The Battle for 5G

There’s been a lot of noise around a possible trade war recently. And ‘noise’ is probably the best way to describe it. Trump’s tariffs on steel and aluminium are designed to protect US jobs against over production from China.

But the US actually imports little steel from China. Much of it comes from long term allies and trade partners Canada and Mexico, which will probably be exempt from the tariffs.

While the world wrings its hands about what all this might mean for the future of world trade, a much more important development took place around the same time.

Last week, the US government blocked Singapore-based semiconductor company Broadcom from buying US-based Qualcomm. Qaulcomm manufactures chips for mobile phones and is investing heavily in 5G mobile technology.

The concern is that Broadcom would cost-cut at Qualcomm and reduce investment in 5G wireless technology. That would leave China’s Huwei with a competitive advantage in the crucial 5G space. Or as the Wall Street Journal put it:

One of the key concerns CFIUS [the US entity that assesses foreign takeovers] laid out about the Qualcomm bid was Broadcom’s “relationships with third party foreign entities and the national security effects of Broadcom’s business intentions with respect to Qualcomm”

We don’t hear too much about the semiconductor industry in Australia. That’s because we don’t have one. But it is the key industry of the future. And 5G wireless technology will drive industry.

Widespread use of driverless cares and artificial intelligence, for example, both need the enlarged capacity and huge increase in speeds that 5G technology brings.

You’ve probably heard of the ‘internet of things’. This is where an increasing number of ‘things’ (or just about every thing if you believe some) become connected to the internet. All of those ‘things’ will need a chip in order to connect.

That’s why the US sees control of the chipmakers as a part of their national interest. And whoever builds a 5G network first will have a genuine competitive advantage because of the immense productivity benefits it will bring. 

Could 5G drive productivity growth?

Productivity is the holy grail of economic growth. To increase productivity means a nation increases production with the same, or less inputs. It provides non-inflationary, or ‘real’ economic growth.

In a world of dangerously high debt levels, productivity growth is much sought after as it increases real economic growth without necessarily threatening higher interest rates.

5G wireless technology could well be the driver of future productivity growth. Apparently the Trump administration tossed around the idea of building their own 5G network across the United States, although they denied the story when it broke in January this year.

But it just goes to show how important it is to get this technology implemented. Which is where Qualcomm comes in as a company of national strategic importance. According to cnet:

While many of the standards [for 5G] are in place, there are still plenty of details to be worked out.

That’s where Qualcomm comes in. The San Diego, California-based company, the world’s largest maker of chips for smartphones (if you own a high-end Android smartphone, it’s likely using a Qualcomm processor), owns a number of the technologies that served as the foundation for 3G and 4G technology, and it’s been pouring R&D dollars into 5G.

“Details of the security risk are likely around 5G cellular technology [where] Qualcomm, in our view, is well ahead of foreign and domestic competitors,” said Stifel analyst Kevin E. Cassidy in a report late Monday. 

Apparently, the US government agrees.

Despite all the hype, I would caution against thinking 5G will be some kind of productivity saviour. After all, wasn’t the internet supposed to make life easier? In the mid to late 1990s when the internet was still all possibility, no one really considered the emergence of productivity-sapping things like social media.

I happily have zero social media ‘presence’, and I think I’m much more productive for it. But I digress…

5G is coming and, whatever it brings, it’s going to be big. And more than steel or aluminium, it’s going to be a battleground for the world’s biggest economies, the US and China.

Where does Australia sit in all this?

Umm…we’re still rolling out a broadband network that was conceived in 2007, before anyone really had a smartphone. And by the time it’s done, we’ll have spent around $50 billion on it. And then 5G technology will come into play. While localised rollouts are starting already, more widespread use of these networks won’t occur until 2019 and 2020.

In other words, NBN usage will probably peak very soon, and then begin a long and slow decline as users migrate to 5G technology. Great…

Note to Australia: Don’t ever let the government build any national technology project again. Ever.

Greg Canavan,
Editor, Crisis & Opportunity

Greg Canavan is a Feature Editor at Money Morning and Head of Research at Fat Tail Investment Research.

He likes to promote a seemingly weird investment philosophy based on the old adage that ‘ignorance is bliss’.

That is, investing in the Information Age means you have all the information you need at your fingertips. But how useful is this information? Much of it is noise and serves to confuse, rather than inform, investors.

And, through the process of confirmation bias, you tend to read what you already agree with. As a result, you often only think you know that you know what is going on. But, the fact is, you really don’t know. No one does. The world is far too complex to understand.

When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases.

Greg puts this philosophy into action as the Editor of Greg Canavan’s Investment Advisory.

Read correctly, a chart contains all the information you need. It contains no opinions or emotion. Combine that with traditional stock analysis and you have a robust stock-selection strategy.

With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the basic, costly mistakes that most private investors do every time they buy a stock.

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