The Part I of this series of articles on investing in information and communications technology (tech) sector highlighted the significant out-performance of this sector during the last several years and provided an overview of major segments of the hardware category, such as semi-conductors, computer hardware & peripherals and electronic equipment. As a recap of the importance of the tech sector, consider the following chart of the world's top market capitalization companies shown below. Excluding Saudi Aramco, which is effectively a public sector company, eight out of the top ten market capitalization companies in the world are in the broader technology space. This shows the importance of the tech sector in the global economy and why we should at least be aware of developments and evolution of this sector.
World's Highest Market
================================================ World's Highest Market Cap Companies* ================================================ RANK COMPANY Market Capitalization (US Dollar Trillion) ================================================ 1 Saudi Aramco 2.1 2 Apple 2.0 3 Microsoft 1.6 4 Amazon 1.6 5 Alphabet (Google) 1.7 6 Facebook 0.8 7 Alibaba 0.8 8 Tencent 0.7 9 Berkshire Hathaway 0.5 10 Visa 0.4 11 Walmart 0.4 ================================================
- As on October 21, 2020; Source: Yahoo Finance
The Part II looks at smart phones, communication equipment, consumer electronics and robotic technology in a global context.
This is a special category which falls both within IT hardware and tele-communications. In 2019, the revenue from global smartphone sales exceeded US$400 billion while total number of smartphones shipped was almost 1.5 billion. Major players and their market share are shown below.
==================================================================================== Smart Phone Shipments ==================================================================================== (million units) Mkt Share Mkt Share Mkt Share BRANDS 2018 in 2018 2019 in 2019 1H2020 2Q 2020 ==================================================================================== Samsung 291.8 19% 296.9 20% 112.8 20% Huawei* 205.2 14% 238.7 16% 103.8 20% Apple 212.3 14% 195.6 13% 77.5 14% Xiaomi 119.0 8% 124.7 8% 56.2 10% Oppo 119.0 8% 120.0 8% 46.8 9% vivo 102.4 7% 113.7 8% 44.1 8% Lenovo** 38.7 3% 40.7 3% 13.4 3% Others 423.0 28% 348.8 24% 96.5 16% ==================================================================================== TOTAL Shipments 1511.4 100% 1479.1 100% 438.3 100% ====================================================================================
Source: Counterpoint Research; *Huawei includes HONOUR; ** Lenovo includes Motorola
It's interesting to note the change in leadership in the last two years. Huawei and Xiaomi have increased their market share from 14% and 8%, respectively, in 2018 to 20% and 10% in 2Q2020 at the expense of lesser known brands. On a quarterly basis (not shown here) the contrast is even more stark. In 1Q2018, Samsung had a 22% market share versus Huawei's 14%. By 1Q2020, both had equivalent market share of 20% each - just in two years! Apple, on the other hand, has maintained its global market share of around 14%. This is a fiercely competitive segment of the ICT sector and investors need to understand the strategies of different players and what they mean for potential shorter-term and longer-term share value.
With 5G now being rolled out in various parts of the world, coinciding with work-from-home and digital streaming home entertainment trends, the importance of the smart phone market cannot be overemphasized. Innovation, design and branding are all critical for future product cycles. The smart phone segment will also drive component builders - for example consider Apple Computer's latest launch of 5G compatible iPhone 12 series. Apple claims to be the "first in the industry" to make use of the 5-nanometre chip. The 5nm process allows Apple to put 1.8 billion transistors into the A14, 40 percent more than the 8.5 billion in the A13, enabling new features and enhanced user experience. Other competitors are sure to follow suit leading to the next upgrade cycle which is critical in driving future sales revenues and margins not just for smart phone makers but also their component manufacturers.
Telecom equipment market consists of Broadband Access, Microwave & Optical Transport, Mobile Core & Radio Access Network (especially important for 5G), SP Router & Carrier Ethernet Switch along with their related components.
The global telecom infrastructure equipment market was worth $383.86 billion in 2019, according to "Telecom Infrastructure Equipment Global Market Report 2020-30". It is expected to grow at a compound annual growth rate (CAGR) of 7.07% and reach $504.56 billion by 2023. A major driver for this market is the Internet of Things (IoT). The global IoT market is estimated to be $212 billion in size in 2019 and by 2025 it is forecasted to grow to $1.6 trillion. This rising adoption of IoT technologies is expected to drive the demand for telecom equipment globally.
Full-year 2019 revenue shares for the top five suppliers indicate that Huawei, Nokia, Ericsson, ZTE, and Cisco comprised 28%, 16%, 14%, 10%, 7%, respectively. Other important players include Fujitsu Ltd., Samsung, Juniper Networks, NEC Corp. and Ericsson, Corning, Qualcomm, Nortel, Alcatel-Lucent, amongst others. With new geopolitical issues initiated by the U.S. against Chinese manufactures, the landscape of this segment is in a state of flux.
Consumer Electronics (CE) Market size was valued at US$ 1.0 trillion in 2019 and forecast to reach US$ 1.5 trillion by 2025, according to Global Market Insights Report published in August 2020.
CE market is typically divided into five segments: TV, Radio & Multimedia, TV Peripheral Devices, Drones, Telephony and Computing. CE (excluding computing segment) revenues were US$736 worldwide in 2019 with Telephony segment accounting for 48% of revenue. The non-computing segment is expected to have revenues USD 838.85 billion by 2020, according to a study by Grand View Research, Inc.
