I spent the last few days in Hong Kong at a conference discussing the smartphone industry. The participants were mainly investors or investment managers. One of the most frequently asked questions was how to spot investable trends in this notoriously unpredictable sector.
The data I presented did not offer much of an answer. If anything, it showed just how much the industry has changed and how unlikely it is to remain a facsimile of what it is today.
But theory allows us to still make some bold claims. Grounding your investment thesis in pattern recognition rather than extrapolation should be the better strategy. So here are the telltale signs I recommend watching for investable ideas.
HTC’s market cap has just overtaken Nokia’s. While market capitalization is a fickle thing, shifting with sentiment, this is still a remarkable feat. Nokia’s market capitalization has almost halved in the space of a year while HTC has more than tripled from $10 billion to over $33 billion.
If you roll back to 2007 and the start of the modern era of smartphones, you can see how the two companies stocks traded places:
(source: Google finance)
Three things stand out from Gartner’s latest smartphones forecast:
- They published a four year forecast with seven significant digits of precision (implying a margin of error of 0.00001%).
- There is a linear growth in total market size.
- There are no significant share changes after 2012.
The latter two claims are illustrated below:
Since starting this blog, I’ve receives several requests for career advice. I am most heartened and humbled by these requests, especially when they come from young people just starting out. I’ve responded as best I can and tried to offer specific advice, but it’s very hard to be specific when the task is so grand.
But here are some pieces of advice that I can offer, which although not specific, may be interpreted into something useful.
The US smartphone penetration continues to accelerate.
ComScore has been reporting the estimated absolute number of smartphone users and the last month saw a significant increase of 1.58% in penetration. About 30% of the 234 million US cellphone users (above age of 13) use smartphones. That number was 21% in May of last year.
That means that over 20 million people stopped using voice-only or feature phones in the last 10 months. Equivalent to a rate of 2 million per month.
However, the rate of switching has not been steady. The following chart shows the number of switchers per week. In February it’s been about 900,000 per week and it’s quite possible that in March we’ve seen 1 million per week.
To bring the point home, I have put together a countdown timer which will be updated monthly with my estimate of the date when 50% of US cell phone subscribers will be using smartphones. (There is a link to the timer at the top right of every page on this blog).
I pinned that 50% figure because by then I hope people will stop calling them smartphones and begin calling them phones.