Semiconductors everywhere you look, the end of cash, the development of digital entertainment utilities and technology-driven warp speed healthcare innovation will be some of the trends, already visible today, that will define our lives in 2030, according to a long-term lookahead presentation by Capital Group. The overall message in was that yes, the world has changed, but there will still be plenty of opportunity, much of it related to technological development.
Martyn Hole, an eloquent and very personable British investment director with the Capital Group, told his audience of about 60 investment clients that semiconductors – of which we’re hearing about shortages today - will soon, once production and shipping hiccups are cleared up, be everywhere – and in everything. One of the major growth areas for their usage will be in cybersecurity. Hole explained that a major company like Boeing, serving civilian and military aerospace, “see cybersecurity as a massive business.”
Hole was speaking at Tuesday’s Capital Group event in Luxembourg with the topic “How will the world look like in 2030?”
There will be a “tremendous growth in the number of chips in cars”, driven by driving automation elements like power steering systems, or sensors for things like ice on the road, he said. A typical internal combustion engine car has about 1,000 chips in it, while the typical electric car contains 3,000 chips, he explained.
What will really increase the demand for chips, Hole said, would be the arrival of autonomous vehicles on the market. While Capital Group estimates that the average car will have 690 US dollars of semiconductors in it in 2025, consulting firm McKinsey has said driverless cars will contain 350 US dollars more in chips, while and semiconductor manufacturer Infineon has estimated $600 more.
Covid messed up industry supply
Hole said that recent chip shortages for car manufactured were caused by their decision during the early phase of Covid to cancel “a whole load” of orders from chip suppliers when new car orders dipped. These suppliers then realised they had a replacement market: demand for computers and printers and other home IT technology was surging as so many people were working from home.
“Then when demand started picking up again, the car companies went back cap in hand, can we get those orders again, [only to be told] ‘sorry, we’re sold out’”, Hole explained. And he added that it’s believed that this will have cost the car industry over 200 billion US dollars of lost sales.
Tesla was much less affected by the chip shortage than other firms, Hole explained. This is because instead of using specialised chips for each function, it uses “basic, generic” chips that are run by Tesla-designed software that gets them to do their job.
Hole next moved to discuss developments in digital payments area, which is driven by rapid growth in internet data traffic with itself is rising along with digital trade. Hole said the average growth in internet traffic over the past 13 years has been about 45% per year.
Asia dominating in digital payments
Digital payments have grown worldwide, with some regions pushing further ahead than others. Hole pointed to Asia’s 25% growth rate, compared to Europe’s 10%, with the US in the mid-single digits.
Hole highlighted an Indian bank called Kotak Mahindra that operates a digital banking system that allows anyone, even an illiterate Indian farmer, to set up a bank account in five minutes. Hole says he sees an “absolutely enormous” growth potential in the bank.
Hole discussed Paypal’s domination of the Asian digital payments market. However, he explained Paypal does not dominate in Japan, South Korea and China, where the government has restricted access for US firms, opening up opportunities for more local firms.
Netflix’s top-quality content
How we consume our entertainment was Hole’s next area of focus. He said that the adoption of home-consumed digital entertainment has really accelerated during Covid. Now, with the end of Covid, Netflix is facing lower new subscription rates and possible large existing subscriber losses. However, Hole doubts those loss estimates and still sees value in the streaming companies like Apple, Amazon and Disney. “The amount of money they’re now spending on new, original content is huge, absolutely huge.” With the Entertainment Software Association (ESA) estimating about $55 billion on such production for this year, with Netflix behind 30% of it. “So Netflix are twice as big as anybody else.”
Health care innovation is also ramping up quickly, with remote monitoring devices generating a 29% annual growth in revenue. Hole explained that Capital is more interested in equipment supply companies in the health sector than traditional pharmaceutical companies. All the increasing spending on R&D, especially in China, might even put a cure for at least some forms of cancer within reach, he said. He described how Chinese medical researchers are increasingly returning to their home country instead of staying to work in the US.
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