Even if you don't already have a fancy smart phone or some type of tablet computer, you can still be ahead of the curve by tapping into the investment potential of what some are calling the next major technology cycle.
Even if you don't already have a fancy smart phone or some type of tablet computer, you can still be ahead of the curve by tapping into the investment potential of what some are calling the next major technology cycle.
By several measures, the development of mobile, or wireless, Internet is emerging as a technology revolution that will dwarf even the widespread adoption of the Internet in the 1990s.
The growth projections are being looked at in terms of metrics such as mobile-device penetration rates and sales swelling to 10 billion units over the next 10 years. By comparison, worldwide sales of laptops and smart phones totaled 353 million in 2009, according to Capital Advisors Inc.
There are also estimates regarding global wireless data traffic, which is expected to double every year through 2013.
But from an investment perspective, the opportunities have the potential to spread across the technology spectrum and even pave the way for newcomers.
“There will be some winners in the mobile-Internet space that might still be ideas in a garage right now,” said Channing Smith, a portfolio manager at Capital Advisors.
The most vivid examples of this tech cycle show up in the form of the fast-evolving smart-phone devices and an endless parade of applications that allow users to do everything from watch television to level a bookshelf.
But even while the development of the devices we hold in our hands might seem to be moving at the speed of light, the expansion of the global network and platforms it will take to meet demand are where the real investment potential resides.
“Smart phones are going to proliferate like nothing we've ever seen, and with the expected trajectory of utilization, the existing networks will have a hard time keeping up with demand,” said Steve Krameisen, chief technology officer at First Allied Securities Inc.
The overwhelming pace of growth anticipated in this category was laid out in a June research report by Cisco Systems Inc.
According to the findings, global Internet traffic is expected to grow at an annualized rate of 38% through 2013, while mobile data traffic is expected to grow at an annual rate of 131%.
The road map for the global expansion of wireless-Internet technology can already be seen in Japan, where smart phones have a 50% penetration rate among cell phone users, according to Keith Goddard, president and chief investment officer at Capital Advisors.
Japan's smart-phone penetration rate compares with 25% in the United States and 10% or less for the rest of the world.
Mr. Goddard, who manages $787 million mostly in separate accounts in a large-cap-growth strategy, has positioned his portfolio to take advantage of as much of the new tech cycle as possible.
Apple Inc. (APPL), maker of the cutting-edge iPhone, is his largest holding.
But Mr. Goddard is also taking some “less obvious” approaches with positions in companies such as semiconductor maker Broadcom Corp. (BRCM) and mobile software developer Sybase Inc. (SY).
The tech story is also difficult to resist for Ralph Shive, who manages the $1.5 billion Wasatch-1st Source Income Equity Fund (FMIEX) at Wasatch Advisors Inc.
“Technology is not normally the forte of large-value funds, but right now, I'm pushing tech to the limits of my mandate because I believe in it rather strongly,” he said.
Some of the stocks Mr. Shive is holding under his value banner are Corning Inc. (GLW), Hewlett-Packard Co. (HPQ), Intel Corp. (INTC), Microsoft Corp. (MSFT), Nokia Corp. (NOK) and Texas Instruments Inc. (TXN).
“Much of our tech overweight is based on the idea that consumers believe they just gotta have a cell phone to be connected,” he said. “I think cell phones are a high priority in consumer discretionary spending.”
Whether it is being driven by a matter of perceived necessity or just the desire to have a really cool phone, the evolution of the mobile Internet category is a force that can't be denied, according to Mr. Goddard.
“Starting with the mainframe computer in the 1960s, there have been four major technology cycles that have captured the attention of large markets, and each cycle has seen a tenfold increase in unit volume,” he said.
The history follows: from 1 million mainframe computers to 10 million “mini” (business) computers in the 1970s to 100 million personal computers in the 1980s to 1 billion users of desktop Internet in the 1990s.
“I'm not implying that we're facing another tech bubble, but you have to look at what has already happened in this space,” Mr. Goddard said. “As an investor, you want to figure out who has the leading market positions in all aspects of this cycle.”
Questions, observations, stock tips? E-mail Jeff Benjamin at jbenjamin@investmentnews.com.
