New mobile communications standard: The 5G winners: Where investors have a good connection | message
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by Klaus Schachinger, Euro am Sonntag
D.he time is of the essence. While the USA and Asia, especially South Korea and China, are accelerating the construction of mobile networks with the new fifth generation (5G) standard, Europe is falling further behind due to the ongoing debate about the exclusion of the Chinese telecom equipment supplier Huawei.
China and the USA, with 30 and 25 percent share of the world market, already have a big lead over Europe when it comes to expanding 5G technology. Meanwhile, the world’s largest network supplier, Huawei, was not explicitly excluded from the expansion of the networks with the changes to the security regulations for 5G recently agreed in Berlin, but the use of its technology was severely restricted according to expert judgment.
55 billion euros additional burden
Industry experts estimate that the replacement of Huawei technology in European 5G networks will cost the telecom operators, some of whom are already heavily indebted, an additional 55 billion euros and delay the expansion by years. The three major telecommunications groups in this country have not yet commented on the changes to the security regulations.
The dilemma: The laws passed under the authoritarian leadership of President Xi Jinping force Chinese companies like Huawei to share customer data with the country’s security authorities. Components of the technology giant are therefore a potential security risk for foreign telecommunications service providers – and also for corporations such as Bosch, BASF, Siemens or Volkswagen that are planning their own 5G networks in their factories.
However, the future mobile radio technology is a necessary prerequisite for companies in order to connect their production to the web and their own IT networks. In 5G networks, large amounts of data are transmitted much faster and with significantly less delay compared to 4G and LTE. Efficient networking of devices and products equipped with web-enabled sensors in the various industries is only possible with 5G. The megatrends that are being pushed by the fifth generation of mobile communications are known as “Industry 4.0” and “Internet of Things”.
The data from machines are to be evaluated in large quantities via the digital infrastructure in order to optimize production and logistics. In addition, the service for complex products, such as the maintenance of jet turbines, is to be improved.
Outfitter Huawei with the equivalent of 110 billion euros in sales for 2019 has become global number 1 with good technology at low prices over the past few years, with a share of 31 percent in the world market. Even in Europe, which represents 15 percent of the world market, Huawei is ahead with a 35 percent share, ahead of Ericsson and Nokia.
Ericsson favorite in Europe
As political pressure on Huawei mounts, investors are speculating about who in Europe could secure the largest shares in the Primus. Supplier Ericsson has the best cards for the US bank Goldman Sachs. “The Swedes could get two thirds of the deal, Nokia one third,” estimates analyst Alexander Duval.
The Stockholm-based group has replaced a significant proportion of its hardware business with the software business and has improved its competitiveness considerably thanks to better prices. This lead also helps Ericsson in China, where the company supplies the three largest telecommunications groups and thus covers ten percent of the market.
Meanwhile in Europe there has been a lot of movement in the market. The UK’s National Security Council decided that network operators would no longer be allowed to shop at Huawei after December 31, 2020. Components already installed must be removed by 2027.
Nokia promptly announced that it would deliver more 5G technology to British Telecom (BT). In the 2G and 4G networks of the largest British user of Huawei technology to date, components made by the Chinese are to be replaced by Nokia parts. In the core area of 5G networks, BT and Vodafone in continental Europe rely on Ericsson. There the networks are controlled via software. This area is particularly important when it comes to sensitive data.
BT estimates the cost of the renovation in accordance with government specifications at 650 million euros. In this country, Deutsche Telekom internally rates a similar scenario as “Armageddon”. Replacing the Huawei technology would cost the Bonn company three billion euros and a five-year delay, according to its own estimates. Many telecom companies are heavily indebted through investments in their networks and licenses and hardly deliver any growth. This means that they are not among the winners of 5G for investors.
T-Mobile US pulls past AT&T
An exception to this is T-Mobile US. Investors see the US subsidiary of Deutsche Telekom as a growth stock: the share price has risen by more than 40 percent since January. The Washington-based company is also heavily in debt after the merger with competitor Sprint. The net liabilities correspond to 2.4 times the estimated operating profit (Ebitda) for 2020. Recently, however, the mobile operator impressed for the 22nd time in a row with higher customer numbers in a quarter. With the 1.2 million new additions, T-Mobile US overtook AT&T and is now America’s second largest wireless operator. The sprint spectrum will help the group to expand its leadership in 5G networks in the USA, judge the analysts from Bloomberg Intelligence.
Experts expect 5G to have effects that in the long run will extend far beyond mobile communications. The long-term potential of wireless technology for the growth markets of automation and digitalization In industry, the Internet of Things and autonomous driving, annual investments in 5G will multiply over the next few years, predict the IHS market researchers. They expect $ 235 billion in 2035. By comparison, spending on cellular technology is estimated to be more than $ 70 billion worldwide in 2020.
Back in time for investors, after a court ruling in August, Qualcomm, the world’s largest developer of wireless chips, is back in the game. The lawsuit filed by the US competition authority, the FTC, alleging that Qualcomm’s business model, which is heavily based on license fees, was hindering competition, was dismissed. The opposite is the case, ruled the judges. Now analysts are looking at the potential of the company based in San Diego. Because he also has 5G chips for automation and the Internet of Things in his portfolio.
The pressure on Huawei has encouraged another tech giant to launch an offensive in the US market: Samsung Electronics. By 2025, Koreans will deliver Primus Verizon 5G equipment worth $ 6.6 billion. With almost 3,000 patents for the new technology, Samsung is in second place behind Huawei, clearly ahead of Ericsson and Nokia.
With digitization on a broad front, more chips with ever smaller architectures are required. The global number 1 for this is contract manufacturer Taiwan Semiconductor Manufacturing (TSMC). The production of 5G chips with conductor track diameters of five nanometers is in full swing. TSMC is the only one in the industry that is already gearing up for three nanometers. The group can afford it. Its debt is low and its free cash flow is high.
In September, the Swedish mobile network supplier took over the US company Cradlepoint, a specialist in long-range radio networks (WAN), for $ 1.1 billion. The biggest acquisition in ten years goes well with Ericsson’s IoT platform and expands the competence in networking within companies. For 2020 and 2021, analysts expect annual profit increases of more than 20 percent each. To buy.
The vast majority of chip companies rely on the expertise of contract manufacturers such as Taiwan Semiconductor Manufacturing (TSMC). The global leader has mastered miniaturization in the production of chips, also for 5G, which should do more and use electricity more efficiently. For 2020, analysts expect 23 percent more sales, almost 41 percent more net profit.
Cellular Chip Developer Qualcomm has a strong 5G portfolio. For the new fiscal year that began at the end of September, 32 percent more sales and a plus of more than 60 percent in net profit are expected. At T-Mobile US For 2021 and 2022, stock exchange traders expect moderate growth in sales and annual profit increases of 25 and 55 percent. Samsung is the global number 1 in 5G phones and Qualcomm’s contract manufacturer.
Surname ISIN Course in €
Qualcomm US7475251036 105.56
T-Mobile US US8725901040 96.75
Samsung Electronics US7960502018 954.00
As of: 10/8/20, 11 a.m.; Source: Bloomberg
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