Fifth-generation (5G) wireless networks are ready for prime time in 2020. Gartner forecasts that 5G wireless infrastructure spending will jump to nearly $4.2 billion this year, compared to $2.2 billion in 2019, as more countries jump on the bandwagon. But this is just one side of the story.
Consumers will need smartphones equipped with 5G capabilities to take advantage of the faster 5G network. That’s why the demand for 5G smartphones is expected to hit 123.5 million units this year and account for 8.9% of the overall market, according to estimates from IDC. By comparison an estimated 6.7 million 5G smartphones were sold last year.
Apple’s smartphone opportunity
The smartphone space was in a slump last year. A few 5G smartphones did come out in 2019, but this is going to be the year when the market attains critical mass. Apple is expected to be the biggest beneficiary of the boom in 5G smartphones in 2020.
The iPhone maker has reinvented itself with a new pricing strategy that will come in handy this year. MacRumors reports that all iPhones to hit the market this year will be 5G-capable, including two budget-friendly models.
What’s more, Apple is also expected to launch the iPhone SE 2 this year, priced at just $399. The company could pull off a major coup if it manages to pack 5G into its cheapest offering. Supply chain leaks indicate that Apple could go for a multi-tiered pricing approach and give consumers the option to buy a 5G-enabled iPhone SE 2 at a premium over the base model.
Not surprisingly, Apple is expected to dominate the 5G market. According to Nikkei Asian Review‘s sources, Apple is expected to ship 80 million 5G smartphones in 2020. Similarly, market research firm Strategy Analytics also expects Apple to capture the top spot in 5G smartphones.
Another reason it won’t be surprising to see Apple come out on top in the 5G race this year is that it has a huge installed base that’s reportedly waiting to upgrade to a new smartphone. Wedbush Securities estimates that 350 million iPhones out of an installed base of 900 million are ready for an upgrade. Of these, 200 million iPhones could begin upgrading to a 5G device beginning this year.
All of this makes Apple a top pick to take advantage of the 5G smartphone revolution. Analysts forecast Apple’s top line will return to growth in the current fiscal year and accelerate further in the next one. That would be a big improvement over the past year’s results.
Applied Materials’ role as 5G enabler makes it an enticing bet
Applied Materials is known for supplying semiconductor fabrication equipment to chipmakers, which puts it in a great position to take advantage of the opportunity in 5G hardware. Chipmakers will have to upgrade their infrastructure so they can make chips that are capable of handling the increased data loads.
5G networks are expected to deliver 10 times the data rates as 4G networks, with minimal delays. As a result, telecom carriers and data center operators are expected to carry out a massive upgrade cycle. For instance, Applied Materials predicts that out of 1.7 million base stations in China, only 10,000 will be capable of handling 5G by this year.
Applied Materials, therefore, expects its customers to buy more of its equipment to make chips that can handle the complexity involved with 5G networks. CEO Gary Dickerson indicated the same on the latest earnings conference call. He said that “strong investment by foundry logic customers driven by demand in key geographies and acceleration of the 5G roadmap” make him optimistic about the company’s 2020 performance.
The good part is that 5G-led demand will start having a positive impact on Applied Materials’ financial performance sooner than later, as foundry customers account for just over half of its total revenue. The company’s top line fell 13% in fiscal 2019, but a turnaround is already in progress, as its latest guidance indicates. The company expects…
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