Are these the best 5G stocks to watch?
The fifth generation of mobile communication technology is revolutionising industries around the world. We have a look at the types of 5G companies, their role in industry 4.0, and some of the top 5G stocks to watch.
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Apple didn’t rush to market with a new phone when 4G was initially launched and expectations were the same for 5G. True to this, the company released their first phones that support 5G connectivity over a year after the fifth generation standard for cellular networks was launched.
This came after its main rival, Samsung, had already unveiled its 5G-enabled models – the S20, S20 Plus, S20 Ultra and a newer version of its Note. This was believed to be an indication that Samsung, which sells more smartphones worldwide than any other device maker, could capture the early adopters of 5G technology and take an early lead. While it did, Apple is said to have overtaken Samsung in Q1 2021, becoming the global leader of 5G smartphone sales.3
Xiaomi is the largest smartphone seller in China and has taken a serious slice of the pie in other markets too. It’s been the number one selling smartphone in India since Q1 2018 (as of August 2021).4
In 2020, Xiaomi became the largest consumer ‘Internet-of-Things’ (IoT) company in the world.5 Selling devices at prices that are closer to the cost of making it, the company has undercut rivals in terms of price. This is why it has performed particularly well in emerging markets. Having launched 5G phones early on, Xiaomi made headlines in early 2020 for introducing the cheapest 5G phone.6
Qualcomm took an early lead in 5G, supplying numerous 5G-enabled modems, modules and processors. Qualcomm’s Snapdragon 888 processor, for example, is already used by a string of big brands, including Xiaomi, ASUS, Samsung, Lenovo and Sony.
Its equipment is used in much more than smartphones and forms an important part of everything from gaming PCs to autonomous vehicles, making it a key supplier as the world continues to embrace 5G. This is not surprising as the company stated that it expects its equipment to be used ‘by industry segments outside traditional cellular industries, such as automotive, computing, IoT and networking’.
Taiwan Semiconductor Manufacturing Co Ltd (TSMC) is one of the world’s largest semiconductors chipmakers. The company has said recent growth has been driven by demand for high-end smartphones as well as the initial roll-out of 5G.
With hundreds of clients, including Qualcomm, Nvidia, and AMD, the company’s biggest customer – Apple – accounts for around one-fifth of sales. At the beginning of Q1 2020, TSMC’s CFO said that the company expects the business to continue to be underpinned ‘by the continued ramp of 5G smartphones’. These expectations seem to have come to life as the company has achieved positive year-on-year revenue change for every month ever since (as of August 2021).
Operating in the same space, Qorvo is often compared to Skyworks Solutions. Not only are they both major suppliers to Apple, they’re each other’s biggest competitors. The stark similarities that have secured the main competitor role between these companies means that it’s constant a race of who has better differentiating factors and the upper competitive advantage hand.
Like Skyworks Solutions, Qorvo supplies Radio Frequency (RF) chips and other equipment, making it well-placed to benefit from 5G technology. While Qorvo generates around 75% of its revenue from the mobile business area, this figure is about 67% for Skyworks Solutions. Other applications of Qorvo technology includes industrial robotics, autonomous vehicles, smart homes and virtual assistants.
Intel sold off its smartphone modem business to Apple for $1 billion in 2019, along with 2200 employees, equipment and intellectual property. The technology company’s CEO (at the time) Bob Swan stated that it was costing too much to support just one customer, referring to Apple.
With over 100,000 remaining employees, Intel has been continuing to provide computer software, IoT devices and other data-centric devices and solutions. Included in this has been the company’s focus on 5G – powering 5G networks, partnering with Google to speed up the roll-out of 5G, demonstrating the benefits of the fourth industrial revolution through building a 5G smart factory, and more.
T-Mobile merged with and Sprint in 2020, after legal wrangling of almost two years. With its merger valued at $26 billion, the telecoms company committed to investing around $40 billion to rapidly build out a nationwide 5G network by 2024. T-Mobile said the combined group will have ‘double the total capacity and triple the total 5G capacity’ than it would have as a standalone business.
Sticking with the T-Mobile brand, the previously third and fourth largest carriers in the US are now better positioned to rival the two leaders in the US, Verizon and AT&T. Still, T-Mobile has a lot of work to do to overtake its two biggest rivals.
In the UK, BT Group has a distinct edge over any other telecoms company because it’s responsible for operating Openreach, the nationwide broadband network that other carriers must piggy-back off.
Expanding its full-fibre broadband and 5G network at the heart of its strategy, so BT aims to offer the ‘best converged network’ possible, boosted by its ownership of EE. It has said that the performance of its 5G network is ‘ahead of the competition’.
In July 2021, it was reported that BT Group is looking to expand its mobile services drastically, with the goal to reach most parts of the UK by 2028.
Deutsche Telekom is the largest telecoms company in Europe. Germany is its core market, but it makes more than two thirds of its revenue elsewhere,7 including the UK, wider Europe and the US. With a controlling stake in T-Mobile, the company is looking to become the majority stakeholder by 2024.
