Post #37: Postcard from Silicon Valley - hype springs eternal - Heptagon Capital – Production

Your author has just spent two days in Silicon Valley, seen by many as the tech capital of the world. It sounds glamorous and my meetings with company…

Post #37: Postcard from Silicon Valley – hype springs eternal

Your author has just spent two days in Silicon Valley, seen by many as the tech capital of the world. It sounds glamorous and my meetings with company management teams provided some incredibly useful perspectives on the future, but let’s not forget the place itself is pretty banal. Seen by car (how most get around in the home of Uber and Lyft), the dozen or so cities and towns that comprise the region blend into a single, seamless expanse of suburbs, shopping malls, and concrete office buildings.

Sure, there are some impressive campuses (like the Googleplex), but most of what happens in the Valley occurs behind closed doors. I saw nobody getting their lunch delivered by drone and certainly no one riding to work in a self-driving car. That said, I did overhear hotel receptionists and real-world taxi drivers talking about how they were investing their savings in tech companies (scarily reminiscent of 1999/2000), saw robots making coffee in downtown San Francisco and observed billboards advertising deliveroo-like services for cannabis.

On a more serious note, in terms of what emerged as salient from the meetings  I undertook across the Valley (and also on the East Coast the week prior), the following themes were most notable: 

1. Digitalisation and data are everywhere: This theme and the opportunities arising therefrom was evident in every meeting. More data, axiomatically, means more semi chips and more storage, benefiting businesses across many parts of the value chain. To give two examples of the runway ahead, consider first that not even 10% of US students use online learning tools (per Chegg) or next, that less than 20% of all surgical procedures in the country are performed using robotic assisted surgery (and that is just in the segments where it has been mandated, per Intuitive Surgical). Similarly, almost every business said that there was a lot more they believed they could do by leveraging better the proprietary insights arising from the datasets they had accumulated (PayPal, for example, processes ~1bn transactions/month).

2. Data demand drives a virtuous/ vicious circle: Several companies whom I met (including Keysight and Intuitive) were actively expanding their premises at present, while others were consciously growing headcount (such as ASML). This is creating a demand for talent, yet every management team was emphatic that it had either ‘the best’ team or a ‘unique’ culture (or both). Elsewhere, Prologis pointed to “tremendous rental pressure” with any new industrial real estate development being “absorbed as soon as it is built.”

3. Car of the future - less hype than expected: Those with whom I spoke on the topic suggested that it was important to draw a distinction between the electrification of vehicles and autonomous driving. Both create new opportunities (especially in terms of growing software content), but the former is markedly more advanced than the latter. Even Lyft nuanced its view on autonomous vehicles highlighting that they would most likely be a ‘complementary’ part of a range of travel options, working only in some cities on some routes at certain times of the day. At the least, vehicle autonomy should be seen as a multi-decade theme.

4. Beyond the headlines: Most businesses whom I met were keen to downplay what they considered ‘noise’ around the immediate prospects for artificial intelligence and blockchain. This may be partially a function of the relative maturity of the companies visited, but the clear message was that while B2B applications for using these technologies were in the early innings of being deployed, products/ services that consumers would specifically use (or even be aware of) are much further away. The Internet of Things and crypto-currencies barely got a mention in any meeting.

5. ESG is becoming more of an issue: Every business said that the issue of better reporting and disclosure was something they were acutely aware of and, in many cases, had been raised to Board level. If businesses are not already producing dedicated ESG reports - and few do (Mastercard is a notable exception) - then all said they hoped to by 2020. Most in the Valley get the case for using renewable energy sources and advocate employee diversity. Governance, arguably, remains more of a work in progress.

Disclaimers

The document is provided for information purposes only and does not constitute investment advice or any recommendation to buy, or sell or otherwise transact in any investments. The document is not intended to be construed as investment research. The contents of this document are based upon sources of information which Heptagon Capital believes to be reliable. However, except to the extent required by applicable law or regulations, no guarantee, warranty or representation (express or implied) is given as to the accuracy or completeness of this document or its contents and, Heptagon Capital, its affiliate companies and its members, officers, employees, agents and advisors do not accept any liability or responsibility in respect of the information or any views expressed herein. Opinions expressed whether in general or in both on the performance of individual investments and in a wider economic context represent the views of the contributor at the time of preparation. Where this document provides forward-looking statements which are based on relevant reports, current opinions, expectations and projections, actual results could differ materially from those anticipated in such statements. All opinions and estimates included in the document are subject to change without notice and Heptagon Capital is under no obligation to update or revise information contained in the document. Furthermore, Heptagon Capital disclaims any liability for any loss, damage, costs or expenses (including direct, indirect, special and consequential) howsoever arising which any person may suffer or incur as a result of viewing or utilising any information included in this document. 

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