With public venues overrun by people broadcasting their dinner plans and other miscellany into cellphones, one might think the mobile-communication market was near the saturation point. But for investors, the party is just getting started – if they have their eggs in the right basket.
The communications growth baton now is being passed to smartphones. They are mobile phones with software operating systems that let users take pictures, send e-mail, browse the Internet, play movies or music or games and do a variety of other functions that normally would be done on personal computers.
Global sales of smartphones climbed to 40 million units in the second quarter of 2009, according to Gartner Research. That is a 27-per-cent increase over the second quarter of 2008, a respectable growth rate considering it occurred during one of the worse economic downturns in decades. By comparison, the overall mobile-phone category (which includes cellphones and smartphones) declined 6.1 per cent to 286 million units over the same period.
In Canada, the smartphone segment expanded at an even more impressive rate of 49 per cent in the second quarter, IDC Canada reports. This strong showing helped stabilize shipments of all mobile phones in Canada: they were down only 1 per cent in the second quarter, to 2.36 million handsets.
Smartphones have been around for several years. What's helping maintain demand in 2009 is new product releases with enhanced functionality, such as cameras with more megapixels and slide-out “qwerty” keyboards. Independent software developers also continue to add new applications in areas such as games, maps and puzzles.
Because the technology behind the handsets and networks continues to improve and yield greater value to consumers, analysts see considerable growth potential. For example, in a report for U.S. investment advisory newsletter Personal Finance, Elliott Gue and Roger Conrad write that wireless firms in the United States will see their revenues jump from $10-billion (U.S.) to $100-billion (U.S.) over the next eight years.
Worldwide, smartphones currently claim less than 15 per cent of the mobile handset market. If “every cellphone is going to be a smartphone,” as IDC Canada wireless analyst Kevin Restivo believes, there would appear to be plenty of room for growth.
Moreover, smartphones should displace not only much of the market for low-end cellphones but also a portion of the market for personal computers. In fact, there seems to be some signs already of smartphones replacing personal computers in Japan.
“The household PC market is losing momentum to other electronics like … mobile phones,” IDC Japan research director Masahiro Katayama told Associated Press in April. Millions in Japan bypass their computers and download music, photos, and movies to their handsets. Adds Mr. Katayama: “… in Japan, kids now grow up using mobile phones, not PCs. The future of PCs isn't bright.”
In a mid-August research report, RBC Dominion Securities analyst Mike Abramsky described the smartphone market as “huge, nascent and under-penetrated.” It “represents the next wave of computing.” It's going to be “as profound as the historic technology shift from mainframes to PCs.”
Mr. Abramsky estimates that global smartphone penetration will rise over the next three years to 35 per cent of the handset market. By 2011, smartphone sales will surpass shipments of personal computers, at 400 million a year.
Based on Gartner Research data, smartphone makers with the largest global market share are: Nokia Corp. (45 per cent), Research In Motion Ltd. (19 per cent) and Apple Inc. (13 per cent). Investing in one of them, or a combination, would seem to be a good way to gain exposure to the smartphone phenomenon – especially now that their valuations in the stock market have been somewhat dampened by the global recession.
