Opportunities being created by the 5G evolution
5G is the key technology to a more connected world and is set to both facilitate and accelerate the development and adoption of innovative technologies.
Over the last decade the development of new applications such as the smartphone, social media and video streaming has been supported by the deployment of 4G networks. Whilst 4G was a notable improvement on 3G, 5G has been engineered to be optimised for a data centric network, rather than a voice centric network with a data overlay.
The initial rollouts of 5G have begun already and will likely take several years to complete at a significant cost to the mobile telecommunications service providers. Meanwhile, we have noted that they are not demanding a huge (if any) premium for their customers to access 5G and at the same time are offering subsidies to customers to take new handsets that are 5G enabled. This supports our view that technology cycles such as this are not that lucrative for these mature companies.
That said, there are some areas associated with 5G infrastructure, outside of the telecommunications sector, that we see opportunities in. One such example is American Tower, the provider of real assets infrastructure that 5G operators base their equipment on as they build out their networks. American Tower can be thought of as the landlord and the carriers as their tenants.
As an active investor however, we really believe that the main winners are likely to be what we call the "beneficiaries of 5G", as well as some of the innovative semiconductor companies.
Many of the “beneficiaries of 5G” have benefited from previous 3G and 4G cycles but will see a further expansion in opportunities with 5G. The reality is that the more you improve the overall convenience for customers to use products and services, the more they will consume.
With that in mind, we are aware of several opportunities, such as within video communications, video gaming, augmented or virtual reality, e-commerce and cashless payments. Companies such as Activision Blizzard, the video game developer behind the Call of Duty and World of Warcraft franchises, or Zoom Video have recently had success with their products and services, and the ability to provision these over a 5G network will likely make the consumer experience even better.
With 5G infrastructure already being deployed, we anticipate a healthy adoption of new 5G handsets such as the recent launches from Apple. This is positive news for companies that supply semiconductors to the telecommunications equipment and smartphone market. This includes companies such as Marvell Technology, a provider of chips that go into high speed networking equipment that is an important element of 5G networks.
Another name that we like in this area is Qualcomm, a leading provider of semiconductors that are used to enable the connectivity of smartphones with the network. While the smartphone market has been historically a large driver of Qualcomm’s revenues, the potential for 5G to penetrate other opportunities such as automotive, smart factories and the internet of things, means that their addressable market could be poised to expand in the coming years.
It is forecast that by 2023 there will be 30 billion connected devices worldwide, with 45% of these being mobile. For this forecast to become reality, companies like Taiwan Semiconductor, the world’s leading semiconductor foundry business, will see more demand for their manufacturing services.
Ultimately, we view 5G as being another evolution in communications standards but an important one given the nature of its data-centricity.
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