Legacy Research Group

Chris Lowe: I’m here with Jeff Brown, our tech expert at Legacy Research. Jeff, I know it’s very early in the morning for you and you’ve gotten up to talk to me. So thanks very much for doing that.

The big issue I’d like to get going with today is the chip shortage, which has gotten a lot of coverage in the mainstream media. It might have some people worried about some of the big tech trends you cover, because without chips, there’s no tech.

What can you tell folks about what’s going on there? And how soon can we expect a resolution to the chip shortage?

Jeff Brown: Hey, Chris, great to connect. And yes, this is, I think, one of the most interesting things that’s happened this entire year. Not only in technology, but in business and even in government policy.

And it’s also one of the most widely misunderstood events of the year.

Generally speaking, what we’re hearing a lot is that the United States is falling behind. Or we’ve made some terrible mistake somewhere and there’s not enough manufacturing capacity, and that’s causing all of these shortages.

Ironically, it’s just not true. The manufacturing capacity has been there, but the magnitude of our economic strength, pre-pandemic, was so good and it continued throughout the entire pandemic.

So as we’ve seen this soft economic opening around the world and people returning to some form of normality, there was a lot of pent-up savings, especially during the economic lockdowns.

And we’re seeing an extended amount of demand for products and services, even greater than what we were witnessing pre-pandemic.

I see this as a view of incredible economic strength, even given this unbelievable experience we’ve had over the last 18 months.

Of course, these types of cycles are not new to the semiconductor industry. This always happens. The industry builds out access command capacity. There’s literally a glut of manufacturing capacity for semiconductors.

Naturally, what happens then is that semiconductor prices fall. And eventually, the demand for the end products is met. The industry slows down a little bit. There’s a little bit less investment taking place.

Then, as demand picks up, we realize that we need more capacity. So tens of billions of dollars more are invested into more semiconductor manufacturing capacity around the world.

This cycle is very special. I’ve never seen a cycle like this… and I’ve been working in the high-tech industry for three decades now. This is special. It’s very global.

The level of investment taking place right now in the semiconductor industry, not only for manufacturing capacity, but also what I refer to as the bleeding-edge semiconductor technology. This is the type of technology that goes into our iPhones, autonomous vehicles, or semiconductors that enable artificial intelligence.

The investment going into these bleeding-edge semiconductors is at levels we’ve never seen before. And it’s driving a remarkable level of not only technological innovation, but also business, because new markets are being created. And of course, the industry wants as much of that new tech as they can possibly get their hands on.

Chris: It seems to me, Jeff, that a lot of focus has been on supply difficulties. But it also seems that what we’re seeing is just this incredible demand, as you’ve been predicting for five years. You’ve been talking about it since you joined Legacy – that there’s this boom in technology; technology is becoming a bigger part of our lives. And this chip issue seems to reflect not only supply disruptions, but as you say, this boom in demand for chips.

So specifically, Jeff, 5G is one of the megatrends you track in tech. Everyone knows that 5G is coming. But where are we now in the rollout of 5G? And what do you see ahead for that trend?

Jeff: Ironically, in many ways, 5G is closely linked to what we’re seeing in the semiconductor industry right now. Apple and Samsung have largely been driving the semiconductor technology for these extremely advanced devices. And of course, the large semiconductor foundries, companies like Taiwan Semiconductor, have to prioritize large customers like Apple.

So rather than manufacturing less advanced semiconductors, they’re giving priority to key customers, like Apple, to deliver these groundbreaking new products, like the latest iPhone 13.

That is one of these unique dynamics in the industry. We might have all the right semiconductors to produce as many iPhone 13s as the world can take… but that’s pulling away manufacturing capacity from less advanced semiconductors, that might be required to go into your washing machine, your car, your toaster, or your hairdryer. We’re seeing shortages across the board.

The iPhone 13… What’s interesting about these latest phones is that they’re really not very different than the iPhone 12. In terms of technological advancement, there haven’t been that many changes.

One of the changes nobody is talking about is that the iPhone 13 has many more radio frequency bands that are capable of working on the 5G spectrum. This is the radio frequency spectrum that’s used for 5G networks. This is a nuance that no one is paying attention to.

What this tells us is that the 5G networks around the world have been dramatically built out over the last 12 months. From last October’s launch to this launch in September, wireless networks around the world have spent hundreds of billions of dollars building out their 5G networks.

