5G (fifth generation) wireless is the next mobile technology standard that will be succeeding the current 4G/LTE technology. 5G is expected to hit the market by 2020 and it promises to lower latency, offer greater stability, the ability to connect many more devices at once and move more data thanks to faster speed. It is the future generation of wireless networks. This technology will allow revolutionary implementations in fields like autonomous driving, virtual reality and augmented reality.
There will be over 30 billion connected devices in use around the world, and all these devices need a fast and safe wireless connection to perform in the way they were intended. 5G and the enormous number of devices and sensors that communicate with each other via wireless technology are key in creating the interconnected world of the future.
Costs & Benefits
According to Statista, spending on 5G infrastructure is forecasted to be around $2.3 billion, this is a huge investment having in mind that this technology is in its early stages. However, the benefits will be huge in the long-term: Economists estimate the global economic impact of 5G in new goods and services will reach $12 trillion by 2035. (Source: World Economic Forum)
5G’s Main Players
Huawei, the Chinese telecom giant is poised to claim close to half of the 5G market, pushing the technological center of gravity away from western telecom vendors and sounding alarms about China’s ability to spy on Americans. In the first part of 2019, president Trump called for the USA’s allies to not rollout 5G’s Huawei network, citing potential security and data privacy concerns, which allies have not obeyed.
Huawei has been aggressively pursuing 5G dominance, adding the most technical contributions to the 5Gstandard out of any company.
Investing in 5G
The company that would be the obvious choice to invest in would be Huawei Technologies but that isn’t possible since Huawei is a private entity. That means the company is not traded on any public market and that people other than current employees cannot invest in it. In my opinion, the top company to invest in this 5G race is Samsung Electronics:
- Samsung Electronics will spend over $22 billion on AI, auto tech and 5G.
- In 2018, Samsung’s mobile chief DJ Koh announced that Samsung would be the first company to launch a 5G phone. Nowadays, there are nine 5G phones available, four of them are from Samsung.
- Samsung currently has the biggest smartphone market share in the world – around 21%.
Samsung currently has an estimated market cap of 363t KRW (US$309b) and an estimated enterprise value of 360t KRW (US$306b), an estimated 2019 P/E of 16.9 and 2020 P/E of 12.5. 2019 net profit margins are forecast to be 9.27% and in 2020 to be 11.3%. Debt is zero with about KRW 87t (US$74b) in cash estimated in 2019.
Conclusion
Many of 5G’s benefits probably aren’t yet apparent to us. At the dawn of 4G’s adoption no one could have predicted the new business models that grew on the back of mobile broadband, like Uber and Spotify. Who knows which new business models 5G will allow to grow? Only time will tell.
Article published in our January Newsletter
Rahul Jivan, BSc in Economics