Digital Infrastructure Monthly Report | May
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- Demands for increased storage capacity, higher
bandwidth, and faster transmission speeds do not represent a cyclical trend but
are effectively perpetually increasing as info tech becomes an integral part of
every aspect of our lives.
- The 2020 Coronavirus pandemic has greatly
accelerated the global economy’s embrace of technology, especially in
education, remote work, communication, shopping, transacting and data
- The shift to 5G represents a significant point
in the virtuous cycle of connectivity and use whereby greater bandwidth leads
to more app development and more connected devices which in turn generate even
more data that can be monetized, thus driving the need for even more capacity.
- Both China and the US are ramping efforts to
accelerate the rollout of 5G and their respective semiconductor ecosystems amid rising wireless and data centre
BITA Digital Infrastructure and Connectivity Index (TBDIGI) Performance
Past performance is no guarantee
of future performance.
Source: Tematica, BITA
Index, in USD. 12 Month figures based on 30.04.20 - 30.04.21.
April saw the underlying index of our Digital ETF rise 4.35%, driven largely by Data
Networks and Digital Processing names. The top ten contributors to performance
for the period represented 25.04% of the index but contributed to approximately
87% of the return while the bottom ten detractors to performance represented 14.33%
of the index and contributed to approximately 35% of April’s results.
The top ten contributing names, while representing 4 of all 6
segments showed some concentration in Digital Processing names with Mediatek
(2454-TW) [24.92%] and Nvidia (NVDA) [12.45%] combining to account for
approximately 41% of index returns. Data Networks names PayPal (PYPL)
[8.01%] and Square (SQ) [7.83%] advanced as investors anticipate growth
in both networks as PayPal looks to embrace cryptocurrency transactions and
Square’s Cash App has quickly become a destination for disillusioned Robinhood
traders and others looking for alternatives to traditional brokerages.
All six segments were represented in the top ten detractors
to April’s performance, Digital Solutions & IP names Inseego Corp
(INSG) [-11.20%], Fastly (FSLY) [-5.07%] continued to sell off after
missing EPS estimates in March’s earnings call and, of all things, exceeding
estimates, respectively. Intel (INTC) [-10.11%], despite posting good
segment growth in some segments saw a decline in Data Centre sales as both
units sold and profitability were negatively impacted.
Digital Infrastructure and Connectivity
UCITS ETF Performance Table
As of 30.04.2021
Digital Infrastructure and Connectivity UCITS ETF
Tematica BITA Infrastructure and Connectivity Index (TBDIGI)
Performance before inception is based on back tested data.
Back testing is the process of evaluating an investment strategy by applying it
to historical data to simulate what the performance of such strategy would have
been. Back tested data does not represent actual performance and should not be
interpreted as an indication of actual or future performance. Past performance
for the index is in USD. Past performance is not an indicator for future
results and should not be the sole factor of consideration when selecting a
product. Investors should read the prospectus of the Issuer (“Prospectus”)
before investing and should refer to the section of the Prospectus entitled
‘Risk Factors’ for further details of risks associated with an investment in
this product. Source: Tematica / BITA / HANetf. Data as of 30/04/2021
U.S. based grocer Kroger announced it is beginning to test
drone powered home delivery.
While not as impactful as a company like Amazon making similar announcements,
Kroger still is the fifth largest retailer in the world. Aside from power,
drone networks just don’t function without the network. Another bit of momentum
powering us through the virtuous cycle towards increases in both use and
capacity of existing digital infrastructure.
Amazon web services (AWS) announced it has launched
what it is calling FinSpace, a new data management and analytics service for
the financial services industry.
While Amazon is not a constituent of the index, these developments and
future growth bode well for the infrastructure providers that are.
Microsoft (MSFT) announced this past month that it
will be launching a commercial virtual desktop service, meaning that users will
not only be able to access Office 365 and other software remotely, but also be
able to utilize cloud-based processing power and storage to run those
applications. The company also announced they are on pace to build anywhere
from 50 to 100 data centres in at least 10 countries in 2021. Again, while not
an index component, the news and subsequent investment will lift future
earnings of those constituents that are part of the supplier chain for this
Honda Motors (HMC) and Verizon (VZ) announced
they are conducting a study on 5G network bandwidth and latency to determine
suitability for development of autonomous vehicles.
