Simon Clements

What is the next frontier in the digital age?

Simon Clements

This article was first published by Business Green on 31 May 2017.

The digital age has exploded onto the scene and changed the world in many ways. Most of us now feel lost if we don’t have our smartphone close to hand, while misplacing it feels a bit like losing an arm.

Companies like Apple and Qualcomm pioneered the technology that led to us each having a high powered computer in our hands at all times, and this in turn has created new phenomena such as social media. The questions for investors such as ourselves, though, are – where is technology heading next, and what areas of our life will change as a result?

Having recently spent a week in tech’s heartland, the West Coast of America, it’s obvious there are two clear markets for tech growth: cars and the internet of things (IoT).

We think this could potentially have a material impact on energy consumption across industry and drive some profound improvements on the resources we need to power our modern world.

Qualcomm is an example of an industry leader in this space. Modern smartphone technology is based on its intellectual property and, in spite of being locked in a legal battle with Apple, it is close to securing a deal to buy NXP Semiconductors.

The rationale for this deal is as follows. Qualcomm is the market leader in chips used for high end smartphones, but this is now a mature market, as everyone who can afford an iPhone likely already has one. NXP Semiconductors, by contrast, dominates the market for chips that go into cars, a market where segments are growing at 20% and above thanks to rising entertainment and safety demands from consumers.

First driven by ‘infotainment’ within cars, the future for in-car micro-chips is in Advanced Driver Assistance Systems (ADAS) and the emergence of electric vehicles. ADAS is at the point of mass adoption within vehicles; just as seatbelts and airbags are now standard features in any new car, sensors and cameras around the car will detect possible collisions and brake, detect dangers in your blind spot and identify potential issues such as driver fatigue. Electric vehicle adoption is also at a tipping point. As Tesla says, a traditional combustion engine is a complicated motor with basic electronics; an electric vehicle is a basic motor with sophisticated software and electronics. The technology content is a key growth engine of the future. Chinese technology giant Tencent recently took a 5% stake in Tesla, believing the car of the future to be a connected device. Growth in cars that are safer to drive will offer a great investment opportunity in the coming years.

The other key growth area for the technology industry in the next 10 years is smart machines, or the internet of things (IoT). The market is similar to cars in many ways as technology penetration tends to be low, but a large opportunity set is emerging.

While on the road in the US I met Maxim Integrated, which serves industrial end-markets for analogue semi-conductor chips. Management at the company are excited about the opportunity to have its chips in everyday machines – from fridges to lights. Why fridges and lights? Machine learning and smart machines are driving major change in areas such as energy efficiency, which presents interesting opportunities. One example of an intelligent machine already being rolled out is lighting within a school which can sense, via movement, the time of the day when children’s concentrating is waning, and adjust the lighting to compensate.

Think about your fridge understanding when it’s unlikely to be opened and thus regulating the amount of power it takes from the grid. Another example is the ability to track key assets in the supply chain, such as real-time monitoring of refrigerated containers on ships to ensure no wastage in perishable foods.

Given most machines are not currently connected to semi-conductors, the opportunity set is huge, and the potential benefits from a resource efficiency perspective are equally exciting. LED lighting technology already cuts energy usage by more than 50% and an intelligent system that can sense when lights are needed could reduce cut usage materially on top of this.

An intelligent building can sense when people enter a room and adjust lighting and air-conditioning accordingly, cutting wasted energy again. The backbone to this intelligence is the chip placed in the light fitting or the air conditioning control unit, just as the chip in our phones changed them from something that we use to speak on, to a powerful computer in our hand.

Technology companies across the world are scrambling for position in the world of the IOT. This provides an exciting investment opportunity and also potential benefits in terms of resource efficiency.   

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Monday, June 12, 2017, 9:55 AM