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Uwe Neumann

Uwe Neumann

Senior Equity Analyst, Technology & Telecom

There are many reasons why companies continue to invest in their digital transformation, such as adapting more quickly to changing customer needs, gaining operational efficiency, and boosting profitability. The coronavirus pandemic has uncovered many new reasons to further increase investment in digitalization. Increased mobility, automated real-time processes (edge computing), and at-home education and entertainment are just a few of them.



Moving to the edge

The digitalization trend remains strong. The proliferation of devices connected to the internet is expanding capabilities to collect, manage and analyze a fast-growing data flood. According to Intersect360 Research, IT companies such as Google, Amazon and Microsoft spent USD 57 billion on hyperscale infrastructure (e.g. cloud datacenters) in 2018, and the hyperscale market is expected to cross the USD 100 billion mark by 2023. These investments are a reflection of the huge value in analyzing data created from the data cloud in almost all areas of life and busi - ness. However, there is a growing need to increase not only the central cloud computing capacity, but also the local computing power close to the edge of a network, known as edge computing, in order to capture even more value from data. Compared to central cloud computing, edge computing can provide real-time local data analysis to devices with very low latency, along with context-awareness, and increased security and scalability.

Edge computing complements cloud computing, particularly in a 5G network environment that offers low-latency data transmission rates. One large US telecom company posted in a blog earlier this year that 2020 would be an “epic year for the edge.” Indeed, a large number of edge computing projects initiated by telecom operators are already on the way, as they aim to make the best use of 5G networks, according to the European 5G Observatory. Examples include small data centers, which can be placed at mobile towers or in large buildings to build out services, such as secure drone delivery networks, augmented reality (AR) gaming and marketing services, improved billing/material handling in self-checkout machines in stores, or to track real time the condition of patients in hospitals.

According to McKinsey & Company, this new area of edge computing (including sensors, on-device firmware, storage and processors) could create more than USD 200 billion in hardware value in the next five to seven years. Edge computing is most attractive in areas such as travel, transportation, logistics, global energy and materials, the public sector, agriculture and utilities. It could further help in finding solutions to the challenges presented by climate change, energy consumption, water quality and shortages, and autonomous transport. This area should, therefore, benefit from government support as well. 




McKinsey study "What edge computing means for hardware companies" (November 2018)

Artificial intelligence

Real-world applications

Artificial intelligence (AI) has grown substantially in the last couple of years, and is finding its way into real-world applications. According to McKinsey’s Global AI Survey, 58% of respondents reported that their organizations have embedded at least one AI capability into a process or product in at least one function or business unit. That was up from 47% in 2018, which shows a steady increase in AI adoption. IDC estimates that global spending on AI systems will increase to USD 98 billion in 2023 from USD 38 billion in 2018. Additionally, a surge in Internet of Things (IoT) devices and the proliferation of edge computing will push AI in cybersecurity to an estimated USD 38.2 billion by 2026 from USD 8.8 billion in 2019, according to MarketsandMarkets. 

Larger tech players continue to play a critical role in AI’s development, thanks to their vast customer bases that churn out huge amounts of data every day. This provides the opportunity to test and enhance AI technologies. That said, startups are also helping fuel further innovation in AI. Total private investments in AI reached around USD 40 billion in 2018 and are expected to exceed that in 2019, according to CapIQ and Crunchbase. But while AI’s potential technology has been firmly established, actual applications remain limited to a few areas. AI technology will continue to gain scale in coming years.



AI is leading to exciting innovations. For example, the UK-based startup Exscientia and the Japan-based pharma company Sumitomo Dainippon Pharma used AI algorithms to develop in about 12 months a drug molecule that could treat patients with obsessive-compulsive disorder. Typically, drugs can take more than 4.5 years to get to the trial phase. Exscientia is now working on potential drugs to treat cancer and heart disease, according to a BBC report. We would also expect AI application fields in viral outbreak modeling to emerge from the coronavirus pandemic. Oil companies like ExxonMobil and Royal Dutch Shell Plc are using AI in their exploration efforts. There are many examples that reflect the true potential of AI: solving real-world problems.


Virtual reality

New worlds bring new business opportunities

Virtual reality (VR) continues to make small inroads into the consumer electronics space, with improved experience on headsets in terms of weight, processing power and latency issues. Mixedreality headsets (in which virtual objects are linked to the real world) have also been making slow but steady progress. Facebook recently reported that it sold nearly USD 5 million worth of content in its Oculus VR hardware and software store on Christmas day, a landmark that indicates that a larger ecosystem is in development. Innovation is also continuing, with Panasonic Corporation recently unveiling new VR eyeglasses that are smaller and do away with the uncomfortable head strap. As such, the market will continue to grow amid increased adoption in various industries, such as manufacturing, healthcare, retail and entertainment.

