Although Taiwan has the hardware manufacturing capabilities to thrive in the extended reality sector, the technology has yet to see widespread adoption.

With its penchant for techno-industrial policy, the Taiwanese government included the extended reality (XR) sector as part of its ambitious Asia Silicon Valley development plan launched in 2016-2017. XR is an umbrella term encompassing all immersive technologies — virtual reality (VR), augmented reality (AR), and mixed reality (MR) — that merge the physical and digital worlds.

Technology executives and investors expected rapid mainstream consumer adoption of XR. This expectation was part of what inspired Facebook to rebrand itself as Meta. The social media giant foresaw itself at the center of a “metaverse,” a 3D virtual universe that would become the next iteration of the internet.

In May 2022, then-President of Taiwan Tsai Ing-wen attended the launch of XR Hub Taiwan, a partnership with Meta designed to foster metaverse development and hardware integration. “As augmented reality and virtual reality flourish, Taiwan will become not only an important stronghold for the metaverse team, but also a key hub for driving global innovations,” Meta Chief Product Officer Chris Cox said in a video presentation at the launch.

While the Meta name has endured, the metaverse has not come to fruition. On March 17, Meta announced that it would shut down the VR version of its Horizon Worlds social network by June 15. Though the company backtracked somewhat after user backlash to the decision (the VR version will remain accessible for existing worlds, but no new games will be added to the social network), Meta is pivoting from an AR/VR focus to AI. AI-related projects account for much of the US$115 billion to US$135 billion in capital expenditures allocated for this year.  

The AI spending spree of American tech giants has directly benefited Taiwan’s contract electronics manufacturers, but the shift away from XR consumer devices has implications for companies that had been betting on massive headset sales by now. Slow growth in the consumer XR segment is pushing Taiwanese manufacturers to diversify away from mass-market consumer headsets toward higher-margin enterprise and industrial applications.

In industries like healthcare and smart manufacturing, Taiwanese companies are leveraging their technology acumen to focus on high-end components, such as micro-OLED displays and waveguide optics. Optical waveguides transport light at different optical frequencies — often in the infrared range — and are frequently used to route or control optical signals.

In the XR sector, Taiwan’s mature hardware supply chain, combined with its positioning as a non-Chinese supplier, is a key competitive strength, says Emerson Hsieh, an analyst at Taipei-based market intelligence firm TrendForce. Taiwan “has long-term partnerships with global technology leaders, providing strong credibility and trust,” he adds.

At a more granular level, Taiwan’s competitive strengths in the XR industry are concentrated in two areas: critical component supply and highly mature electronic manufacturing services (EMS) integration and assembly capabilities, analysts say. “As Taiwanese firms have long specialized in core components such as optics, displays, sensors, and Printed Circuit Boards (PCBs), they have built up stable mass production capabilities and extensive quality control experience,” Su Horng-shiunn, an industry analyst at the Taipei-based semi-governmental Market Intelligence & Consulting Institute (MIC), told Taiwan Business TOPICS. “As a result, they are well positioned to support AR/VR devices in achieving lightweight design, high-performance, and low-power consumption.”

Healthcare opportunity

Healthcare is one of the most promising sectors for Taiwan’s XR manufacturers. Research firm Mobility Foresights estimates that Taiwan’s AR/VR healthcare market will grow at a 24% compound annual rate from US$2.9 billion in 2025 to US$10.7 billion in 2031. Propelling this growth is increasing demand for immersive training, advanced surgical visualization tools, and patient-centric therapies.

“As AR and VR technologies mature and become more cost-effective, their adoption will expand across [Taiwan’s] hospitals, rehabilitation centers, and medical education institutions,” the research institute predicts.

In October 2024, the National Science and Technology Council announced that Taiwan had developed a light field AR display technology for smart medicine that allows for precise overlaying of a digital twin of an organ onto the real human body. The researchers at National Taiwan University Hospital who developed the technology say that it will eventually enable surgeons to visualize the inside of the human body without relying on radiation-based medical imaging, “ensuring accurate organ positioning,” the technology supply-chain newspaper DigiTimes said. Initially the technology will be applied to gallbladder drainage procedures.

A January report published by the English-language Taiwan Current News notes that hospital training in Taiwan is increasingly adopting AR and VR tools. “Evidence from [Taipei’s] Shin Kong Wu Ho-Su Memorial Hospital shows that trainees perform better after VR-based instruction, with measurable gains in test scores, underscoring how immersion enhances competence where traditional methods often fall short,” the report says.

