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Its undeniable the impact smartphones and tablets have had on the consumer electronics industry. For perspective, iPhone revenues alone have surpassed Microsoft’s entire business. However, while smartphones and tablets are fast becoming a mature market, there is still plenty of growth in the iPhone, iPad, iPad mini, Android, and even Windows 8 tablets. From 2011 to 2012, iPad sales has grown 100%, iPhone 75%, and Android devices over 240%, indicating the time is still ripe for profiting if you make the right investments.
Potential investment opportunities can be broken into several tiers. Tier 1 consists of primary benefactors – think Apple, Google, AT&T, etc. Tier 2 benefactors are mainly component suppliers - think processors, antennas, LCD displays, etc. Tier 3 includes the rest like the shippers, assemblers, and even app developers. Tier 1 investment opportunities are generally already well known and arguably priced in, Tier 3 opportunities tend to either be too small, hard to invest in, or insignificant profits, leaving us with Tier 2 ideas which is the focus here.
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Based on this data, several suppliers stand out:
- · nVidia (NVDA) – supplies the Tegra 3 processor for most Android tablets – Value: $20 per device
- · Texas Instruments (TI) – supplies the Kindle Fire processor and several small – Value: Est. $5-20 per device
- · Qualcomm (QCOM) – cellular communication chip – Value: $20-35 per device
- · Broadcom (BRCM) – several small communication components chips – Value: Est. $5-15 per device
- · Samsung – manufacturer of Apple’s chips, display, and Android maker – Value: Est. $10-60 per device
- · Omnivision (OTVI) – maker of camera image sensor – Value: $12-18 per device
- · Hynix – supplies NAND and DRAM memory – Value: $5-40 per device
- · Corning (GLW) – manufacturer of glass used in most smartphones and tablets- Value Unknown
- · ARM (ARMH) - licenses CPU architecture used manufacturers – Value unknown
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Qualcomm (QCOM) – Currently the cellular chip of choice used in most connected phone/tablets. At $20-30 per device, it also commands a large piece of the cost pie. Though not all devices are connected, all iPhones are, approx. 30% of iPads, but none of the iPods or Nexus or Kindles. On just Apple products QCOM make $4.5B of its $18B revenue, not including the myriad of Android smartphones. QCOM 2012 sales and revenue have grown 25% vs. 2011. With global LTE adoption still in the early stages, QCOM’s dominant position as an advanced chip provider positions it well for future growth.
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nVidia (NVDA) – Traditionally focused on desktop GPUs, nVidia made a big push into mobile with its Tegra SoC line. Leveraging its GPU expertise, NVDA will have a competitive advantage with its integration of the state of the art Kepler architecture in its upcoming Tegra 4 chip. With just the Nexus 7, NVDA could net $200-400M vs. its yearly revenue of $4B. However, the potential is high as Tegra is the current standard for Android and upcoming Windows 8 tablets. While revenue and profits are up only slightly up due to weakness in desktop PCs, the upcoming Tegra 4 chip with a faster ARM and GPU architecture gives nVidia the potential to become the standard for the next generation...
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