Investment bytes – Asia tech Part three: COVID-19 and the critical role of pervasive tech

We explore the ways pervasive tech is helping countries, companies, and consumers alike adapt to the pandemic.

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The coronavirus pandemic has had a startling impact on global investment markets and has drastically affected daily life. But one positive trend that may be being overlooked is the way pervasive tech is helping countries weather the crisis. China was the first to experience the virus and it implemented some of the most extreme measures to help limit the spread. Crucially, it had the technology to adjust.

Work-from-home (WFH) capabilities, streaming entertainment and online food delivery are among the many tactical changes that could fuel long-term structural opportunities. In our view, the countries, sectors and companies with the strongest technological infrastructure will be best able to adapt. For example, China’s advanced digital solutions were vital to its rapid medical-supply response to affected areas.1

The broad impact of 5G

We believe the proliferation of these changes will 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.

For many, 5G brings to mind faster download speeds. But in a crisis like this, 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 amid this pandemic.

FIGURE 1

Comparing 4G to 5G

Over a longer horizon, 5G also offers an opportunity for both the industries leveraging the innovation to improve their products and expand their addressable markets as well as the Asia tech companies producing the components necessary for the technology.

For example, we are particularly interested in 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 in both the current crisis and in future industry revolutions. Notably, China plans to roll out a massive investment in 5G infrastructure over the next few years.

Will the crisis create permanent shifts?

The ubiquity of tech offers unprecedented levels of connectivity, mobility and resource/service access to new populations. This could have a hugely meaningful impact for countries trying to adapt to the coronavirus and could also be a long-term opportunity. We believe the pandemic is accelerating the penetration of many digital solutions, furthering trends and potentially breaking old habits.

Out of necessity, new users are experimenting with grocery delivery, online education, streaming entertainment and WFH. These solutions are proving particularly effective in China. In some countries, rapidly increasing user bases could challenge the number of customers companies can accommodate at one time. Streaming entertainment, online education and WFH solutions are likely the most scalable beneficiaries of this crisis. The growth of ecommerce and food delivery is potentially more constrained due to their physical limitations.

Though these are positive trends, it remains to be seen whether companies will retain customers when the pandemic subsides. Importantly, we think companies and consumers alike will then look to tech to help future-proof their lives. We believe many innovative providers — notably those mentioned above — will 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 could see its already-compelling trend accelerate. We believe 5G offers the potential to revolutionise 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, in China, app downloads had a 40% increase in the first two weeks of February compared to 2019 averages, and gaming apps were more than triple the next most downloaded category (education).2 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 gamers3 with an average age in the mid-30s.4 In our view, the next generation could nearly all be gamers, and the opportunity will further increase as gamers’ wealth rises with age.

Figure 2

The rapid growth of mobile gaming

The future of pervasive tech

In the next five years, we believe the pervasiveness of Asia 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 this 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 1.2 devices per person in 2018 to 3.4 devices per person in 2025. Notably, this growth is not restricted to consumer devices (Figure 3).

Figure 3

The broad growth of Internet of Things (loT) devices

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 offers long-term investment and access opportunities across industries and borders. The current pandemic further highlights the critical nature of this persistent trend.

1Harvard Business Review, “Delivery Technology Is Keeping Chinese Cities Afloat Through Coronavirus”, March 2020. | 2Financial Times, “China app downloads surge due to coronavirus outbreak”. As of 19 February 2020. | 3Nielsen, 2017. | 4Entertainment Software Association, 2017.

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