Smartphone Makers May Actually Strengthen Through the Recession

The recent excitement over small carry-along computers has been fairly high.  These small, fairly cheap ($300 to $400) machines have been emerging as a category. Asus got things started with the eePC and now mainstream companies like Dell (DELL) have their own models. We noted that they obviously carry smaller gross and net dollars for the industry than full fledged notebooks, but they didn’t represent that many units.

But then we added the recession and data out of several research firms showing a rather drastic decline in expected IT spending in the current quarter and in Q1 of 2009. That’s not much of a surprise.

At the same time we were surprised to see relatively strong continuing plans on the purchase of smartphones. In particular, [Research in Motion's (RIMM)] Blackberry and the iPhone are looking like their business adoption will remain brisk. Is it coincidence or is there some relationship?

Obviously, Cloud Computing will ultimately mean less processing power needed in stand-alone configurations as only the basic UI and network connections will be really needed for many basic functions. Unless someone is actively creating presentations, documents or content, it’s now possible to do most things on a smartphone. 

It’s more than email. Web browsing, social networking, even stock trading applications are well established. The wave of new applications coming for the iPhone and Blackberry are such that more and more people will leave their laptops at home. Especially for short trips.

Like many things, this is pretty "obvious" and we wrote about the trend three times already this year in our Mobile Internet segment. However, the stock market has punished every name on our list.

These emerging data points increase our conviction on core names like Apple (AAPL) and Google (GOOG).  We’re in no rush to buy anything in this market but as the year turns over, we will be adding to positions in these names. The data continues to suggest these firms are getting stronger, not weaker, as we work through the recession. 

Comments

[Andy Zaky:]

Nice commentary. Short and to the point.

2008 Nov 21 05:11 AM

[Timeline St...:]

Guess the near-Marxist outlook that some have regarding every company suffering the recession equally can be dismantled with a few hundred words.

Imagine that. Not every company will suffer equally. Nice thesis.

I would also mention that the Personal Computer revolution arose from the depths of the last terrible recession that we had in the late-1970's and into the early-1980's. While we were similarly engaged in a discussion about nationalizing auto manufacturers, a few innovators were planting the seeds for a multi-trillion dollar revolution that would propel the U.S. into unrivaled economic position.

Thanks for your article.

2008 Nov 21 07:48 AM

[mollytjm:]

Good article. I guess i'm not alone in using my iPhone more and more for things other than 'phone' even when i'm at home, where i have nice Macs!

2008 Nov 21 10:45 AM