Wanna buy a cheap smartphone stock? If you do, be patient. Lower prices could be just around the corner. It's a good bet that in the near-to-medium term, stocks of smartphone vendors such as Research-in-Motion (NYSE:RIMM), Nokia (NYSE:NOK), Palm (NYSE:PALM) and even Apple (NYSE:AAPL) will be trading lower than where they are today.
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Where the Action Is
Of course, smartphones are where the action is in the mobile phone market. Market research group Gartner (NYSE:IT) reports that sales of devices that allow web surfing, e-mail and whizzy software applications jumped 27% in the second quarter - as overall handset sales headed for a full-year decline. Even in an economic downturn, consumers are willing to pay a little more for a handheld computer instead of a plain old mobile phone. (For related reading, check out Dial Up Choice Telecom Stocks.)
At first glance, numbers like those sound like good news for smartphone makers. The trouble is that, like sharks smelling blood, a whole host of players are piling into the market. If new launches from market leaders Nokia, RIMM, Palm and Apple weren't enough, industry laggard Motorola (NYSE:MOT) is getting ready to launch 10 new smartphones based on Google's (Nasdaq:GOOG) Android operating system. Dell (NYSE:DELL), the struggling PC maker, is banking on a mobile device to turn its fortunes around. At the low-end, there are "bandit" phones, gray market clones that go by names such as "Nckia" or "Sumsung". Made and sold in China, they come with all the bells and whistles of the real brands, but sell for a fraction of the price.
Going forward, competition will take its toll as even the top-of-the line vendors make price some concessions. Apple's launch of the $99 iPhone 3G and the $199 iPhone 3GS, has probably already added fuel to the fire. What's more, as increasingly tight-fisted telecom carriers such as AT&T, Sprint and Verizon Wireless become more choosy about which smartphones deserve their subsidy dollars, vendors will be forced to be more competitive through price.
All told, the days of high prices and lofty profits for smartphone vendors are likely numbered. And the same probably goes for their stocks.
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