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[BRIEFINGS]
May 28, 2019
The Long & Short of It: Healthcare Sensors
In an age of rising healthcare expenditures, healthcare sensors -- used to monitor everything from brain waves to blood pressure -- have the potential to lower costs while improving patient outcomes, according to Goldman Sachs Research. Sensors are already making strides in diabetes management by helping provide diabetics with real-time information on their blood sugar levels through continuous glucose monitoring systems that users fit under clothing. Interest in the healthcare sensor market has soared of late, with over 400 related venture capital deals closed in the last two years. In the latest episode of our series The Long & Short of It, Goldman Sachs Research estimates the market could reach $30 billion annually as it spreads to new use cases.
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Podcast: Why Do Smaller Companies Receive Higher Valuations for New Initiatives?
Above: Steve Strongin of Goldman Sachs
Equity investors tend to pay for persistence or what is sometimes called "visibility," says the head of GS Research Steve Strongin in the latest episode of our podcast, Exchanges at Goldman Sachs. This represents a key finding of a new report from Goldman Sachs' Global Markets Institute, titled["What the Market Pays For,"]( along with the dynamic that large corporations often feel that they aren't rewarded for innovation the way small firms are. The reason for this, Strongin explains, is how the market perceives the "deep pocket risk" involved. Investors worry that large firms may overspend on failing projects because they have the resources to do so. Smaller companies, however, don't have as much money to be able to do the same. Also in the episode, Strongin discusses how corporate reporting can be managed to improve firms' valuations.
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Talks at GS with Brig. Gen. Jeannie M. Leavitt, the Air Force's First Female Fighter Pilot
Above (L to R): Asahi Pompey of Goldman Sachs and Brigadier General Jeannie M. Leavitt
When Jeannie Leavitt graduated at the top of her class from U.S. Air Force pilot training in 1993, she had earned first choice of the aircraft she would fly. But in the months before the Department of Defense changed its policy barring women from flying in combat, Leavitt's options were limited. "My leadership at the time, they said, 'You finished number one. Here are all the planes you cannot pick: you cannot pick a fighter, a bomber, special ops, anything combat related," she recalled during a recent episode of Talks at GS. Nevertheless, Leavitt decided to request the combat jet she wanted to fly -- the F-15E Strike Eagle -- knowing that she would be denied, and despite concerns from friends that she would be labeled a "troublemaker." As Leavitt recalls, "I went to my leadership and I said... 'I need to ask for what I want.'" Her choice was denied and Leavitt accepted a non-combat assignment, until a few months later when the policy changed. "To the Air Force's credit, senior leadership reached out to me and said, 'Did you really want to fly that Strike Eagle or were you trying to make a point?' And I said, 'No, I absolutely want to fly that airplane.'" Leavitt became the first female Air Force fighter pilot to do so, going on to log more than 3,000 hours in the air, with 300 hours in combat primarily over Iraq and Afghanistan. Today, Brigadier General Leavitt is Commander of Air Force Recruiting Services, where she views diversity as a "competitive advantage" in today's military. "If I have a very diverse group of people around that table and they bring different perspectives and different viewpoints, while it takes longer to get to a solution, I guarantee it will be a better solution because we'll have thought through so many aspects of the problem," she says.
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India's Tech Capital: Goldman Sachs Opens New Office in Bengaluru
Above: Goldman Sachs' new office in Bengaluru at 150 Outer Ring Road
Often referred to as the Silicon Valley of India, Bengaluru is fast becoming the start-up capital of the region, making it both an attractive place to do business and recruit specialized talent. For one, with India's information technology industry expected to grow to $350 billion by 2025, Bengaluru has emerged as the IT center of the country. It has also become the center of R&D for several defense and space institutes and home to the largest number of venture capitalists in the country. As a result, India -- and Bengaluru in particular with its proximity to leading universities -- offers access to a large pool of entrepreneurial talent across engineering, management, analytics and accountancy. For that reason, Goldman Sachs will open a new office in Bengaluru later this week that will expand our operations there, a reflection of the city's position as "an incubator of talent for our businesses around the world," according to Goldman Sachs Chairman and CEO David Solomon.