"Seeing is believing" 2019 report by PwC, Credit Suisse


"Seeing is believing" 2019 report by PwC, Credit Suisse



These new technologies including VR, augmented reality (AR) and AI should be considered in terms of the larger potential economic change they bring about rather than their short-term impact, such as in the consumer devices market. In its “Seeing is believing ” report from December 2019, PwC estimates that VR and AR have the potential to boost the global economy by USD 1.5 trillion by 2030, compared with a current estimated contribution of USD 46.4 billion. PwC predicts that in 2030, 23 million people will work with AR/VR, an increase from 824,000 jobs in 2019. The large-scale test case for remote-working during the coronavirus pandemic will likely accelerate this trend. These technologies offer benefits to businesses, including improved product development (speedier trainings, collaboration, testing and simulation of scenarios, etc.), enhanced workplace safety, lower costs and the development of new customer experiences. 

The AR space, in particular, is becoming more interesting. While VR has been more visible to date, AR could be twice as large a value creator in the long run with applications in both the consumer and enterprise space, according to PwC. Apple is enthusiastic about AR: Chief Executive Officer Tim Cook has said that “in a few years, we’re not going to be able to imagine our lives without [AR].” New products feature hardware specifically designed for AR experienc - es. A suite of tools unveiled at the Apple Worldwide Developers Conference make the creation of ARKit apps easier than ever.



Beyond the doctor’s office 

The healthcare market is increasingly becoming an area of interest for large IT companies, which are approaching it in different ways. German software company SAP has announced an application targeted at senior citizens that combines input from multiple data sources, including wearables, sensors, and even voice assistance, into a single dashboard view. This solution helps predict risks, organize care, share visibility with the family, and provide independence to elderly people. Another example comes from the US startup firm Komodo Health. It collects anonymized data from patients and payers (insurers), capturing every interaction between patients and the US healthcare system. This provides improvement opportunities for the healthcare ecosystem. Other US technology companies – through their own organic business and acquisitions – are focusing on the mHealth (mobile health) sector and the monitoring and managing of individual health anytime, anywhere.

Biomedtracker | Informa Last data point: 19 February 2020


Biomedtracker | Informa Last data point: 19 February 2020



This is creating an explosion in personal health data, which consumers can share with their doctors (even in real-time using edge computing power in the future). According to Fortune Business Insights, the global wearable medical device market could grow by a CAGR of 24.7% to reach a size of USD 139.4 billion in 2026 from USD 24.6 billion in 2018. For now, this market is highly fragmented with different niche areas. 

The more interesting healthtech area seems to be the diagnostic and gene therapeutics market, where the use of robots, big data and AI is opening many business options. While only a few gene therapies have so far received regulatory approval, there is a huge and increasing number of preclinical projects. The main beneficiaries and drivers of growth are specialized biotech firms and big healthcare companies. The latter are already adjusting their business cases to expand in the new growth areas through the acquisition of successful smaller companies or through investments in their own research. The coronavirus outbreak will also likely serve as a catalyst for the development of telemedicine services, as regulators become more supportive of such solutions, and health insurers less reluctant to cover them.


Industry 4.0

Robots master more tasks

More than 2.4 million industrial robots are currently operating in factories around the world, according to a report from the Interna - tional Federation of Robotics (IFR). Though this number is slightly below the industry group’s own 2016 prediction (2.6 million), the industrial robots market is still showing impressive growth. But there is room for further upside: the IFR’s 2020 World Robotics Report shows that robot density in the manufacturing industry is 99 per 10,000 employees. Going forward, the rollout of 5G networks with increased data transmission capacity combined with local edge computing power will open up many more uses of robots, including unmanned vehicles and the automation of processes in manufacturing as well as non-industrial areas.

Drone Industry Insights, April 2019


Drone Industry Insights, April 2019

Drones crowd skies

Drones are no longer a “toy” and are quickly turning into a business tool. Given progress in software, cameras, sensors and edge computing technology, Drone Industry Insights expects the drone market to grow by a compound annual growth rate (CAGR) of 20.6% between 2018 and 2024 to USD 43 billion. More companies are exploring innovative drone-driven services. Indeed, the Federal Aviation Administration (FAA) said in its FAA Aerospace Forecast Fiscal Years 2019–2039 that the commercial drone market could triple in size by 2023. Companies in various sectors are exploring drone technology. For example, a UK-based telecom service operator has announced plans to partner with a Chinese drone company to build a drone delivery network in Germany. 

Digital twins

Another interesting area that is at an inflection point is the “digital twin” market. According to a definition by GE, “digital twins are software representations of assets and processes that are used to understand, predict and optimize performance in order to achieve improved business outcomes.” This pure software market is expected to grow to USD 35.8 billion in 2025 from USD 3.8 billion last year, according to a 2019 MarketsandMarkets report. Given progress in advanced communication interfaces, analytical technics (e.g., machine learning, AI) and higher flexibility of data storage (e.g., dynamic flash storage technology) companies are increasingly adopting digital twins in order to achieve operational efficiencies, cost savings and improved time-to-market and product designs.


Ones to watch


  • Telecom equipment and semiconductor firms with strong exposure to the rollout of 5G networks and edge computing architecture, tower companies and construction firms that maintain and implement 5G networks, and local data transmission platforms.
  • Software, IT services and semiconductor companies that are enablers for AI, VR, AR and industry automation processes.
  • Internet platform providers that disrupt traditional businesses; for example in healthcare, media, advertising and agriculture.
  • Companies in the healthcare sector that use technology to improve execution in areas such as diagnostics, sequencing, therapeutics, care delivery and the development of medical devices.


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