We can witness this digital onslaught everywhere. The smartphone has long been the essential conduit of modern life, but the sheer time real-estate allocated to it has become mind-blowing. In 2021, with people confined to their homes for all but the most essential of tasks, the average person globally spent 4 hours and 48 minutes per day on their mobile phones, 1/3 of their waking life. This is up 30% on 2019 levels – on aggregate that means around 10bn extra hours a day of smartphone time across the planet in 2021 vs 2019, with every hour kicking out reems and reems of data, all of which serve to create ever more fleshed out, nuanced digital facsimiles of the person clutching the phone, which in turn can be fed back into making that mobile experience more tailored, more enticing.
Retail on the go
Source: ONS, US Census
But when we invest, we should remember we are still very early in the journey from bricks & mortar to digital retail – global consumer spending is around $50trn annually, and e-commerce still only represents $3-4trn of this. We will never live in a world where everything is purchased online, but the equilibrium point will certainly be further along the road to digitalisation ten years from now than it is today, as other forms of offline retail walk the painful road that newspapers, bookstores and other early casualties of e-commerce trod. Companies like Shopify, a leader of the anti-Amazon alliance, will be vital in tooling up retailers with the marketing, payments and logistical solutions to compete in the e-commerce era without surrounding their individualism.
Autos getting smarter
“In 2021, the average person globally spent 4 hours and 48 minutes per day on their mobile phones, 1/3 of their waking life”
Dialling into digitalisation
With such profound changes occurring, it is essential that we allocate capital to companies both driving and benefiting from these trends towards greater digitalisation. One broad way to play this theme is through TSMC, the world’s leading semi-conductor foundry. Chips are the building blocks of so much of the world’s computing and technological backbone, and TSMC has more than a 50% world market share in the made to order chip market. But the company is not just the volume leader. It is the go-to partner for the world’s most sophisticated tech companies, being the sole supplier for Apple’s 5-nanometer processors, used in various Apple products including the iPhone 12, MacBook Air and MacBook Pro, and also making the A15 Bionic chips found inside Apple’s newest gadgets, like the iPhone 13 and iPad mini. TSMC also partners with Qualcomm, AMD and Nvidia. At the bleeding edge of chip technology, TSMC dominates: it is estimated it is responsible for a staggering 92% of the world’s high-end chip production. And TSMC is continuing to focus on ever more sophisticated chips. It is to bring out its 3nm process node this year, and is channelling vast capex into meeting the ever more ravenous demand for chips in every industry from smartphones to data centres to connected vehicles. The chart shows TSMC’s capex, with the highlighted bar marking the first quarter of 2021, as TSMC kicked its capex up a gear in response to the pandemic induced spike in demand.
Source: Bloomberg
Source: Bloomberg
Apple is TSMC’s largest single customer, and we believe it is another outstanding way of capitalising on the increase digitalisation of the world. There are more iPhones and iPads in use today than all the PCs combined, and Apple has been adding a staggering three million active devices into the world every week for over a decade. A huge amount of the most affluent smartphone users globally use iPhones – Apple provides both the hardware and the operating system for perhaps the most important physical device of our century. An excellent barometer of mobile activity is Apple’s service revenue, which is like a tax on mobile phone commerce– Apple’s service revenue has been accelerating off a bigger base in 2021, jumping 27% YoY, the fastest rate in years, as the pandemic structurally accelerated it. Apple made comfortably more Services revenue in 2021 than it did in 2014, 2015 and 2016 combined. Perhaps just as importantly, Apple is currently at the forefront of exploring new ways of protecting consumer data in the digital era, making it harder for consumers to be tracked across platforms without their permissions. This may start to form the blueprint of what privacy looks like into the internet era.
Source: Bloomberg
“Algorithms become stronger the more data they eat, and so data rich companies will develop an intelligence gap versus their more impoverished peers than will help form enormous digital moats”
