Devices such as smartphones, tablets, or wearables and technologies including streaming, navigation and gaming are all possible thanks to global networks and the chips that connect devices to them. Without them, our devices are expensive paperweights. Faster data speeds, lower latency (the delay in getting data to its destination across a network) and more connected devices are driving new and improved applications, along with greater data creation and consumption. They are also fuelling the need to expand and ultimately upgrade existing networks.
The Digital Infrastructure and Connectivity UCITS ETF provides exposure to the companies facilitating today’s digital infrastructure. It features technologies such as 4G and 5G mobile-network connectivity, gigabit broadband, and the next generation of connective systems. The key subsectors in the ETF include data centres, networking equipment and related hardware, and companies focused on intellectual property. These areas are all prime beneficiaries of the surge in digital-infrastructure spending.
Marvell Technology: dealing in data
Grand View Research, a consultancy, forecasts that the data-centre (rooms or buildings housing computer systems) construction market will reach $340bn in 2027, a 64% increase from 2019. Market researcher Mordor Intelligence expects the 5G-infrastructure market to be worth $53bn by 2026, up from $3.5bn in 2020. These numbers bode well for Marvell Technology (Nasdaq: MRVL).
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Marvell derives 80% of its chip revenue from the data-centre, carrier-infrastructure and enterprise-networking markets. Its management team has a proven record of acquiring complementary businesses that have increased its exposure to these areas. Its recent $1.1bn purchase of data-centre switch manufacturer Innovium ensures that the group is far less influenced by short-term product cycles than other semiconductor firms.
Skyworks Solutions: cashing in on chips
Skyworks Solutions (Nasdaq: SWKS) produces radio-frequency (RF) semiconductors, which are used in the telecommunications, aerospace, automotive and defence fields. Skyworks, which counts Apple among its clients, is seeing its potential market grow as 5G becomes more widely adopted.
Each new generation (“G”) in mobile technology requires additional frequency bands per smartphone, which translates into greater RF-chip content per phone. Skyworks’s RF-to-dollar content has steadily risen from $3 per 2G device, to $8 per 3G device, to $18 per 4G device and $25 per 5G device. The burgeoning internet-of-things (IoT) market (made up of objects that connect and exchange data through the internet or communications networks with the help of software and sensors) is set to grow to $1.5trn by 2027, also driving fresh demand for RF chips.
Qualcomm: the future of communication
South Korea aims to deploy the world’s first commercial “6G” network in 2028, so the race is on to develop the necessary core standards and technologies over the next five years. Qualcomm (Nasdaq: QCOM) is a chip producer, but it also owns patents critical to 5G-communications standards. Earnings and cash flow are set to grow as 5G eclipses the 4G market and is eventually replaced by 6G.
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