Disruption Bytes

• Cybersecurity: Have ransomware cyber incidence rates peaked and which country is proposing a ban on ransomware payments?
• Powering the data revolution: Are US droughts a threat to big tech data centres and what is being done to mitigate this?
• Metaverse: How are updated chipsets allowing AR glasses to bridge the gap with VR headsets?

In this free to view note, we summarize some recent developments within HSBC’s Disruptive Technology Theme you may have missed, highlighting potential implications investors should note.

Cybersecurity… In our report, Cyberdemic, we provided a number of case studies on cybersecurity breaches. And our report, Future cybersecurity, warned investors that ransomware was on the rise and the preferred tactic for digital crime. We take a look at the latest response from a government to two very significant cyber breaches and what’s happening with ransomware incidence rates.

Powering the data revolution… In our report, The Water Crisis, our ESG analysts warned about the risks we face from water scarcity. Over half of the US is facing drought conditions and data centres on average have the daily water consumption of 100,000 households – which is leading to tensions in local communities. We explore what Amazon, Google, and Microsoft are doing to reduce their water consumption.

The augmented metaverse… In our report, The Metaverse Age, we highlighted that AR glasses and headsets exist but are less advanced than VR headsets, particularly due to the complexity of the optics technology required for AR. However, a new, smaller and more powerful chipsets are helping AR glasses bridge the gap and become a reality.

This is a redacted version of a report with the same title published on 20-Dec-22. Please contact your HSBC representative or email AskResearch@hsbc.com for more information or to request reports mentioned above.

Henry Ward*, Thematic Analyst, Disruptive Technologies, HSBC Bank plc
Davey Jose*, Thematic Analyst, Disruptive Technologies, HSBC Bank plc
Faizan Lakhani*, Analyst, Insurance, HSBC Bank plc
Nicolas Cote-Colisson*, Global Head of Communications Equity Research, HSBC Bank plc
Frank Lee*, Head of Technology Research, Asia, The Hongkong and Shanghai Banking Corporation Limited

Disruption Bytes

• Cybersecurity: Have ransomware cyber incidence rates peaked and which country is proposing a ban on ransomware payments?
• Powering the data revolution: Are US droughts a threat to big tech data centres and what is being done to mitigate this?
• The augmented metaverse: Which company has taken a potential leap forward to making AR glasses a reality and who’s using it?

To ban or not to ban ransomware payments?

In some of our recent reports, we explored the nature of global cyber-attacks, how they were changed by the pandemic (through work from home trends) and how the threat of ransomware was growing. Furthermore, a panel of experts we hosted back on 18 May 2022 outlined that ransomware and phishing were still the preferred cyber threat methods.

However, ransomware attack growth appears to have peaked in Q2 2021 (up +469% to Q1 2019 levels). As of Q2 2022, they have fallen to +204% of those Q1 2019 levels¹.

Cyber incident rates (percentage change relative to Q1 2019)

• In April 2022 North Carolina became the first US state to prohibit state agencies and local government from paying ransoms resulting from ransomware attacks. Public entities are even banned from communicating with the attacker². Florida became the second state to enact similar legislation which prohibits state and local government entities from making ransomware payments³. In recent years New York, Pennsylvania, and Texas have also considered legislation that would ban government agencies from paying ransomware. However, the legislation in Texas fell flat in committee and was not considered by legislators⁴.
• In 2021 the Dutch government considered banning ransom payments by insurers⁵. Whilst it is not expressly illegal to pay ransoms in the UK, US, and EU there are a number of restrictions when paying ransom. For instance, many cyber-criminal groups have financial sanctions against them and thus a ransom payment could not be made to these groups. It is also illegal pay ransom to a group suspected of terrorism⁶.
• Australia’s Home Affairs Minister Clare O’Neil has announced that the government is considering banning the payment of ransoms to cyber criminals. This follows a significant cyber-attack on Australia’s largest health insurer Medibank Private (which compromise data of 10 million current and former customers), as well as on Australia’s second largest telecommunications company Optus⁷.

Will ransomware payment bans work?

The proposal has had mixed reactions from experts, with some believing it would remove the profit incentive from these cyber threats and thus lower the rate of attacks. Whilst others have said it

would only result in more personal data leaks across the dark web⁸. According to Venafi, a private cybersecurity company, 18% of those who paid ransoms had their data leaked anyway and 35% were unable to recover their data despite having paid⁹ - advancing the belief that the ban could be effective. According to cybersecurity firm Talion, 78% of the UK public would support such a ban and 79% of cybersecurity professionals support such a ban¹⁰.

