, Innolight, Comcast, Verizon
GDS, VNET, Chindata, HW Components
Quanta, Wiwynn, Accton Cloud Compute Consumer +
Display: BOE, TCL, Visionox,
SeeYa Technology, Jade Bird Enterprise
US: Amazon, Google, Users
Display, Olightek, SIDTek, Token
Semiconductors Microsoft, VMWare
Sciences, JDI, Sony, Samsung,
Devices
Equipment/Material: China: Alibaba, Tencent, LGD, Himax, Kopin, TI XR Device Assembly:
ASML, ASMI, TEL, Baidu Goertek, Luxshare,
PCB/Materials: Unimicron, ZDT,
Chroma, Soitec, Screen, Ibiden, Shinko Pegatron, Hon Hai
Advantest Lens/Modules: SunnyOptical,
Foundry/IDMs: TSMC,
Use case example
Largan, Genius, SEMCO, LG
Win Semi, Intel, AMD, Innotek, Patron, Monex, Apparel: Nike, Ralph
Micron, STM, Infineon Dreamtec, Jawha Electronics, Lauren, PVH
Fabless/IC Design: Hivision System, Powerlogics,
Nvidia, Qualcomm, Namuga, Sekonix, Cammsys,
Broadcom, Marvell, Haesung Optics
Mediatek, Novatek, Passives/Battery: Murata, Taiyo
Realtek, Aspeed, Alchip Yuden, TDK
Backend: ASE, Amkor

Source: Credit Suisse

Global TMT Sector 5

 software, and apparel sectors. New applications are (3) Telecom and infrastructure: Includes the US, Europe
being pioneered to evolve today’s experiences in and Asian telcos, US towers, data centres and
gaming, entertainment, commerce, the monetisation of equipment, and Asia cloud IT infrastructure. The
online property, advertising, and both consumer and metaverse has enormous potential to further expand or
enterprise social connectivity. The best-placed divert screen time (Americans average 10+ hours/day
companies for the metaverse era have scaled data- on media, including 3+ hours on TV) and drive more
centre footprints, deep services and content, existing bandwidth consumption. Internet traffic is already 80%
gaming/video platform businesses, integrated video and has been growing at a 30% CAGR. Our team
hardware, and/or 3D game engines. projects even modest metaverse usage could drive a
further 37% CAGR over the next decade to 20x current
(2) Hardware and semiconductors: Includes
data usage. This will support the value of the best-
components, assembly, display, hardware and
constructed networks in each region, while also
semiconductors. For semiconductors, the metaverse fits
demanding upgrades to data centres and network
into our data paradigm thesis, with the metaverse
equipment.
permeating the create/capture, store, transmit and
analyse view of the data economy and poised to benefit
as improvement in power/performance unleashes more
data consumption and use cases for silicon. We see
silicon content expansion across edge devices (AR/VR
and traditional compute), the upgrade of WiFi to 6E/7,
increased 5G/6G penetration and broadband fibre
transmission, and upgraded cloud infrastructure (both
more compute resources, and more diffuse edge
compute). For hardware, the metaverse would drive
AR/VR opportunities in assembly, display,
camera/optics, PCB/substrate, MLCC, connectors and
batteries.

6
“ Metaverse: An evolution into a
more immersive 3D internet.

Global TMT Sector 7

Understanding the metaverse
Immersive 3D internet with upgrades along five key vectors: (1) hardware; (2)
infrastructure; (3) content; (4) community; and (5) currency/settlement mechanism

A brief history interaction with the game and reaching 250,000 cumulative
users. Other services, including Worlds Away, Virtual
Science fiction. The first vision and naming of the Places, Comic Chat and The Palace, also offered these
metaverse originated in the science fiction novel, Snow virtual rooms.
Crash, by Neal Stephenson in 1992. In it, the metaverse
was a shared multiplayer online game made available over Communities and services. In 2000, a Finnish company
the world’s fibre optics network and projected onto virtual created Habbo (formerly Habbo Hotel), an online community
reality goggles. Users could control avatars that could that has accumulated 316 mn avatars since launch and now
interact with other avatars and computer-controlled agents. has 800,000 active users. The main feature in the game is
An avatar in that metaverse could gain status through its a hotel where users can visit public areas (restaurants,
technical acumen navigating the arena and gaining access cinemas and clubs) and create guest rooms. The users in
to exclusive spaces. Ready Player One by Ernest Cline in this community can create a character, design and build
2011 and adapted into a film in 2018, followed on with this rooms, chat with other players and take care of virtual pets.
concept in a future view of the world in 2045 where users The early services formed the building blocks for Second
escaped the real world by entering a metaverse called Oasis Life, a virtual online world that launched in 2003. By 2013,
accessed with a VR headset and wired gloves. it had 36 mn accounts created, with 1 mn monthly active
Multiplayer games and ‘avatars’. The use of avatars has users who had spent 217,000 cumulative years online on
extended even further back from these novels. In the early territory comprising over 700 square miles and spending
1970s, Steve Colley and Howard Palmer invested in a US$3.2 bn on in-world transactions.
multiplayer game called MazeWar that could be played over The users in Second Life created avatars to interact with
ARPANET, a precursor to the internet. The game’s first places, objects and other avatars through chat, IM or voice.
avatar had a graphical eyeball that moved through the maze The avatars could take any form or resemble their real-life
pointing in the direction it was travelling to shoot other form and could travel by walking, vehicle, flying or
players. In the 1980s, the Commodore 64 computer had a teleporting. The community allowed a variety of socialising,
virtual world Habitat with cartoon-like avatars that could walk games, group activities, and opportunities to build, shop,
around and communicate with chat bubbles. As the internet create and trade property and services. The service also
ramped by 1994, WorldsChat created a space-station- used a virtual currency to buy, sell, rent or trade goods and
themed virtual space for avatars to have social interaction services. The goods could include buildings, vehicles,
and explore the various rooms. Out of that effort, a more clothes, art or jewellery, and services could include
advanced programme, AlphaWorld, featured 700 themed entertainment, custom content, or business management.
rooms or Active Worlds, with 12 different avatars, more

Figure 3: Ready Player One Participants in the world of Figure 4: Second Life virtual reality world
VR

Source: Industry Source: Industry

8
Second Life went into decline as it was usurped by other Meta Quest. While the renaming of Facebook did bring
social media platforms and did not adapt well to a mobile increased attention to the concept, there isn’t really an
platform. Second Life’s chief architect, Philip Rosedale, in agreed definition as to what the metaverse is or as to how it
an iEEE Spectrum interview in November 2021 noted will evolve. In this section, we outline how various key
limitations with adults wanting to socialise with strangers technology companies are viewing and defining this
online, technical challenges getting more than 100 people opportunity along with providing frameworks from two
together in a copy of a concert space, a need for better industry experts/commentators.
toolkits for large numbers of people to build the experiences
and content, and a better common currency that can unify CS’ summary view of the metaverse
the diverse tokens that each platform uses. He also views
While industry participants hold various views as to what
VR still having issues to solve around comfort, typing speed
constitutes a metaverse, in our view it essentially boils down
and communicating comfortably with others.
to an evolution into a more immersive 3D internet with
upgrades along five key vectors (and different
A reporter from Reuters in a series published from 2007-08
commentators’ sub-divisions of these vectors):
noted issues including limited support to new joiners to
make the most of the platform, an overly complicated user
Devices/hardware: The key interface between the
interface, IT issues (crashes and unstable IM), and a high
user (humans) and the metaverse. These could be
weighting towards adult content. They still did note an
smartphones (which evolve and add functionality over the
incredible depth, passion and camaraderie in the community
coming years) and/or could be dedicated or linked
and some interest in being able to buy a grid of space and
AR/VR devices or could be a completely new dedicated
mould it into something.
hardware.
The Second Life site still claims 750,000 monthly active Infrastructure: The network and devices that connect
users on the platform and US$650 mn in annual the hardware device to the content—5G networks, WiFi,
transactions, though this is marginal relative to the major edge computing implementations and eventually 6G.
social media platforms and never ramped much above 1 mn
people. The creators of Second Life followed up with a VR- Content: All the various types of software and content,
based virtual world called Project Sansar but it did not ramp including gaming.
up well. The company returned to focussing on Second Life Community: All the various use cases with many
and sold Project Sansar to Wookey Project Group. That (theoretically unlimited) individuals/users who interact
group is now focussing on virtual concerts including and socialise within the platform and also across
pre/after parties. applications/platforms (use cases).

