A Facebook parent is in talks with Magic Leap about an augmented reality deal

Facebook parent company is in talks to create a multiyear agreement with augmented reality company Magic Leap, as the social media giant continues to pour billions of dollars into its ambition to create an online world full of avatars called Metaverse.

According to people familiar with the early discussions, Meta is exploring ways Magic Leap can provide both intellectual property licensing and contract manufacturing in North America to help it build its flagship AR products.

Magic Leap produces custom components, including high-tech lenses and associated software, that are some of the key technologies that would be required to build the metaverse. However, people familiar with the talks said the partnership is not expected to result in a specific joint Meta-Magic Leap headset.

Two former employees said Magic Leap’s “biggest asset” was the development of its “waveguides” — technology that allows thin glass in front of a user’s eyes to evoke realistic images at different depths.

Meta declined to comment. Magic Leap did not confirm the talks, but said the partnerships have become “an important line of business and a growing opportunity for Magic Leap.”

Facebook’s parent interest in augmented and virtual reality comes as Apple prepares to unveil its own “mixed reality” device next month, with both Big Tech groups betting that the headset will provide a new, lucrative computing platform for competing mobile devices.

Meta, which has a market capitalization of $612 billion, has faced growing investor frustration with CEO Mark Zuckerberg’s $10 billion-a-year investment in the metaverse project, which will likely take years to turn a profit.

The reverse push continued even as the company was hit by tough macroeconomic conditions and a dip in advertising, prompting Zuckerberg to order restructuring and layoffs for about 20,000 employees, as part of what he called his “efficiency year.”

Meta’s interest in working with Magic Leap also comes as Silicon Valley faces mounting pressure to reduce its reliance on China for hardware manufacturing — an issue that’s becoming more relevant for the social media company as it turns its attention to VR and AR headsets as part of its metaverse vision.

Founded in 2010 and headquartered in Florida, Magic Leap is among the augmented reality startups to fund, initially generating buzz and raising more than $3.5 billion in multiple rounds led by the likes of Google, Alibaba and Qualcomm.

After the Magic Leap 1 headset, released in 2018, sold only in the thousands, the 1,200-strong company shifted focus from consumers and shifted exclusively to enterprise applications.

In 2020, Magic Leap explored a sale, including some interactions with Facebook that led nowhere. Another longstanding investor, the Public Investment Fund of Saudi Arabia, acquired a controlling stake of more than 50 percent of the company in 2021.

CEO Peggy Johnson, who oversaw Magic Leap 2’s release last September, noted in a recent company blog post the new revenue stream, saying it has “received an incredible amount of interest from across the industry for our IP licensing and use of our patented manufacturing process.” An invention to produce optics for others seeking to release their own mixed reality technology.”

In association with contract manufacturer Jabil in Mexico, Magic Leap also has the capacity to assemble headphones in the tens of thousands per year.

The company told the Financial Times: “Due to the intricacies of developing true augmented reality technologies and the complexities involved in manufacturing these optics, as well as the issues many companies have with external supply chain dependencies, we have entered into several non-exclusive IP licenses and manufacturing partnerships with companies that It is looking to enter the augmented reality market or expand its current position.”

Meta sells nearly 80 percent of all VR/AR headsets, thanks to its VR Quest models. But the market itself is small — fewer than 9 million units were sold last year, according to IDC — which is poor progress given Apple’s expected entry into the market during its developer conference next month.