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The Future of Technology

by Mark Bern, CFA


We have all heard the many buzz words about the future technologies coming: VR (virtual reality), AR (augmented reality), AI (artificial intelligence) IoT (Internet of things), 3D sensing, drones, autonomous diving cars, and 5G (5th generation broadband – a form of networked Wi-Fi, or a form of wireless communication).  I will try to explain some of these terms and why we, as investors, need to pay attention to the respective evolution of each in this and the next few weekly letters.
VR vs AR
It is easy to confuse the two terms as both are ways that tech can change the way you look at the world around you. 
VR immerses you in an imaginary or simulated environment, like a computer game.  You can see everything around you in the game and react with other players.  It may seem real or it may be animated, it all depends on the developers of the application.  It may be created by millions of photos of actual places to make you feel like you are there.  Imagine visiting Paris and walking down the Boulevard Hausmann with an incredible view of the city and the Eiffel Tower.  With VR it will seem like you are actually there.
AR enhances the environment you are already in with added digital displays with information about that which (or who) you are looking.  With a pair of AR glasses you would never forget a name!  Golfers could look at the flag from anywhere on the fairway and know exactly how far away it is.  You could look at any building and the address would pop up on the screen.  Want more information about the building?  Just ask.  AR is the practical one of the two while VR is mainly for entertainment.
However, each can have industrial applications.  Simulating tests of a product in design phase in a VR environment can cut costs dramatically.  Having an AR app that can provide technical design and stress data for a part being inspected while measuring the pressure could help identify a potential break down before it happens and save a ton of money and downtime.  The list of potential applications is endless.
What is AI and why should I care?
AI is different depending upon its level of advancement and sophistication.  Currently, one of the most common use of AI is a learning algorithm that records responses over time and gains a better understanding of what someone may want.  Netflix has become a huge user in this sense.  Retailers like Amazon use such AI in an attempt to sell you more than you initially intended to buy, as do many online retailers. 
AI is being used to develop autonomous driving cars using sensors and recording data about its surroundings while also recording the reactions of a human driver responding to the environment.  It can learn what to do in almost any situation and what not to do from repeated experiences with multiple human drivers.  It continues to learn from experience, similar to a human, but its capacity for learning is nearly infinite and its retention and recall of information is instantaneous.  In theory, AI can teach the car to be a better driver than a human. 
But AI is so much more.  The potential of applications is, once again, nearly endless.  AI-enhanced robots and machines can do much of the work of humans, even to the extent of building other “intelligent” machines.  At this point some of you are probably conjuring visions from the Terminator series.  Without proper controls and forethought we could be heading in that direction but we are probably decades away from needing to build bomb shelters. 
AI will create jobs at the same time that it eliminates jobs.  It has the potential to cause disruption more than half the major companies of the world.  I think that elicits a strong prerequisite for paying attention.
IoT and Billions of Connections
At some point, most mundane appliances and machines will be connected to the Internet.  Much of the data will be gathered by tiny sensors measuring everything and selecting that which is important enough to be uploaded for additional processing.  Everything will be voice activated at some point.  If you want to know if the dishes in the dishwasher are clean or dirty, just ask the dishwasher and it will tell you.  If you want your toast to be lighter than the last time tell the toaster and it will adjust accordingly.  Dim you lights, turn on the TV, order food delivery from your favorite restaurant.  We will one day be able to do any of these things (and much more) with voice commands.  We are getting closer all the time with Alexa and Siri and the devices that use them. 
Autonomous Vehicles
The day when we can just get into a car and tell it where we want to go, then sit back and enjoy the ride is coming sooner than most of us imagine.  Self-driving cars could be on America’s roads within five years.  The areas in which these vehicles will be able to operate may be limited at first as governments play catch up, especially at the local levels but also at the federal level.  Cars can already parallel park better than most humans.  Sensors can prevent most accidents.  We are not there yet but the advancements are staggering and the race to be first to market is rapid. 
There are some scary concerns, too.  If all the vehicles on the highway must “talk” to each other and constantly transfer information there could be openings for sophisticated hackers to take control of your car or the truck behind you.  Hopefully, there will be safeguards built into the systems to avoid such craziness.  But, of course, the government will want a way to gain control of cars so they can pull over speeders or violent criminals without a chase and there would go the safeguard as hackers would find that secret backdoor eventually.
But what makes all of the connections and data transfers possible?  IoT is dependent upon a much faster Internet with far greater bandwidth capacity than exists today.  That brings us to the one technology upon which almost all other will depend: 5G.
What is 5G and how can we profit?
5G is a wireless broadband network that will provide Internet speed 100 times faster than the current fastest wired connections.  Think fiber optic connections on steroids, but without the wires.  This is the network that makes possible the IoT and self-driving vehicles, AR and VR data transmissions to bring all that data from its sensory data sources to the cloud and back in a millisecond.  Without the data transfer capacity and speed of 5G, nothing else will work as well as intended.  It is the future backbone and foundation of almost all data transmission and the technology that it enables.  Without it none of the rest can become reality.
Who owns the most relevant patents on 5G technology?  Interdigital (IDCC).  There are other, of course, but IDCC is in the catbird seat as far as I can tell.  It will ring up the royalty payments at nearly every stage of the coming 5G deployment. 
The full, nationwide deployment of 5G could take a full decade to complete.  So, that is why much of the technology we look forward to will not be available universally for several years.  The build out of the network has already begun but it is in its nascent stage at the moment.  As deployment ramps up IDCC revenue should explode higher and the costs associated with the revenue are minimal, like software.  Others will license the technology, pay royalties to IDCC and then build components for the network. 
The network will be made up of towers, similar to the cellular network(s) in existence today.  The big difference is that the distance between towers will need to be much shorter to maintain the speed and bandwidths.  The towers can be smaller and placed atop buildings but will need to maintain line of site meaning the towers (antennae) will need to be in site of each other.  The greater the density of antennae/towers the better the speed and reliability of connections.  It has been estimated that there will need to be five towers to support 5G to every single tower today. 
The other thing to remember is that when 5G is fully deployed we will no longer need cable or wires for phone or Internet connections.  We will no longer need cable.  This infrastructure changes everything!  Whole industries will rise and fall in conjunction with the 5G roll out.  So, stay tuned because this could get very interesting.
Respectfully,
Mark Bern, CFA
Bern Factor LLC
540-241-1963 (new number)

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