Metaverse: A still-evolving concept Currency/settlement: The method used to “settle”

transactions for participation, content creation or direct
The metaverse has seen a substantial increase in awareness commerce.
in past months with Facebook’s renaming of the company
as Meta in October 2021 and a focus on driving all of its
efforts towards building out the metaverse, including the
most recent renaming of its Oculus Quest VR glasses as

Figure 5: The metaverse ecosystem already growing diverse

Source: Building the Metaverse—Jon Radoff

Global TMT Sector 9

In the following section, we further dig into the definition of Home space. The home space can recreate parts of
and the key concepts around building out the metaverse the physical home virtually, add new parts virtually and
from various leading companies in the technology world as add in customised views. The home space can store
well as views/definitions of the concept from some pictures, videos and purchased digital goods, have
prominent industry commentators. people over for games and socialising, and a home office
to work.
Meta’s view: Metaverse as an embodied internet
Teleporting. A user can teleport anywhere around the
Metaverse comes from the Greek word “Beyond” and is metaverse to any space just like clicking a link on the
about creating a next generation of the internet beyond the internet.
constraints of screens and physics. The metaverse is
expected to be the next platform for the internet with the Interoperability. Interoperability would allow someone
medium even more immersive—an embodied internet where to buy or create something that is not locked into one
people are in the experience, not just looking at it. Users will platform and can be owned by the individual rather than
be able to do almost anything they can imagine: get the platform. Meta is building an API (Application
together with friends and family, work, learn, play, shop and Programming Interface) to allow users to take their
create, with entirely new categories not available on avatar and digital items across different apps and
phones/computers today. experiences. The interoperability would require
ecosystem building, norm setting and new governance.
The metaverse will be the successor to the mobile internet, Privacy and safety. The metaverse needs to build in
enabling people to be able to feel present and express privacy, safety, interoperability and open standards from
themselves in new immersive ways. That presence should the start, with features allowing a user choice in who
allow people to feel they are together even if they are apart, they are with, the ability to be private or to block another
whether in a chat with family or playing games and feeling like user. The metaverse needs easy-to-use safety controls
they are playing together in a different world of that game and and parental controls, and also to take out the element
conducting meetings as if face to face. The embodied internet of unexpected surprises.
would mean, instead of looking at a screen, users would feel
they are in a more natural and vivid experience while Virtual goods. The metaverse would allow the ability to
connecting socially, and during entertainment, games and bring items into the metaverse or project those into the
work, by providing a deep feeling of presence. physical world. A user can bring any type of media
represented digitally (photos, videos, art, music, movies,
Meta believes several foundational concepts are books and games) into the metaverse. These items can
required for the metaverse: also be projected into the physical world as holograms or
AR objects too. Street art could be sent over and paid for.
Presence. The defining quality of the metaverse—this Clothing can also be created that is accurate, realistic and
should enable the ability to see people’s facial textured, and that can be purchased and bought.
expressions and body language, and feel in the moment
by being more immersed. Natural interfaces. All kinds of devices will be
supported. The metaverse will have the ability to be used
Avatars. Avatars will be how people represent on all types of devices ranging from using virtual reality
themselves rather than a static profile picture. The codec glasses for full immersion to AR to still be present in the
avatar is a 360-degree photorealistic avatar that can physical world, or through the use of a computer or
transform the profile image to a 3D representation with phone to quickly jump in from existing platforms.
expressions, and realistic gestures that can make Interaction and input can be through typing or tapping,
interactions richer. The avatar could have a realistic gestures, voice recognition or even thinking about an
mode but also a mode used for work, socialising, gaming action. In a future world, the user would not even need a
and clothing designed by creators that can be taken physical screen as they could view a hologram for the
across different applications. images throughout the virtual world.

Figure 6: Meta’s Horizon Home, World, and Workroom Figure 7: Meta developing tools for AR overlays on the
modes World

Source: Meta Source: Meta

10
Microsoft’s view: Bringing people together and would be a collection of communities with individual
fostering collaboration identities anchored in strong content franchises accessible
on every device.
Microsoft defined the metaverse as a persistent digital world
inhabited by a digital representative of people, places, and The company also views its Azure offerings for business as
things. The metaverse can be thought of as a new version of well suited for the metaverse as noted from Satya Nadella at
the internet where people can interact as they do in the the May 2021 Build Developer Conference: (1) with Azure
physical world, and gather to communicate, collaborate and Digital Twins, users can model any asset or place; (2) with
share with personal virtual presence on any device. Azure IoT, the digital twin can be kept live and up-to-date;
(3) Synapse tracks the history of digital twins and finds
The company views the metaverse as no longer a vision, insights to predict future states; (4) Azure allows its
citing already existing-use cases such as the ability to go to customers to build autonomous systems that continually
a concert and shows with other real people inside a video learn and improve; (5) Power Platform enables domain
game, the ability to walk a factory floor from home or to join experts to expand on and interact with digital twin data using
a meeting remotely but be in the room remotely to low-code/no-code solutions; and (6) Mesh and Hololens
collaborate with other workers. bring real-time collaboration.
Google: Development of AR/VR could reboot with its
The company believes the metaverse has the ability to
ambient computing push
stretch us beyond the barriers and limitations of the physical
world, which proved to be a larger barrier when COVID-19 Google has been an early visionary for mixed reality
prevented work from the office or travelling to visit clients, products, having introduced its Google Glass for developers
friends, and family. Microsoft is working on tools to help in 2013 and smartphone-driven VR systems in the form of
individuals represent our physical selves better in the digital Google cardboard in 2014 and Daydream headset in 2016.
space and bring that humanity with the person into the The company has a goal of driving ambient computing,
virtual world. Some of the capabilities it is enabling is about which means users can access its services from wherever
teammates joining meetings from everywhere and real-time they are, and they become as reliable and essential as
translation allowing people from different cultures to running water. The company’s hardware strategy around
collaborate in real time. smartphones/tablets, Nest home devices and potential re-
emergence into AR/VR are tied to this ambient compute
Microsoft is driving big investment into virtual connectivity in experience.
gaming. It discussed its view that in gaming, the metaverse

Figure 8: Microsoft collaboration in the metaverse Figure 9: Real time translation can improve
communication

Source: Microsoft Source: Microsoft

Figure 10: Google Glass Enterprise Edition Two Figure 11: Google Daydream smartphone-based VR

Source: Google Source: Google

Global TMT Sector 11

The company recently hired former Oculus GM, Mark stage to unleash more creativity among its develop
Lucovsky, who is now leading Google’s operating system community to move the AR from phone/tablet viewing to 3D
(OS) team and experiences delivered on top of the OS for mixed reality viewing.
AR. Google in its recruiting posts for AR hardware
developers, hardware engineers and software developers Nvidia: Omniverse to create and connect worlds within
indicated it is building the foundations for substantial the metaverse
immersive computing, and building helpful and delightful
Nvidia defined the metaverse in its August 2021 blog as a
user experiences to make it accessible to the billions of
shared virtual 3D world, or worlds, that are interactive,
people through mobile devices. The company also indicated
immersive and collaborative and as rich as the real world. It
it includes building software components that control and
views it as going beyond the gaming platforms and video
manage the hardware on its AR products.
conferencing tools aimed at collaboration. The metaverse
would become a platform that is not tied to any one app or
Apple: Designing its ecosystem already around AR
any single digital or real place. The virtual places would be
Apple views AR transforming how people work, learn, play, persistent, and the objects and identities moving through
shop, and connect with the world, and the perfect way to them can move from one virtual world to another or into the
visualise things that would be impossible or impractical to real world with AR.
see otherwise. Apple claims it has the world’s largest AR
platform, with hundreds of millions of AR-enabled devices Niantic’s view: Metaverse driven by AR
and thousands of AR apps on its Apps store. CS expects
Niantic, developer of Pokemon Go, which was originally
Apple to launch its first mixed reality device in late 2022
spun out of Google, published a blog in August 2021
manufactured by Pegatron, though the initial projects are for
building its vision for the metaverse around AR rather than
small unit volumes (1-2 mn). The product may be the first
VR. It views the world in science fiction novels such as Snow

Figure 12: Apple ARKit 5 effects’ overlay Figure 13: Apple AR creation to convert models for AR
use

Source: Apple Source: Apple

Figure 14: Nvidia’s Omniverse industry use cases

Source: Nvidia

12
Crash and Ready Player One as a dystopian future of Niantic is also developing a visual positioning system (VPS)
technology gone wrong where users need to escape a that can place virtual objects in a specific location so those
terrible real world with VR glasses to go into the virtual objects can persist to be discovered by other people using
world. The company views VR as a sedentary process the same application. With a live production code it has
slipping into a virtual world and being cut off from everyone mapped thousands of locations. Niantic is attempting to
around you with an avatar as a poor substitute for the real build a much more in-depth digital map beyond Google
human-to-human interaction. The company believes VR Maps which can recognise location and orientation anywhere
glasses remove the realistic interactions from the presence in the world leveraging on computer vision and deep-learning
that you can sense being with people that are difficult to algorithms, and the leverage of the millions of users playing
replicate staring into OLED display goggles. its games such as Pokemon Go.

