Service Robots / AI

146 Pages·2017·9.22 MB·English

Service Robots / AI
GLOBAL

The force is awakening
Robots – On the march, Jan-2017, focused on industrial robots. We now hone
in on the growing popularity of Global Service Robots, which have the tech edge
and versatility to be deployed almost everywhere from factories to hospitals to
homes. We see an ecosystem building around: 1) hardware manufacturing
(i.e. robot components and computing chips); 2) AI development; and,
3) server/networking builds to facilitate Service Robots as part of IoT in the
connected world.

AI capability to boost computing demand
Inside
AI-based (Artificial Intelligence) Service Robots are able to interact with humans
Executive summary 2
and other machines appropriately. We have seen tech names putting efforts into
The definition of Service Robot 5
this area, including “machine learning”, “natural user interface”, “machine-
Far more than simply toys 12
to-machine”, “cloud computing”, and “cyber security”. iFlytek (14%-owned
Gearing up to an US$100bn market
by China Mobile) has been focusing on natural language processing, which
by 2025 23
allows robots to come to accurate conclusions based on a person’s
The ecosystem of Service Robots 33
social/emotional state. “High-performance ICs” and “Datacentres” are the
Summary of related stocks 41
other two areas we expect to enjoy strong growth in the coming years on the
Taiwan Server/Networking 55
massive computing demand to power Service Robots’ rising cognitive abilities.
Read-across to industrial robots 56
We expect TSMC to benefit from both advanced nodes (for high-performance

Analyst(s) computing) and mature nodes (for connection).
Macquarie Capital Limited
Allen Chang Global market up to US$100bn by 2025E
[phone] [e-mail]
Wendy Huang, CFA We forecast the Service Robot market size could be US$100bn by 2025E
[phone] [e-mail] (Fig 43), or a 32% CAGR in 2017-25E, with shipments seeing a 43% CAGR to
Chris Yu
[phone] [e-mail] over 142m units by 2025E on the back of: 1) significant demand for various
Hillman Chan, CFA applications including logistics, food delivery, agriculture, reception, medical,
[phone] [e-mail]
household chores, etc.; 2) a comprehensive supply chain; and, 3) government
Verena Jeng
[phone] [e-mail] support (i.e. China’s robot industry development plan). We expect 57% of total
Macquarie Capital (Europe) Limited Service Robot sales to come from professional applications in 2025E on higher
Bob Liao, CFA
[phone] [e-mail] ASP and broader growth opportunities, with the other 43% from personal
Macquarie Capital (USA) Inc. applications. Shorter term, we expect the market size to reach US$17bn in 2yrs,
Sarah Hindlian US$42bn in 5yrs, compared to the current US$11bn.
[phone] [e-mail]
Srini Pajjuri Comprehensive functions beyond toys
[phone] [e-mail]
Benjamin Schachter By professional sectors, we see a large market potential, given higher
[phone] [e-mail]
Macquarie Capital Securities (Japan) Limited technological feasibility (logistics, medical, reception and agriculture to account
David Gibson, CFA for a combined 87% of professional robots sales in 2025E) or lower base (food
[phone] [e-mail]
delivery). Hikvision has already deployed over 300 logistics robots (video link)
Damian Thong, CFA
[phone] [e-mail] in a Chinese express company’s warehouse, processing up to 20k parcels <5kg
William Montgomery, CFA through autonomous navigation. Splunk and Symantec (covered by Sarah
[phone]
[e-mail] Hindlian) are well positioned in software. Just Eat (covered by Bob Liao) has
George Chang already commercially deployed food-delivery robots. We also expect more high-
[phone] [e-mail] end models capable of complex missions in personal robots used for domestic
Macquarie Capital Limited, Taiwan Securities Branch
Jeffrey Ohlweiler tasks/entertainment with better connectivity and interaction skills.
[phone] [e-mail]
Patrick Liao Key Beneficiaries
[phone] [e-mail]
Kaylin Tsai Robot makers: Hon Hai, Hikvision, Siasun, Dahua, Asustek, SoftBank, Amazon,
[phone] [e-mail] Sony; Semi: TSMC, KYEC, Nvidia, Avago, Xlinx, AMD, Intel; Servers/
Lynn Luo
networking: ZTE, Lenovo, Inventec, Accton, Alpha Networks; Cloud
[phone] [e-mail]
Louis Cheng, CFA computing: Baidu, Alibaba, Tencent, China Telecom, Apple, Alphabet,
[phone] [e-mail] Microsoft; Components: Inovance, Estun, STEP, Nidec; Service: Just Eat,

