While Apple's (Nasdaq:AAPL) iPhone has pretty much become synonymous with 'smartphone' since its debut in 2007, that's largely been an American-rooted phenomenon, mostly stemming from the fact that the U.S. has, thus far, led the way in smartphone adoption. Nearly 96 million of the 309 million Americans now use a smartphone.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

With the potential smartphone market in the United States starting to feel a little saturated, shareholders of Apple or Motorola Mobility Holdings (NYSE:MMI), the maker of the United States' popular Droid 3 smartphone, have an understandable reason to be concerned. Or do they? As it turns out, the biggest smartphone market is just starting to blossom. (For related reading on Apple, see What We Can Learn From Steve Jobs.)

China Takes the Lead
The headlines could be confusing by themselves. Teasers like "China becomes the world's largest smartphone market" would superficially imply there are more current smartphone users there, than anywhere else. What the headlines really mean is that more smartphones were sold in China than in the United States last quarter; 23.9 million versus 23.3 million, to be exact. Of course, given the undertow, China's smartphone demand may well lead to the country becoming the biggest smartphone market.

Only recently has China launched a third-generation ('3G') network capable of handling the data demands placed on service providers by smartphone users, with 4G right around the corner. Why bother owning a smartphone that a network can't handle? Plus, with nearly 1 billion mobile phone subscribers all just one upgrade away from become smartphone users, the growth potential there makes the smartphone growth potential of the U.S. look small.

Who Wins?
It's almost a given that Apple is going to be a big beneficiary of a hot technology being unveiled in the world's biggest consumer market; the Chinese have their Apple die-hards too. The brand isn't the biggest and best in the market, though. That honor belongs to Nokia (NYSE:NOK), which still owns a 28% market share among China's smartphone users, despite lower unit sales over the past year. On the flip side, that market share portion for Nokia used to be 70%; proof that other players can contend, if the current kings of the hill don't defend their place.

The best way to play the budding smartphone-mania in China, however, may not be with a phone manufacturer. Think behind the scenes, like a carrier or a company that makes the parts, which go in most of the smartphones.

Top bets on that front may be China Mobile (NYSE:CHL) and Spreadtrum Communications (Nasdaq:SPRD). Spreadtrum supplies more than half the radio chips for TD-SCDMA phones, which is the 3G technology utilized by China Mobile, the country's largest mobile service provider. If one does well, the other should find success too. (For related reading, see How To Trade The Smartphone Craze.)

The possibilities don't even end there, though. Mobile marketing is a growing field, and under-served so far in the Chinese market, mostly because there have been so few smartphone owners in the country. App developers stand to gain, too.

The Bottom Line
More ways to win will present themselves as the market develops. No matter how you play it though, the train is moving and you don't want to get in its way; you want to be on it.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, James Brumley did not own shares in any of the companies mentioned in this article.



Tickers in this Article: CHL, SPRD, MMI, AAPL, NOK

comments powered by Disqus

Trading Center