Desperate to exit, a $10B price tag for Magic Leap is crazy

Augmented reality headset maker Magic Leap has struggled with the laws of physics and failed to get to market. Now it’s seeking an acquirer, but talks with Facebook and medical goods giant Johnson & Johnson led nowhere according to a new report from Bloomberg’s Ed Hammond.

After raising over $2 billion and being valued between $6 billion and $8 billion back when it still had momentum, Hammond writes that “Magic Leap could fetch more than $10 billion if it pursues a sale” according to his sources. That price seems ridiculous. It’s the kind of number a prideful company might strategically leak in hopes of drumming up acquisition interest, even at a lower price.

Startups have been getting their valuations chopped when they go public. The whole economy is hurting due to coronavirus. Augmented Reality seems less interesting than virtual reality with people avoiding public places. Getting people to strap used AR hardware to their face for demos seems like a tough sell for the forseeable future.

No one has proven a killer consumer use case for augmented reality eyewear that warrants an expensive and awkward-to-wear gadget. Our phones can already deliver plenty of AR’s value while letting you take selfies and do video chat that headsets can’t. My experiences with Magic Leap at Sundance Film Festival last year were laughably disappointing, with its clunky hardware, ghostly projections, and narrow field of view.

Apple and Facebook are throwing the enduring profits of iPhones and the News Feed into building a better consumer headset. Snapchat has built intermediary glasses since CEO Evan Spiegel thinks it will be a decade before AR headsets see mainstream adoption. AR rivals like Microsoft have better enterprise experience, connections, and distribution. Enterprise AR startup Daqri crashed and burned.

Magic Leap’s CEO said he wanted to sell 1 million of its $2300 headset in its first year, then projected it would sell 100,000 headsets, but only moved 6,000 in the first six months, according to a daming report from The Information’s Alex Heath. Alphabet CEO Sundar Pichai left Magic Leap’s board despite Google leading a $514 million funding round for the startup in 2014. Business Insider’s Steven Tweedie and Kevin Webb revealed CFO Scott Henry and SVP of creative strategy John Gaeta bailed in November. The company suffered dozens of layoffs. It lost a $500 million contract to Microsoft last year. The CEOs of Apple, Google, and Facebook visited Magic Leap headquarters in 2016 to explore an acquisition deal, but no offers emerged.

Is AR eyewear part of the future? Almost surely. And is this startup valuable? Certainly somewhat. But Magic Leap may prove to be too little too early for a company burning cash by the hundreds of millions in a market newly fixated on efficiency. A $10 billion price tag would require one of the world’s biggest corporations to believe Magic Leap has irreplicable talent and technology that will earn them a fortune in the somewhat distant future.

The fact that Facebook, which does not shy from tall acquisition prices, didn’t want to buy Magic Leap is telling. This isn’t a product with hundreds of millions of users or fast-ramping revenue. It’s a gamble on vision and timing that looks to be coming up snake eyes. It’s unclear when the startup would ever be able to deliver on its renderings of flying whales and living room dinosaurs in a form factor people actually want to wear.

 

One of Magic Leap’s early renderings of what it could supposedly do

With all their money and plenty of time before widespread demand for AR headsets materializes, potential acquirers could likely hire away the talent and make up the development time in cheaper ways than buying Magic Leap. If someone acquires them for too much, it feels like a write-off waiting to happen.

US is preparing to ban foreign-made drones from government use

The Trump administration is preparing an executive order to ban federal departments and agencies from buying or using foreign-made drones, citing a risk to national security, TechCrunch has learned.

The draft order, which was drafted in the past few weeks and seen by TechCrunch, would effectively ban both foreign-made drones or drones made with foreign components out of fear that sensitive data collected during their use could be transferred to adversarial nation-states. The order specifically calls out threats posed by China, a major hub for drone manufacturers that supply both government and consumers, with the prospect that other countries could be added later.

The order says it’s government policy to “encourage” the use of domestically built drones instead.

If passed, federal agencies would have a month to comply with the order, it said. But the military and the intelligence community would be granted broad exemptions under the draft order seen.

When reached, a spokesperson for the White House did not comment.

It’s the latest move to crack down on Chinese-built technology, amid fears that Beijing is using its authority and influence to compel companies to spy at its behest. Huawei and ZTE among others have faced bans from operating inside the U.S. government, despite protests from the companies, which have long rebutted claims that they pose a risk due to their Chinese connections. Beijing responded in kind by banning from its state offices U.S. and other foreign-made technology.

The U.S. government’s prevalent use of predominantly Chinese-made drones has come under more intense scrutiny in recent months. In January, the Dept. of the Interior issued an order grounding its fleet of close to 800 foreign-made drones, except for in emergencies, amid concerns that any data collected would be “valuable” to U.S. adversaries.

But an email seen by TechCrunch dated July 2019 appears to show internal disagreements about the risks of using foreign-made drones, just months before the grounding order would come into force. Interior’s chief information officer William Vajda said in an email to two senior staffers that the department’s drone program “understands the risks” of foreign-made drones and has “taken appropriate steps to mitigate them.”

“The only more effective mitigation would be to use exclusively U.S. manufactured, non-foreign technologies,” he wrote.

Most of the department’s fleet is built by China-based manufacturers — including DJI — which stands to lose the most if the order is signed. DJI supplies some 70% of the world’s drones in a market said to be worth about $15 billion by the end of the decade.

A spokesperson for the Dept. of the Interior said the department was working to “further assess the risks” of foreign-made drones.

DJI spokesperson Michael Oldenburg said in a statement: “While we haven’t seen the document, this proposal is another attack on drone technology based on its country of origin, which recent reporting has shown has been criticized within federal agencies including the U.S. Department of Agriculture, Department of the Interior, Fish and Wildlife Service and even the White House Office of Management and Budget.”

“When communicating among themselves, these agencies’ officials have explained how such an approach damages American interests and does not solve any cybersecurity issues, and have acknowledged that DJI’s products have been validated as secure for use in government operations,” the spokesperson said.


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