7 June 2017 iFlytek, China Mobile, HonHai, Cheetah Mobile, Panasonic, Splunk, Symantec.

Please refer to page 144 for important disclosures and analyst certification, or on our website
www.macquarie.com/research/disclosures.
Macquarie Research Service Robots / AI
Executive summary
Fig 1 Service robot related stocks
3M Div.
Company Ticker Mkt cap ADTO Price TP Upside Rec PE PB ROE PEG Earnings Cagr yield
(US$m) (US$m) (lcy) (lcy) 2017E 2017E 2017E (2017-19E) 2017E
Robot maker
Hon Hai 2317 TT 60,433 118 105.00 150.00 42% O 11.9 1.7 13% 0.8 15% 3.2%
Hikvision 002415 CH 38,874 122 28.62 30.00 5% O 27.1 10.8 34% 0.7 41% 1.1%
Siasun 300024 CH 4,308 49 18.76 26.00 39% O 55.2 5.0 11% 1.1 51% 0.3%
Dahua 002236 CH 8,782 72 20.58 14.50 -26% N 24.4 7.3 26% 1.1 23% 0.5%
Asustek 2357 TT 7,130 15 289.00 307.00 5% O 11.9 1.2 10% 2.5 5% 5.4%
SoftBank 9984 JP 90,068 487 8,949.00 10,900.00 19% O 10.2 3.2 33% -0.4 -25% 0.4%
Amazon AMZN US 483,396 2,947 1,011.34 1,060.00 5% O 150.9 26.6 19% 1.7 90% 0.0%
Sony 6758 JP 47,503 210 4,117.00 4,520.00 8% O 74.5 1.9 3% 0.6 124% 0.5%
Semiconductor
TSMC 2330 TT 181,292 177 210.50 228.00 7% O 15.5 3.9 24% 1.3 12% 3.1%
KYEC 2449 TT 1,171 9 30.10 34.00 13% O 11.1 1.5 13% 0.5 21% 6.1%
Nvidia NVDA US 88,066 1,898 148.01 115.00 -22% N 60.5 18.8 33% 4.1 15% 0.3%
Avago AVGO US 101,228 589 252.21 280.00 11% O 57.0 4.2 31% 6.2 9% 0.8%
Xilinx XLNX US 16,658 189 67.15 65.00 -3% N 29.5 6.7 26% 4.1 7% 1.8%
AMD AMD US 10,622 860 11.24 10.00 -11% U na 23.4 -3% na 156% 0.0%
Intel INTC US 171,125 779 36.34 40.00 10% O 14.1 2.7 19% 2.6 5% 2.7%
Server/networking
ZTE-H 763 HK 11,559 18 16.10 17.50 8% O 16.0 1.9 13% 1.0 17% 1.0%
ZTE-A 000063 CH 11,559 135 19.81 21.00 7% O 19.2 2.3 12% 1.2 17% 0.9%
Lenovo 992 HK 7,226 47 5.07 7.50 49% O 120.9 15.4 17% -2.3 -6% 0.6%
Inventec 2356 TT 2,818 7 23.65 25.70 9% O 12.8 1.5 12% 0.9 14% 5.8%
Accton 2345 TT 1,298 16 71.50 73.00 3% O 15.3 4.6 27% 1.9 8% 4.6%
Alpha Networks 3380 TT 388 8 26.90 27.60 3% O 12.4 1.3 9% 4.2 3% 3.1%
Cloud computing
Baidu BIDU US 65,088 425 187.31 189.00 1% N 5.6 0.7 12% 0.1 39% 0.0%
Alibaba BABA US 317,186 1,141 125.37 142.00 13% O 8.3 1.4 19% 0.3 28% 0.0%
Tencent 700 HK 332,705 613 273.60 304.00 12% O 45.6 16.4 28% 2.2 21% 0.2%
China Telecom 728 HK 39,564 30 3.81 4.70 23% O 15.4 1.0 6% 5.9 3% 2.3%
Alphabet GOOGL US 686,948 1,362 1,003.88 995.00 -1% O 29.6 5.0 15% 2.1 14% 0.0%
Apple AAPL US 802,566 3,559 153.93 160.00 4% O 17.2 6.7 34% 1.1 16% 1.4%
Microsoft MSFT US 559,892 1,540 72.52 66.00 -9% N 29.0 7.4 35% 3.5 8% 1.9%
Components
Inovance 300124 CH 5,499 29 22.44 27.00 22% O 31.7 7.6 21% 1.1 30% 1.2%
Estun 002747 CH 1,403 24 34.57 18.50 -48% U 95.2 7.9 7% 3.4 28% 0.2%
STEP 002527 CH 941 6 10.31 18.00 76% O 28.6 2.4 8% 0.9 31% 0.9%
Nidec 6594 JP 32,088 92 11,770.00 12,500.00 6% O 32.6 4.3 13% 2.3 14% 0.7%
Service providers
Just Eat JE/ LN 5,749 31 655.50 6.70 -1% O 39.0 16.5 13% 1.7 22% 0.0%
iFlytek 002230 CH 6,305 146 30.85 NA NA NR 64.8 5.9 8% 2.2 30% 0.4%
China Mobile 941 HK 224,096 170 85.30 112.00 31% O 15.1 1.8 11% 1.7 9% 2.7%
Cheetah Mobile CMCM US 1,717 12 12.00 11.50 -4% N 28.8 0.5 9% 0.7 43% 0.0%
Panasonic 6752 JP 32,895 102 1,466.50 1,580.00 7% O 21.7 1.7 9% 0.9 25% 1.5%
Splunk SPLK US 8,697 84 62.87 74.00 18% O na 9.3 6% na 35% 0.0%
Symantec SYMC US 18,411 208 30.27 36.00 20% O na 4.5 22% na 36% 2.0%
Avg 35.0 6.3 17% 1.3 26% 1.5%
Source: Bloomberg, Macquarie Research, June 2017; Priced at 6 June 2017.
AI-based Service Robots beyond recreational purpose
 Pursuing greater computing power to enable AI: With the help of advanced processors
and cloud computing, AI-based Service Robots could make it possible to automate many
tasks that were long regarded as impossible for machines to perform.
 Gearing up to an US$100bn global market by 2025E: We forecast Service Robot sales
to see a 32% sales CAGR throughout 2025E, with shipments at a 43% CAGR to over
142m units during the same period. Sales from professional robots should be consistently
higher than personal robots on higher ASP and broader applications.
 We are positive on the professional applications in logistics, agriculture, reception
and medical: Given higher technological feasibility and market potential, we expect these