Regardless of the outcome this will be a net positive either for companies
involved in the current 5G buildout or the future buildout of the 6G network.
Technologies (DELL) announced it will
spin off its 81% stake in VMware (VMW) in a special cash
dividend of $11.5-$12 billion to all VMware shareholders.
InterDigital's (IDCC) subsidiaries have renewed their multi-year, worldwide, non-exclusive,
royalty-bearing patent license agreement with Sharp
Corporation (SHCAY). The agreement, which was set to
expire in 2021, will continue to cover Sharp’s sale of its 3G and 4G mobile
products. Sharp has been a continuous licensee of InterDigital since 1998,
spanning multiple generations of cellular technology.
PayPal (PYPL) announced the launch of crypto on Venmo, a new way for
Venmo's more than 70 million customers to buy, hold and sell cryptocurrency
directly within the Venmo app.
While this is a boon for cryptocurrency advocates, let’s not forget that
mainstream adoption of cryptocurrencies speaks not just to advances in payment
choices but to the innovations that underpins the digital infrastructure
virtuous cycle of incremental use driving demand for greater bandwidth which in
turn allows for greater use and so on.
Technology (MRVL) closed its $10
billion cash and stock acquisition of Inphi (IPHI) and
the combined company will use the Marvell name.
March quarter results
at Ericsson (ERIC) missed consensus expectations as
revenue for the quarter was unchanged YoY. Network sales increased by 15% YoY,
and the company shared it sees “strong momentum in the global 5G demand
with lead markets moving forward at high pace” even though it now sees 2021 as
an “investment year” with Q2 earnings similar to 1Q.
Skyworks (SWSK) reported March
quarter revenue that rose 53% year over year and guided its current quarter in
the range of $1.075-$1.125 billion, up 46%-53% year over year,
while MediaTek (MDTKF) sees another sequential revenue increase of
10%-18% for the current quarter.
Helping explain that wireless chipset outlook, as part of its March quarter
results, Qualcomm (QCOM) confirmed it sees 450-550 million 5G
smartphones shipping in 2021 vs. ~240 million in 2020.
also announced its acquisition of the infrastructure and automotive business of
Silicon Labs (SLAB), a move that should bolster its market position as 5G
technologies enable applications that include the connected and autonomous car
as well as the internet of things.
Biden Administration’s $2 trillion infrastructure bill has earmarked $100
billion towards digital infrastructure development. This is a clear signal that
this administration is serious about not only developing existing physical
infrastructure of the USA, but also building out its digital infrastructure as
well. In addition to the USA Federal Government, the individual States are
doing their part as well. The State of New York passed legislation mid-April
requiring Internet Service Providers (ISPs) to offer qualifying low-income residents
broadband service at either a $15 or $20 per month fee. Less than two weeks
after passing the bill, five telecom industry lobbying groups filed a lawsuit
to reverse or otherwise block the legislation.
The increasing global
dependence on the internet coupled with the virtuous cycle of increased storage
and processing capability leading to more use and innovative application
development is an ongoing process. Upgrade cycles like 5G (and 6G in the next
decade) present both short- and long-term opportunities for those companies
that provide goods and services to the various segments in the digital
infrastructure and connectivity space. Reports suggest “MediaTek has notified
its China-based smartphone clients that it will scale down shipments of 4G
chips in 2021 due to tight capacities at foundry houses.” This would suggest an
accelerated shift to higher priced 5G chipsets and smartphones, which would in
turn drive a similar acceleration in product mix shift at Ericsson (ERIC),
Nokia (NOK) and others that serve the mobile infrastructure market. That
accelerated 5G smartphone shift should also spark interest in the mobile IP
licensing businesses at Nokia and InterDigital (IDCC) among others, as does the
growing 5G conversation around the connected car and IoT applications.
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