What 5G means for productivity and growth – The Australian Financial Review


Analysis

Fifth generation cellular network technology is the next step in the evolution of digital communications. Faster transfer of data, lower latency, reduced congestion and increased connectivity are just some of the improvements 5G will bring.

According to GSMA, in 2018, mobile technologies and services generated US$3.9 trillion of economic value which equates to around 4.6 per cent of GDP. GSMA estimates that the economic contribution of mobile technology will increase by almost $US850 billion by 2023 and 5G will contribute $US2.2 trillion to world GDP by 2034.

We believe5G will not only facilitate the population’s voracious appetite for data, it will accelerate our consumption and pave the way for seamless connectivity and improve productivity worldwide.

Huawei has filed 1,975 5G patents, more than Qualcomm and Intel put together. Karl Hilzinger

The US and South Korea launched 5G commercially at the end of 2018 with 16 more countries launching during 2019. The Chinese government has awarded 5G spectrum licenses to all three telecommunications companies in order for them to conduct trials before commercial roll-out in late 2019. However, the majority of 5G deployments will happen after 2020, and will be dependent on 3GPP (3rd Generation Partnership Project) standards.

Huawei is an essential and integrated part of 5Gas the company holds a substantial amount of 5G patents. Equipment vendors generally adopt a cross-licensing model which makes itvery difficult to exclude Huawei from 5G network participation. The company has filed 1,975 5G patents, more than Qualcomm and Intel put together.

As the technology rolls out, it will enable applications such as: virtual and augmented reality; ultra-high speed video; high density internet of things; autonomous driving; and smart cities.

According to Credit Suisse, global wireless capital expenditures are expected to be around $US500 billion between 2018 and 2020. However, this is dependent on the level of coverage that operators choose to have.

Most mobile networks were built starting from places of affluence before expanding regionally. Many 5G applications will have significantly different requirements and coverage will likely be a function of monetisation opportunities in specific countries and regions, with China showing the greatest level of investment.

Furthermore, additional and higher frequency spectrum requires more sophisticated designs in radio frequency components, including antennae, amplifiers, filters, switches and basebands. 5G base stations are far more efficient than 4G.

Internet of things

With the power of 5G technology, the internet of things (IoT) phenomenon will likely grow exponentially. GSMA estimates that most of the value of IoT from now through to 2025 will come from applications, platforms and services which will increase by roughly $US600 billion.

5G is the first wireless technology with high throughput, low latency and high reliability to replace wireline connectivity in factories. Consequently, industrial IoT will also likely see robust growth as manufacturers move towards a leaner cost structure, digitalisation and flexibility in processes and production through methods such as condition-based monitoring.

ABI Research estimates that by 2025 there will be around 90 million condition-based monitoring connections. Over time, enhanced IoT will lead to the evolution of smart cities which we believe will likely enhance productivity.

Win Semiconductors

Taipei-listed Win Semiconductors is the largest gallium arsenide (GaAs) foundry with 60 per cent global market share. GaAs has superior electronic properties over silicon which makes it the best power amplifier for use in radio frequency devices such as smartphones, WiFi routers and industrial IoT components.

Risks to the thesis include a continuation of trade tensions between the United States and China.

The investment cycle for 5G base stations has already started. The company’s infrastructure business may profit from “mmWave” implementation as the company offers gallium nitride (GaN) technology for high power amplifiers which is more efficient and provides better performance.

Additionally, radio frequency content could rise up to 50 per cent from the 5G smartphone in addition to double the amount of filters and switches. The stock trades at 21.4 times 2020 earnings on our estimates and has a 5-year earnings per share compound annual growth rate of 17 per cent.

We firmly believe that much of the opportunity in emerging markets is underappreciated or gets overlooked by other managers due to their index orientation and capacity.

John M Malloy Jr is the the co-head of emerging and frontier markets for RWC Partners

Most Viewed In Markets

Read More

LEAVE A REPLY

Please enter your comment!
Please enter your name here