Yoshikami: Wireless is Not Dot Com
With the release of Apple's iPhone 4 to a hyped up community and the rapid increase in the popularity of smartphones, we are seeing a monumental game-changing shift in the technology space.
This is not a replay in the Dot Com bubble; this tectonic shift is one that will actually result in corporate profits.
According research group Nielsen, smartphones are expected to represent 50% of all handset sales next year, up from less than 20% in 2009. Apple had a record 600,000 pre-orders of its iPhone 4 in a single day while hundreds of fans lined up overnight outside stories in the US, Europe and Japan to snap up the latest model.
It’s not just Apple , but also other smartphones supporting Google’s Android mobile operating system that are also rapidly gaining momentum.
Motorola’s new Android phone and the HTC Evo are looking hot right now. Google has said that the number of Android-based phones that are sold daily has risen 60% in just the past month.
Technology Inflection Point
So what is happening here? We are seeing a classic case of an infection point for technology. The mobile market is growing at a phenomenal rate at a time when access to high-speed wireless connectivity is becoming the norm. The consumption of media is also becoming more and more interactive with social networking activity increasing.
This translates into a massive market opportunity that will have an impact on investment strategies. Steve Jobs is right when he says that computers are destined to remain part of one's technology portfolio but that wireless devices, and in Apple's case the iPhone and iPad, will be the main points of connection for most people.
Much of the fastest growth is being seen in markets that previously had limited penetration by expensive, cutting-edge smartphones. With new, less expensive models becoming available, the global market is becoming much more diverse, and the number of potential buyers is increasing.
This is a classic case of a tailwind industry. There will be winners and losers, eg. Apple versus Nokia , but the overall industry is destined for rapid growth. I believe that the wireless revolution is as dramatic as the computer revolution and will change how we function on a daily basis. This in turn will drive corporate profits.
Beware the Competition
There will be humps along the way as competition increases. Take the example of Research In Motion - its shares plunged over 10% after releasing subpar earnings last week. However, while the maker of BlackBerrys continues to lose market share to the iPhone and Android phones, one should not overlook the fact that RIM had shipped a record number of BlackBerrys in the quarter.
The formerly dominant smartphone maker is also increasing its international market share, with 40% of its subscribers from outside North America. RIM is also pulling out all of the stops to keep up with its competitors with the impending release of the new slide out keyboard and touch screen phone.
While margins will likely compress for most smartphone makers as competition grows, there are still opportunities for service providers and hardware manufacturers to do well. Component companies like QUALCOMM will likely benefit from the rapid adoption of wireless technology. Chipmakers and component manufacturers will be in demand as wireless adoption increases.
Once again it is important to recognize that the competition will be great and there will be casualties along the way. But still there will be many that will benefit from this lifestyle revolution.
As investors, it makes sense to look at industries or sectors that have the opportunity to do well because of a fundamental shift in consumer adoption and behavior. Wireless technology is one of those opportunities that investors should not dismiss.
Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at firstname.lastname@example.org.