The recently concluded Consumer Electronics Show 2017 in Las Vegas provided a curious glimpse of the wild and wondrous technologies that will change future products and trends.
Despite featuring some comical, attention-seeking gadgets, the show belonged to leading consumer technology players that showcased cutting-edge trends ranging from the futuristic network 5G to artificial intelligence, and from virtual reality to autonomous vehicles.
These tech titans are on the cusp of a great consumer technology cycle that's just getting started. They're refining and advancing tech ideas that are revolutionising and reshaping wide swaths of the business landscape. In the process, they are making billions of dollars by serving such varied industries as telecommunications, media and automobiles.
These businesses have the staying power and resources to withstand intense competition, rapid changes and short life cycles. They are also motivated to continue to innovate and stay ahead of the curve in an industry that's always hungry for the next best thing.
For long-term investors with some risk tolerance, this could be a good time to take a look at the following companies that appear set to benefit from the next technology boom.
Mobileye NV | ||
Ticker | MBLY | |
Current yield | - | |
Forward P/E | 29.9 | |
Price | US$43.49 | |
Fair value | US$55 | |
Data as of Jan. 30, 2017 |
A pioneer in image sensing and processing technology, Mobileye (MBLY) supplies monocular camera-based vehicle vision systems that enable active safety features and advanced driver assistance systems to the global automobile industry. Its primary product is a system-on-chip microprocessor that supports such vehicle features as automated emergency braking, lane-keeping assistance and varying degrees of autonomous driving.
"We expect the adoption of active safety features and advanced driver assist systems (ADAS) by global automobile makers to support our estimated average annual revenue growth for Mobileye of slightly more than 20% for the next 10 years," says a Morningstar report. "Mobileye has positioned itself as the provider of a key technology enabler for vehicle systems that will be required as standard equipment in order for automakers' vehicles to receive coveted four- and five-star government crash test ratings."
Although its competitive advantage is modest, Mobileye enjoys "vastly wide margins and substantially high ROIC's that arise from its asset-light business model," notes the report.
The firm's healthy revenue growth has been trending sharply higher on the back of automakers' adoption of the technology and solid aftermarket demand, says Morningstar equity analyst, Richard Hilgert. "The market has not yet fully recognized Mobileye's growth potential," he says, noting that an asset-light business model means "Mobileye can dramatically grow revenue with no investment in brick-and-mortar, tooling and equipment."
Legislators in the U.S. and Europe have set guidelines that will progressively require the addition of independent vehicle safety features. "As a result," says Hilgert, "new model introductions over the next several years will be incorporating Mobileye technology that enables the safety features being driven by regulators."
The stock is currently trading at more than a 20% discount to Hilgert's US$55 fair value estimate.
Qualcomm Inc. | ||
Ticker | QCOM | |
Current yield | 3.86% | |
Forward P/E | 10.8 | |
Price | US$53.61 | |
Fair value | US$68 | |
Data as of Jan. 30, 2017 |
Qualcomm (QCOM) manufactures digital wireless communications equipment for mobile phones. The company's key patents are licensed by virtually all wireless device makers as they revolve around CDMA and OFDMA technologies, which form the backbone of all 3G and 4G networks. The firm counts Samsung and Apple among its clients and is also the world's largest wireless chipmaker, supplying many leading handset makers with leading-edge processors, and holds a leading market share position in 4G LTE chipsets.
Qualcomm holds a near monopoly on CDMA technology patents, a major wireless communications standard that enables mobile devices to send and receive voice signals and wireless data. As a result, the company "is able to charge a royalty fee as a predetermined percentage (3% to 5%) of the price of each 3G device sold," says Morningstar equity analyst, Abhinav Davuluri, who estimated the stock's fair value at US$68.
Given that all 3G wireless networks are based on CDMA technology, as well as most 4G phones having backward compatibility with 3G, the firm is well positioned to "earn significant royalty fees over the next decade and likely beyond," he adds.
More recently, Qualcomm has been shifting its focus toward more promising avenues of growth as it looks to scale back its reliance on the smartphone space. To that end, Qualcomm has decided to collaborate with telecom (AT&T) and automotive (Volkswagen) companies to accelerate the deployment of 5G, a futuristic network that can deliver faster speeds, ultra-low latency and vehicle-to-vehicle connectivity.
"These developments will form the foundation for 5G and autonomous vehicles, and we expect Qualcomm to leverage these roles into meaningful licensing revenue related to 5G connected devices and chip sales primarily from modem processors," Davuluri said in a report.
Intel Corp. | ||
Ticker | INTC | |
Current yield | 2.78% | |
Forward P/E | 12.5 | |
Price | US$37.42 | |
Fair value | US$31 | |
Data as of Jan. 30, 2017 |
The world's largest chipmaker, Intel (INTC) makes microprocessors and platform solutions for the global personal computer, mobile computing and data centre markets.
The company, which is making a push into the autonomous vehicles market, recently showcased at CES 2017 an automated driving platform called Intel GO, and may have 40 autonomous test vehicles on the road by the end of 2017 in partnership with BMW and Mobileye.
Intel also agreed to purchase a 15% stake in Here, a global provider of digital maps and location-based services. "Strategically, this is a prudent move, as location data is a critical component in achieving fully autonomous vehicles," says Davuluri. "These products and endeavours show how Intel continues to distance itself from the traditional PC market."
The company's sustainable competitive advantage, or wide moat, is built on its scale and ability to invest heavily in developing and making processors, regardless of application. "By continuing to diversify, Intel is positioning itself to be instrumental in the success of whatever growth vector proliferates the most," Davuluri notes.
With multiple acquisitions, Intel is also bulking up its wireless connectivity portfolio. Davuluri regards it as a move in the right direction and stresses that the strategy will "provide a different way to break into a tier-one smartphone, such as Apple's iPhone," and help establish "its presence in the mobile space."
Although Intel's PC-derived revenue is projected by Morningstar as "declining in the low-single digits," it will be offset by "the proliferation of cloud computing and Big Data trends," fuelling growth of its data centre business.
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