Consumer Electronics have enmeshed themselves in our everyday lives as these electronic products have become widely accessible and common. Revenue in some sub-segments, including wireless headphones, smart home products, smart speakers, smart watches, and gaming accessories are forecast to grow in double digits going forward. The e-Commerce segment includes online sale of radios, TV sets, MP3 players, stereo systems and DVD players, audio & video equipment, household appliances, digital photo equipment, LCD TVs, etc.
A key trend is connectivity - to devices and to the cloud. Some notable examples include, Virtual reality (VR) and Augmented reality (AR); Automated home technologies such as speakers, TVs, fridges, ovens, washing machines, thermostats, lights, and security cameras, which connect through a hub where smart speakers operate as a hub for automated home technology; also included are consumer drones and robots designed for entertainment, for old peoples' companionship, or to perform domestic tasks; wearable technology (such as smart watches) that provide fitness and medical data; 3D printing; and Internet TV with Subscription Video on Demand (SVoD) services.
A major challenge for the industry is short product lifecycles and increasingly diverse product offerings as consumers shift to electronics integrated with latest technologies. Manufacturers are having to reduce their product development time and time-to-market in order to survive and grow.
Important players in the consumer electronics market include, Samsung, Sony, General Electric, LG Electronics, Bose, Sennheiser, Haier, Nikon, Apple, Huawei, AB Electrolux, Canon, GoPro, Toshiba, Panasonic, Hitachi Ltd., HP, Mitsubishi Electric, Omron Corp., Siemens A.G., Texas Instruments, Koninklijke Philips, Dell, Fujifilm Corp., Google, Haier, Huawei, Acer, ZTE Corp., Lenovo, Logitech International, Sennheiser Electronic, etc.
The global robotics technology market size was valued at US$62.75 billion in 2019, and forecast to reach US$170.08 billion by 2027, according to the Allied Market Research Report of May 2020. Statista estimates global market size at around US$ 100 billion in 2020. According to the Financial Times (Oct 21, 2020 issue), the International Federation of Robotics forecasts the number of robots in use worldwide to rise from about 200,000 in 2020 to nearly 500,000 by 2023, a growth of almost 150% over next three years. And this is just the start of the robotics revolution which has accelerated due to the Covid pandemic.
The International Organization for Standardization defines a robot as an "automatically controlled, reprogrammable multipurpose manipulator in three or more axes", which can be either fixed in place or mobile for use in industrial automation applications. (ISO 8373). In plain language, Robotics technology is used to replicate human actions with the objective of improved performance, energy efficiency, productivity improvement as well as safety applications in a wide variety of industries, including healthcare, domestic usage, agriculture, manufacturing, transportation and logistics, to mention a few.
High initial cost of the robots and lack of awareness among the SMEs has been a constraint on growth so far. Increasing availability of affordable, energy efficient robots is driving growth as is the rise in labour costs in developed economies and more advanced emerging markets such as China. In Japan, rapidly aging population and lack of cheap labour has spurred innovation in robots with human-like features to provide company & entertainment, help with medication, household chores and alerts for emergency help. At the same time, adoption of robotics technology in emerging economies and increased use in diverse applications (e.g. search and evacuation after natural disasters or accidents) provide future growth opportunities. For example, according to the International Federation of Robotics' World Robotics 2019 report, sales of industrial robots in India reached 4,771 new units installed in 2018, an increase of 39% YoY.
Japan is the leading manufacturer of robots (especially industrial robots). In recent years competition has increased from Korea and China, besides the U.S and E.U. Some of the larger players are Mitsubishi Electric, ABB, Fanuc, Yaskawa, Kuka, Kawasaki, Staubli, Denso, Comau Robotics, Siasun Robot and Automation, DJI Innovations, Samsung, Hyundai, DasaRobot, Graupner Robotics, Siemens, and others. Specialised players include CANVAS Technology - logistics; Piaggio Fast Forward - computer vision; Diligent Robotics - Healthcare; PickNik Robotics - Machine Learning; Barrett Technology - Healthcare; Bluefin Robotics - Automotive/Marine-tech; AMP Robotics - Cleantech; DroneSense - Public safety; Intuitive Syrgical - Healthcare; iRobot - Household Applications; amongst many others.
While the above segments in the technology hardware sector are provided as a summary or overview, these by no means cover the entire spectrum of technologies both present and evolving, such as biotechnology and genomics, nano technology, electric and self-drivingmobility, green technologies, blockchain, etc. which themselves are ripe for investment research as fast growing industries of the future.
(The writer is the former Managing Director of Pakistan Stock Exchange. The views expressed in this article are not necessarily those of the newspaper. The companies noted in this article are for information purposes only and used simply as examples. This is not a solicitation to buy or sell any security or company mentioned herein. Except for a small investment (US$4,000/=) in an ETF (IYW), the writer claims he does not own stock in companies noted herein. Forward-looking statements should not be considered as guarantees or predictions of future events. Data provided in the article is from publicly available third-party sources, however its accuracy is not guaranteed and the data should be treated merely as indicative. Anyone interested in finding about investment opportunities should conduct their own research and due diligence within the guidelines of their respective jurisdictions and through authorised investment professionals. Potential interested readers should note that past performance is no assurance of future performance of an investment and the value of any investment may become worth more or less than the original invested amount.)
Copyright Business Recorder, 2020