sectors to be key growth drivers in professional Service Robots with 87% combined of total
professional Service Robot sales in 2025E.
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Macquarie Research Service Robots / AI
 Key beneficiaries in Greater China Tech/ Telecom: We identify robot makers (Hon Hai,
Hikvision, Siasun, Dahua, Asustek), semi plays (TSMC, KYEC), server/networking
(ZTE, Lenovo, Inventec, Accton, Alpha Networks), cloud computing (China Telecom),
robot component makers (Estun, Inovance, STEP), and service providers (iFlytek, China
Mobile, Hon Hai) as beneficiaries of the growing demand for Service Robots.
Sarah Hindlian US Software – Service Robot with AI software & services
 Service Robots to boost software demand: We believe the progressively substantial
data being generated by robots enables software vendors to provide products and services
that leverage this data to generate value by optimizing and orchestrating operations, and
improving artificial intelligence models.
 Cloud-scale data analytics: AI software is a foundational technology for Service Robots,
enabling a wide range of capabilities from understanding human speech to recognizing
images. We believe that the expanding Service Robot ecosystem is best viewed as a
fundamental component of the larger IoT landscape as internet connected Service Robots
interface with the cloud to benefit from cloud-scale AI capabilities.
 Key beneficiaries in US software: We note that Microsoft is well positioned to benefit
with its portfolio of AI services, IoT device management, data analytics, and cloud-based
ML models. We expect Splunk to benefit from increasing quantities of machine data
generated by fleets of robots that require data aggregation, correlation and analysis. We
think the demand for security for service robots and IoT devices in general to benefit
Symantec, given the co.’s robust security portfolio.
Srini Pajjuri US Semi – robot unit growth will help IC demand
 GPU currently dominates deep learning: Graphics processing units (GPUs) with their
massively parallel computing capability currently dominate deep learning training. We
expect GPUs to maintain their lead in training AI models while FPGAs, custom ASICs and
CPUs appear better suited for on-the-field inferencing tasks.
 Analog, sensing and connectivity ICs should also benefit: We expect Analog / mixed
signal IC vendors that supply into 5G, WiFi, image processing, motor control and battery
management to be the key beneficiaries. While the Semi content will likely be lower than
that of a self-driving car, the service robot unit opportunity could be much bigger given their
applicability across industries including medical, agriculture, transportation, military and
entertainment.
 Key beneficiaries in US semi: We believe semiconductor components that enable
artificial intelligence (AI/ML), connectivity and sensing are well positioned. AI/ML is already
driving strong growth at NVIDIA and we expect AMD, Broadcom, Intel and Xilinx to also
benefit from this trend in the coming years.
Ben Schachter US Tech – giants’ move into robotics
 Alphabet's broad ambitions: We can't rule out continued investments in robotics,
particularly as they may relate to healthcare, transportation and a number of other areas.
Yet the company has remained quiet about any plans. It clearly has the financial resources
and talent to make a larger push into robotics, but as with many Other Bets from Alphabet,
we will not give them much credit until we see proof of progress.
 Amazon goes with internal warehouse automation: Amazon arguably has the most
advanced logistics infrastructure on the planet, and it is driving that forward through the
ever increasing use of robots in its warehouses to increase efficiencies. In any investor
analysis of robotics, Amazon should be considered a potential player.
 Apple’s new focus with robotics implications: The recently announced $1 billion
investment fund focused on advanced manufacturing in the US will likely be at least one
area where AAPL's influence into robotics will be felt. Additionally, there has been much
speculation about AAPL's focus on automobiles, health care and home automation, all of
which may have implications for robotics.
 Key beneficiaries in US Tech: Alphabet, Amazon and Apple.

