Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 330

Internet of things and the power of 5G technology

Fifth generation (5G) cellular network technology is the next step in the evolution of digital communications. Faster transfer of data, lower latency, reduced congestion and increased connectivity are just some of the improvements 5G will bring.

5G set to contribute to world GDP growth

According to GSMA, in 2018, mobile technologies and services generated US$3.9 trillion of economic value which equates to around 4.6% of GDP (see Figure 1). GSMA estimates that the economic contribution of mobile technology will increase by almost US$850 billion by 2023 and 5G will contribute US$2.2 trillion to world GDP by 2034.

We believe 5G will not only facilitate the population’s voracious appetite for data, but it will also accelerate our consumption and pave the way for seamless connectivity and productivity improvements worldwide.

Figure 1. Economic contribution of mobile services will likely increase $850 billion by 2023

Source: RWC Partners, GSMA Intelligence as of 28 June 2019.

Implementation set for 2020

The United States and South Korea launched 5G commercially at the end of 2018 with 16 more countries launching during 2019. The Chinese government has awarded 5G spectrum licenses to all three telecommunications companies in order for them to conduct trials before commercial roll-out in late 2019.

However, the majority of 5G deployments will happen after 2020 and will be dependent on 3rd Generation Partnership Project (3GPP) standards. Huawei is an essential and integrated part of 5G as the company holds a substantial amount of 5G patents. Equipment vendors generally adopt a cross-licensing model which makes it very difficult to exclude Huawei from 5G network participation. The company has filed 1,975 5G patents, more than Qualcomm and Intel put together (as seen in Figure 2).

Figure 2. Number of 5G Patents Registered by Companies

Source: RWC Partners, European Telecommunications Standards Institute – 2019.

5G technology brings three new technical features

In an industry full of jargon, some of the new technical features include: 

  1. Enhanced mobile broadband (eMBB), ultra-reliable low latency (uRLL) and massive machine type communications (mMTC) which are to be rolled out in two phases over the next few years
  2. Release 15, which focuses on eMBB, and
  3. Release 16, which concentrates on Ultra Reliable low-latency communication (uRLLC) and Metals and Minerals Trading Corporation mMTC, including Internet of Things IoT.

Release 15 will concentrate on existing applications whose process can be improved by utilising the higher capacity and cheaper data rates, while Release 16 will focus on enhanced IoT including industrial and automotive connectivity.

As the technology rolls out, it will enable applications such as:

  • Virtual and augmented reality
  • Ultra-high speed video
  • High density internet of things
  • Autonomous driving, and
  • Smart cities

China showing the greatest level of investment

According to Credit Suisse estimates, global wireless capital expenditures are expected to be around US$500 billion between 2018 and 2020. However, this is dependent on the level of coverage that operators choose. Most mobile networks were built starting from places of affluence before expanding regionally. Many 5G applications will have significantly different requirements and coverage will likely be a function of monetisation opportunities in specific countries and regions as seen in Figure 3, with China showing the greatest level of investment.

Figure 3. Total Capital Expenditures for 4G and 5G

Source: RWC Partners, Morgan Stanley Estimates – 4G up to 2018, 5G 2018 and Beyond (estimates).

Furthermore, additional and higher frequency spectrum requires more sophisticated designs in radio frequency components, including antennae, amplifiers, filters, switches and basebands. 5G base stations are far more efficient than 4G. While 4G base stations just use antennae, 5G base stations combine a remote radio unit (RRU) with an antenna to form an active antenna unit (AAU). 5G network architecture also requires middlehaul in addition fronthaul and backhaul which results in more demand for optical modules.

Internet of things will grow rapidly

With the power of 5G technology, the IoT phenomenon will grow exponentially. GSMA estimates that most of the value of IoT from now through to 2025 will come from applications, platforms and services which will increase by roughly US$600 billion.

