Apple's rumored discontinuation of its AR glasses project would be a massive blow to the consumer AR headset market (AAPL)

The report claims Apple's AR hardware development team was disbanded and transferred to other project lines in May, and suggests thediscontinuance was linked to Microsoft HoloLens co-creator Avi Bar-Zeev's departure from Apple's AR glasses development team in January.

Although Applehas never confirmed the hardware project, it's been an open secret and documented since 2016.In addition to the growing number of AR headset-focused acquisitions Apple's made over the years, it was reported in 2016 that the company had been exploring a digital glasses product and was already in talks with potential suppliers.

Rumors continued to mount in 2017 when it was confirmed that Apple was working with optics manufacturer Carl Zeiss to create a pair of lightweight AR glasses; an Apple patent application referring to the tech also surfaced ,having originated from Metaio, an AR startup Apple had purchased two years prior. In the subsequent two years, more evidence has emerged suggestingproduction would go into effect as early as the end of this year, with a launch targeted for 2020.

News of the AR glasses' project disbanding doesn't align with Apple's bullish stance on AR which raisesa number of questions about Apple's intentions and how this move will affect the AR industry.Apple CEO Tim Cook has repeatedly stated that he sees AR as an idea "as big as the iPhone" and that he plans to position Apple as the world's biggest AR platform. Here's our take on the top three questions from this news:

Why would Apple suspend the development of AR headsets? And why now?

It's not the right time given the device's target audience of consumers.While the headset market is maturing, it's largely being driven by enterprise adoption. Apple's AR headset ambitions likely revolved around the consumer market, which is still in its infancy. Business Insider Intelligence expects only slight movement on this in the years ahead: Shipments of consumer AR headsets are expected to reach just 2.5 million units in 2024, while consumer virtual reality (VR) headset shipments will top 22 million units by then. And while Apple has moved the needle in a number of markets in the past, the tech giant may have struggled to identify an AR glasses design that would resonate enough with consumers to spur uptake and push the tech into the mainstream.
The company may not be ready to launch another device segment.Apple has had a hard run with its secondary devices lately, compared with the iPhone's massive success. For example, the Apple Watch is very popular with early tech adopters, but that need-to-have sentiment hasn't extended to all consumers. A big reason for this is the Apple Watch shares many of the same features as the iPhone, making the two devices somewhat redundant. Because the iPhone already boasts AR tech, Apple may foresee a similar fate for AR glasses. This, combined with the fact that Apple's core smartphone business has been under fire as of late as shipments continue to tank, suggests it's not in the firm's best interests to launch a costly venture that's not guaranteed to succeed.

Where will Apple go from here?

We believe Apple will continue to develop AR as a core technology for the iPhone rather than launch a separate product for the tech, if the rumors are true. Apple is primarily a smartphone company, and likely envisions remaining one for the foreseeable future.

AR fits perfectly within Apple's smartphone-centric vision, as it makes the device more essential to everyday living and caters to a more social experience. Thus, it would make sense for the company to utilize the tech as a selling point for new iPhone models rather than offering a separate wearable device that would offer less varied use cases and could cast a shadow over the shrinking iPhone business. Going forward, Apple will likely focus on enhancing the iPhone's camera and processor to support more advanced, value-adding AR-enabled apps and services.

What would Apples pivot mean for the broader industry?

Apple's rumored AR headset development suspension would topple consumer AR headset shipments forecasts. The industry was likely betting on Apple to be the catalyst that tips consumer adoption given the "Apple effect," which is a noticeable uptick in device and tech adoption whenever Apple launches a new iteration of existing technology. Additionally, the company's retreat may discourage other companies from developing their own AR hardware.