Mobile network technology is taking another leap forward with 5G, and that brings new opportunities.
“The 5th generation mobile network. It is a new global wireless standard after 1G, 2G, 3G, and 4G networks. 5G enables a new kind of network that is designed to connect virtually everyone and everything together including machines, objects, and devices.”
(Source: Qualcomm, July 2020)
The new higher powered mobile internet strength will power many new devices and change the way traditional and start-up industries make use of internet technology. From an investing standpoint we want to be positioned to capture the growth that 5G should enable in the industries and companies that use it.
5G is an ecosystem which is expected to impact many sectors, including infrastructure & Network equipment-makers, Chipmakers, Smartphone manufactures and their suppliers, games designers, internet streaming services, internet Service Providers (ISPs) and cloud storage providers. *We will cover these sectors later in the series.
Because 5G is 100x faster than 4G, the tech is expected to usher in a new era of the ‘internet of things’ where even kitchen appliances will be connected. 5G network deployment is taking place in 2020 and new devices, perhaps including the latest iPhone are expected to support 5G by the end of the year. The experts say 5G is safe but that has not quelled concerns that so many devices connected by high strength signals could pose health risks.
We compare the share prices of some companies that might benefit from the deployment and use of 5G with the S&P 500 as a benchmark.
Past performance is not an indicator of future results.
Finnish network equipment maker. Nokia is fondly remembered for its domination pre-smartphone era but now Nokia offers a comprehensive portfolio of network equipment, software, services and licensing opportunities across the globe. Nokia has put its handset business well behind it and is positioning its network as the European go to for 5G. You could call Nokia the comeback kid!
It recently grabbed the UK government contract for 5G network equipment when the original choice Huawei had to be cut-off because of US sanctions. As of October, Nokia had signed 17 new deals in the third quarter of 2020, making 100 5G deals in total for its 5G equipment.
Swedish network equipment maker. Ericsson is tying the knot with several European telecoms and mobile network operators to provide the necessary equipment to offer 5G. Partnerships include with Elisa in Finland, Three in Ireland and Telefonica in Spain.
A recent project involves Ericsson, Telia and other partners testing a driverless 5G-enabled electric minibus in Stockholm.
ZTE (SHE: 000063)
Chinese network equipment maker. It’s home market China is one of the most lucrative and fastest growing mobile internet markets in the world but ZTE also has a foothold in other Asian and developing nations in Africa.
The stock price has serially underperformed because of the politics between the US and China. If trade tensions ease and ZTE becomes freer to operate outside of US sanctions, the stocks is positioned to catchup with other equipment makers.
South Korean electronics. Samsung is one of the world’s dominant electronics companies and is a more diversified play on 5G since it is exposed via its mobile devices and via its networking equipment. Its handheld device division is its top revenue-earner and Samsung stands to benefit from a new smartphone upgrade cycle as people switch device that are 5G-enabled. Just this month Samsung won the 5G contract from Verizon in the United States, beating off competition from Ericsson and Nokia.
US Chipmaker. Qualcomm has developed chipsets for the electronic devices that will run on 5G and now has a multi-year licensing deal with every major smartphone maker, totalling over 100 licenses. Its biggest competitor in the mobile space is ARM Holdings which was recently sold to NVidia.
Chinese mobile games developer. This comes at the 5G expansion from a different angle - online gaming. Netease develops and operates mobile games in China and in the COVID era has become one of the biggest gaming companies in the world- and is now diversifying in other other bandwidth-hogging internet services like music streaming.
Lumentum Holdings (LITE)
3D Sensor-maker for ‘augmented reality’. Alongside the rollout of 5G one of the other ‘megatrends’ likely to affect our lives in the next few years is virtual and augmented reality. Lumentum makes the most important component that makes AG possible, the 3D-sensor. The logic here is that as internet becomes much more powerful and widespread via 5G- gaming but also other services like home viewing or even virtual shopping will be more commonplace.
NOTE: Chinese 5G leading players Huawei and BBK Electronics (owner of Oppo) are private companies but if they ever IPO, could present a big opportunity.
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