5G is the first wireless technology with high throughput, low latency and high reliability to replace wireline connectivity in factories. Consequently, industrial IoT will also likely see robust growth as manufacturers move towards a leaner cost structure, digitalisation and flexibility in processes and production through methods such as condition-based monitoring.

ABI Research estimates that by 2025 there will be around 90 million condition-based monitoring connections. Over time, enhanced IoT will lead to the evolution of smart cities which we believe will likely enhance productivity (as shown in Figure 4).

Figure 4. Smart City

Source: RWC Partners, Industrial Safety Review 2018.

Case study of a 5G investment opportunity: Win Semiconductors

Win Semiconductors is the largest gallium arsenide (GaAs) foundry with 60% global market share. GaAs has superior electronic properties over silicon which makes it the best power amplifier for use in radio frequency devices such as smartphones, WiFi routers and industrial IoT components. Risks to the thesis include a continuation of trade tensions between the United States and China.

Figure 5. Estimated New Sources of Revenue for Win Semiconductors

Source: RWC Partners, Morgan Stanley – 2019E-2021E.

The investment cycle for 5G base stations has already started with sub-6 GHz applications, while mmWave (28 GHz) will be more from 2022 and beyond. The company’s infrastructure business may profit from mmWave implementation as the company offers GaN technology for high power amplifiers which is more efficient and provides better performance.

Additionally, radio frequency content could rise up to 50% from the 5G smartphone in addition to double the amount of filters and switches. The stock trades at 21.4x 2020 earnings on our estimates and has a 5-year earnings per share CAGR of 17% on our estimates.

Opportunities include emerging markets

Emerging markets are inherently dynamic and there is an ongoing developmental shift which we are constantly looking to exploit. We firmly believe that much of the opportunity in emerging markets is underappreciated or is overlooked by other managers due to their index orientation and capacity. Our index agnostic mindset and deep experience investing across all levels of emerging and frontier markets stands us in good stead to extract value and generate meaningful alpha from the entire opportunity set.

 

Access to the RWC emerging and frontier markets strategy is available to Australian investors via Channel Capital, a sponsor of Firstlinks.

John M Malloy, Jr is Co-Head of Emerging & Frontier Markets, at RWC Partners, a Channel Capital partner.

For more articles and papers from Channel Capital and partners, click here.

 

RELATED ARTICLES

Pandemics in perspective

Uncharted waters, 2020 and beyond

Are there profits from the 5G revolution?

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Supercharging the ‘4% rule’ to ensure a richer retirement

The creator of the 4% rule for retirement withdrawals, Bill Bengen, has written a new book outlining fresh strategies to outlive your money, including holding fewer stocks in early retirement before increasing allocations.

Latest Updates

Economy

The ‘priced out generation’ and what they should do about it

A fiery interview on housing exposed deep generational divides, sparking youth outrage and political backlash. As homeownership drifts out of reach, young Australians face a choice: fight the system - or redefine success.

Taxation

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

Superannuation

Meg on SMSFs: Ageing and its financial challenges

Ageing SMSF members can face issues funding their pension income as cash reserves dwindle. Potential solutions include involving adult children in contributions to secure future financial stability.

Economy

US earnings season was almost too good to be true

The second quarter US earnings season has wrapped up, with a record 82% of S&P 500 firms beating earnings estimates. As tailwinds fade, Q3 may reveal whether AI momentum can offset rising economic headwinds. 

Gold

Does gold still deserve a place in a diversified portfolio?

9,000 years and no devaluations later, gold is the world’s most enduring store of value. It remains attractive as the value of several paper currencies, including the US dollar, are threatened by deficits and rising debt.

Shares

Checking in on the equity market's silent engine

Consumer spending directly impacts corporate earnings, sector performance and market sentiment. The latest data from different economies uncover risks and pockets of opportunity for investors.

Fixed interest

6 key themes driving bond markets

The Fed could soon be prompted to join other central banks in cutting interest rates. This would have ripple effects across global fixed income markets and provide an especially attractive backdrop for emerging market bonds.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.