Investors often see mobile computing as an exciting growth story. But they may be doing themselves a disservice by believing the chief opportunities lie in picking the ultimate phone/tablet winner (or winners)—component and infrastructure firms are also critical to industry growth.
Certainly, new phones and tablets are perhaps the more interesting media story—you don’t often find people standing in line to buy an infrastructure upgrade. Then, too, smartphones still make up a minority of global phone sales and are projected to grow rapidly (see Exhibit 1). The tablet opportunity could also be massive—this market essentially originated just two years ago and it could quintuple by 2015 (see Exhibit 2).
Exhibit 1: Global Smartphone Forecast
Exhibit 2: Global Tablet Sales Forecast
But historically, phone vendor fortunes are often volatile—the industry launches new products so frequently that every year holds risk of a missed product cycle. For individual investors who perhaps lack the resources to do in-depth research on new product releases, another way to gain exposure to mobile computing is through components and infrastructure.
Components include chips that perform computing functions, transmit communication signals, or capture pictures and video. Look for component suppliers with technology leadership and a diversified customer base.
What’s more, firms that sell wireless and data center infrastructure should benefit as mobile data traffic keeps rising—current expectations are for traffic to rise by more than 15 times in five years (see Exhibit 3). Near-term, traffic growth likely will come from Emerging Markets upgrading wireless infrastructure from 2G (voice and text messaging) to 3G (high-speed mobile data) and developed countries building out 4G networks with much faster data speeds.
Exhibit 3: 2011-2016 Mobile data traffic growth
Sometimes a “picks and shovels” strategy can make a lot of sense, and there are myriad firms involved in producing and supporting mobile computing devices that investors can investigate.