However, others have suggested that organisations will likely still pay despite any legislative action, which would lead to an underreporting of attacks and a lack of transparency with regulators and law eforcement¹¹. This specific concern was cited by the US Federal Bureau of Investigation in its recommendation to the Senate Judiciary Committee to not ban all ransom payments in July 2021¹².

Related key reports

• Please contact your HSBC representative for details on related reports.

Are US droughts a threat to big tech data centres?

Growth of data centres, strain on water and citizen concerns… 

According to the Synergy Research Group the number of “hyperscale” data centres globally had doubled between 2015-2020 and 40% of those are in the US – with Amazon, Google, and Microsoft accounting for more than half of that total¹³. Moreover, the Water Resources Centre at Texas Tech University has said that a typical data centre uses 3-5 million gallons of water per day – the equivalent amount of water as a city of 30,000-50,000 people¹⁴.

Lack of company disclosure for water risks at data centres

Concerns were raised by local residents over summer 2022 about water scarcity and data centres, for instance, about 20% of data centres in the US rely on watersheds that were under moderate to high stress from drought¹⁵. Despite this according to Sustainalytics, of 122 companies it looked at that operated data centres only 16% of them disclosed their plans for water related risks¹⁶. And this is not just a US problem, in August 2022 The Times reported concerns over data centres water usage in the UK during a drought¹⁷. 

US droughts creating risks to data centres

In November 2022, amid worsening drought conditions in the US, CNBC reported that big tech companies were facing a drought risk to their data centres¹⁸. Companies have made commitments to lower their water usage, for instance, Meta ran a pilot programme (which has now been implemented in all of its data centres) to lower its relative humidity from 20% to 13% to lower its water usage in Los Lunas, New Mexico and Microsoft has claimed it wants to replenish more water than it consumes by 2030¹⁹.

According to the US drought monitor over half of the US is in a drought condition, covering 60% of the mainland 48 US states, this is up 9% in just one month²⁰. So what are companies doing?²¹

• Microsoft publishes an annual sustainability report, including its water consumption. Which has grown from 67.5m cubic feet in 2017 to 158m cubic feet in 2021. As well as their pledge to be “water positive” by 2030 they have committed to reducing data centre waste water by 95% by 2024.
• Google has also committed to replenish 120% of its water consumption by 2030²². However, it does not publish its water consumption numbers but it does have internal measures.
• Amazon does not publish its water consumption numbers (though it does monitor usage internally) and has not set out a clear timeline of its planned water reduction. However, it has announced plans to reduce its consumption²³, particularly of potable water²⁴ i.e. drinkable water.

Related key reports

• Please contact your HSBC representative for details on related reports. 

Is technology to accelerate AR glasses nearly ready?

Offloading processing requirements to compatible host devices

Another technical hurdle overcome in the race to AR glasses

In our report, The Metaverse Age, we highlighted that AR glasses and headsets exist but are less advanced than VR headsets, particularly due to the complexity of the optics technology and smaller form factor required for AR.

In November 2022, a major chipmaker launched its first dedicated AR chipset. The chip’s processor is designed specifically for AR glasses so that it is thin and lightweight. The chip is made up of three parts and the company’s reference design shows each as follows²⁵:

• AR processor in right earpiece for perception and display output
• AR co-processor in the nose bridge for sensor aggregation, AI, and computer vision
• Connectivity chip (which can interact with smartphones chips to boost power) in left
• earpiece for low latency, low power, and Wi-Fi 7

Compared with the previous generation processor, this new chipset has a 40% smaller printed circuit board, 45% less wiring, reduced processor power and Wi-Fi power consumption by 50% and 40%, respectively²⁶. And the overall platform delivers 2.5x AI performance²⁷.

Processing away from headset?

The AR processor and co-processor work with smartphones, PCs, and networks to provide a distributed computing architecture. Which mixes locally produced data on smart glasses with the clouds (or other devices) computing power to expand its computing power and lower the heat generated in the glasses. The connectivity chip enables Wi-Fi 7 to provide high speed broadband connectivity between the glasses and the host device²⁸, which will enable AR glasses to be latency free²⁹.

Related key reports

• Please contact your HSBC representative for details on related reports.