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A Smartphone Revolution?
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Silicon Valley Bureau Chief
Could Apple [AAPL
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], Research in Motion [RIMM
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] and Palm [PALM
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] be the new Three Musketeers? RBC's wireless analyst Mike Abramsky certainly seems to think so in a compelling research note he released this morning.
He and I have long agreed that the opportunities in the smart phone market are so enormous, that there's easily enough largess to support multiple winners, and big ones, in the space. But his note today goes a big step further: the smart phone success stories of today, are the computer success stories of tomorrow; and the computer success stories of today, are the also-ran tech stories of tomorrow.
It's an interesting take. Smart phones are tiny, and ever more powerful computers in your pocket. There's long been a shift toward taking your PC with you, unplugging, going mobile. Laptops have been a bountiful sector for years. Just ask Intel [INTC
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] and Apple. And take a look at the netbook trend today, with unit sales this year expected to double sales from last year.
But smart phones is where the action is. With more data and digital entertainment stored in the cloud, and more capabilities included in every handset, and carriers like AT&T, Verizon, Sprint and T-Mobile finally building out networks that begin to deliver on the promise of anytime/anywhere/everything, smart phones are becoming the gadget of choice, a necessity for millions. And in the wake of that oncoming speedboat, traditional computer companies like Hewlett-Packard [HPQ
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] (which reports earnings tonight), Dell and other big box makers, are being left behind, bobbing for market share and opportunity. (That's why HP is transforming into a services company, ala IBM, which left the PC business years ago.)
So here we are today, trying to see where it's all headed. Abramsky raised his targets this morning on Apple, RIM and Palm. He sees equal opportunities for growth in each of them.
Says Abramsky: "Smart phone Market: Huge, Nascent, and Underpenetrated." Music to an investor's ears. "We are raising our smart phone penetration forecast to 35.1% of global handsets or 504 million units (395 million prior) by calendar 2012." Staggering.
And this: "We are raising our price targets on RIM from $100 to $150, on Apple from $190 to $250, and on Palm from $18 to $25, justified by increased market shares which, as visibility improves to the huge smart phone opportunity, offer upside to financials and potential multiple expansion."
I'd go a big step further: Say what you will about Apple, but this company's vertically integrated model is something the other two simply can't match, and makes Apple truly compelling for a much longer term. Nevermind that its Mac business still continues to enjoy strong growth rivaling anything else in the industry. It's iPhone/App Store/iTunes ecosystem is something no other competitor has even begun to approach. Its operating system software continues to drive innovation throughout the industry. In other words, while other competitors, particularly RIM and Palm continue to rely largely on a one-hit wonder of products, Apple's got an entire wall of platinum records and continues to add to its collection on a fairly predictable schedule.
Abramsky's report this morning should be a clarion call to investors looking for the best place, longer term, to park their money. And while the group looks very good, one member in particular is still heads and tails above the rest.
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