Niantic is leaning into AR in order to be able to be outside The company’s vision follows Alan Kay’s 1972 Dynabook
and connect with the physical world with AR as an overlay to paper that discussed the trend of continuing to shrink
enhance those experiences and interactions, and get people compute (from mainframes now down to smartphones/
back outside and active by learning about their city and wearables) and eventually to compute devices disappearing
community. into the world. Niantic views shifting the primary compute
surface from the smartphone to AR glass to remove the
The company’s view of the metaverse is a world infused with demands on hands to make it easier to access data and
“reality channels”, where data, information, services and services, and view overlays on the real world. Niantic has
interactive creations can be overlaid on the real world. The partnered with Qualcomm to invest in a reference design for
company incorporated these into its products Field Trip, outdoor-capable AR glasses that can orient themselves
Ingress and Pokemon Go as games that can make the using Niantic’s map, and render information and virtual
world more interesting. The capability, though, can stretch worlds on top of the physical world with open platforms
beyond games and entertainment, as the AR can allow allowing many partners to distribute compatible glasses.
education, guidance, and assistance anywhere from work
sites to knowledge work.

Figure 15: Omniverse allows collaboration on a 3D Figure 16: Nvidia’s Omniverse platform
project

Source: Nvidia Source: Nvidia

Figure 17: Niantic’s metaverse uses AR to overlay digital objects in the physical world

Source: Company data

Global TMT Sector 13

Industry commentators’ views an experience that spans digital and physical worlds,
private and public networks, and open and closed
Different companies and participants interpret what
platforms; (6) offer unprecedented interoperability of
metaverse means differently. We provide views from some
data, digital items/assets and content; and (7)
prominent industry commentators, one a venture capitalist
populated by content and experiences created and
and another an entrepreneur, regarding what a metaverse
operated by an incredibly wide range of contributors.
entails.
The VC is tracking the metaverse around eight core
A. A venture capitalist’s definition of the metaverse and categories:
its development vectors
(1) Hardware: Technologies and devices to access,
Venture capitalist (VC) Matthew Ball defined (here and interact and develop the metaverse (VR, phones,
here) the metaverse as a “massively scaled and haptic gloves).
interoperable network of real-time rendered 3D virtual
worlds which can be experienced synchronously and (2) Networking: Development of persistent real-time
persistently by an effectively unlimited number of users connections, high bandwidth and decentralised data
with an individual sense of presence and with continuity transmission.
of data, such as identity, history, entitlements, objects, (3) Compute: Enablement of compute to handle the
communications and payments”. demanding functions (physics, rendering, data
reconciliation and synchronisation, AI, projection,
The metaverse, in his view, should be viewed as a motion capture and translation).
quasi-successor state to the mobile internet as it would
not replace the internet but will build on it and transform (4) Virtual platforms: Creation of immersive and 3D
it just as mobile devices changed the access, environments/worlds to stimulate a wide variety of
companies, products/services and usage of the experiences and activity supported by a large
internet. As with mobile internet, the metaverse is a developer and content creator ecosystem.
network of interconnected experiences and applications, (5) Interchange tools and standards: Tools,
devices and products, and tools and infrastructure. The protocols, services and engines to enable the
metaverse places everyone in an embodied, virtual or creation, operation and improvements to the
3D version of the internet on a nearly unending basis. metaverse spanning rendering, AI, asset formats,
Some characteristics of the metaverse are that it would compatibility, updating, tooling and information
be: (1) persistent; (2) synchronous and live; (3) without management.
caps on users and providing each user with an individual
sense of presence; (4) a fully functioning economy; (5)

14
 (6) Payments: Support of digital payments including or outbound (marketing that was not specifically
fiat on-ramps to pure-play digital currencies/crypto. requested by the person, even if they opted in).
The discovery layer could include the curated
(7) Metaverse content, services, and assets: The
portals, online agents, rating systems and
design, creation, storage and protection of digital
advertising networks drawing users to discover
assets such as virtual goods and currencies
different areas.
connected to user data and identity.
(3) Creator economy: Not only are the experiences
(8) User behaviour: Changes in consumer and
of the metaverse becoming increasingly immersive,
business behaviour (spending and investment, time
social, and real-time, but the number of creators
and attention, decision making and capability)
who craft them is increasing exponentially. This
associated with the metaverse.
layer contains all of the technology that creators
B. An entrepreneur’s view: The seven layers of the use daily to craft the experiences that people enjoy.
metaverse
(4) Spatial computing: Spatial computing has
Jon Radoff, CEO of Beamable, a Live Game Services exploded into a large category of technology that
platform, is another prominent industry commentator on enables us to enter into and manipulate 3D spaces,
the topic of the metaverse and is widely quoted by and to augment the real world with more
various articles associated with the concept. His prior information and experience. The key aspects of
work has focussed on online communities, internet such software includes: 3D engines to display
media and computer games. Jon sees the metaverse geometry and animation; geospatial mapping; voice
(link) as composed of seven layers: and gesture recognition; data integration from
devices and biometrics from people; and next-
(1) Experience: The experience layer is where users generation user interfaces.
do things in the metaverse including gaming,
socialising, shopping, watching a concert or (5) Decentralisation: The ideal structure of the
collaborating with co-workers. The metaverse metaverse is full decentralisation. Experimentation
experiences do not need to be 3D or 2D, or even and growth increase dramatically when options are
necessarily graphical; it is about the maximised, and systems are interoperable and built
inexorable dematerialisation of physical space, within competitive markets. Distributed computing
distance and objects. When physical space is powered by cloud servers and microservices
dematerialised, formerly scarce experiences may provide a scalable ecosystem for developers to tap
become abundant. into online capabilities without needing to focus on
building or integrating back-end capabilities.
(2) Discovery: The discovery layer is about the push Blockchain technology, which enables value-
and pull that introduces people to new experiences. exchange between software, self-sovereign identity
Broadly speaking, most discovery systems can be and new ways of unbundling and bundling content
classified as either inbound (the person is actively and currencies, is a large part of decentralisation
seeking information about an experience) (this area of innovation can be called Web 3.0).

Figure 18: The Seven Layers of the Metaverse

Source: medium.com (link)

