As we approach the end of the year, it is evident that fifth-generation (5G) wireless networks have gained critical mass in 2020, despite the impact of the novel coronavirus pandemic. Sales of smartphones compatible with the latest networking technology have increased at a terrific pace this year, while carriers continue to roll out 5G into more markets.
Not surprisingly, the Defiance 5G Next Gen Connectivity ETF (NYSEMKT:FIVG), which is composed of companies engaged in the rollout of 5G networks and tracks the BlueStar 5G Communications Index, has outperformed the broader market in 2020.
But investors who have missed the 5G bus in 2020 shouldn't be disappointed, as the technology is expected to gather more steam next year. Gartner estimates that 5G infrastructure investments could hit $8.1 billion in 2020, reaching nearly half of the $16.4 billion investment in 4G and long-term evolution (LTE) networks. The firm predicts that 5G infrastructure investments could exceed 4G by 2022.
Meanwhile, 5G smartphone shipments are expected to nearly double in 2021, hitting 544 million units. All of this means that companies involved in the rollout of 5G infrastructure and smartphones -- including Micron Technology (NASDAQ:MU), Apple (NASDAQ:AAPL), Marvell Technology Group (NASDAQ:MRVL) -- could keep enjoying solid tailwinds next year. Here's why.
1. Micron Technology: Capitalizing on the need for more memory
Memory specialist Micron Technology could see a sharp spike in demand for dynamic random access memory (DRAM) and NAND flash memory next year, as 5G smartphones are expected to use more memory than their 4G counterparts.
The company anticipates that mid-range and low-end 5G phones could be equipped with at least 6 GB (gigabytes) of DRAM, compared to the 2 GB and 4 GB configurations seen in 4G devices. On the other hand, flagship 5G smartphones are expected to rock at least 8 GB of DRAM, compared to the 6 GB standard seen on 4G phones.
NAND flash storage on mid-range and low-end 5G smartphones is anticipated to jump to 64 GB and 128 GB configurations, compared to the 32 GB and 64 GB options seen on 4G devices. High-end 5G smartphones are expected to carry 256 GB/512 GB storage, compared to the 128 GB/256 GB of earlier models. The chipmaker estimates that DRAM demand could clock a compound annual growth rate (CAGR) of 15% through 2022, while the NAND market could grow at a faster CAGR of 30%.
More importantly, Micron seems to be in a good position to take advantage of the booming 5G smartphone memory market. The company's mobile revenue growth has outpaced the broader industry in recent years by a wide margin. Micron claims that its mobile revenue increased 104% from 2016 to 2019, while the industry's revenue increased by 28%, pointing toward a higher market share.
Given that Micron has been taking steps to address the need for power-efficient memory solutions in 5G smartphones, its mobile business could switch into a higher gear in 2021.
2. Apple: A mega-upgrade cycle coming for iPhones?
The shift to 5G smartphones was supposed to be a big tailwind for Apple in 2020, as there are reportedly hundreds of millions of iPhone users in an upgrade window now. The launch of the 5G-enabled iPhone 12 lineup at attractive prices may have already kick-started a mega upgrade cycle for Apple, as initial sales indications and reports of a ramp-up in production indicate.
Day-one preorders for the iPhone 12 were reportedly double those of the iPhone 11, with a range of 1.7 million to 2 million units. (The iPhone 11 was estimated to have sold between 500,000 and 800,000 units on its first day last year.) DigiTimes predicts that Apple could ship around 70 million units to 80 million units by the end of the year, though the company has been having a tough time meeting the higher-than-anticipated demand, according to reports.
But once Apple's supply chain catches up with the initial spurt in demand, the company could step on the gas in 2021. Cinda Securities estimates that the iPhone 12 series could hit between 230 million and 240 million units in shipments next year, which would make it the highest-selling iPhone line-up ever.
The highest number of phones that Apple has shipped in a year was 231 million back in 2015, as per Neil Cybart of Above Avalon, an Apple-focused research firm. According to Cybart's estimates, there are more than 1 billion iPhone users now. The number of iPhone users stood at almost 900 million back in 2018. Given that the average life of a smartphone is around 2.5 years, according to third-party estimates, the iPhone 12 could turn out to be the company's new best-seller considering the potential number of users that could upgrade to 5G networks.
3. Marvell Technology Group: Infrastructure upgrades in high demand
While Micron and Apple are smartphone-centric 5G plays, Marvell Technology can help investors benefit from the infrastructure side. The chipmaker makes processors that are used in 5G base stations (a telecom tower, in simpler terms), and its chips have been chosen by major telecom equipment vendors such as Nokia and Samsung.
The number of 5G base stations across the globe is expected to increase at a rapid pace in the coming years, with one third-party estimate suggesting a CAGR of 50% through 2026. Marvell Technology management indicated on the previous earnings conference call that it is well-placed to take advantage of the growth in the base station market:
This was also the fourth consecutive quarter of sequential revenue growth from the wireless infrastructure market as we benefited from the start of the 5G transition and our diversified design win position at four of the top five tier-one base station [original equipment manufacturers, aka] OEMs. In addition to the top five global OEMs, there's also a very active next tier of more regionally focused OEMs who are developing their own 5G base station equipment.
Marvell gets 56% of its total revenue from the networking segment. The company's revenue from this business shot up 23% year-over-year in the second quarter of fiscal 2021. The huge opportunity in 5G base stations could help Marvell maintain its impressive momentum, especially after the company's latest move to strengthen its presence in the 5G networking hardware market.
Marvell recently struck a deal to acquire Inphi for $10 billion, a move that the company claims is going to improve its position in the 5G wireless infrastructure market and also open new opportunities. Specifically, Marvell estimates that this acquisition would increase its serviceable addressable market from $16 billion to $23 billion by 2023. The two companies together have generated just over $3.6 billion in revenue over the past year, indicating that Marvell is sitting on a huge opportunity to ensure that it keeps growing at a nice pace.
And with the stock trading at just 20 times trailing earnings, investors looking for a fast-growing 5G stock at a reasonable valuation should have Marvell within their sights, as its growth could turn up a notch next year and beyond.