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Display, Telecom and Software INDUSTRY REPORT KB RESEARCH Jeff Kim Analyst / IT Display, Telecom and 82-2-6114-2913 [email protected] Joonsop Kim Analyst Telecom Services/Holdings 82-2-6114-2935 [email protected] Software Danny Lee Analyst Internet, Game, Media, Leisure 82-2-6114-2960 [email protected] 5G, OLED and Content to Stand Out in 2019 Changmin Lee Analyst / IT 82-2-6114-2917 [email protected] Goun Whang RA 82-2-6114-2932 [email protected] MWC19: More immersive fun at faster speeds and on larger screens Caleb Kim RA 82-2-6114-2977 [email protected] We visited the Mobile World Congress 2019 (MWC19 held from Feb 25-28), in Sukyung Lee RA Barcelona, Spain. MWC19 provided us with valuable insight into the hot topics of the 82-2-6114-2914 [email protected] display & consumer electronics, communication and software industries by offering a Jeonghoon Son RA 82-2-6114-2910 [email protected] glimpse of how immersive content can be accessed through smartphones that operate on 5G, the platform for Industry 4.0, without any time or space constraints. This contrasted with IT exhibitions up to this point that only presented abstract concepts March 4, 2019 focusing on self-driving cars. Considering the dawning era of immersive content accessed via 5G foldable handsets, our top picks are Samsung Electronics (SEC), SEMCO, SK Telecom (SKT), NCSOFT, SFA Engineering and Hansol Chemical. We also Positive maintain believe AfreecaTV deserves attention. Recommendations March 4, 2019 Samsung Electronics (005930) Buy Foldable handsets to create added value in various industries Current price KRW44,850 Target price KRW52,000 When connected with other industries through 5G networks, the portability and convenience of foldable smartphones will create added value in numerous industries SEMCO (009150) Buy Current price KRW100,700 throughout the world. This is because foldable handsets, assuming they can be folded Target price KRW148,000 numerous times, will encase screens comparable to PCs and TVs (15-65”) in size, which will expand their usage in education, digital healthcare, games, media and other areas SK Telecom (017670) Buy Current price KRW261,000 when combined with the high communication speeds of 5G networks. A total of 16 Target price KRW360,000 countries will have 5G services available within 2019, while 5G smartphones are NCSOFT (036570) Buy projected to account for 18% of the global market by 2022. Some consider the price Current price KRW448,000 (KRW2.2mn-2.9mn) and physical dimensions (weight, thickness etc.) as obstacles for Target price KRW550,000 foldable handsets, but the expansion of the market will naturally lead to form factor SFA Engineering (056190) Buy improvements and price cuts. Current price KRW43,900 Target price KRW55,000 Telcos to occupy higher ground in 5G ecosystem Hansol Chemical (014680) Buy While MWC18 focused on how 5G could be realized, MWC19 was more focused on Current price KRW88,700 Target price KRW110,000 what would become possible with 5G. In addition to the emphasis on the high speeds, ultra-low latency and super connectivity of 5G networks, MWC19 also AfreecaTV (067160) Not Rated Current price KRW47,450 showcased robotics, IoT and other services enabled by the new communication Target price NA technology. In particular, MWC19 also hinted at the possibility of the telecom ecosystem trinity (network, handset, service) making immersive media services (AR/VR/MR/XR) a reality. Not only does immersive media (AR/VR) provide entertainment, but it has also become a crucial feature in smart factories. This is the reason why the booths of Magic Leap One, MS Hololens and other similar companies attracted many people. MWC19 also reconfirmed that, when excluding certain areas, telcos maintain dominance in two areas of the telecom ecosystem trinity: network and service. www.kbsec.com IT KB RESEARCH 5G foldable handsets to stimulate immersive content demand The commercial launch of 5G services in 2019 is forecast to result in a sharp increase in the quantity and quality of immersive content. The proliferation of cloud gaming services is expected to boost accessibility to games demanding high system requirements, while contributing to the spread of subscription-based services and revenue growth at game developers and platform operators. Furthermore, 4K live streaming, upon realization, will boost the supply of secondary content – particularly, interactive media content. Foldable handsets, such as Galaxy Fold, offer both access to larger screens and portability, which are expected to stimulate demand for games, videos and other premium content. Meanwhile, they will boost the usage time for 5G mobile devices as their superior multi-tasking capabilities allow users to carry on other tasks while viewing content. 