Global TMT Sector 15

 (6) Human interface: Computer devices are moving programmatically and transparently exchange value
closer to our bodies, transforming us into cyborgs. (assets, currencies and property, etc.) with each other,
Smartphones have evolved significantly from their without requiring custodians, brokers or intermediaries.
early days and are now highly portable, always- The ability to programmatically exchange value between
connected powerful “computers”. With further parties is a hugely transformative development.
miniaturisation, the right sensors, embedded AI
Self-sovereignty. An important part of Web 3.0 is
technology and low-latency access to powerful
inverting the current model where one uses one’s login
edge computing systems, they will absorb more
details for “walled gardens” to interact with several other
and more applications and experiences from the
online applications. Instead of having a company own
metaverse. Dedicated AR/VR hardware is also
one’s identity and then granting us access to other
coming into the market, and in the coming years
applications, one would own one’s own identity and
will likely evolve significantly. Beyond smartglasses,
choose which applications to interact with. This can be
there is a growing industry experimenting with new
accomplished by using certain digital wallets. One’s
ways to bring us closer to our machines such as
wallet becomes one’s identity, which can then allow you
3D-printed wearables integrated into fashion and
to use various decentralised applications on the internet
clothing.
that need to interact with one’s currencies and property.
(7) Infrastructure: The infrastructure layer includes
the technology that enables our devices, connects The re-decentralisation of the internet. Currently,
them to the network and delivers content. This there are substantial dependencies across the internet
includes the semiconductors, battery technology, on a small number of highly centralised applications. But
cloud servers and storage, and 5G and Wi-Fi with Web3, the power shifts back to individual users,
transmission required. The infrastructure upgrades creators and application developers with far fewer
on compute, connectivity and storage centralised authorities to extract rents or ask permission
supplemented by AI should dramatically improve from. This transfer of power and ability for users to
bandwidth while reducing network contention and monetise their work by certifying efforts on the
latency, with a path to 6G in order to increase blockchain and monetising that by exchanging the work
speeds by yet another order of magnitude. for tokens is expected to lead to an explosion of new
creativity in the form of applications, algorithms, artwork,
music, AI/robots, virtual worlds and metaverse
Web 3.0 envisions a more decentralised metaverse
experiences, with more of the rewards staying in the
hands of the owners and creators.
Web 3.0 envisions the internet to be based on decentralised
blockchains using token-based economics for
transactions. The new vision contrasts with Web 2.0 where Metaverse still has its limitations and risk
the large internet platform companies have centralised a lot
of the data and content. Web 3.0 was coined in 2014 We do see significant potential from the latest wave of
by Ethereum co-founder Gavin Wood and in the past investments to upgrade to a more immersive internet but
decade has seen more interest as a concept across tech also see some limitations and risks in the latest cycle which
companies, VCs, start-ups and blockchain advocates. A pose obstacles and may limit its success.
number of virtual communities in the metaverse are forming
with a decentralised concept that may open up the rule AR/VR limitations. A truly immersive internet would
making of the community to a collective majority of benefit from a 360-degree field of VR or with AR glasses
individuals on the platform and are also adopting the token versus access through traditional smartphones, tablets
concept as virtual currency. and PCs. VR saw a first wave of hype in 2016 with the
launch of VR headsets by many companies and many
While the original “internet” Web1 was built on largely open- smartphone-based VR platforms, with every major trade
source standards, Web 2.0 leveraged those same open and show seeing long lines to experience the concept.
standards-based technologies but ended up creating large The first wave failed to live up to the hype with only 2
and closed communities, often referred to as “walled- mn units shipped. A combination of early hardware
garden” ecosystems. As Jon Radoff has argued in one of his limitations included tethering to a PC, causing vertigo
posts, walled gardens are successful because they can and discomfort with extended use, a lack of AAA
make things easy to do—and offer access to very large gaming titles and content, and isolation from others
audiences. But walled gardens are permissioned while wearing it. The VR technology is improving with
environments that regulate what you can do, and extract better processing and sensors, faster refresh rates,
high rents in exchange. He argues that there are three key higher resolution and high-speed WiFi eliminating the
features of Web 3.0 that should change this paradigm of tethering plus content should improve with the new
Web 2.0: wave of metaverse funding. Nevertheless, VR would still
lead to some discomfort from wearing for an extended
Value-exchange (rather than simply information time and isolating the user from their surroundings.
exchange). The enabling technology for value-
exchange is smart contracts on blockchains. The
blockchain is a shared ledger that allows companies,
applications, governments and communities to

16
Mainstream interest in virtual worlds. The hurdle for NFT speculation, fakes, and metaverse asset
virtual worlds is higher as earlier communities faced inflation. NFTs (non-fungible tokens) represent a
difficulty keeping up activity 24-7 and it also needs to unique piece of data on the blockchain that claims to
change user behaviour from still seeking out real-world offer a certificate of authenticity or proof of ownership
experiences. The virtual worlds are improving in terms of though they do not restrict sharing or copying the digital
audio/visual but still fall short on three of the five senses file or prevent the creation of NFTs with identical
(smell, taste and touch) to be fully immersed in the associated files. NFTs have been associated with
experience. Some advocates are more aggressively transfers of artwork, in-game assets, music and sports
investing in AR technologies which bring elements of the cards, and can be a way to pay a creator for their work.
digital world into the real world. The NFT market, though, is introducing stolen goods,
bubbles and the risk of over-saturation as more are
Policing the communities. Social media platforms
created. The metaverse is also drawing headlines for
have continuously faced issues over which content and rising real estate prices in some of the digital
authors to allow and censure, and also their ability to use
communities and the high-priced resale of luxury bags
AI and human monitors to take down abusive content. A
carrying no right to carry it into the physical world.
decentralised metaverse, without the scale of the
resources major internet providers have, may also
struggle to keep up with monitoring abuse on the
platform.

Global TMT Sector 17

 “ Potential to transform social
interactions, leisure activities,
education and work.

18
Metaverse use cases are expanding
Metaverse would impact gaming, entertainment, work collaboration, social media,
virtual worlds, education and fitness in the near term, and will see additional use
cases over time.

By moving to a more 3D and immersive form of the internet, user to be viewed as a hologram in another place and
the metaverse has the potential to expand opportunities for teleport into a remote concert or party.
the current internet. We highlight the use cases and current
developments around some of the major areas the During the pandemic, a number of platforms developed the
metaverse would impact including gaming, entertainment, major use case of virtual concerts that took the place of live
work collaboration, social media, virtual worlds, education performances. The advantage of these concerts is they
and fitness. While these are some of the current prominent could reach far more users globally than a live venue and
use cases, given that the metaverse is an adaptation and could also transform the singer into an avatar or the stage
evolution of the internet, use cases are, frankly, endless into a virtual environment, with special effects and
although we list some additional use cases, notably in the opportunities for fan interaction. The concerts also formed a
commercial space at the end of this section. good platform to promote merchandising for the event.

Gaming: Platforms to further leverage 3D immersion Social: Leveraging AR/VR for connectivity and
presence in the metaverse
Video games are expected to play a central role in the
metaverse as they already build on immersive experiences Social media is embracing the metaverse as a way to
with 3D graphics, VR-enabled titles, and platforms for user expand connectivity with the use of AR/VR. We highlight the
creativity and built-out digital goods for use in gaming. The efforts of social media platforms as well as some of the early
overall market is exponential and is now at 3 bn users and work by dating sites to introduce virtual engagements before
projected by industry players to reach 4.5 bn by 2030. meeting in the real world.
Gaming platforms can be further unleashed with the
metaverse by allowing a gamer to be embodied and moving Industrial: A solution for collaborative work amid
around in the game or building out further upgrades available hybrid office evolution
to other users. As compute power rises, deeper multi-player
gaming can be fully enabled and eventually, a user could Work in the metaverse would allow a better sense of
turn into a hologram to show up visually with someone in presence, shared physical spaces, and a productive work set-
another location. up in a work-from-home set-up. The work setting can allow
collaboration to view a 3D design with others. Companies are
Entertainment: 3D virtual option opens up for film, investing resources towards various products, including
television, and music content customisable workrooms for meetings, an office space to
customise home workspace, and 2D progressive web apps to
The metaverse is stimulating new forms of entertainment, view applications and social media through VR.
with a likelihood that technology eventually would allow a

Figure 19: Gamers now approaching 3 bn global players

Total global gamers (bn)
3.50 3.07
2.81 2.95
3.00 2.55 2.69
2.42
2.50 2.26
1.99 2.11
2.00
1.50
1.00
0.50
0.00
2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: Newzoo

Global TMT Sector 19

Commerce: Virtual communities opening up new more collaborative product development, and potentially
forms of commerce reduce the risk to quality control. In addition, customers
in the metaverse could have improved visibility into the
The metaverse is also opening up a platform for commerce, supply chain process with 3D representations for how
with creators making digital objects, offering services and products are built, distributed, and sold. There could also
experiences, building worlds, and a place to sell both be additional opportunities for manufacturers to have
physical and digital products. The metaverse platform goal is add-on digital-products (clothes/fashion, homes, cars) in
for content that is purchased on one platform to be available the metaverse that resemble and mimic the real-world
on other platforms. For purchases, NFTs can be securely products.
purchased and sold with the data stored on the blockchain.
Fitness. VR also gives the chance to transform the living
A number of communities are setting up public spaces that room, similar to how virtual sports gaming products got
can be accessed through digital means. Most of these many off the couch to play their motion-controlled sports
networks use avatars to represent the users, though they games. Fitness games through VR will allow more
vary in the digital ownership, centralisation of the platform, immersion and interactive training by allowing a user to
rules of engagement with others, ability to build and take work out in new worlds, playing against other users or
ownership on the ecosystem vs being on a platform from against the machine AI.
one of the major social media companies and the ability to Education. Education took a 2D step through online
create commerce activities. Some gaming platforms have learning during the pandemic but still struggled with
centralised environments, but several new communities are student engagement. An upgrade to use 3D features and
developing around decentralisation—which places ownership VR has potential to enhance the experience and
of goods on the blockchain and is opening up ownership and engagement by allowing teachers to teleport their students
control of the rules toward decentralised policymaking. to a different place or time, or into a virtual classroom,
library or gymnasium with their fellow students. A headset
Other use cases or glasses could enable much more active exploration of
history, biology, a visit to a museum in another location, or
The above paragraphs detail use cases across various end- an interactive class with fellow students.
markets and with examples of companies/applications
Other online VR educational applications and
operating within that area. Given that ‘metaverse’, in some
programmes are now cropping up. One of the
ways, is just an adaptation/evolution of the ‘internet’, use
companies is offering these experiences by allowing
cases are, frankly, endless.
customisation of a virtual classroom and simulation of
presence with virtual avatars for more interactive remote
Manufacturing. Metaverse can help the manufacturing
learning. The school features presentations and
process significantly, particularly in the areas of design
documents, customisable whiteboards, notifications and
and product development, by facilitating an improved
moveable Post-its, and live video and text. Spatial I/O’s
relationship and interaction between business owners,
collaborative VR platform features iTeacher, which is
suppliers (including design companies) and customers.
architecting virtual worlds for high school education to
Such a platform can result in a rapid production process
connect on academic topics with its metaverse now
design, increase the number of product designs, lead to
having 14 different spaces to simulate different lessons.

