Microsoft's $22 billion AR headset deal with the U.S. Army could be in serious trouble

In March 2021, Microsoft announced it'd secured a contract to produce augmented reality headsets for the U.S. Army. The deal was valued at approximately $22 billion.

Since then, a lot has changed. The Integrated Audio Visual System (IVAS) project (the codename for the military-attuned HoloLens variant being developed) has seen delays, and the division within Microsoft responsible for the device is reportedly not in a good place, what with HoloLens 3 being canceled and teams unsure of their company's overall augmented reality strategy. All this has been happening against a backdrop of augmented reality experts hopping ship from Microsoft to Meta and other competitors, no less.

Now, in a new Insider report, it's detailed that delays were just the tip of the iceberg. Microsoft's IVAS ambitions apparently aren't going well, with some people "close to the project" fearing that the Army will ditch the deal altogether due to its current state.

The report indicates that Microsoft expects negative feedback on its submissions to the Army, knowing its IVAS units aren't where they need to be to please the customer. Congress also recently cut the contract's procurement funding, putting almost half of it "on hold," further impacting the stability of an already troubled deal. The amount left available to Microsoft, $405 million, is not enough for the company to recover its costs on what's being produced.

IVAS is due for field testing in May, so a negative outlook ahead of smaller testing events is less than ideal.

At the end of the report, it's noted that Alex Kipman, the creator of HoloLens, hasn't been happy with Insider's articles exposing internal dynamics at Microsoft, even though he publicly said "don't believe what you read on the internet" in response to those very same articles.