Fifth-generation (5G) wireless networks gained critical mass in 2020, despite the coronavirus pandemic. A third-party report estimates that 113 operators had deployed the next-generation technology in 52 commercial markets across the world by September 2020. What's more, 35 telecom operators reportedly joined the 5G bandwagon in the first half of 2020, as compared to 21 over the same period in 2019.
The deployment of 5G networks is expected to gather more steam in 2021 as many wireless frequency spectrum auctions by various governments had to be delayed because of the pandemic. Not surprisingly, the 5G base station (cell tower) market is expected to keep growing at a high compound annual growth rate (CAGR) of 33.7% in the future, even though its revenue more than doubled in 2020 to almost $14 billion, according to third-party estimates. The report also points out that the global 5G base station market could exceed $179 billion in revenue by 2028 as the service reaches more markets.
This is great news for companies such as Marvell Technology Group (NASDAQ:MRVL) and Analog Devices (NASDAQ:ADI) that supply base station-related infrastructure. Let's see how these companies can take advantage of 5G deployments in 2021.
1. Marvell Technology Group is riding the growth in 5G base stations
Marvell Technology supplies application-specific integrated circuits (ASICs) and embedded processors that are used in 5G base stations. The chipmaker launched an end-to-end 5G platform at the beginning of 2019 to speed up the deployment of 5G infrastructure that was meant to replace expensive and power-hungry field-programmable gate arrays (FPGAs).
That move seems to be paying off handsomely for Marvell, as its networking business (accounting for 59% of the total revenue) has accelerated in the ongoing fiscal year. Marvell's networking revenue shot up 15% year over year in the first quarter of fiscal 2021, followed by a 23% increase in the second quarter, and an even better jump of 35% in the third quarter that ended on Oct. 31, 2020.
The terrific growth of Marvell's networking business in recent quarters isn't surprising, as the company is supplying its chips to the leading 5G infrastructure OEMs (original equipment manufacturers). Samsung announced in March 2020 that it is making base station infrastructure based on Marvell's embedded processors. Nokia, another major telecom gear manufacturer, also announced in March 2020 that it is using Marvell's processors to power its 5G solutions.
Nokia and Samsung are expected to account for just over 30% of the global mobile base station market this year, according to market research firm TrendForce, indicating that Marvell is well placed to take advantage of the huge growth on offer in the 5G base station market. Additionally, the chipmaker has been able to bring on board regional telecom operators looking to deploy 5G networks. CEO Matt Murphy said on the last earnings conference call, "Our 5G customer base continues to expand and the second regional customer has selected Marvell's industry-leading OCTEON Fusion-based NAND processors to power their new 5G base stations."
In all, Marvell Technology's networking business looks set for better days ahead, thanks to the growing demand for 5G base stations. What's more, the stock trades at just 21 times trailing earnings. So investors looking for a top 5G stock trading at a reasonable valuation should not miss out on Marvell Technology.
2. Analog Devices is about to turn on the heat
Analog Devices' fortunes have started turning around, thanks to a recovery in the semiconductor market. But the rollout of 5G networks could give it an additional boost. Communications, which supplied 20% of Analog's total revenue in the fourth quarter of fiscal 2020, was its best-performing segment during the quarter, with year-over-year revenue growth of 19% as demand for its 5G chips increased.
Looking ahead, Analog Devices anticipates global 5G deployments to play a key role in its growth, with CEO Vincent Roche remarking on the last earnings conference call that it is "the market leader in 5G, a position that will deliver significant growth as 5G broadens globally in 2021 and beyond."
Roche's comments are likely to turn into reality in the new year and beyond, as Analog Devices is already working with key players engaged in the 5G rollout. It partnered with Samsung in 2018 to deploy one of the first 5G networks in South Korea, with the two companies rolling out the network in just three months as compared to the normal duration of six months.
Analog's radio frequency transceivers were also selected by Marvell Technology in December 2020. Marvell is using Analog's transceivers in a massive multiple-input, multiple-output (MIMO) radio unit that's critical for the functioning of 5G networks. Allied Market Research estimates that the global massive MIMO market could clock a CAGR of 35% through 2027, hitting nearly $16 billion in revenue.
So, Analog's partnership with Marvell could pay off in the long run as the latter already has strong connections in the 5G infrastructure space. What's more, demand for the 5G RF (radio frequency) transceivers that Analog sells is also expected to grow at more than 30% a year until the end of the decade, according to a third-party report.
All of this demonstrates why Analog management is confident in winning big from the deployment of 5G networks in the coming years. Analyst estimates compiled by Yahoo! Finance also signal better times for Analog Devices this fiscal year, indicating that the company could deliver double-digit revenue and earnings growth. For comparison, Analog's revenue had slipped 6% in the recently concluded fiscal 2020.
The deployment of 5G will be a key catalyst for Analog Devices next year and add to the tailwinds that it is witnessing in other areas of the business -- making it an ideal bet for investors looking for a diversified 5G play.