20
“ AR/VR devices to be early
beneficiaries.

Global TMT Sector 21

Hardware: Near-term focus on AR/VR
devices
We expect AR/VR devices to see strong growth over the next few years, along with
advancement in hardware, software and connectivity

While the evolution of metaverse will eventually affect almost We believe start-ups and emerging headset companies will
all aspects of hardware devices involved, and may even lead expand the use of AR/VR devices, and further support the
to some dedicated ‘killer’ hardware product—like the iPhone adoption of headsets for commercial use. We expect
was for the 3G (mobile data) era—in the near future, applications outside gaming/entertainment to be the
AR/VR devices is where the companies’ and investors’ surprise factor for headsets in the next few years.
attention is with regard to metaverse devices. With the
advancement in optics, chipset, 5G and software, AR/VR is Platform will be key in the metaverse
not only used for games but has also seen applications in
educational, industrial and medical facilities. We will pay attention to metaverse content and application
development. Facebook renamed itself Meta and declared a
We expect global AR/VR headsets to deliver 42 mn units and commitment to developing a metaverse ecosystem, and
revenue to reach US$12.6 bn in 2025, representing 48% launched its virtual social platform Horizon Worlds in Dec-
shipment CAGR and 36% revenue CAGR over 2020-25. 2021. Roblox is already considered a virtual metaverse
community with a successful online game creation platform
We believe three factors could drive additional growth of the with 31 mn DAUs (daily average users) in 2021. It allows
AR/VR market in the next few years, over and above our users to build their own areas and play games with other
forecast growth rate: (1) a disruptive AR/VR headset maker users.
emerges amidst more applications in enterprises and the
public; (2) a better integrated hardware-software platform We believe no single company is capable of building a
emerges to drive penetration; (3) technological metaverse, and the concept would be closer to a real world
improvements such as micro-LED and fast LCD enable a society in which everyone plays a role contributing via
better price-performance product. different tools. Current products of leading companies are
platforms providing tools that allow users to build their own
Products from emerging players spaces. There are many others, which have the potential to
In light of AR/VR’s ability to enhance gaming experience, become larger with time. Although the platforms are early
other industries like education, healthcare and construction stage, they will help drive AR/VR headset demand as user
will also benefit from the rise of the headsets. We see an generated content (UGC) and applications are created.
increasing number of start-ups designing headsets for the
enterprise and public sector. We expect enterprise
application would be another driver for AR/VR devices.

Figure 20: AR/VR headset market grows behind “metaverse”

42
14,000 45
12,000 40
30 35
10,000
30
8,000 21 25
6,000 15 12,623 20
10 9,030 15
4,000
6 6 6 7,055 10
5,536
2,000 4,000 5
1,826 2,028 2,665
0 0
2018 2019 2020 2021E 2022E 2023E 2024E 2025E

Value (US$ mn) Shipments (RHS, mn)

Source: IDC, Credit Suisse estimates

22
VR technology roadmap usually displays much more severe image blurs than
OLED.
Common complaints against VR were on the motion
sickness caused by: (1) the screen door effect (SDE) Optics: Fresnel lenses to replace aspherical lenses
(visible gaps between pixels); (2) mura (colour inconsistency Fresnel lenses are advocated by more VR makers due to
of each pixel); (3) aliasing (series of square blocks instead of their lighter weight and thinner centre. HTC was the first
curved lines); (4) latency (low chipset processing and to use Fresnel lenses in its high-end product, Vive,
transmission speed); and (5) the weight of headsets. To followed by Oculus. To reduce the weight of VR devices
mitigate these issues, headset makers are advancing the and enhance the user experience, Fresnel lenses are
chipset, optics, display, and tracking solution to improve the more likely to be adopted by the majority.
user experience.
Tracking solution: 6DoF and inside-out tracking
Chipset: Qualcomm XR series solution will be the basic feature
Qualcomm launched its XR platform Snapdragon Extend 6 degrees of freedom (6DoF) is an upgrade of 3DoF
Reality (XR) series in 2018 as its first SoC for AR/VR which adds rotational axes for rolling, yawing and
devices. The XR2 5G platform was announced in Dec- pitching. 3DoF is enough for basic applications such as
2019, which is a derivative of the Snapdragon 865 VR movies, but for a complete immersive experience
(7nm). Oculus Quest 2 was the first to deploy the like gaming, healthcare and training, 6DoF is required.
chipset, with a process speed doubling that of Most of the newly released VR headsets in 2021
Snapdragon 835 in Quest 1. The XR2 enables 2x more employed 6DoF, and we expect the 6DoF function to
video bandwidth, 6x higher resolution, and 11x AI be a basic feature for VR in the future.
improvement. The strong performance has attracted
most of the major headsets makers including HTC, In inside-out positional tracking, the camera or sensors
PICO, DPVR, Lenovo, and Microsoft Hololens. are located on the headset being tracked (e.g. Oculus);
while sensors in the outside-in scenario are placed in a
Display: Fast-LCD is becoming mainstream stationary location (e.g. PSVR). We believe inside-out
The display in the HMD (head-mounted device) for VR is will be used for most VR devices for its mobility and
usually one or two pieces of LCD (liquid crystal display) flexibility, whilst outside-in will likely be used in specific
or OLED (organic light-emitting diode) panel, depending scenarios such as healthcare VR and console-powered
on the design of the device, although a dual display VR for its accuracy.
system is preferred as human beings have two eyes.
Although LCD and OLED are both applicable for VR
displays, the majority of recently announced VR models
have adopted LCD due to its cost advantage. OLED
display was first used on VR devices by Sony’s PSVR,
Oculus Rift, and HTC Vive due to its fast response time,
which reduces motion image blur significantly. However,
OLED is limited by its inadequate lifetime and higher
cost/lower yield for higher resolution. Normal LCD has
the characteristic of high resolution, high brightness,
long lifetime and low cost, but its response time is
~100x slower than that of OLED. As a result, LCD

Figure 21: Major VR specs

Best Sellers New release in 2021
Oculus Pico HP HTC DPVR
Brand DPVR P1 Pro 4K Valve Index Pico Neo 3 Nolo Sonic Huawei 6DoF
Quest 2 Neo 2 Reverb G2 Vivo Flow P1 Pro Light
Qualcomm Qualcomm Qualcomm Qualcomm Qualcomm Qualcomm Qualcomm
Processor
Snapdragon XR2 Snapdragon 845 Snapdragon XR1 Snapdragon XR2 Snapdragon 845 Snapdragon XR2 Snapdragon 821

Type Standalone VR Standalone VR Standalone VR PC-powered VR PC-powered VR Standalone VR Standalone VR Standalone VR Phone-powered VR Standalone VR

Display Type Fast LCD Fast LCD Fast LCD 2 x Fast LCD 2 x Fast LCD Fast LCD Fast LCD 2 x Fast LCD 2 x Fast LCD Fast LCD
Display Resolution 1832x1920 2048x2160 1920x2160 2160x2160 1440x1600 1832x1920 1920x2160 1600x1600 1600x1600 1280x1440
Refresh Rate 120 Hz 75 Hz 72 Hz 90 Hz 144 Hz 90 Hz 72 Hz 75 Hz 90 Hz 90 Hz
Optics Fresnel lenses Fresnel lenses Fresnel lenses Fresnel lenses Fresnel lenses Fresnel lenses
Optics 89° horizontal 101° horizontal 98° horizontal 101° horizontal
Field of View 100° diagonal 107° diagonal 107° diagonal 100° diagonal 90° diagonal 100° diagonal
93° vertical 101° vertical 90° vertical 90° vertical
Controllers 6 DoF 6 DoF 3 DoF 6 DoF 6 DoF 6 DoF 6 DoF 6 DoF 6 DoF 3 DoF
Tracking
Solutions Inside-out Inside-out Inside-out Inside-out Inside-out Inside-out Inside-out Inside-out
Weight
503g 670g 340g 498g 809g 620g 502g 189g 188 g 410g
(with headstrap)
Price
$299 $699 $349 $599 $499 $390 $470 $499 $620 $399
(with controllers)