Briefly...on How Technology is Reshaping Industrials and Materials
Infrastructure, digitization and sustainability were just some of the topics on investors' minds at the Goldman Sachs Industrials & Materials Conference earlier this month. We spoke with Jerry Revich, Joe Ritchie and Brian Maguire of Goldman Sachs Research who shared thoughts from the conference which, for the first time, combined the Industrials and Materials sectors to connect firm clients and corporate management teams in a single, comprehensive event.
Team -- you just had more than 750 investors, clients and company management teams in New York for the Industrials & Materials conference. What were some of the key themes?
Jerry Revich: We're seeing a pickup in infrastructure spending which emerged in the back half of 2018, and really accelerated this year. Over 30 states raised their transportation budgets several years ago in anticipation of infrastructure projects -- think roads, bridges and tunnels -- but delayed the actual spending in the hopes that a federal infrastructure bill would be passed, which obviously didn't happen. And there was also an added delay given that many states' Department of Transportation offices didn't ramp up staffing to match the budget growth. Now, we're starting to see states put those dollars to work, which is translating into stronger orders for construction materials, and should ultimately contribute to productivity improvement.
Joe Ritchie: I'd add that, in addition to infrastructure, we're also seeing stronger spending levels in the non-residential institutional sector, such as government and education buildings. With spending remaining below prior peaks, several of the companies that attended the conference reported a pickup in order trends. This is good news for the broader economy as further construction activity could ultimately boost consumer spending. Elsewhere, short-cycle industrial trends are more muted, with several management teams highlighting destock in auto/broader industrials that could continue for several quarters, which coupled with uncertainty around tariffs, could dampen growth for the space in the near- to medium-term.
What about pockets of innovation? Are you hearing about any of the same tech trends like automation and digitization that are sweeping other industries?
Brian Maguire: We're now hearing about the former in waste management as a means of coping with new price weakness in recycled materials. Recent Chinese government quality standards have resulted in a sharp decline in the price of US recycled commodities, 30% of which were historically exported to China. As a result of these lower prices, many waste companies are moving to eliminate recycling offerings or at least sharply restrict what materials they will recycle or implement new fees and surcharges on municipal governments. But to help offset those pressures, waste companies are investing heavily in automation of recycling sorting facilities, or Materials Recovery Facilities. Waste Management, for example, is piloting a "MRF of the future" in Chicago that is completely automated. If successful, this could greatly reduce recycling operating rates and allow them to re-establish recycling offerings to all their customers. And we're seeing more examples like these where a desire for sustainability is governing new innovations in the space.
Jerry Revich: Advancements in technology are driving profound changes in traditional manufacturing and industrial companies as they move to integrate software and sensors into their machines and equipment. Precision farming is a topic we've highlighted -- Deere and Trimble make automated planting within a half inch precision possible, while driving at 10 MPH. Deere uses artificial intelligence to automatically identify and spray herbicide on weeds. The images of the weeds feed into an 800 million image database -- a database that extends with every spray run, using artificial intelligence to continue to improve treatment efficiency. Mining trucks are now completely autonomous and well beyond field testing, as Rio Tinto just put in an order for a fleet of autonomous trucks and other mining equipment from Caterpillar. We're also seeing low cost technology solutions -- United Rentals was an early adopter of location-focused GPS trackers to improve transportation logistics. Paccar and other truck manufacturers are using telematics to identify and prevent engine problems before they happen, using the field data to then improve the manufacturing process in nearly real time. Paccar has even started to monitor truck utilization as an early indicator for delinquency in its financial services arm.
It sounds like traditional manufacturing companies are taking a page from the tech industry's playbook. Is software also taking over this sector?
Jerry Revich: It might seem that way. As companies move to digitize their equipment, they have the potential to roll out services to new and existing customers as part of a subscription-based model. At our conference, industrial technology company Trimble, for example, announced that its transition towards subscription services is tracking ahead of expectations set as recently as six months ago, with new client signups under its newly available subscription SketchUp product up 50% year-over year. For the supplier, the subscription model means that it is easier and cheaper to maintain the technology and creates a recurring source of revenue. For the customer, it means a much easier installation, lower trial risk, and a continuously improving product.
Goldman Sachs Media Highlights
CNBC - May 23
[Goldman Sachs' Jeff Currie Weighs in on Commodities Markets]( (3:15)
CNBC - May 23
[Luke Barrs on the Election in India and the Equity Outlook for Emerging Markets]( (1:13)
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