New Sensors Are Key to the Next Digital Transformation
Sensors and next-generation software are vital components of the biggest trend in technology: the digital transformation. This trend involves reimagining business models by turning common, analog information into digital inputs. It’s efficient, and in many cases, revolutionary.
It certainly was in the case of the music industry. Back in 1999, Napster was at the cutting edge of peer-to-peer software. Its easy-to-use interface allowed millions of computer users to efficiently convert, catalog and share music in a purely digital format. Big and chunky vinyl records became MP3s, bits of data stored in tiny files. The entire recording industry was transformed.
In the intervening years, iTunes evolved and then the iPhone. Apple (AAPL) grew into the dominant firm we know today because of this digital transformation. And the impacts didn’t stop at the edge of the music industry. Netflix (NFLX), Spotify (SPOT) and countless other streaming media companies were able to get off the ground because of the digital switch.
Now, something even bigger is happening. Software developers are using low cost sensors, born in a decade of smartphone innovation, to reimagine how other parts of the physical world can be turned into data.
This week, Samsung announced its smart watches have been approved as official medical devices. The Galaxy Active 2, one of Samsung’s leading smart watches, can now monitor blood pressure without the need of an inflatable cuff. This would save time and the annoyance of your arm being squeezed.
According to a company press release, developers have figured out how to use photoplethysmography heart rate sensors and electrodes for electrocardiograms. It’s a ritual performed millions of times every day at doctor’s offices. Physicians inflate a cuff to restrict blood flow, then slowly release the pressure while they listen for pulsations.
The device even received validation from South Korea’s Ministry of Food and Drug Safety, which says the Galaxy Active 2 smartwatch can now perform the same measurement as a traditional cuff test.
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This is no small feat. The sensors found on the back of smart watches measure blood flow, not pressure. Samsung engineers were able to get accurate blood pressure readings by calibrating the smart watch with a real blood pressure cuff. The smartphone app then uses pulse wave analysis to simulate future blood pressure readings.
This isn’t the first time engineers have used sensors, software and smartphones to produce magical outcomes. Google engineers, starting in 2016, managed to take smartphone photography to new heights with its Pixel line of devices.
Although the Silicon Valley company makes the bulk of its revenues selling digital ads, its core is machine learning, which uses computers and software analytics to refine processes. When those superpowers were used for smartphone photography, the outcome was transformative.
Investors should not look past the sensors that make all this possible. It’s the big takeaway from the Galaxy Active 2 story.
The best pure play in sensors is Sony (SNY). The Japanese company is by far the largest supplier of best-in-class compact optical image processors in the world.
Its new Xperia line of smartphones feature a 3D time-of-flight sensor for autofocus that can recalculate images 60 times per second. For video, Sony introduced automated motion blur reduction, and 360-degree reality audio, for a surround sound experience.
Investors should hold no illusions that the new Sony devices will shakeup the Apple and Samsung smartphone duopoly. But their true focus should be on the real story: Sensors are the key to unlocking the next wave of the digital transformation.
The video surveillance industry is the next target market for these sensors. With them, developers could create better 3D time-of flight-technology, better autofocus, auto exposure, real-time eye-tracking and motion blur reduction. And new compact 5G antenna systems are likely to find a home in millions of sensors at the edge of networks.
And Sony has the technology and scale to provide those sensors.
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Shares have been retreating since reaching $74 in February. The stock trades at 14.1x forward earnings and only 1.1x sales. Sony stock could easily trade $90 over the next 12 months, a gain of 41%.
Sony already dominates the sensor market with best-in-class tech already found in its smartphones. It’s only a matter of time before this revolutionary tech finds its way into other applications.
Investors should look at weaknesses as potential opportunities.
Best wishes,
Jon D. Markman