Source: Credit Suisse

Global TMT Sector 23

AR’s Technology Roadmap rate and costs. Organic light emitting diodes on silicon
(OLEDoS), digital light processing (DLP), and liquid
Mark Zuckerberg called AR glasses “one of the hardest crystal on silicon (LCOS) are the three main pathways:
technical challenges of the decade.” Due to the complexity
of the architecture, the price of AR glass is still high, which (1) OLEDoS is fabricated on silicon wafers instead of
hinders penetration. For example, one of the products from glass substrates and polyimide substrates.
a leading industry player sells for US$3,500 and the majority
(2) DLP is a popular solution for projectors, using
of the users are enterprises. Unlike VR, in which most
micro mirrors (DMDs) which are positioned in a
components are becoming mainstream specs, AR makers
semiconductor chip to reflect light, and directs red,
are still exploring different architectures:
green, blue light to the imagers.
Display: DLP, LCOS, Si-OLED are mainstream and (3) LCOS technology is a variation of LCD technology,
MicroLED would likely be the ultimate solution separating light into red, green and blue
components and reflecting the light off the chip
AR glasses require compact and power-efficient
surface to LCD cells. A CMOS chip is under the
displays with very high contrast and brightness. We had
chip surface to control voltage on square reflective
a leap in AR display technology achieving these
aluminium electrodes.
objectives, yet there is still room to improve on the yield

Figure 22: Popular AR specs

Popluar AR glass

MAD GazeMAD Microsoft Xiaomi Smart Lenovo

Brand Rokid Glass 2 Magic Leap 1 Vuzix 4000 Dream Glass 4K INMO Air Nreal Light
Gaze Glow Plus HoloLens 2 Glasses ThinkReality A3

Qualcomm Qualcomm Snapdragon Quad-core ARM Qualcomm Snapdragon

Processor Amlogic S905D3 NVIDIA Parker SOC Quad-core ARM CPU Rockchip Mali T864
Snapdragon 850 XR1 CPU XR1

Type Phone-powered AR Standalone AR Standalone AR Standalone AR Standalone AR Standalone AR Standalone AR Standalone AR Phone-powered AR PC-powered AR
Display Type 2 x OLED LCOS 2 x Light engine DLP 2 x Micro LED 2 x OLED
Display Resolution 1920x1080 1280x720 1280x960 1440x936 854x480 640x480 1920x1080 1920x1080 1920x1080
Refresh Rate 122 Hz 60 Hz 50 Hz 60 Hz 60 Hz
Optics Birdbath optics Waveguides Waveguides Waveguides Waveguides Waveguides Curved mirrors Waveguides Birdbath optics Birdbath optics
Optics
Field of View 53° diagonal 40° diagonal 50° diagonal 52° diagonal 28° diagonal 29° diagonal 46° diagonal 52° diagonal
Tracking Controllers 6 DoF Inside-out 3 DoF 6 DoF inside-out 6 DoF inside-out 3 DoF 3 DoF 3 DoF 3 DoF 6 DoF inside-out 6 DoF inside-out
Weight
80g 96g 316g 556 g 51 g 185g 78g 41g 130g
(with headstrap)
Price
$599 $3,000 $2,295 $3,500 $2,499 $599 $349 $499
(with controllers)

Source: Credit Suisse

24
 Initially, LCOS was the major technology for AR, for the has two major downsides being light loss and double image.
high brightness, but it was not energy- or cost-efficient.
OLED has limitations with brightness; however, Curved mirror (adopted by DreamWorld and Leap Motion) is
breakthroughs in OLED material such as silicon substrate the cheapest see-through display technology. It is based on
bridged the gap. Therefore OLEDoS (OLED on silicon) is semi-reflective curved mirrors placed in front of the eye. The
now becoming the most popular technology due to its major advantage was the low cost because it works with
merits of higher contrast, power efficiency, thickness, LCD, but suffers from a high degree of distortion, low image
wider temperature range, and faster response time. resolution and less comfort.
Although there are still many hurdles to achieving mass
production, we believe micro-LED would be the ultimate Waveguide and micro-LED solutions are at the early stage; it is
solution for AR glasses due to its super-high brightness very difficult for this solution to be mass produced at a low cost,
and contrast, excellent temperature endurance, fast but companies such as Glo, VueReal, BOE, and AUO are
response time, and low energy consumption. investing heavily in micro-LED technology. With the
advancement of mirco-LED technology, we expect the solution
Optics: Waveguide becomes the major architecture will be adopted by most of the AR makers in the future.
The industry is developing two different approaches in
waveguide technology: For AR glasses, Meta has Project Nazare, its first AR
glasses that allow augmented reality overlays on the real
(1) Diffractive waveguides are considered the most
world. AR requires integration of hologram displays,
mature technology, used in HoloLens 2, Magic
projectors, batteries, radios, custom silicon, cameras,
Leap 1 and Vuzix M4000. A diffractive optical
speakers and sensors to map the world into glasses that are
element (DOE) or holographic optical element
5mm thick. It also introduced its Ray Ban Stories—which
(HOE) are used to inject the light over a small area
allows taking pictures or phone calls, listening to music, and
into the waveguide and extract it to the user’s eyes.
watching videos—at US$299.
The diffractive method disperses wavelengths, so
separate waveguides are used. Mainstream
Meta also has a Project Cambria for new high-end glasses.
products are leaning towards the use of two layers
With Project Cambria, Meta would integrate “high-resolution
of waveguides for thinner glasses.
coloured mixed-reality pass-through” glasses, which
(2) Reflective waveguide designed by the Israeli AR combine an array of sensors with reconstruction algorithms
company, Lumus, does not require nano photonics. to represent the physical world in the headset, with a sense
This methods employs a 1D or 2D semi- of depth and perspective. The representation on the display
transparent mirror along the optical path to guide with these innovations is finally getting closer to representing
the light to users’ eyes. what the eyes see in the physical world. For optics, the
company is developing pancake optics by folding light to
Birdbath is another solution for AR optics. It contains a achieve a slimmer profile than current lenses.
spherical mirror/combiner (part-mirror) and a beam splitter.
The method works like a birdbath in which it projects light Vuzix, an AR headset company founded in 1997, recently
from the OLED into the beam splitter, at a 45-degree angle unveiled its Vuzix Shield which contains battery, computer,
with the OLED light source plane. Lenovo Mirage AR and cameras and display projector in the temples of the glasses
ODG R9 were two examples adopting this method, but it but can be worn all day.

Figure 23: Each display technology excels in different Figure 24: LCD is the best technology for 2-3 inch
areas display
OLED LCD Micro Display
Item
(Glass base) (Glass base) (Silicon base)

Brightness ★★ ★★ ★★★
~1000cd/m2 ~1000cd/m2

Contrast Ratio ★★★ ★* ★★★

>100,100:1 >100,100:1

Resolution ★ ★★★ ★★★

Display Life ★★ ★★★ ★★★

Cost ★★ ★★★ ★

Yield rate ★★ ★★★ ★

*(can improve to ★★★ using local dimming technology)

Source: JDI, Credit Suisse Source: JDI

Global TMT Sector 25

 “ Semiconductors are becoming the
staples of the new data economy.

26
Semiconductors are a levered
metaverse play
Since 1977, the global population has grown 86% from 4.2 bn to 7.9 bn while per
capita chip units have grown ~70x from two to 146—a massive accomplishment
even before considering the integration of functionality per chip

In addition to rising entry barriers, slowing supply and a We argue that while data analytics is the most important
better demand mix increasing the global semi revenue area—if you can’t analyse, you can’t monetise—we also
CAGR from 3-5% to 6-8%, we see an additional 100-300 argue that each area is self-perpetuating: the more data you
bp of potential CAGR upside based on our view that semis can analyse, the more you want, which drives demand for
are the most levered play on the move to a data-driven data creation/capture which in turn drives demand for
economy. Relative to the semiconductor ecosystem, we storage and transmission. While our Data Thesis Paradigm
divided our data thesis into four separate areas: is now well understood by investors (we first introduced it in
2010), there is an important subtlety that is still under-
(1) Data creation/capture; recognised. Specifically, the first three areas of Create,
Store and Transmit have each benefitted from non-linear
(2) Data storage;
cost declines. Moore’s Law dictates that each year it is
(3) Data transmission; and cheaper to create/capture data and there is a Moore’s Law
equivalent in Storage called Kryder’s Law and for
(4) Data analytics.

