The Internet of Things - $1.2Tn (USD) Global Megatrend

July 31, 2019

The Fourth Industrial Revolution 

 

Steam engines, mass production, and Internet technology; each brought epic revolution to business and to our lives. Today we are in the midst of what is called the ‘fourth industrial revolution’ – the convergence of physical things with the Internet. The Internet of Things (IoT) has forecasted growth expected to reach $1.2Trillion USD by 2022. It’s now growing at 3-4x global GDP, a good place to be invested as average corporate earnings slow elsewhere.


There are now more IoT connected devices than humans. These devices and machines range from wearables like Fitbits, to refrigerators that re-order your groceries, to RFID inventory tracking chips on a pallet of bananas, to satellite real time data streaming of a jet engine halfway across the Pacific! They communicate via networks and cloud-based data platforms. The real-time insights gleaned from this IoT data is fuelling the digital transformation in all paths of our lives and industry. It promises many positive changes for health and safety, business operations, service, maintenance, industrial performance, efficiencies, our lifestyles and even environmental and humanitarian issues.


This Megatrend is important not only because of its sheer size and speed of growth, but also because the disruption it is causing to products and services across industries. Understanding its impact will be important in identifying many of the future investment winners and importantly, avoiding the losers.


Important applications today include: 

  • monitoring the flow of products through a factory, into warehousing and on to distribution,

  • measuring things such as moisture in a specific field of crops or in that Boeing 777 mid-flight,

  • tracking the flow of water through utility pipes or the driving patterns of a rental car fleet,

  • remote evaluation of patients with chronic illnesses, attacking a major cause of rising health-care costs,

  • compilation of performance data previously unextractable, improving future products and services.

 

The IoT requires embedding sensors and actuators in machines and physical objects to bring them into the connected world. This is a primary means of how we invest and benefit from this Megatrend. 


 

Sensors enable the measurement of various properties and convert the measurement into a signal for processing. This enables a better understanding of a system to increase automation and efficiency. For example, with the drive towards Industry 4.0 trends, the use of robotic, automation and control systems on the factory floor have become commonplace to increase efficiency, productivity and profitability. As the need for industrial robotic automation advances, sensing technology will continue to be the foundation for data collection that will help transform manufacturing floors into connected, cost effective, and reliable facilities.

 

TE Connectivity – A global leader in the Industrial IoT global Megatrend providing connectors and sensors to a gargantuan array of things particularly in harsh environments. The original business was founded in 1941 and now generates $14Bn+ USD in revenues, has over 80,000 employees and is based in Switzerland. 

 

A brand that’s not a household name, but probably is inside one or two of your household’s gadgets. TE Connectivity’s industrial product range is sold to a very diverse range of sectors from extremely difficult space and subsea environments, to the automotive, oil and aerospace sectors. In most of these environments’ failure is not an option.  They offer numerous force, temperature, pressure and position sensors. They provide highly accurate measurements for precise movement control and accurate monitoring of system components for preventative maintenance. Think of TE Connectivity products as ‘where the rubber meets the road’ in the Internet of Things.


The level of content (data) TE Connectivity provides to a myriad of businesses, interested in knowing more about how things are behaving in any system or industry, has increased up to 8-fold in the past 6 years as the Industrial IoT Megatrend has accelerated. The decade ahead sees this proliferation of demand and opportunity increasing. 


The markets TE Connectivity serve are driven by the positive Megatrend toward building a safer, greener and more connected world. Their automotive business as an example, is requiring more sensors and connectors in vehicles to support increased safety features, autonomous driving systems, higher emission standards, improved fuel efficiency and ‘infotainment’. Additional trends point to further potential for their business; the growing demand for electric and autopiloted vehicles, rapid advances in interventional and minimally invasive medicine, and the need for increased capacity and greater security across global data networks. 

Insync’s core requirements - Megatrends + Understanding impact of Disruption + Highly profitable businesses (ROIC) + Future focused management - has identified TE Connectivity as a prime investment. One that we have held in the portfolio for quite some time.

 

Disclaimer
EQT Responsible Entity Services Limited (“EQT”) (ABN 94 101 103 011), AFSL 223271, is the Responsible Entity for the Insync Global Quality Equity Fund and the Insync Global Capital Aware Fund.  EQT is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT).  This information has been prepared by Insync Funds Management Pty Ltd (ABN 29 125 092 677, AFSL 322891) (“Insync”), to provide you with general information only. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither Insync, EQT nor any of its related parties, their employees or directors, provide and warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product.

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