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Macquarie Research Service Robots / AI
Bob Liao The implication for ‘food-delivery services’
 Delivery robots are already being rolled out: Just Eat’s robot delivery service has
progressed beyond trials and the company now has tens of robots in operation with plans
to roll out across Britain. In addition, Just Eat has tested robot delivery in more than about
40 other European cities.
 Delivery robots could be economically disruptive: We believe adoption of delivery
robots from Starship, a leading supplier used by Just Eat, would increase Just Eat’s market
share, profitability and addressable market. (Starship is targeting a price of only £1, €1 or
€1 per delivery).
 Key beneficiaries in food-delivery: We believe Just Eat will increase market share,
profitability and addressable market with adoption of robot delivery services. We expect the
company to readily sustain double-digit revenue growth and higher profit growth over the
next few years.
China Internet – embracing AI/ robotics
Wendy Huang/
 AI to strengthen core business: Among BAT, Baidu is leading in terms of AI
Hillman Chan
development, while Tencent started relatively late in the field. We find AI could enable
cloud collaboration, which sees wide application in various business. For instance, Alibaba
is applying AI algorithms to shopping experience, to upgrade supply chain management,
and to improve logistics efficiency.
 Embarking on voice and robots: We see internet companies moving to the robotics
space with expertise in voice interaction platform. Other than Baidu (Duer; similar to Siri)
and Tencent (voice assistant Dingdang), Cheetah Mobile have recently entered the
robotics business through an investment in Beijing OrionStar which is engaged in primarily
voice interactive system and intelligent robot.
 Key beneficiaries in China internet: Baidu, Alibaba, Tencent and Cheetah Mobile.
David Gibson/ Japan Tech – awaiting a major breakthrough
Damian Thong/  Consumer-oriented service robot market to expand: We expect the service robot
market to expand in tandem with the development of the Internet-of-Things. iRobot, which
Will Montgomery/
suggests that the vacuum cleaner market is only 1/5th penetrated by robotic products,
George Chang launched its Japan operation in April 2017 by absorbing the operations of its distributor.
 “Near-industrial” and labour-saving applications in the next 5-10 years: These
include logistics, infrastructure maintenance, and security. Examples include Hitachi’s
Racrew shelf-moving robot (which has orders e.g. from MonotaRO) and Alsok’s Reborg-X
security robot. Such robots address the needs created by Japan’s growing labour
shortages.
 Beyond well-known Pepper: SoftBank Robotics is not profitable despite selling 20k
Peppers but it is an important part of the long term vision for robot services and especially
for the elderly (given Japan’s aging population). The goal of Softbank Robotics is to
upgrade the software using the experience of the Peppers already sold and hence make
Pepper smarter, while bringing in new members, Nao and Romeo, to the family.
 Key beneficiaries in Japan Tech: We like SoftBank’s long-term vision for robot services.
The Service Robot theme is likely to be increasingly prominent – notably at Panasonic
and its Connected Solutions and appliances businesses. Growth in Service Robots may
benefit tech/parts suppliers ranging from large firms like Nidec to emerging unlisted firms
like Mujin and 3D Media. The listed firm most exposed to healthcare applications is
Cyberdyne (NR).