Figure 25: Data paradigm Figure 26: Declining cost curves drive application
elasticity

Source: Credit Suisse Source: Credit Suisse

Figure 27: Chips per capita accelerating Figure 28: Semis have upside to ~8% of global market
cap
Indexed per Capita Sector % of Global Market Cap
Indexed Chips per Capita Indexed Barrels of Oil per Capita 25%
80 1.05 20%
60 15%
0.95
40 10%
0.85 5%
20
0 0.75 0%

Indexed Chips per Capita Energy Computer and software services

Indexed Barrels of Oil per Capita Tech hardware Semis

Source: Census.gov, Credit Suisse estimates Source: Company data, the BLOOMBERG PROFESSIONAL™ service,
Credit Suisse

Global TMT Sector 27

Transmission called Butter’s Law. Addressing the world’s most consequential challenges is
expected to require more not less silicon, and there are
It is our observation that declining cost/function always fewer companies with the IP and scale to produce silicon,
engenders new application growth and the elasticity of while those that can, continue to appreciate in value. Simply
application growth has historically grown TAMs (total put, semis are becoming the staples of the new data
addressable markets) to be significantly larger than anyone economy—albeit with higher growth, higher returns and yes,
could imagine at inception. The exception until recently has a higher level of cyclicality—but staples nonetheless.
been analytics, whose cost has mostly only ever increased
through the digital age due to the vast majority of data Since 1977, the global population has grown 86% from 4.2
created being unstructured and most analytic models bn to 7.9 bn while during that same time period, per capita
needing clean/structured data. It is for this reason that while chip units have grown ~70x from two to 146—a massive
data has delivered >50% CAGR for almost 20 years, 98%+ accomplishment even before considering the integration of
of the data the world creates remains dark. functionality per chip which is a hallmark of the semi
industry. During that same time period, per capita
We see AI as the first technology which holds the promise consumption of barrels of oil decreased ~10 pp.
of lowering the cost of analytics, and if our hypothesis is
correct, we see significant elasticity of application driving the In recent years, semis have increased from 1% of global
TAM for silicon. Defining the TAM for AI is difficult, but AI market cap to ~3%, and we see potential upside to ~8%
will be a technology that corporations use in order to drive between now and the end of the decade. Energy is still at
efficiencies. The three largest spends for corporations are ~6% and peaked in 1980 at ~22%.
COGS, opex and capex and it is interesting to highlight that
global spend in those three areas is ~US$45 tn/year—a
1% value capture by semis would imply US$450 bn in
incremental revenue against our CY21 semi revenue
forecast of ~US$500 bn.

Equally important, while AI would likely create brand new

TAMs for both silicon and software, it has the potential to be
disruptive/deflationary to existing TAMs in the economy: i.e.,
not only is semi absolute growth poised to accelerate, its
relative growth profile could be even more attractive. While
software stocks seem to embed the AI opportunity, semi
stocks do not.

28
Forecasts for CY22 and beyond services revenue of ~US$23 bn in CY22, growing to
~US$45 bn by 2030, ~9% CAGR and implying total CY30
After growing 26% YoY in CY21, we model semi revenue
SCE TAM approaching US$200 bn, ~2x CY21. Note that
growth of +15% YoY in CY22, well above consensus at 8-
these estimates are inclusive of TSMC’s CY4Q21 results.
10% YoY, but supported by ASPs which, even if only flat
By end market, we see the best CY22 growth in data-
with CY4Q21, would grow 7% YoY. We model CY23 semi
centre/cloud, auto, enterprise and wireless infrastructure
revenue at -5% YoY to reflect an inventory correction and
with more modest growth in infrastructure, handsets, and
modest ASP decline. We model CY30 semi revenue of
flat-to-down growth in PCs/CE. Longer term, data-centre,
US$1 tn, a 5.8% CAGR. After growing 41% YoY in CY21,
auto and industrial, each ~10% of semi consumption, have
we expect WFE (wafer fab equipment) to grow 15% in
the potential of doubling as a percentage of revenue by
CY22. We model WFE at -14% YoY in CY23 but see
2030.
CY30 WFE of ~US$150 bn, ~8% CAGR. We model SCE

Figure 29: Semi ASP leverage remains underappreciated Figure 30: ASPs flat w/ C4Q21 support ~50% of CY22
rev YoY
3YMA Semi ASP Semi Revenue y/y
$0.52 35%
30%
$0.50 -1% CAGR 25%
$0.48 +2% CAGR
20%
$0.46 15%
10%
$0.44
5%
$0.42 0%
$0.40 -5%
CY04

CY15
CY00
CY01
CY02
CY03

CY05
CY06
CY07
CY08
CY09
CY10
CY11
CY12
CY13
CY14

CY16
CY17
CY18
CY19
CY20
CY21E
CY22E
CY23E

-10%

Semi Units y/y Semi ASPs y/y Semi Rev y/y

Source: SIA, Credit Suisse estimates Source: SIA, Credit Suisse estimates

Global TMT Sector 29

 “ Telecom infra will provide the
backbone to deliver a smooth
Metaverse experience.

30
Metaverse rollout raises demand for
bandwidth
Even with modest Metaverse assumptions, data usage could easily expand more
than 20x during this decade

Streaming audio and video media are the primary-use cases with its high bitrate, makes up four-fifths of all consumer
of the consumer internet today, with consumers in the internet traffic on its own. (Video games are not specifically
developing world accustomed to spending a majority of measured by Nielsen, but generally use little data and
waking hours consuming some sort of media. American comprise only a mid-single-digit share of consumer internet
adults consume six hours a day of video (whether traffic.)
professionally produced TV and movies, or user-generated
content on Youtube or Twitch), just under two hours a day
of audio (primarily music, but also a small but growing share
of spoken word audio content), more than an hour of social
media and nearly four hours of other internet content. Video,

Figure 31: Nielsen’s digital metering shows 10+ hours a day of media use by American adults, led by video and
followed by audio and browsing
American Adults' Daily Hours of Media Use
14 12.1 12.6
11.3 11.5 11.6 11.9
12 10.2 10.2 10.3 10.5 10.7 10.3
9.9
3.8 3.7
10 2.8 3.1 3.1 3.6
2.7 2.6 2.7 2.5
8 3.0 3.2 3.4 0.8 1.1
0.7 0.8 0.9 0.9 1.1 1.1
0.8 1.8 1.8 0.8
1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.6
6 1.8 1.8 1.8
4
5.3 4.8 4.9 5.2 6.0 5.4 5.4 5.8 5.8 5.4 5.4 6.0 5.3
2
0
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20
Total Video Total Audio Total Social Networking Other Internet Total Media Use

Note: Not all media types available for all periods. Includes simultaneous multi-media usage.
Source: Company data, Nielsen Total Audience Reports (1Q17-3Q20), Credit Suisse estimates

Figure 32: The American Time Use Survey shows media use comprises two-thirds of all leisure time. (The ATUS
records primary activities so its lower-than-Nielsen media use is attributable to media use as a secondary activity,
such as listening to a show while doing chores.)
Sleep, Work/School, Eating/Chores, and Leisure Hrs/day Hours per day of Leisure Time - TV, Other Media, All Other
(note different scale)
25 12
5.25 5.18 5.21 5.37 5.26 5.30 5.21 5.13 5.24 5.27 5.19 10
20
8 5.25 5.18 5.21 5.37 5.26 5.30 5.21 5.13 5.24 5.27 5.19
15 6.09 6.19 6.03 5.88 6.06 5.87 5.96 5.97 5.88 5.88 5.91
6
10 3.99 3.97 4.04 4.03 3.94 4.01 3.99 4.10 4.07 4.03 4.07
4 1.71 1.74 1.72 1.79 1.74 1.71 1.69 1.70 1.73 1.71 1.68
0.72 0.71 0.74 0.75 0.75 0.77 0.74 0.70 0.74 0.72 0.70
5 8.67 8.67 8.71 8.73 8.74 8.80 8.83 8.79 8.80 8.82 8.84 2
2.82 2.73 2.75 2.83 2.77 2.82 2.78 2.73 2.77 2.84 2.81
0 0
'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Sleeping Work+School Eating, Chores, all other Leisure watching tv other media use all other leisure Leisure

Note: (1) All respondents aged 15+, weekdays + weekends. (2) ‘Other Media’ is reading, playing games, and computer use other than for games.
Source: Company data, BLS American Time Use Survey, Credit Suisse estimates