2 IT KB RESEARCH I. Digital Transformation: 5G to Encompass Everything MWC19: Focus on changes in telcos’ 5G revenue models and communication service ecosystem 5G to change B2B2X revenue models 5G has been the main theme of MWC since 2015. All booths have been featuring emphasis on the basic characteristics of 5G networks, such as unparalleled speed and ultra-low latency, while providing glimpses into future services, such as self- driving cars, robotics and IoT. This has led some to conclude that 5G is all talk and does not yield tangible services that consumers can experience. However, we believe, unlike its predecessors, MWC19 was a testament to the changed telecom ecosystem. 4YFN: the main arena of startups Handset and communication equipment manufacturers grabbed headlines at previous MWC events. However, MWC19 featured much more diversity, placing more prominence on participants from a wider range of areas, such as automobiles and consulting. Nearly a quarter (23,000) of all visitors to MWC19 flocked to the Fira Montjuic exhibition center, where the 4YFN (4 years from now) took place. The reason for the keen attention to 4YFN is because the revenue models of telcos will shift from conventional B2C models to B2B2X models in the 5G era. Fig 1. Industrial-use IoT using 5G technology Fig 2. Smart factory using 5G technology Source: Huawei, MWC19 Source: KT, MWC19 3 IT KB RESEARCH Fig 3. Smart city using 5G and AI technology Fig 4. 5G and AI used in product distribution Source: Huawei, MWC19 Source: Huawei, MWC19 B2B2X revenue model expected Many companies that opened booths at MWC19 seemed to be focusing more on B2B2X as the revenue model for 5G networks than the B2C model employed by current network formats (3G, 4G LTE etc.). This suggests a strong possibility that the clients of telcos will be enterprises providing services to ordinary consumers. This means that companies developing services have acknowledged the attributes and distinct characteristics of 5G networks. As a result, consulting firms (Accenture, McKinsey, etc.) opened booths alongside communication and communication equipment companies, which was a notable factor that distinguished MWC19 from its predecessors. Diversity in communication The 5G market will differ from 3G and 4G markets due to the need to develop specifications to give telcos services that offer the high speeds of broadband transmissions as well as utilizing advantage in service development the ultra-low latency and super connectivity of 5G networks. Since the characteristics of communication networks need to be considered when designing services, telcos will rise to prominence since they have such experience. 2026 OR of telcos to be 13.6% Assuming telcos continue to focus on providing communication infrastructure as higher than in 2016 when relying on they did during the 3G and 4G eras, the value of the 5G market for all telcos will simple communication line sales hover at around USD204bn (around 10% of combined 2026 OR), which accounts for a mere 5.9% of the total digital transformation market. Considering that the combined OR of all telcos in the world hovered at around USD1.5tr in 2016, this represents a 13.6% increase over 2016 levels. 2026 OR of telcos to be 41% higher However, if telcos generate revenues by developing 5G services, the value of the 5G than in 2016 if telcos spearhead 5G market for telcos is projected at around USD619bn (26% of combined 2026 OR), service development which is on a par with the digital transformation-related revenues of non-telcos. The estimated revenue from digital transformation utilizing 5G will account for 41% of 2016 OR. Main clients to be smart In the global market, the consumers of 5G services are likely to be smart factories, manufacturing companies, smart smart energy companies and smart city operators. A common characteristic of these energy companies and smart city entities is that they can significantly improve productivity through automated operators production processes and services that have been refined by analyzing data collected via massive sensor networks. We assumed that communication line sales generate 50% of revenues generated from 5G services. 4 IT KB RESEARCH Fig 5. Expansion of telcos’ business areas using 5G B2B to be main revenue model for 5G networks Source: GSMA Fig 6. Functions required by B2B clients among services that telcos can provide Source: Arthur D Little, Ericsson, KB Securities Domestic 5G Market to be Worth KRW3.1tr in 2020; 5G to Begin Generating Revenues in 2019 Domestic 5G market to be worth The Electronic & Telecommunications Research Institute (ETRI) projects the KRW0.6tr-3.1tr in 2020 with smart domestic 5G market to be scaled at KRW3.1tr in 2020 and KRW5.6tr in 2021. manufacturing being main consumer Meanwhile, the OECD has projected the value of the domestic 5G market at USD5.0bn in 2019. Ericsson, a communication equipment manufacturer, scaled the domestic 5G market at KRW600.0bn in 2020. The major difference between the estimates is caused by difficulties in forecasting detailed market statistics. Such difficulties are created because B2B sales will form the bulk of early 5G service sales.
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