Smart Plays For Smartphone Growth

6/6/2011


About 35% of U.S. iPhone and Android owners say they begin to type, tap, or swipe away at the nonvoice applications of their smartphones before even getting out of bed, according to a study sponsored by Swedish mobile-phone maker Ericsson.

That popularity underscores the explosive growth of the smartphone market. In the March quarter, global smartphone sales swelled to more than 100 million units, up 85% from year-earlier numbers, according to industry tracker Gartner ($39; IT). Smartphone sales accounted for 24% of all mobile-phone sales in the March 2011 quarter, up from 15% in the March 2010 quarter. By 2015, Gartner expects global smartphone sales to nearly quadruple from 2010 levels, as shown in the table below.

GOOGLE, MICROSOFT SET TO GAIN SMARTPHONE SHARE
Sales (Millions)
Est.
5-Yr.
Growth
(Annual.)
(%)
Global Sales Market Share
Estimated
2010
($)
2015
Estimated
($)
2010
(%)
2011
(%)
2012
(%)
2015
(%)
Apple iOS
47
190
32
15.7
19.4
18.9
17.2
Google Android
67
539
52
22.7
38.5
49.2
48.8
Microsoft
12
216
77
4.2
5.6
10.8
19.5
Nokia Symbian
112
1
(64)
37.6
19.2
5.2
0.1
Research In Motion
47
123
21
16.0
13.4
12.6
11.1
Other
11
36
26
3.8
3.9
3.4
3.3
Global Market
297
1,105
30
100.0
100.0
100.0
100.0
Source: Gartner

Forecasts subscribers have several ways to play the smartphone trend. Below, we look at some key companies:

Devices

Apple's ($348; AAPL) iPhone sales grew 102% to 16.9 million units in the March quarter, as the company's global share of operating-system sales rose to 17%, behind only Nokia ($7; NOK) and Google ($529; GOOG). In the U.S., Apple should enjoy a continued boost from the February addition of the iPhone to Verizon Wireless's network. In China, an exclusive iPhone agreement with the country's largest wireless carrier ends this year, and Apple is reportedly negotiating a deal to add the nation's third-largest carrier, China Telecom ($60; CHA).

Rumors of a new iPhone continue to swirl, with Apple purportedly planning to launch in September. Apple is a Focus List Buy and a Long-Term Buy.


In May, Hewlett-Packard ($37; HPQ) launched its smartphone Veer, the product of its acquisition of Palm last year. Smaller than the iPhone in size and price, the smartphone has received some favorable reviews. But it only has about 6,000 applications, compared to 350,000 for the iPhone. H-P, very cheap at seven times trailing earnings, is a Buy and Long-Term Buy.

Operating systems

Microsoft ($25; MSFT) scrapped its short-lived Kin smartphone in July and seems resigned to the prospect of building a mobile presence through its Windows Phone operating system and Bing search engine. The company partnered with Nokia in February. Microsoft should benefit from Nokia's 27% revenue share of the global smartphone market, though the Finnish giant's market power is eroding. Microsoft should gain momentum as its Windows operating system begins to replace Nokia's Symbian on smartphones, likely in 2012. Gartner sees Microsoft's share of the market for smartphone operating systems nearing 20% by 2015, up from just 4% last year. Microsoft is a Long-Term Buy.

Semiconductors

Intel's ($23; INTC) transition to mobile devices has been rocky, partly because its semiconductors drained smartphone batteries too quickly. Smartphones powered by Intel's newest processors are scheduled to debut in early 2012. Looking further out, Intel unveiled a new chip that could power the smartphones of the future. A vertical fin protrudes from each chip, boosting power while reducing energy consumption. Intel looks to install the 3-D chips in desktops and servers by next year; adapting them for use in wireless devices could require at least one more year. In related news, Intel has released a new ultrathin laptop to compete with tablet computers. See our tablet roundup on page 6 for details. Intel is a Buy and a Long-Term Buy.


Texas Instruments ($35; TXN) sells processors that run wireless operating systems. TI's wireless unit — which makes products for more than just smartphones — accounted for 21% of the company's 2010 revenue. TI said semiconductors for smartphones and tablet computers helped drive revenue growth in the March quarter. TI is a Long-Term Buy.

Display glass

Corning's ($20; GLW) Gorilla glass holds the secret to keeping smartphones shiny and free of scratches. Used in more than 280 devices from 20 brands, Gorilla's thin sheets of glass accommodate touch-screen devices ranging from the iPhone to high-end smartphones made by Samsung. Corning sees global demand for liquid crystal display (LCD) glass rising 11% to 17% in 2011. But Gorilla glass appears primed for a sharper trajectory. Management expects its specialty-materials unit (9% of 2010 revenue), which produces Gorilla glass, to grow sales 142% in the June quarter. Corning is a Buy and a Long-Term Buy.


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