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Macquarie Research Service Robots / AI
The definition of Service Robot
AI-featured Service Service Robots come with greater mobility which allows them to operate co-presence with
Robots to realize users. Compared to Industrial Robots, Service Robots are often embodied AI (Artificial
greater possibilities Intelligence) to enable reactions according to the environment or user behaviour. Service
Robots are also required to understand users’ preferences and expectations, accumulating a
database to facilitate their capabilities through time (aka, machine learning).
Disrupting the world we know
Robots are not a brand new phenomenon and are commonly seen on factory floors.
However, what is new to us now is that Robots are more than clumsy machine arms
operating in production lines, but can penetrate into societies with versatile functions. For
example, innovative Service Robots are supporting doctors with surgeries that are less
invasive and safer to perform and could also work with nurses to bring meals and medicines
to patients without delay.
These robots not only advance our lives by eliminating tasks that are dangerous, repetitive,
tedious, or boring to give us improved skills of accuracy, precision, and strength, but begin to
take bigger role in the decision making process with the development of AI. We expect
Service Robots to enhance our productivity and allow us to accomplish more each day even
in a world where the working population is getting older.
Fig 2 Where we find great use of Service Robots

Source: Company data, Macquarie Research, June 2017
We are in the early stages of the life cycle
The past barriers to robots development are starting to come down as we see substantial
funding pouring into the space. In the past, research funding for Service Robots was typically
limited to small university grants, now it is coming from three sources: 1) government stimulus
programs (i.e. MIIT’s robot industry development plan, link), 2) venture capital investments,
and 3) large enterprise players such as Google, Baidu, Amazon, IBM.
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Macquarie Research Service Robots / AI
China’s aggressive ambitions in the space
Beijing has raised the development of Service Robots as a national priority, envisioning the
increasing importance of Service Robots in future society. The focus areas will be emergency
rescue, surgery, public relations, nursing with the target of elevating production output. We
expect the establishment of multiple innovation centres backed by the government to facilitate
technology breakthroughs in AI, sensing abilities, speech recognition, and hardware
manufacturing (i.e. motion control components like servos).
Fig 3 The development of Service Robot

Source: Macquarie Research, June 2017; *please refer to Fig 43 in the “TAM” section for further elaboration
AI is the science The integration of Artificial intelligence
and engineering of
We think AI is the core of Service Robots, which is the intelligence exhibited by machines or
making intelligent
software and becomes an essential part of the technology industry for the most challenging
machines
problems in computer science. The combination of “AI technologies” (i.e. “machine
learning”, “natural user interface” such as voice recognition) and “cloud computing”, are
making it possible to automate many knowledge worker tasks that were long regarded as
impossible or impractical for machines to perform.
We expect a considerable increase in data/video analysis, machine vision, speech
recognition and natural language generating to support a growing number of applications
which are cognitively enabling automated assistance. Beyond Service Robots, we also think
these technology advancements will be integrated into other new technology areas including
drones, industrial robots and IoT devices.
The tech giants such as Amazon, Google, Baidu, Alibaba, Tencent and Microsoft are betting
big on AI technology to improve hardware, cognitive algorithms, big-data computing,
datacenter infrastructure given the pursuit of higher respond speed and accuracy. Aggressive
M&A activities in acquiring promising start-ups were also commonly seen in recent years in
the hope to accelerate development. We expect the winners in the global race will have the
advantage in setting unified standards, which could push the proliferation of AI technology.

