Fifth-generation wireless networking, popularly known as 5G, is almost upon us as various stakeholders in the 5G race are scrambling to play their parts. Verizon, for instance, launched the world's first commercial 5G network in October this year. Other U.S. carriers such as AT&T have been testing the technology for quite some time, and early deployments have already begun.
Looking abroad, China is expected to lead the charge in 5G networks. The country's big three telecom carriers will start deploying 5G networks from early next year and build them out at an aggressive pace through 2021. As such, now seems to be the right time to buy into the 5G revolution, and Keysight Technologies (KEYS 0.91%), Skyworks Solutions (SWKS 0.72%), and Micron Technology (MU -0.71%) can help investors benefit from different facets of this technology.
A crucial cog in the wheel
Any new network deployment requires testing, which is where Keysight Technologies comes into play. Keysight helps networking companies such as telecom operators and equipment manufacturers test critical equipment so they can move from the research and development phase to volume manufacturing.
Keysight will accelerate the time to market for 5G networking equipment. The company has already made moves to tap into this opportunity by launching a 5G base station manufacturing test solution back in September. It claims that this solution's scalability and cost-effectiveness will allow network equipment manufacturers to conduct volume testing of the infrastructure equipment required for 5G deployments.
Such solutions should help Keysight ride the growth of massive base station deployments that are needed to enable 5G networks on a global scale. Market information provider Dell'Oro Group estimates that base station shipments will exceed 20 million units in the coming five years.
The good news is that Keysight is already benefiting from this opportunity. The company's revenue rose 19% annually in the latest quarter to $1.05 billion.
It won't be surprising to see Keysight extend its streak and record stronger earnings growth over the next five years as 5G deployments gain steam and create the need for more network trials. Keysight looks like a great way to take advantage of the 5G revolution as it trades at less than 14 times next year's earnings estimates.
More than just a smartphone play
Skyworks Solutions is best known for supplying smartphone communication chips, but the company has found a different way to take advantage of the 5G market. The company recently announced a comprehensive set of solutions to power 5G base stations, including small-cell amplifiers. Small cells are going to play an important role in the functioning of 5G networks because their deployment improves network efficiency, increases network capacity, and also expands coverage.
That's why telecom operators are building out small-cell grids to provide high-speed 5G connectivity to customers. As a result, sales of small cells are estimated to shoot up from $13 billion last year to $58 billion in 2024.
However, there's one more way Skyworks is setting itself up to take advantage of the 5G revolution. Once 5G deployments by telecom carriers gain momentum, smartphone OEMs (original equipment manufacturers) will also need to upgrade the radios on their devices to support the higher bandwidth.
Skyworks has already made a play to ride this change by rolling out its 5G antenna tuning solutions a few months back. The number of antennas in smartphones is expected to increase from an average of two to four at present to an average of four to seven to support higher data transfer rates. This means that 5G smartphones will probably consume a lot more battery, but Skyworks has a solution to this problem.
Skyworks is promising that its 5G antenna tuning solutions will allow smartphone OEMs to maintain power efficiency and enjoy strong battery life despite an increase in signal processing load thanks to a compact size. This is a smart move on Skyworks' part, as shipments of 5G smartphones should go through the roof in the coming years. Counterpoint Research estimates that 5G smartphone shipments will increase 255% through 2021, and potentially grow at a terrific pace beyond that as consumers upgrade to the new wireless technology.
Finally, Skyworks is attractively valued. The stock's trailing price-to-earnings (P/E) ratio is 14, while its forward multiple is even lower at just 8.6, giving investors a cheap way to buy into the impending 5G revolution.
A play on the data boom
It is believed that 5G networks will be at least 10 times faster as compared to 4G in real-world situations. Such a massive speed bump would lead to a data boom, creating the need for more storage not just in smartphones, but also in data centers. Because data will be generated at much faster rates, the speed of hosting, storing, and streaming the data will also have to increase. As such, data centers will have to accelerate their move from legacy hard-disk drives (HDDs) to solid-state drives (SSDs).
This is where Micron Technology comes into play with its 3D NAND technology, which could help data centers stay on top of the 5G boom. The memory specialist revealed the industry's first data-center-specific SSD utilizing quad-level cell (QLC) 3D NAND technology in May this year. The advantage of this new SSD is that it provides 33% more data storage capacity as compared to the preceding technology, allowing data centers to use flash storage thanks to lower operating costs.
Additionally, Micron's SSDs are designed to provide real-time access to data for the purposes of analytics, machine learning, big data, and content delivery, among others. That's because SSDs are much faster than traditional HDDs in both performance and boot times. Not surprisingly, SSD sales are estimated to more than double to $61 billion in 2023 as compared to $26.4 billion last year, indicating that Micron is sitting on a solid growth opportunity.
Finally, Micron Technology can be considered to be dirt cheap from a valuation perspective, with a trailing P/E of 3, though investors need to know that it is a cyclical stock that's dependent on memory market conditions. However, if memory demand continues to be strong and supply remains at reasonable levels, Micron could prove to be a smart 5G play.
The bottom line
These companies are preparing to take advantage of 5G wireless networks that are still in their infancy. The good news is that investors won't have to wait for long as deployments have already begun. Investors looking to buy into this trend should take a closer look at these three stocks.