Positioning your investment portfolio for the coming 5G revolution

Despite global economic and geo-political headwinds, 2019 proved to be an outstanding year in terms of performance for almost all asset classes.


While no one can say with certainty how the market will perform in 2020, one thing is certain – 5G has outgrown its tag as a buzzword and rollout is set to begin in 2020 and this investment thesis will likely take centre-stage over the coming decade.


The history of wireless telecommunications

Taking a step back into history, the first generation of wireless cellular networks or 1G was launched in 1979 by Japan’s Nippon Telegraph and Telephone (NTT). Being a novel product of its time, it sold millions of units in spite of a hefty price tag of close to $4,000 per unit.

At the time, 1G networks only supported analog voice transmission. Which meant that even though people were connected, it was expensive and the reliability of the network was also in its infancy, with calls getting dropped regularly.

This did not hold back the overwhelming success of 1G, paving the way for the second generation or 2G networks which saw the advent of more stable and secure digital transmissions, and also supported SMS and MMS. This led to mass adoption by consumers and businesses. 3G delivered on the potential of personal mobile computing where, for the first time, users were able to access data from almost any location in the world, enabling video calls, internet browsing, email access, mobile gaming and video streaming. In 2009, 4G technology, heralded an era of faster speeds, up to 5x faster than 3G, was complemented with powerful personal mobile devices such as smartphones, tablets and laptops, led to widespread data communications and the rise of digital services.

Today, after several generations of evolution, 5G is finally here. with the technology making the move from concept to reality in 2020. The progressive rollout of 5G will bring next-generation connectivity to further advance the Internet of Things (IoT) applications, mass autonomous vehicles adoption, factory automation etc. These are all exciting developments made possible only by the advent of 5G which is set to change the way we live, work and play in the coming decade.

In Singapore, the Infocomm Media Development Authority of Singapore (IMDA) will issue licenses to operate up to four 5G networks as it takes bolder steps to embrace a technology believed to be crucial to the nation’s economic growth and drive its “Smart Nation” ambition.


Investing in the rising 5G wave

dollarDEX’s diverse selection of communications and technology funds allow investors to position their investment portfolio for the imminent 5G revolution. Here, we highlight some leading technology companies that may benefit from 5G. These stocks often comprise the Top-10 largest shareholdings in dollarDEX ’s suite of technology-based funds, which can be found through its Fund Finder such as the Fidelity Global Technology Fund, Threadneedle Global Technology Fund, Allianz Global Artificial Intelligence Fund or JP Morgan Pacific Technology Fund, to name a few.


Samsung Electronics    
Samsung Electronics is one of the market leaders in the global 5G telecommunications equipment market with the company aiming to secure a significant share of the global 5G technology market by 2021. The company’s 5G technology straddles across diverse product lines, including its network equipment, chipsets, and smartphones.

In Korea, Samsung Electronics now supplies 5G base station equipment to two of the three world’s first 5G service providers, SK Telecom and KT, both in South Korea where nationwide 5G services began in April. The company also supplied the first 5G-enabled smartphones.

In the U.S., the company has inked significant strategic partnerships with major network operators. The company also became the first to win the U.S. Federal Communication Commission approval for a 5G home router, an important victory to further its partnership with Verizon Communications to commercialise 5G applications for homes. The company is also one of several infrastructure suppliers working with AT&T Inc on the US carrier’s rollouts of its 5G mobile network and fixed wireless internet.

Samsung Electronics’ early-mover advantage in 5G and its position as an end-to-end 5G solution provider could see the company being a major beneficiary of the 5G revolution in the coming decade as well as cementing its position as the top smartphone manufacturer in the world.


Apple
Apple’s stock has soared more than 70% in 2019, one of the best performer on the Dow and its best annual increase in a decade. While gains in 2020 is unlikely to eclipse its stellar 2019 performance, the company will likely be a major beneficiary of the 5G revolution as consumers transition to a 5G-enabled iPhone from 2H20 onwards.

According to a J.P. Morgan report, Apple is expected to launch four 5G iPhones in 2020. Demand for these devices is expected to be high, with DigiTimes reporting that Apple has notified suppliers it expects to sell 100 million iPhones in 2020 alone.

A year ago, Apple was combating sluggish China demand, rising tariffs and increased competition in its smartphones business. Since then, the company successfully navigated through the challenges with growth in China and a resolution with Qualcomm in April that is seen as a win-win for both companies, with Apple now able to release a 5G compatible iPhone sooner than expected.

A potential risk pertaining to Apple’s planned iPhone 12 could, however, stem from the bottleneck in the US carriers’ launch of their 5G network.  


Marvell Technology
Marvell is a chipmaker that offers a wide range of customised 5G-enabled chips that promises to lower costs and boost speeds. Market research firm IDC forecasts that spending on 5G infrastructure will hit $26 billion in 2022, compared with just $528 million in 2018. This means that Marvell’s addressable market is set to enlarge several-folds in the coming years.

The company will be able to leverage on its key long-term partnership with Samsung Electronics to deliver multiple generations of embedded processors and baseband processors for both LTE and 5G base stations.

Earlier, we highlighted that Samsung Electronics is well-placed to tap into the 5G network infrastructure demand because it is supplying base station equipment to telecom carriers in the U.S. such as Verizon and AT&T as well as in South Korea such as SK Telecom and KT.

A positive outcome for Samsung will lend support for Marvell’s growth as well. 


Micron Technology
A producer of computer memory and computer storage including dynamic random access memory (DRAM) chips, Micron looks to benefit from the 5G revolution as it develops chips that will support various 5G applications. The company’s portfolio of products focused on high-end applications such as data centres, 5G mobile networks, A.I. applications, etc, is helping the company to weather the current digital memory cyclical downturn and positioning it well for the next up-cycle.

According to Seoul-based financial services provider KIWOOM Securities, it is estimated that demand for mobile DRAM is on track to jump 22% next year as 5G devices gain critical mass. Micron, being a market leader in smartphone memory, will stand to benefit from the increasing demand for 5G mobile devices.

The company is also one of a handful of companies that is still able to supply its products to Huawei for the Chinese company’s mobile and server businesses. Resuming that relationship will take time and will not materially affect its revenue for the next few quarters but will spell an exciting opportunity for the company in the long-term, leveraging on Huawei’s market share dominance in the China smartphone market. 


Broadcom Inc
Broadcom is a global technology leader that designs, develops and supplies semiconductor and infrastructure software solutions. The company has built an extensive product portfolio to tap the 5G opportunity.

Firstly, the advent of 5G technology will see carriers deploying 5G infrastructure, which needs more radio frequency content which Broadcom offers through its Wired Infrastructure business.

Next, the increasing adoption of 5G enabled smartphone will use expensive, higher-margin semiconductor content, which is offered by Broadcom’s Wireless business.

Thirdly, increasing 5G deployment will provide the right eco-system for real-time A.I.-driven data analysis deployed in autonomous vehicles, smart cities, etc. The strong demand for A.I.-driven data analysis will, in turn, lead to exponential growth in data centres which will drive demand for Broadcom’s enterprise storage products.

Lastly, Broadcom’s industrial segment, despite being the smallest contributor to Group’s top-line, looks to capitalise on the growing demand for Internet of Things (IoT) solutions through the sales of components for factory automation, in-vehicle infotainment systems, etc.  

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