Every once in a while, an idea or concept comes along and shakes-up the technology sector. The microchip, rise of the PC and birth of the internet were all monumental inventions that changed the way we work and play. Today, many analysts have pointed to the smartphone and tablet sectors as the game-changers in technology. These devices, which combine various social networking, gaming, scheduling and other business functions, have quickly moved from wants to must-haves and have managed to capture consumer's fascination, as we live more active and on-the-go lives. Analysts expect the usage of these devices to explode. For investors, the potential long term profit from the sector could be exactly what a tech portfolio needs.
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Along with cloud computing, which powers most mobile applications, the shift towards smartphone and tablet computing could be the biggest trend to the technology sector, in a quite awhile. According to analysts at IDC, tablet sales will be equivalent to 15% of the PC market this year; researchers at Gartner predict that more than 320 million tablets sold will be sold annually, by 2015. Smartphones have already overtaken traditional cellular phones in many developed markets and British bank Barclay's (NYSE:BCS) estimates that global smartphone sales will grow by 43% in 2012.
The mobile internet infrastructure boom is contributing to the success of smartphones and Wi-Fi/3G/4G enabled devices tablets. In addition, falling prices have attracted a host of consumers to the products. Black-and-white eInk e-readers can be had for less than $100 and new state of the art tablets, like Amazon's (Nasdaq:AMZN) Kindle Fire, can be had for $199. A variety of smartphones are now virtually free, at several major domestic wireless providers. (For related reading, see Four Online Shopping Alternatives To Amazon.)
While Apple's (Nasdaq:AAPL) products still dominate both the smartphone and tablet space, competition in the sector continues to heat up. This upwards trend of tablet/phone becoming a lifestyle device, and continued consumer adoption, is spurring fierce rivalries among manufacturers along the entire value chain. HTC and Samsung have launched new iPhone "killers" and Google's (Nasdaq:GOOG) Android OS is eating away other operating systems' market share. Microsoft (Nasdaq:MSFT) is finally getting serious about introducing a tablet PC after Mr. Softy first coined the idea back in early 2000.
However, while the growth in smartphone/tablet acceptance is certainly there, the intense competition in the sector could make finding tomorrow's winners difficult. After all, Palm was the PDA darling at the beginning of the decade. The First Trust NASDAQ CEA Smartphone Index (Nasdaq:FONE) could be used a broad-way to play to play the sector. However, the best way to play the sectors growth could be via the parts suppliers.
Tablet and smartphones rely on light weight, solid-state and flash memory, in order to store all of those MP3s and applications. As demand for these devices continues to grow, the memory makers should continue to see their fortunes rise. Toshiba (OTCBB:TOSBF) currently is the major memory supplier for the iPad and flash superstar SanDisk's (Nasdaq:SNDK) products find their way into a multitude of mobile devices. These firms, along with the UBS E-TRACS ISE Solid State Drive ETN (Nasdaq:SSDD) could make interesting buys.
Investors have punished Corning (NYSE:GLW), as the firm has slashed its near term outlook for its glass products. The firm's Gorilla Glass is used in an assortment of LCD TVs, smartphones and tablet computers and recently forecasted a decline of 25% in sales. However, for long-termed investors, Corning's fortunes could rise again. Amazon is using Gorilla Glass in its new Fire tablet and glass-type is quickly becoming the standard screen. Similarly, LG Display (NYSE:LPL) is seeing continued success from its relationship with Apple. (For related reading, see 7 Disadvantages Of Tablets.)
The Bottom Line
The tablet and smartphone revolution could be one of the biggest trends in technology to happen in a while. However, with the fierce completion from the manufacturers, picking a winner in the sector can be tough. For investors, the best bets could lie within the parts suppliers. The previous firms, along with ARM chip maker ARM Holdings (Nasdaq:ARMH), could be good bets on the trend.
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At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.