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Macquarie Research Service Robots / AI
Fig 4 Artificial Intelligence 101
Technology Description
Artificial Intelligence Often abbreviated as AI, the term refers to the system development exhibiting
"intelligence" in the field of computer science.
Machine learning Without being explicitly programmed, the machines or
robots are able to learn from algorithms and make
predictions of data. Such algorithms overcome the
limitation of following strictly static instructions for
decision-making ability.
Deep learning A class of machine learning algorithm which is used for
the composition of a layer of non-linear processing units
to solve problems.
Supervised learning A supervised learning algorithm analyses the training
data and produces an inferred function (pairing set of
sample input with desired output).
Reinforcement learning Reinforcement learning differs from standard supervised
learning in that correct input/output pairs are never
presented. The method focuses on the balance between
exploration (of unknown knowledge) and exploitation (of
current knowledge).
Transfer learning The notion focuses on storing knowledge gained while
solving one problem and applying it to a different and
related problem.
Cognitive computing The term describes the technology platforms that
encompass machine learning, reasoning, language
processing, human-computer interaction, and vision.
Cognitive computing aims to emulate the human brain’s
abilities for perception, action and cognition. The
neurosynaptic chip, designed to emulate the neurons
and synapses in the human brain, breaks path with
traditional architectures used for the last 70 years.
Source: Macquarie Research, June 2017

Fig 5 Ongoing AI projects across the globe
Company Project
China
ZTE Facial recognition with deep learning
Hikvision Intellectual image analysis
iFlytek AIUI, iFlytek Super Brain
Baidu Baidu Brain
Alibaba Alibaba AI Labs
Tencent Tencent AI Lab
US
IBM Watson/TrueNorth
Microsoft Adam/Cortana
Amazon Amazon Machine Learning
Google Google Brain
Apple Acquiring facial/speech recognition start-ups
Facebook FAIR (Facebook AI Research)
Intel Nervana platform
Uber Uber AI Labs
Tesla Neuralink human-AI project
Japan
Hitachi Social Innovation
Softbank Aldebaran
NEC NEC the WISE
Source: Company data, Macquarie Research, June 2017

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Macquarie Research Service Robots / AI
Datacenters in high demand to support AI
The computing power in IT architecture becomes increasingly critical to carry out massive
and complex data processing, which triggers the computing revolution. We think the stronger
datacentres could offload the processing/programming burden from CPU by taking more
responsibilities in the cloud computing phase, which benefits server vendors like ZTE,
Quanta, Inventec and Wistron.
In the era of AI, we think the server will be mainly used to process simple routine requests in
large scale such as searching key information from a massive amount of unorganized raw
data. Service Robots supported by big data platforms could not only overcome the limitations
of human beings to develop hypotheses to assess large amounts of data, but could be the
mobile hub to communicate with connected devices to offer solutions in various scenarios.
As such, we expect the rise of AI will benefit companies focusing on algorithm breakthroughs
to enable human-like interactions as well as the semiconductor/server market, forming a
complete ecosystem to support technology development. With the rising need for power
algorithms and processors for true AI, we have seen demand to enhance the architecture in
datacentres grow rapidly.
Both quantity and quality expansion from hyperscale datacentres
Driven by new services (eg. video streaming, live casting, etc) and operations shifting to
public clouds, global tier one service providers (including Google, Facebook, Amazon,
Microsoft, etc) capex expansion is expected to grow at a 12% CAGR for 2016-2019E,
according to Bloomberg consensus estimates. And aside from a quantity expansion, AI/Deep
Learning functionality has been addressed which can be found in the comments from chipset
supplier Nvidia (growing GPU penetration in cloud and hyperscale) and ODM Inventec (some
AI server projects in 2017).
Datacenter connections also need to be upgraded
With increasing data traffic from new services or information that we didn’t keep track of
before, datacentres are upgrading their bandwidths from 1G/10G to 40G/100G from 2015-16
to accommodate larger flow of data. The trend can be found in the revenue growth of Accton,
a leading high speed datacentre switch provider. Its revenue has grown 19% in 2016 and
44% YoY in 2017 YTD.
Fig 6 Global tier-one service provider capex trends Fig 7 Datacenter switch revenue by speed

(US$bn) (US$bn)
60 7
50 6
5
40
4
30
3
20
2
10 1
- 0
2013 2014 2015 2016 2017F2018F2019F
Google Facebook Amazon Microsoft
<1G 10G 40G 100G
Alibaba Baidu Tencent

