The preceding quote from Andreas Müller, chairman of the 5G Alliance for Connected Industries and Automation (5G-ACIA), underscores the fundamental role of next-generation wireless technology in the emerging new industrial revolution. In recent WILTWs, we have argued that the 5G-network buildout is one of the largest infrastructure projects ever and is the most important technology race of the next five years. We are studying the implications of 5G wireless as it will likely determine the winners of the 21st century (see reports).
Since 2012, we have made a case that advancing technologies will disrupt the $10 trillion global manufacturing sector (See initial WILTW January 26, 2012). 5G wireless networks will be the connective tissue to run the next-generation applications leveraging AI, augmented reality, the IoT, blockchain, and 3D printers, among other critical technologies.
Novel uses of 5G technologies are already beginning to boost productivity in existing processes, creating huge economic value. A study by Deloitte estimates that over the next 15 years, $3.5 trillion will be invested in the global 5G industrial value chain. The investments will generate 5G industrial-application sales of $12 trillion and deliver over $20 trillion in 5G-enabled economic value for manufacturing that will filter down to other sectors with huge benefits.
New factory ecosystems demand agile-production lines. Data no longer flows one-way. Instead, smart factories require feedback analytics for optimizing production. 5G’s gigabit data transmission speed, low latency, and high bandwidth enables real time data processing between IoT networks, automated robots, wearables, and AR/VR headsets—and will define next-generation factories.
Consider the following:
- 5G will be the key enabler of “smart factories.” A subset of Industry 4.0, smart manufacturing is a fully-integrated, collaborative system that responds in real time to meet changing demands and conditions on factory floors and in-supply networks.
Dense sensor networks on 5G systems will ensure real-time measurement of millions of data points to improve quality, optimize operations and uptime, and reduce waste. Ericsson and Germany’s Fraunhofer Institute of Production Technology partnered with MTU Aero, a blades manufacturer for engines, to test 5G for process-design improvement and monitoring. The results were a 75% efficiency gain in the design phase and reduced error rates, saving €27 million annually for a single factory. Similarly, a U.K. government-backed 5G consortium is utilizing Bosch’s subsidiary, Worcester Bosch, to improve predictive maintenance and measure productivity gains using 5G networks.
- 5G networks facilitate real-time monitoring and precise remote-control. Smart factories will shift mass production to flexible customized manufacturing. Decentralized factory floors will become mainstream with distributed collaboration systems, notes Deloitte.
- 5G will make robots flexible, responsive, and accurate. 5G will remove the costly and cumbersome cables from robots, and wireless processing in the cloud will eliminate bulky hardware. 5G-led machine learning promises to improve robot-human collaboration.
Remote monitoring of machines will reduce wear and tear and allow real-time quality checking of products at every stage in production line. 5G enables data collection at a granular level across the supply chains, giving manufacturers a precise view of delivery timelines to optimize production strategies and schedules.
- The transformation of production lines on 5G networks is already underway. 5G technology enablers, telecom operators, and factory automation companies have commenced testing of new use cases. Examples include:
- China Unicom formed a consortium of 32 industrial companies, including automaker Dongfeng Motor, manufacturer ZPMC, Huawei, and Alibaba, to test 5G network applications. China Unicom is also testing a 5G-based harbor automation solution with Ericsson at Qingdao Port. Initial tests indicate a 70% reduction in labor costs for port operations.
- Nokia demonstrated its second-generation “factory in a box” at the Hannover Messe 2019 conference. The system combines 3D printing, AR/VR, IoT, and robotics on a private 5G network, and can be packed, transported, and restored to service within hours.
Nokia is also building 5G test cases at their base station manufacturing facility in Oulu, Finland. The automated facility currently runs on 4G networks. However, the company is upgrading it for 5G with more complex data sensors for real-time feedback loops to robots, machines, and humans for better outcomes.
- Bosch is working on a 5G-enabled “fluid factory” with AI providing intelligence and a mobile 5G production cycle. Unlike factories of the past where production floors were static and optimized for a particular product, future factories will only have walls, roofs, and floors as fixed components. This will enable “reconfigurable production systems” allowing manufacturers to quickly change their production lines.
- Compelling long term investment candidates for a “5G-smart factory portfolio”, trading at discounted valuations, are:
- Nokia (NOKIA FH, 4.88 EUR) – a pioneer in 5G smart-factory solutions—trading at 7.6 times consensus EV/EBITDA, below its trailing median of 19.1 times.
- Ericsson (ERICB SS, 85.10 SEK) – a 5G leader that demonstrated over 20 industrial automation products and solutions at Hannover Messe 2019 in collaboration with ABB, Audi, Hexagon, Deutsche Telekom, and 5G ACIA—trading at 8.0 times consensus EV/EBITDA, below its trailing median of 14.6 times.
- Samsung (005930 KS, 45350 won) – a key 5G-component maker that is building a manufacturing-focused 5G "Innovation Zone" in Austin, Texas with AT&T—trading at 3.1 times consensus EV/EBITDA.
- Qualcomm (QCOM, $70.85) – a leading wireless-equipment manufacturer that is developing new 5G technologies to deliver private industrial networks—trading at 11.0 times consensus EV/EBITDA, below its trailing average of 16.9 times.
- Amdocs (DOX, $63.99, EPS release Aug. 7th.) – offers a “5G Fast” portfolio for automated design, planning and deployment solutions that enable faster site planning, integration, and launch—trading at 9.8 times consensus EV/EBITDA, below its trailing median of 11.6 times.
- Siemens (SIE GR, 94.41 EUR – a leader in factory automation that is beginning to integrate 5G into its systems—trading at 9.1 times consensus EV/EBITDA, below its trailing median of 11.3 times.