How 5G Will Affect the Fortunes of Apple, Amazon, Microsoft and the Rest of Big Tech

Apple will be the most immediate beneficiary of 5G as it makes its first iPhone model with the technology this fall, but there’s plenty if opportunity for Amazon, Microsoft, Google and Facebook in richer apps and services.
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5G networks are going to bring corporate networking speeds to smartphones for the first time ever, and that could mean big things for tech’s top companies — Apple  (AAPL) - Get Report, Alphabet  (GOOGL) - Get Report, Amazon  (AMZN) - Get Report, Microsoft  (MSFT) - Get Report, and Facebook  (FB) - Get Report.

Although TheStreet has pointed out in past that 5G will take longer to deploy than most expect, it’s not too soon to start thinking about the profound effects 5G could have on tech giants.

As TheStreet noted last year, the main beneficiary of 5G will be the established tech giants, not the carriers. Whether in the U.S., in China, or in Europe or other markets, 5G is not going to lead to a dramatic surge in subscribers for carrier networks. Most markets are simply too saturated to bring in a whole new group of customers. In some emerging economies that may not be true, but those markets will be the exception, not the rule.

There will be longer-term benefits for carriers, including much more efficient use of their cellular networks, saving carriers tons of money. But the payoff from that will take longer to be realized.

For tech firms, however, the prospect exists for a whole new class of applications based on low latency and greater bandwidth that can extend their product lines and bring in new users and customers.

5G networks have a number of potential benefits over conventional LTE cellular service, mostly speed and what’s called latency, the delay in sending the first few bits of data. Users of smartphones and other devices will be mostly focused on speed. In tests, Qualcomm  (QCOM) - Get Report, which makes the radio chips that power most smartphones, has said the rate at which one can download data over cellular to a phone can increase nine-fold with 5G, from 52 megabits (millions of bits) per second to 493 megabits. (See Qualcomm’s presentation slides for more info.)

The exact speed people can potentially get depends on details such as which spectrum band is being used. Qualcomm has said speed can go into the gigabits (billions of bits) per second. Certainly, for the average user who might now be getting 40 megabits per second in a major urban locale, if they’re lucky, the main point is that their phone may have a feel of connectivity much more like being on either home broadband or a corporate local area network. And that’s a meaningful improvement.

Apple would be the most immediate tangible beneficiary of this boost in speed. If, as expected, Apple introduces its first 5G-capable iPhone this September, it will be following in the footsteps of numerous other vendors such as Samsung Electronics that have already brought a 5G unit to market. That means that Apple can market a significant new feature to its customer base this fall. After several years of just making camera and other related tweaks to its new iPhones, Apple badly needs a big new feature to stand out.

Apple stopped reporting iPhone units In December of 2018. The FactSet consensus is that iPhone sales probably dropped 15% in the fiscal year ended this past September, and will be flat this fiscal year, before surging 7.1% in fiscal 2021. But Dan Ives, who follows Apple shares for Wedbush Securities, models Apple perhaps selling 220 million units of iPhone in fiscal ’21, would be over 15% unit growth. 

“It all comes down to 350 million Apple customers who haven’t upgraded their phone in 40 months,” says Ives, out of a total installed base of 925 million Apple iPhone users. In other words, a ton of Apple users will come off the fence because of 5G, Ives reckons. 

For the cloud computing divisions of Alphabet, Amazon and Microsoft, the benefit is to be able to push much more computing out to the edge of their networks. Right now, the case for cloud computing is limited by the slowest link -- that to and from the individual computing device. For example, any calculations performed either on server computers or on the smartphone have to be then summarized during a cellular session so as to efficiently utilize the cellular data link.

It’s possible that with much greater bandwidth, Amazon and Google and Microsoft can sell many more interactive applications that have a constant stream of very rich interactions between server and client device. The most obvious showcase example would be cloud gaming services, since those services often need intense graphics transmission but also require much lower latency in response times in situations such as first-person shooter games.

But the implications are even broader. Consumer apps on a phone could take advantage of real-time voice recognition and also use the cameras on a smartphone to capture facial expressions and go back and forth between cloud and device. The ultimate effect is that the user interface of cloud-based applications can become much richer overall. That allows Amazon and Microsoft and Google to ultimately sell more cloud services. There are no reliable estimates for incremental cloud revenue, but just imagine Amazon and the rest taking a chunk of the sales of, say, Oracle  (ORCL) - Get Report or another prominent enterprise software vendor.

Facebook has a similar opportunity, with the user interface for its properties having the potential to be much richer. The prospect of performing real-time video chats — think of something like Zoom Video meetings — will for the first time be feasible for a substantial segment of the company’s user base as long as they’re within a coverage area.

Again, it will take time; TheStreet expects roll-out of coverage in major markets to be painfully slow compared to the over-hyped promises of all carriers and vendors -- perhaps taking into 2023 to fully roll out. But the tech giants are patient, and they know this is where the technology is going. You can be sure they are making plans to exploit the kinds of rich new user interfaces and cloud services described above.