In Germany, the company is turning to the model deployed by BT, whereby it operates a central network that other companies, like Telefonica, can use. It also intends to provide 5G coverage to 99% of the country by 2025. The country’s international leadership, with strong footholds in the US and Europe, gives the company diversity and the resources needed to deliver its 5G plans.
Ericsson has 144 commercial 5G deals and 94 live 5G networks in operation (as of August 2021). The telecoms company has stated that it was the first to deploy functional 5G networks across four continents.
In early 2021, Ericsson secured a contract with Asia Pacific Telecom (APT) to modernise its 4G LTE networks in Taiwan. The nationwide upgrade kicked off with the country’s first 5G non-standalone (NSA) multi-operator core network (MOCN) in August 2021. President of Ericsson Taiwan Chafic Nassif said ‘with the launch of the 5G MOCN, we are able to maximize the effectiveness of the existing network infrastructure and significantly increase 5G availability across the island.’
5G and the fourth industrial revolution
With the launch of 5G in 2019, its rollout is still in progress. At its peak, 5G is expected to be up to 100 times faster than 4G.8
But 5G is about much more than downloading films quicker or delivering faster connectivity on your smartphone. It marks a huge technological jump that’s expected to have a big impact on what’s being dubbed ‘the fourth industrial revolution’. It’s said that 5G will unlock a wave of new technologies, spanning everything from artificial intelligence (AI) and machine learning to automation and autonomous vehicles.
Apart from better speeds, the other major benefit of 5G is lower latency, which is how long it takes between sending an instruction, like opening a smartphone app, and for that instruction to be completed.
Existing 4G networks have cut down latency to as low as 50 milliseconds, but 5G has the potential to reduce this to around one millisecond.9
Fractions of a second may seem insignificant, but quicker download speeds are nothing without better latency, and the anticipated improvement is so drastic that 5G will be capable of handling critical tasks that current networks simply can’t. Driverless cars are a prime example: 49 milliseconds is a huge amount of time for a self-driving vehicle responding to potential incidents on the roads.
5G mobile phones and devices
The faster connectivity that 5G brings is already being experienced through the everyday devices that we use, ie smartphones, tablets, wearable tech and other smart technology. 5G-enabled devices mean smarter and faster technology that’s capable of offering a wider array of services.
With little incentive to spend significant sums on new devices that offer limited improvements from existing ones, consumers often wait longer to upgrade. 5G is changing this. For example, new smartphone releases with upgraded camera capabilities vs 5G-enabled smartphones.
The widespread, ongoing adoption of 5G means there’s a market for a swathe of supplementary smart tech – such as chips. This is evident through the success stories of those companies providing crucial components to power all devices that bring 5G to life for individuals and businesses.
The telecoms industry is at the heart of 5G – providing the wireless networks that supply 5G to people and organisations. A big part of this has been building the infrastructures to secure the radio frequency capacity that forms the backbone of the services it provides to customers.
The deployment of 5G networks has been a differentiating factor for many telecoms companies. Further, 5G enables the industry-wide strategy of convergence, whereby you increase the stickiness of a customer by selling them multiple services (eg phone, broadband and TV packages). If customers flock to one telecoms provider because of its 5G network, they’re more likely to buy other services from that company, too.
Demonstrating the ability to provide a reliable and superior 5G network is likely to continue being crucial in securing customers over the initial years. This is particularly true when it relates to mission-critical and high-end applications.
5G infrastructure providers
5G requires a lot more infrastructure than 4G, because it needs to run on higher radio frequency bands to deliver faster speeds. But transmission and coverage both suffer as the frequency increases.
This means more sites (often called small cells) are needed to transmit signals in buildings and on the streets, which require much more infrastructure to be built. So, whereas lower frequencies can cover a wider area, 5G needs more connections to make the network work properly.
With more sites being added to carrier networks, the rollout kicked off with deployment in densely populated areas.
5G stocks: looking at the bigger picture
In under three years since the first launch of 5G technology, companies that are responsible for bringing it to life have already been investing huge sums, and even sacrificed returns over the short to medium term.
With some having already suffered a decline in earnings that has spiralled into suspended dividend pay-outs and other impacts, this highlights the importance of giving due consideration to sustainability.
The returns reaped from 4G haven’t been as good as the industry expected and businesses will be keen to not have a repeat of the situation. Still, investors aren’t short on options when it comes to investing in 5G and it may be wise to look at the bigger picture – beyond those building and supplying 5G networks.
There are a huge number of industries that stand to benefit from 5G, everything from internet and data stocks, cloud-computing firms and gaming companies to carmakers, AI and automation technology firms, and smart and IoT device makers.
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2 Best trading platform as awarded at the ADVFN International Financial Awards and Professional Trader Awards 2019. Best trading app as awarded at the ADVFN International Financial Awards 2020.
3 Gizmochina, 2021
4 Counterpoint, 2021
5 Harvard Business Review, 2021
6 TechRadar, 2020
7 Statista, 2021
8 The Verge, 2021
9 Digital Trends, 2021
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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