As they do that, they build it out at different frequency bands. So as the new phones hit the market – it doesn’t matter whether it’s an Apple iPhone or a Samsung Galaxy – they have to include support for these new frequency bands.

Now, we’re seeing the latest round of smartphone devices having the widest range of possible support for 5G frequencies.

And we have hit an inflection point.

Infrastructure is in place – that’s phase one. Devices are in place – that’s phase two. And we’re actually on the second generation of mass production, the second generation of 5G-enabled devices this fall.

Phase three is what I refer to as the applications. That’s the point at which software developers start to produce software applications that take advantage of the super-high 5G speeds and what we refer to as low latency (only a matter of milliseconds delay connecting with the network). That’s what makes 5G such an incredible technology.

Chris: Jeff, can you go into some of those applications? I know this is the roadmap you’ve laid out. I remember you talking about the buildout. I remember you talking about the devices. Now, we’re into this app phase.

One of the apps you’ve been talking about – if I can call it an app – is self-driving cars. How do those two things relate? I know the latency is important there. I know those super-fast networks are important.

Can you give folks an idea of what changes we might see in the world as this app phase rolls out?

Jeff: This is a very interesting topic. And it’s a perfect example of one that tends to be widely misunderstood.

Most people will say 5G is absolutely necessary in self-driving cars. They have a misperception that a self-driving car needs to connect over a wireless network, go back to some kind of centralized computer, ask what it should do in this situation, and then it tells the car what to do.

That’s not what happens at all, Chris. In fact, self-driving cars – especially the more advanced models, like what Tesla is doing with its neural networks as applied to self-driving technology – literally have a brain in them. That brain sits inside the car. There are sensors that work on the car in real time. They have the ability to infer, based on all the data they’re receiving, what the right action to take is at that time.

So the reality is self-driving cars don’t need 5G technology to operate when they have that level of capability. There’s just not enough time, even with low latency. These are very split-second decisions in that unusual circumstance, where there might be a bit of a dangerous situation on the road. The car has to think immediately.

That’s the power of the technology. It can do that faster than a human can.

That said, where I view 5G coming into play in the automotive industry is that when you take one additional step to the idea of a fleet of autonomous vehicles. An SAV is a shared autonomous vehicle. Whether it’s your car that you’re opting into a shared autonomous vehicle (SAV) network, or whether it is a service like a Lyft or an Uber, who has autonomous vehicles, we have a fleet of vehicles.

When there is a company providing a service, they want to maintain the best connectivity they can with their vehicles. Because every once in a while, they will have to intervene. They might have to speak with the customer or the passenger in the back of the vehicle. They might have to solve a problem and get the car out of a sticky situation.

The same is true if we think about one of the most popular applications emerging from autonomous driving technology, which is logistics and semi-trailers. Large trucks delivering goods from point A to point B, that can be driven in an entirely autonomous manner.

For most of the trip, the truck will drive entirely by itself, getting onto a highway and getting off a highway. By the time it gets to a loading dock, a professional driver will essentially “teleport” into the vehicle, take control of the wheel, and back it into the right loading dock. And if they need to, they can speak to somebody at the loading dock as well. So there are points of human interaction.

I think that’s exactly what 5G technology is designed to do.

Chris: And where are we on the timeline for that? I know folks tend to see 5G as “Okay, my iPhone is going to go faster. I’ll download a video faster.” But you’re saying that there are these applications that will connect with 5G networks. You talked about these fleets of autonomous vehicles. When might we see something like that emerge? Or is it already in existence?

Jeff: I would argue it’s already in existence. And I’ll tell you why. I’ve been driven all over the place by Teslas, and I can tell you they work. The latest release, that literally just came out days ago, the full self-driving version 10, is remarkable.

It is incredible to me how quickly Tesla has developed its self-driving software, just over the course of the last three or four months. Remarkable changes.

I believe it’s very close to getting rolled out to every Tesla customer. I think certainly before the end of the year, all Tesla owners will be able to download and upgrade their software to this latest full self-driving technology.

I’ve actually ridden in fleets of self-driving cars. I’ve been on the inside. They work remarkably well.

Obviously, it’s a very different experience sitting in the back a car and not having anyone in either the front passenger seat or the driver’s seat. It’s certainly an odd experience.

