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November 23, 2020 | Investment Themes
5G has been around for several years as a bleeding edge technology that had not yet reached wide acceptance or use. That has now changed.
Last month, Apple unveiled 5G enabled iPhones for the first time, while at the same time, the major US cellphone carriers launched a promotional blitz before the holiday season, touting the benefits of their shiny new 5G networks along the way.
The combination of new 5G networks and Apple producing compatible phones in its ultra-popular, flagship product raises many questions: What is 5G? Do you need it? And for investors, what companies stand to win or lose should the technology take off?
As with everything in technology, the answer is simple at the surface, but much more complex in the details because 5G is being used as a catch-all phrase to mean several different things.
In short, 5G is special because it is faster and has more capacity than 4G. Movies download faster, video conferencing is clearer, and anything you’d ordinarily need home Wi-Fi for, you can do on the go.
It also is flexible, and there are different types of 5G being rolled out for different areas. There is broadrange 5G that is a lot like the cellular service you get today. There is mid-band 5G that is a bit faster than that but with less range. And there is an even faster and lower range version of 5G called millimeter wave (mmWave).
MmWave can blast out incredibly fast connectivity with massive bandwidth all while maintaining connection to an enormous number of devices. This is the type of spectrum you see in commercials, and it is very effective for stadiums, major cities, and other densely populated areas.
Faster technology is always better, but it can come at a cost. For 5G users, that cost can be a couple things, including a hit to battery life, significant heat issues, and poor range. These tradeoffs may seem minor, but for context, consider that they are at least severe enough that Apple’s new phones turn 5G off by default!
5G is no panacea for the telecom companies either. For example, mmWave is so fragile and has such short range that on a windy day, leaves blowing around on trees can disrupt its signal. It is also prohibitively expensive to roll out. The major US carriers are only planning to roll out live 5G mmWave spectrum in the downtowns of major cities and metro areas.
Part of the magical promise of 5G is more than just the insane speed and bandwidth of mmWave. It is about more, faster connectivity for all the devices in our lives in order to enable all different kinds of new technologies such as connected cars, smart cities, and the broader ‘Internet of Things’—a phrase used to describe all connected devices, including everything from cars to parking meters to home doorbells.
Source: Cisco Annual Internet Report.
The question hanging over these pie in the sky technologies is whether 5G proves too expensive and unreliable to properly roll out everywhere. Without enough coverage, it becomes a chicken versus the egg problem: the technologies need connectivity to happen, and the providers need the technologies first to make rollout economically worth their while.
Our belief is that 5G is impressive in certain instances, but that the marketing may be a bit out in front of the reality. For most people doing most everyday things (e.g., checking emails, browsing the web, sharing photos), 4G is already more than good enough. It has more than enough speed, stability, and capacity. Most implementations of 5G simply allow you to do all of those things a bit faster.
For investors, the big picture story is actually about data. It is about ever more connectivity, ever more internet usage, and ever more data consumption powering continuous growth in data storage, cloud computing, semiconductors, and a myriad of other already existing trends. In the best case, 5G provides an accelerant to these trends, and in the worst case, these investing themes are already on track.
In our view, before making an investment decision, it is important to have a deep and thorough understanding of the technology. We employ a team-based approach to investing so our analysts can focus on their areas of expertise, helping our portfolios better identify the best investment opportunities.
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This material contains the opinions of Manning & Napier Advisors, LLC, which are subject to change based on evolving market and economic conditions.
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