Speed matters when it comes to navigating the 5G rollout. Average 5G speeds in the US have improved in the past year, yet still lag, with average US 5G download speeds currently at 65 Mbps. Speeds that will motivate consumers to upgrade their hardware and carrier plan to 5G is likely still a year away. Truly transformative 5G is likely three years plus away.
Over the next decade, we believe 5G will be a transformative force because it will allow users to leverage data in the cloud for real-time computing, opening the door for an array of new technologies and businesses. To get a more realistic sense of this timing, we’ve taken a step back and constructed a 5G rollout roadmap, which gives us a better sense of when 5G will impact consumer purchasing decisions and spur next-generation technologies such as IoT, wireless VR, and autonomous vehicles.
As a reminder, we think of 5G as a three-layer cake:
Low band. At about ~40% faster than 4G, low band 5G is mostly marketing noise, and when you hear carriers advertise “nationwide 5G coverage,” they’re referring to this. That said, low band 5G is still a necessary layer of the cake because it provides the best range of any 5G, making it the only option to provide continuous coverage in remote areas.
Mid band. Offering download speeds around 5x faster than low band 5G, we think of mid band as consumer upgrade 5G. That’s because the large speed increase will enable faster video streaming, gaming, and better off-device storage among other things, which we believe will compel users to upgrade their devices as part of a multi-year cycle that will extend through 2024, benefitting phone makers such as Apple, Samsung and Google.
We estimate that mid band 5G will be widely available, defined as 75% of the US population having consistent access to it, in late 2022/early 2023. T-Mobile is the only carrier to date that has made progress with mid band rollout. After securing mid band spectrum last year at FCC auctions, Verizon and AT&T are expected to begin rolling out mid band at the end of 2021 through 2022.
High band. High band is where the true 5G magic will happen, and it’s usually what people think of when they envision 5G as a revolutionary technology. With average download speeds around 2.7x greater than mid band and peak speeds well over a 1GB plus, high band will power the next generation of transformative technology use cases. That said, given high band 5G waves travel short distances and are easily obstructed, it will be largely confined it to metro areas and large public venues that have developed infrastructure and a high density of mobile users.
Our best guess is that widespread high band 5G, defined as 75% of the US population in metro areas having consistent access, will be available by 2025 at the earliest. Progress is being made, with high band 5G available in select zones in about 75 cities, up from about 45 cities a year ago.
Where does 5G performance stand today?
The average download speeds in the table below highlight the fact that overwhelmingly the only 5G available today is low band. T-Mobile’s superior speeds reflect the fact that it’s the only carrier that has rolled out mid band. Availability measures the percentage of time 5G users spend connected to a 5G network.
Looking at high band 5G specifically (see table below), performance is progressing nicely, but availability is sparse. For example, Verizon’s average high band download speed has increased about 25% compared to a year ago, increasing from 495 Mbps to about 620 Mbps.
Given the capital-intensive nature, we continue to believe the high band 5G rollout will be slow, and that widespread availability will arrive in 2025 at the earliest.
Looking internationally for clues
While 5G performance and availability in the US is improving, it’s underwhelming compared to other countries around the world. In fact, the US doesn’t come close to ranking in the top 15 for average 5G download speeds. For perspective, average 5G down speeds in South Korea are around 400 Mbps, in Taiwan 370 Mbps, and Norway ~350 Mbps.
While it will take time, this tells us it’s a matter of when, not if, 5G speeds and availability reach a level in the US to be a transformational technology.
Gene and Doug discuss the impact of the Apple vs. Epic decision and conclude it will be a fractional financial headwind, and the regulation topic will remain front and center for the next year. The two silver linings for Apple investors: 12-18 months after the changes have been implemented, growth rates will return to normal. Second, Apple’s long-term potential is not impacted by the decision.
Apple’s September 14 “California streaming” event will be the biggest day of the year for hardware announcements. On top of that, we expect Apple will host an additional hardware event in October, with the new models announced at both events accounting for about 40-50% of the company’s revenue over the next 12 months.
Like every year, the tech industry will focus on the new products specs and pricing. Apple customers, on the other hand, will elevate to a higher view; that is, the reality that they increasingly depend on Apple’s integrated family of products, services, and support to equip for work and learn from anywhere. Addressing that consumer need will benefit demand for the next one to two years. Beyond that, these products will be foundational to the multi-year digital transformation wave which will gain momentum with 5G and AR.
Tip: If you’re in the market to purchase any of these updates, order early. Chip shortages likely mean long lead times, with supply demand equilibrium likely coming in the March 2022 quarter.
From a spec standpoint, we expect little change this year given we will see the same 5.4-inch, 6.1-inch and 6.7-inch screen sizes as the iPhone 12. Like ever year, the devices will include updated camera resolutions and new filters, such as Portrait mode for video. The company will highlight that camera features are increasingly of Pro grade in order to comfort the typical iPhone buyer that a key use case of the phone is best in class. As for the rumored satellite feature, it will likely be used for emergencies to tap into first-responder networks. Rounding out the updates will be the latest A15 chip and a higher resolution display.
From an investor’s standpoint, the trajectory of the iPhone business over the next year has less to do about specs and pricing, and more to do with the age of the phone. Last year, we estimated the pool of iPhones three years or older to be 420m. That base will drive iPhone revenue growth in FY21 of about 40%, compared to a typical year of low single-digit growth. For next year, the Street is looking for 5% growth and 260m units. Given the pool of 400m iPhones three years or older iPhones, we see upside to the FY22 consensus growth estimate. The larger the upgrade pool, the bigger the potential tailwind.
The 16-inch MacBook Pro is the fifth Mac to get the new M1 chip, along with its first design update in five years. We believe the MacBook Pro accounts for about 3% of total revenue, and expect modest updates to the product this fall. We expect next year the Mac family (10% of revenue) will grow at 9%, compared to 24% in FY21.
We expect the first design change in three years to bring a slimmer profile and a fractional increase in the display. Overall, we expect Watch will account for 5% of sales next year, growing at 15% a year. We believe 13% of the iPhone base has a Watch, and that this percentage will increase to 35% plus in the years to come as more biomarkers are adding in the next couple of years, including blood pressure and working with third-party blood glucose monitoring applications.
Expect updated design for the entry-level iPad and iPad mini, with starting prices unchanged at $329 and $399, respectively. Overall, iPad accounts for 8% of sales and we expect the segment to grow at 8% next year.
Expect entry-level AirPods to add noise cancellation. We expect price to be unchanged at $159. AirPods is about 4% of overall revenue, and expected to grow at 18% next year.
Mark Zuckerg is all in on the Metaverse and Tim Cook is all in on AR. It’s a long shot we hear anything about the rumored MR headset at the event, yet the product is under development and more likely to be previewed in June of 2022, at WWDC.