But I felt completely comfortable traveling in the vehicle. I think my longest trip was about 45 minutes. It was flawless.

Sometimes, it certainly erred on the side of safety. Sometimes, it felt almost as if a grandparent might have been driving me around. But there was no point at all in my time in these fleets when I was ever concerned about safety. It’s amazing.

So the auto companies like Tesla, or the tech companies, like Google’s Waymo or Argo AI – there’s so many out there developing this technology – they’re getting very close to large-scale commercialization. I think Tesla’s definitely going to lead the way.

And the world will be caught off-guard before the end of this year, in terms of how advanced that technology is. And that will be a catalyst, a stimulant for the entire industry to start to pick up the pace and roll out on a larger scale.

Chris: What does that mean for Uber and Lyft, which for the most part at the moment, have humans driving cars? Are they going to be blindsided by this? Are they working on shared or autonomous vehicle fleets? How do they fit into that picture?

Jeff: They are. I think one of the smart decisions that both companies made was years ago, they started to experiment, in terms of developing their own technology in-house. It is a monumental task. It’s hard to overstate that. It’s a completely different core competency than running a ride-hailing service. And it’s also very expensive.

So as Lyft and Uber took that step to become publicly traded companies, naturally, they had to get their balance sheets in order and improve their free cashflow, or at least work towards generating free cashflow. And they made some decisions.

In both cases, they decided to make some strategic decisions about where their autonomous tech would come from.

In the case of Lyft, they originally partnered with a company called Aptiv, which has done some great work on autonomous driving. Aptiv set up a $4 billion joint venture with a division of Hyundai, the South Korean conglomerate, called Motional. Motional now exists as a joint venture between Hyundai and Aptiv.

They have already manufactured self-driving cars. They’re testing it, and are actually using it, in several cities around the U.S. That will be the vehicle Lyft uses for their self-driving network.

That launch for Lyft is scheduled for the first half of 2023. So we’re 15 months away from Lyft starting to roll this out.

And in the case of Uber, it essentially spun out what was called the ATG, the Autonomous Technologies Group, into a company called Aurora. And they invested about $400 million into Aurora.

Uber has this partnership with Aurora and Aurora’s technology, which in part was the tech that Uber originally worked on, will be the key for Uber’s eventual autonomous driving, ride-hailing service.

So they have very clear plans in place. The wheels are in motion (sorry for the joke!). But yeah, it’s moving very quickly right now.

Chris: It’s super exciting, Jeff. And the reason we’re talking to you – it’s very early in the morning where you are – is because you’re heading to Florida to put the final touches on an event that’s going live on Wednesday.

Click here to sign up for Jeff’s free “Confidential Briefing” event

What can you tell me about that? I know you’re eyeing this new Apple launch. I know you can’t give too many details because you will be revealing all of that on Wednesday.

But what can you tell me? Why has the Apple iPhone caught your eye? How does it relate to what you see coming down the pike for these technologies?

Jeff: Well, it is a very symbolic moment in time in this evolution from 4G to 5G. What I’m most excited about is that people are really missing what’s happening behind the scenes. They don’t understand the significance of the iPhone 13 launch.

For example, everyone, journalists, the financial media is focused on, what are the new features? How is the iPhone 13 different than the iPhone 12?

They’re very similar at the surface. Okay, the camera is a little bit better and the lighting is better. The cameras and facial recognition have been improved. The processor performs a bit better than the last generation. The battery life. That was one of the biggest improvements. In the iPhone 13 is a bit of a larger battery, so you could get an hour, hour and a half more a day out of your iPhone.

But that’s not groundbreaking, is it? It’s not really big news.

There is something much larger and much more significant about the iPhone 13 that I haven’t seen anyone talk about at all. That’s precisely what I’m going to be talking about down in Florida. My flight’s in about an hour.

It’s something that nobody sees. But it’s a dynamic that does happen from time to time. It’s only happened twice in the last two decades, Chris, only twice.

And it’s happening again right now. And that’s what Wednesday night is all about.

Chris: Great. Jeff, I’m not going to take up any more of your time. I know you have that flight to catch. But we’ll be looking forward to your event and the big reveal and hearing more about these great ideas.

Thanks for taking the time to talk to us today, Jeff, and good luck tonight.

Jeff: Thanks, Chris. We’ll have fun.