At the recent Arabnet Digital Summit in Dubai, industry experts predicted more than $1 billion (Dh3.67 billion) in funds for tech start-ups to flow into Mena this year, following $918 million in 2016. And data shows that after many years focused on the smartphone sector, investors are starting to turn their attention to the artificial intelligence (AI) and robotics market.
Globally, smartphones accounted for more than half of the technology sector’s growth for the past five years, and have changed our everyday lives beyond recognition. But the revolution is coming to an end.
Market penetration is now very high and with incremental improvements of each new model becoming less revolutionary, people have fewer reasons to upgrade their phones. Instead, they’ll look elsewhere to spend their money on new technology, such as digital assistants and head-mounted devices (HMDs).
Smartphone sales to end users totalled nearly 1.5 billion units last year, an increase of 5 per cent from 2015. That is a marked slowdown from 14 per cent growth the previous year.
In contrast, Apple’s own iPhone forecasts appear to assume growth of around 10 per cent in the high-end smartphone market, which the company dominates with Samsung. A failure to hit these forecasts would reverberate through to the legions of component suppliers and to other related companies — most of which are based in emerging Asia.
Apple supply chain
The speed at which the tide can turn quite quickly for components manufacturers was made clear in April, when shares in Imagination Technologies went into free fall after Apple said it would ditch the UK-based chip designer for whom it was by far the biggest customer.
This makes investing in the Apple supply chain — and in the smartphone complex more broadly – increasingly risky. And as we approach the September launch of iPhone 8, which could well act a catalyst for a market re-pricing, it is an opportune time to shift tech portfolio allocation away from supply chain companies.
Of course, the smartphone is far from dead. It will still account for around half of all tech sector demand for the next few years, but it will no longer be the main source of incremental growth. Instead, the next big thing to ratchet up tech innovation and disrupt our routines will be AI.
The latest AI devices from Amazon and Google already enable us to control lighting, check the weather forecast, consult our diaries, listen to music, book a taxi, and much more — all just by talking. Over the next five years, AI will have an even greater impact on our lifestyles than smartphones.
Bank of America Merrill Lynch forecasts the artificial intelligence solutions market and robotics will grow to $153 billion by 2020, including $83 billion for robots, and $70 billion for AI-based analytics.
Vast quantities of data
Investors can find AI-related growth in deep learning — a technique which replicates the human neural network to teach machines how to act and “think”.
Deep learning tends to require a lot of processing power, which has fuelled manufacturer demand for powerful graphics processors (GPUs) that can support parallel processing and thus enable computers to analyse vast quantities of data.
Driverless cars, for example, have a lot of learning to do: about both their immediate environment and how to react to different situations. To better accommodate this, Tesla recently upgraded the processing power of its autopilot system by 40 times thanks to new GPUs.
The more sophisticated the AI machines get, the more memory they will likely need to function. Just one second of autonomous driving can generate as much 1GB of data, according to industry estimates.
All that information needs to be stored somehow, somewhere, and this will support demand for memory chips, as well as for cloud storage solutions. We will also continue to see favourable trends for major internet companies given the amount and quality of data they possess.
AI could account for around 25 per cent of total semiconductor demand by 2020, up from 10-15 per cent today.
It could also pave the way for a number of other key innovations, including autonomous driving, the Internet of Things, and augmented/virtual reality. Some of this technology will also find its way into smartphones, with iPhone’s Siri and her rivals becoming even more powerful and useful.
In turn, this could offer people fresh reasons to invest in the latest models, potentially giving the smartphone industry a new lease of life as an investment theme in the future.
The writer is Senior Investment Manager, Pictet Asset Management.