The Hsinchu-based semi-governmental Industrial and Technology Research Institute (ITRI) notes that Taiwan has also integrated AR technology into surgical navigation and clinical operational settings. As an example, ITRI cites the Caduceus S AR Spinal Surgery Navigation System developed by Taichung-based manufacturer Surglasses, which combines pre-operative or intra-operative medical imaging with navigation planning. By utilizing an AR headset, it overlays anatomical structures and surgical pathways directly within the surgeon’s field of view. This assists surgeons in identifying critical structures during surgery, enhances positioning accuracy, and helps reduce both radiation exposure and surgical risks.

“The system has successfully obtained U.S. FDA 510(k) clearance as well as Class II medical device approval from the Taiwan FDA (TFDA), demonstrating that Taiwanese manufacturers now possess the capability to bring AR surgical solutions to the global market,” ITRI analyst Anthony Chen tells Taiwan Business TOPICS.

The AI angle

Looking ahead, industry analysts expect that the continued ascendancy of AI could provide new opportunities for Taiwanese manufacturers in the XR sector. ITRI analyst Chang Hung-yi notes that the rise of AI has shifted the positioning of AR/VR products from display or entertainment devices toward “smart assistants” capable of situational awareness, real-time comprehension, and interaction. This shift has also fueled the recent wave of AI smart glasses.

For the next generation of XR devices, competition is no longer limited to visual rendering quality, Chang says. Instead, it centers on the ability to understand the surrounding environment — leveraging cameras, microphones, sensors, and on-device computing power — and to respond to user needs in real time.

Market trends reflect this shift, particularly the rise of lightweight, wearable AI smart glasses. This market is growing faster than that of traditional AR/VR headsets. As the market matures — and if AI smart glasses eventually acquire the capability to replace certain smartphone functions — the market size for related display panels is projected to expand to a scale comparable to that of smartphone display panels. “Given that Taiwan’s competitiveness in the global mobile phone display market has become relatively limited, AI smart glasses present a timely opportunity to re-enter the supply chain for personal mobile devices,” Chang says.

For Taiwan, the largest opportunity lies not in focusing on end-product brands, but rather in leveraging its existing technology hardware strengths: semiconductors, sensors, low-power computing, optics, and display manufacturing. By doing so, Taiwan can develop “Edge AI XR” platforms equipped with on-device computing capabilities. 

Some of Taiwan’s largest contract electronics manufacturers are moving into the AI smart glasses segment. In December 2024, iPhone assembler Hon Hai Technology Group — commonly known as Foxconn — announced a partnership with Porotech to enter the AR glasses market. A UK-based company with a branch in Hsinchu, Porotech specializes in MicroLED and gallium nitride (GaN) material technology. 

In December 2025, Taiwan’s Pegatron (also a major Apple supplier) announced it would partner with Texas-based AR company Magic Leap to collaborate on the production of components for AR glasses. Under the agreement, Pegatron will mass-produce Magic Leap’s AR components, including its industry-leading waveguides. These ultra-thin lenses transport digital light from a projector into a user’s eye to create AR visuals.

“By combining our optical and systems expertise with Pegatron’s manufacturing depth, we’re creating a clear path to bring AR components to market at scale,” Jade Meskill, senior vice president of Product and Partner Development at Magic Leap, said in a news release.

“This collaboration reflects the growing maturity of the AR ecosystem,” Pegatron vice chairman Jason Cheng said in the news release.

Genius Electronic Optical Co., which supplies camera lenses for iPhones, is especially bullish about smart glasses. In a November 2025 earnings call, CEO Jones Chen said that smart glasses are poised to become the next personal computing platform after smartphones. Chen noted that while the VR market has been tepid, demand is strong for smart glasses across the consumer, industrial, healthcare, and education sectors — driven by fast AI development. 

MIC’s Su says that the convergence of AI and smart glasses presents an opportunity for Taiwan’s EMS providers to move up the value chain. Beyond traditional assembly and manufacturing, some firms are already developing reference designs and system-level solutions. Going forward, EMS providers can further integrate AI functionalities, such as voice assistants, environmental sensing, and image processing modules, directly into device architectures, Su says. Chang urges Taiwan not to limit itself to hardware supply. Instead, it should integrate natural-language processing, machine learning, spatial reasoning, and vertical-specific applications, he suggests. “By prioritizing entry into markets with strong export potential — such as healthcare, manufacturing, and education —Taiwan can establish a pivotal position within this new wave of industrial upgrading driven by the convergence of AI and XR technologies,” he says.