Sales of Smart phones have taken off like a rocket, as the cost of such devices has fallen to an average price of about $150, nearly 30% lower than last year. With options like email and internet access, the phones are becoming more and more popular as we entertain a more interconnected and busy lifestyle. However, as the handset manufacturing space is getting crowed, it is increasingly difficult to find the clear winners in the space. After all, the Motorola (NYSE:MOT) RAZR was extremely popular, but the company has not had a "hit" since then. More recently, Blackberry maker, Research In Motion (Nasdaq:RIMM) reported that it had sold fewer phones, signed fewer subscribers and made less revenue than expected. There are ways to play the growth in the smart phone market without making strategic bets on the hand set makers.
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It's All About the Bandwidth
As the usage of these devices continues to climb, many analysts are forecasting a bandwidth crunch. As we send more text messages, emails and videos over the mobile web, the need for more avenues to carry that data will have to increase - currently, there is a roadblock. Analysts are now predicting that, just like our aging bridges, water and sewer systems, our wireless infrastructure will need an upgrade in order handle all those photos and instant messages. And just like our other infrastructure improvements there are ways to position our portfolios accordingly. (Learn more about infrastructure plays in Build Your Portfolio With Infrastructure Investments.)
Recently, as part of the stimulus package, the U.S. government plans to spend $27.7 billion to finance about 2,200 new tower projects. A small drop in the bucket compared to the 12,000-15,000 estimated towers needed. With nearly 26,000 wireless towers worldwide, American Tower (NYSE:AMT) is the giant in the space and should get the lions share of the stimulus money. These tower operators build the structures and then lease space on their networks to main mobile carriers such as Sprint Nextel Corp. (NYSE:S) and T-Mobile (NYSE:DT). American Tower, in addition to its U.S. operations, has a wide geographical foot print with towers in BRIC favorites, Brazil and India. As wireless operations in those nations, now in their infancy, continue to grow, American Tower will surely benefit. Shares of the company are near its 52-week high and trade for a lofty P/E of 56.
When a cell phone connects, it first connects to the tower network and then to the World Wide Web. That second connection is the backhaul linkage. There are several ways to create a backhaul link, the biggest room for growth comes from microwave connections. Currently, only 20% of backhaul in the country is done via microwave. That is expected to increase due to its cheap cost and exponential increase in data amounts. Controlling nearly 12% of the industry, Harris Stratex Networks (Nasdaq:HSTX) is the leader in this form of backhaul. Receiving 33% of its sales from North America, the rest from worldwide operations including Africa. The company also has an impressive $2.15 per share in cash and low debt.
The Bottom Line
As people take to the smart phone with the same vigor they took to the personal computer, a data bottleneck is occurring. To alleviate this blockage, new wireless infrastructure needs to be constructed. Both American Tower and Harris Stratex stand to benefit from this roll out, domestically and internationally. (For related reading, check out Dial Up Choice Telecom Stocks.)
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