Global TMT Sector 31

XR places extraordinary demands on networks world as well as modelling, engineering and architecture
Extended reality (XR) technologies are a fundamental programmes such as Enscape. Current efforts such as
Oculus by Meta aim to push VR into headsets with
building block of the metaverse.
onboard computation capability that eliminate
console/PC dependency. Apple is widely speculated to
Virtual Reality (VR) combines visual inputs for each be introducing its standalone VR headset in 2022.
eye with positional tracking to present the user with a
sense of spatial immersion in the displayed world, Augmented Reality (AR) overlays images onto the
perhaps with haptic touch and even environmental real world, such as onto a transparent display surface.
feedback. VR experiences are typically currently AR applications include Niantic’s hit 2016 mobile game
delivered with a dedicated headset connected to a Pokémon Go and Snapchat’s Lenses feature which can
latest-generation console or high-end PC; they include modify users’ faces, bodies, or backgrounds. AR
AAA video games such as Fallout 4 VR and Half-Life: experiences are becoming widely available.
Alyx in which the player is fully immersed in the game

Figure 33: With high time spent and high bitrates, streaming video has become the primary driver of consumer
internet traffic
Estimated share of Global Consumer Internet Traffic Global Mobile Network Traffic by Application Type
100% 100% 100%
20% 4%4% 20% 13% 10%
1%3%1%
13% 28% 1% 3%2%
80% 80% 2% 1% 4% 7% 80%
6% 9%
4% 6%
3%
60% 60% 13% 13% 60%
10%
40% 80% 79% 40% 13% 77% 40%
69%
52%
20% 20% 20%
29%

0% 0%
0%
Fixed Mobile 2011 2016 2021E 2026E
Video Social Networking Software Update Web Browsing
Internet Video Web, Email, and Data
Audio File Sharing Other
Online Gaming File Sharing
Source: Company data, Cisco VNI 2018, Credit Suisse estimates Source: Company data, Ericsson, Credit Suisse estimates

Figure 34: Streaming video usage growth has driven consistent 30% per annual bandwidth usage growth, but
metaverse applications might substantially accelerate traffic needs over time
North America Consumer Internet Traffic, EB/Mo., and %Y/Y US per Household Wireline and Mobile Data Usage, GB/Mo
1,866
400
378
160% 2,000
1,496
350 140%
291 1,500
300 120% 1,215
250 224 100% 987
172 1,000 802 16.0x
200 80% 651
132 514 15.3x
150 102 60% 399 15.6x
77 500 280 326 15.9x
100 43 55 40% 130 171 221 16.3x
50 14 19 26
35
20% 17.1x 16.3x16.6x
1
18.2x19.6x 7.8x
0 0% 022.7x18.0x 98 117
6 9 12 14 18 23 31 39 49 62 78

Wireline Mobile
Source: Company data, Cisco VNI, Ericsson, US Census Bureau, Credit Suisse estimates

Figure 35: XR requires higher speeds and lower latency than browsing and streaming

300
Bitrate Requirements by Application
200 Mbps
300
Mbps+
200
35 25 50 25
100 80 128 850 1 7 0.7 1.5 5 2 Mbps
Mbps Mbps Mbps
kbps kbps kbps Mbps kbps Mbps Mbps Mbps Mbps
0
SD
High end

High end

Streaming

HD

High end

High end
Remote desktop

4K
Low end

Low end

Low end

Low end

Holograms
Web browsing

Music streaming Video Gaming Video AR VR

Source: Highspeedinternet.com, Restream.io, Credit Suisse estimates

32
 Mixed Reality (MR) combines features of both VR and gauge the environment and user activity.
AR, with manipulable fully 3D virtual objects anchored in
Nascent video game streaming services suggest an
real space, while hologram technologies such as the
interesting parallel for XR. Video games’ rendering work is
work of Lightfield Labs use a similar fully 3D data structure traditionally done on-device, so that the best-quality levels
but a very different display technology to present an actual require a powerful console or purpose-built PC with gaming-
image in real 3D space rather than merely the illusion of specific hardware. Video game streaming services such as
one to a user with a specialised headset. Google Stadia and Nvidia GeForce Now instead offload such
VR and MR experiences place high demands on both rendering tasks to a remote compute cloud—allowing the
devices and networks. Each eye generally has its own highest level of quality on weaker devices such as
separate display and the displays must be high resolution smartphones. Video game streaming has higher download
because they are so close to the eyes. Moreover, the requirements than streaming video (games require a higher
displays generally have a high refresh rate to avoid possible frame rate than video content’s 24 FPS to give a smooth
user motion sickness, typically with 72, 90, or 120 frames illusion of motion), and the services are also less latency- and
per second (FPS) compared to the 24 FPS norm for video loss-tolerant (to provide satisfying responsiveness to inputs).
content. Apple has also been speculated to have a third To an even greater extent than AAA video games, VR and
display to increase immersion, as well as several cameras to MR are highly computationally intensive. These experiences

Figure 36: Buffering—building a cache as data arrives, then playing it out evenly to provide a smooth stream—hides
latency, jitter and packet loss. This means that streaming video/audio user experience is generally little affected by
network quality.
Application network demands
Streaming Video Metaverse
Video Audio gaming On-device Cloud

Bandwidth needs High Low Low Moderate Very High

Latency tolerance High High Low Low Low

Loss tolerance High High Low Low Low

Device compute Low Low High High Moderate

Edge/cloud compute Low Low Moderate High Very High

Source: SIA, Credit Suisse estimates

Global TMT Sector 33

can still be delivered on simpler, lighter, and cheaper end- For metaverse (network) extended-reality compute to be
user devices if computationally intensive tasks can be offloaded, the entire process must be shortened so that
offloaded to a cloud compute instance. To the extent this is input from the user device, a network trip, processing by the
possible, it would drive down the cost of XR devices and service, a return network trip and drawing the output on the
allow mass adoption. Verizon has estimated that any more user device fits in the 20ms time taken by a single network
than 20ms of motion-to-photon (total stack) latency causes trip today. This would require driving down network latency
many users to become nauseated; for comparison, well-built significantly from the current ~20ms levels with careful
wireline broadband networks today typically have 20ms of network engineering, relying on the capabilities of low-
network latency alone, and typical LTE latencies are 3x latency DOCSIS and 5G.
higher.

Figure 37: Even with modest metaverse assumptions, data usage could easily expand more than 20x during this
decade—and metaverse traffic cannot buffer like streaming video
Household data diet: Indicative metaverse data consumption
Daily Monthly
Notes and assumptions
usage usage
2022
Video usage (hrs) 15.0 450.0 Indicative 6 hrs/adult/day and 2.5 members per HH
GB/hr 1.4 1.4 SD is 700MB, FHD is 3GB
Video usage, GB 21.3 640.0

All other data 5.3 160.0 Web browsing, audio streaming, gaming

Total data usage 26.7 800.0

2032
Metaverse usage, hrs 5.0 150.0 1/4 of all video usage
GB/hr 112.0 112.0 Two streams each 8K 120Hz (8 times higher than 4K 60Hz bitrate)
Metaverse usage, GB 560.0 16800.0

Video usage, hrs 10.0 300.0 Conservatively 1:1 substitution (no increase in total media consumption)
GB/hr 7.0 7.0 Assumes average video content consumed is 4K
Video usage, GB 70.0 2100.0 3.3x, or 13% CAGR

All other data 13.8 415.0 2.6x, or 10% CAGR

Total data usage 643.8 19315.0 24.1x, or 37% CAGR

Source: Company data, Credit Suisse estimates

Figure 38: 6G to perhaps provide wireless networks with greater metaverse capabilities, but deployment timeframes
to lag fixed networks
Mobile technology generations
Typical DL Spectral
Year Latency
Gen. speed efficiency Use cases
introduced (ms)
(mbps) (bps/Hz)
1G 1979 0.002 0.5 1,000 Analog voice
2G 1991 0.1 1.3 600 Digital voice, SMS
3G 2001 8 2.6 65 Email, basic browsing, early IoT

4G 2009 30 4.3 50-60 Streaming video and audio, ride hailing/maps, rich social networking

4.5G 30-50 Consistent streaming video and audio experience, augmented reality,
2014 100 15
(LTE-A) 10 (theor.) fixed wireless access
21-26
5G 2019 300 30 Better streaming media, virtual reality, massive IoT
1 (theor.)
6G 2029? 1,000+ 100+ ??? VR, mobile metaverse, massive digital twinning

Source: Company data, CTIA, Credit Suisse estimates

34
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Global TMT Sector 35