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A year ago, we wrote about the essential ways technology was helping countries, sectors, companies, and everyday people adapt to the pandemic. Today, work-from-home (WFH) capabilities, streaming entertainment, and online food delivery are among the many tactical changes that we believe continue to fuel long-term structural opportunities. For example, 42% of the US labor force was working from home in 2020.1 In our view, pervasive technology will consistently drive progress and growth across countless industries. Here, we explore a few of the innovations and opportunities we find particularly compelling.
The broad impact of 5G
We believe the proliferation of pervasive technology will continue to accelerate trends that were already creating a massive amount of new data. Fortunately, despite vast increases in data quantity, bandwidth-intensive apps, and video streaming, technologies can now communicate with each other better than ever due to 5G technology.
For many, 5G brings to mind faster download speeds. But it is important to note it also offers a tenfold increase in the potential density of connected devices, enabling advancements like smart cities and pervasive tech. So, although the development of 5G is simply another step forward in communication speed, its ability to meet the exponential growth of data demand by both companies and consumers makes it a relevant innovation for every industry far beyond the pandemic.
5G also offers an opportunity for the industries leveraging the innovation to improve their products and expand their addressable markets as well as the companies producing the components necessary for the technology.
For example, we are following two Taiwanese fabless semiconductor companies that supply important inputs to 5G technology. The first makes a 5G chipset that combines the brains of a smartphone with a 5G modem, blending computing power and communication ability into one component. The other manufactures connectivity solutions like integrated chips that we believe will be a beneficiary of a more connected world. We think each of their components will be a key building block enabling the connection speeds necessary for many current and future industry revolutions. Notably, China is in the middle of rolling out a massive, multi-year investment in 5G infrastructure.
Are recent technological shifts permanent?
The ubiquity of tech offers unprecedented levels of connectivity, mobility, and resource/service access to new populations. This had a hugely meaningful impact for countries adapting to the pandemic and we believe it will also drive long-term opportunities. We think the penetration of many digital solutions has been accelerated, furthering trends and breaking old habits.
For example, grocery delivery, online education, streaming entertainment, and WFH have all seen significant increases in adoption. Grocery delivery, for instance, grew by 43% in 2020 but still has less than 50% market penetration.2 And these solutions continue to see further innovations, such as in China where the community-group-buying model is expanding the market to previously untapped areas, with community leaders buying in bulk online and then distributing goods to the community.3
In some countries, rapidly increasing user bases have challenged the number of customers companies can accommodate at one time. Streaming entertainment, online education, and WFH solutions likely offer the most scalable growth areas while the growth of e-commerce and food delivery is potentially more constrained in some areas due to their physical limitations.
Importantly, for many of these trends, we believe the shifts appear to be enduring as companies have been able to retain customers and maintain growth. We think companies and consumers alike will now look to tech to help future-proof their lives. In our view, many innovative providers — notably those mentioned above — will persistently grow user bases, and old-economy companies could therefore face challenges to market share.
Industry example: The growth of mobile gaming
Mobile gaming is one industry that has seen its already compelling trend accelerate. We believe 5G offers the potential to revolutionize cloud-based gaming with much quicker download speeds, lower latency, and vastly greater potential connections. It may soon be possible to play games with advanced graphics (that currently require high-end consoles or PCs) streamed via the internet and played live on a mobile phone. We think this will greatly increase the number of gamers, as the startup cost will no longer be prohibitively expensive (typically US$500 for a console and over US$1,000 for a PC). This could be as simple as subscribing to a gaming service like those currently available for movies and music.
We believe the current environment’s impact on daily life further highlights the appeal of this opportunity set. In fact, mobile app spending grew by 25% globally in 2020.4 Notably, traditional console makers did not seem to benefit as much from this increase.
In addition, we think demographic trends support the industry’s growth. Currently, 64% of the US population are gamers, with an average age in the mid-30s to early-40s.5 In our view, the next generation could nearly all be gamers, and the opportunity will further increase as gamers’ wealth rises with age. Notably, Asia Pacific makes up more than half of gamers worldwide and mobile gaming is the preferred platform in the region, allowing this huge market of users to take their gaming on the go. The gaming market is expected to grow from US$175 billion in 2020 to US$218 billion in 2023.6
The future of pervasive tech
In the next five years, we believe the pervasiveness of tech will continue to broaden far beyond the industries traditionally thought of as “high-tech.” These once-sector-specific component producers have erupted out of the tech industry to add technology to nearly every segment of the economy. Beyond helping to weather the pandemic, Asia tech offers solutions like autonomous cars, predictive train-track maintenance, factory automation 3.0, and improved medical imaging. From leading-edge computer chips and image sensors to simple components like capacitors and compound chemicals, Asia tech is supplying the building blocks of innovation that enable everyday objects to be upgraded to “smart” tech.
In fact, the connected device market could nearly triple in volume from 2.4 devices per person in 2018 to 3.6 devices per person in 2023 globally. In North America, the average is estimated to be 13.4 devices per person by 2023.7 Notably, this growth is not restricted to consumer devices (Figure 2).
Potential risks for Asia tech
Though we’re excited about the potential investment opportunities in a future where technology is more pervasive, the Asia tech sector is not without risks. In our view, there are several potential risks to our long-term outlook for the sector. For example, a change in regulatory environment may have an increased impact on companies in the sector as countries react to tech’s growing importance to consumers, businesses, and economies alike. The tech sector is also an economically sensitive industry and may underperform if global growth slows. In addition, tech is made up of subsectors that have their own mini cycles within the overall tech cycle, which can cause dispersion within the sector. Furthermore, valuations in some areas are a potential concern given the sector’s strong recent performance, making active management critical to the opportunity set, in our view. Finally, interest rates are very low today and if they do increase substantially, this could affect the sector’s outlook.
Asia at the forefront
Asia is a global leader at integrating this pervasive tech into society and leveraging the data it produces. The above examples merely scratch the surface of the many component-producing and technology-leveraging companies that we believe will ride the wave of Asia tech’s growth. The sector is driving abundant progress that we think offers long-term investment and access opportunities across industries and borders, especially as technology becomes increasingly pervasive.
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