Source: Bloomberg, Macquarie Research, June 2017 Source: IDC, Macquarie Research, June 2017

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Macquarie Research Service Robots / AI
The Open Datacenter Committee in China
ODCC (Open Datacenter Committee) was set up in 2014 by key participants including China
Telecom, China Mobile, Tencent, Alibaba, Baidu and Intel for unified standards in
module/design for higher compatibility. Key participants in the committee include China
Telecom, China Mobile, Tencent, Alibaba, Baidu, CAICT (China Academy of Information and
Communications Technology) and Intel, with OEM partners like ZTE, Lenovo, Huawei, Inspur
and Sugon, etc. The establishment of the alliance features resource sharing, which aims to
improve operating efficiency in the fragmented server market in China.
Fig 8 China seeking unified platform for enhanced efficiency
ODCC (Open Datacenter Committee)
Standard Project Scorpio
Key participants China Telecom, China Mobile, Tencent, Alibaba, Baidu, CAICT, Intel
OEM partner ZTE, Lenovo, Huawei, Inspur, Sugon
Server design Multi-node
Datacenter design Micro modular/pre-produced modular
Shipment >3,000 racks, 100k servers in 2015
Source: ODCC, Macquarie Research, June 2017

Fig 9 Scorpion v3.0 datacenter Fig 10 ZTE’s energy-saving mobile datacenter

Source: ODCC, Macquarie Research, June 2017 Source: Company data, Macquarie Research, June 2017
Machine learning to drive IC demand
AI-based Service Robots with cognitive capabilities could make it possible to automate many
tasks that were long regarded as impossible for machines to perform. Initial focus for the
industry is on training neural networking models that enable cognitive capability in machines.
Deep learning, which is an advanced form of machine learning used for training, is highly
compute-intensive and is already driving significant innovation in the semiconductor market.
Graphics processing units (GPUs) with their massively parallel computing capability currently
dominate deep learning training. We expect GPUs to maintain their lead in training AI models
while FPGAs, custom ASICs and CPUs appear better suited for on-the-field inferencing tasks.
Analog, sensing and connectivity ICs should also benefit
Similar to today’s consumer drones, service robots will have the ability to sense, perceive,
communicate, move (or fly), and control. In most case these machines will be untethered,
requiring a portable power source. We expect Analog / mixed signal IC vendors that supply
into 5G, WiFi, image processing, motor control, and battery management to be the key
beneficiaries. While the Semi content will likely be lower than that of a self-driving car, the
service robot unit opportunity could be much bigger given their applicability across industries
including medical, agriculture, transportation, military and entertainment.
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Macquarie Research Service Robots / AI
The service robot eco-system is coming together with advances in machine learning software
and robotics engineering. Initial investments are focused on training models that perform
human-like tasks (such as facial and voice recognition). The AI/ML semiconductor market is
still relatively small today but NVIDIA’s early success shows that IC companies with right
exposure could see significant benefit. We expect GPUs to dominate the training side of
machine learning in the near term. Once the models are trained, the compute intensity
needed to “infer” from data goes down significantly. We believe FPGAs, CPUs, and custom
ASICs are better suited for inferencing tasks as a result.
Advanced nodes to support high-performance computing
We believe robots will require HPC (high-performance computing)/AI (artificial intelligence)
chips based on TSMC’s advanced nodes. TSMC also views HPC as one of three key growth
platforms in the next few years. We note that one of the key customers in this area is Nvidia,
which we estimate accounts for 5-7% of TSMC’s revenue. We believe TSMC’s technology
leadership will make it the key beneficiary of the increasing HPC/AI demand.
Driving demand for a wide range of developments
The world of advanced AI-based Service Robots is very complicated, which relies on joint
efforts from numerous professional fields including electrical engineering, computer science,
mechanical engineering, cognitive science, psychology, law, biology and cloud computing. It
requires overcoming several problems at once to coordinate multiple areas of study to make
a robot to do simple actions. This is why many advanced AI robots are still confined to
academic research facilities.
We hold a promising view of the development of Service Robots given rising interest from
large tech firms from various industries such as internet, software, hardware, telecom, that
have secured not only sufficient funding but also a combination of different technology
advancements.
Fig 11 The ingredients to form intellectual robots

Source: Macquarie Research, June 2017

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