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A New View on Phone Stocks

Once a luxury restricted for the corporate world, smartphones now appear in the pockets of grade school children and stay-at-home moms. BlackBerry (BBRY) once dominated the smartphone industry with its BlackBerry line of phones, but was soon retired by the revolutionary Apple (AAPL) iPhone and the flood of competitor Android-powered smartphones. Apple, with a 36.3% market share and Android phones, with a 53.4% market share, dominate the industry without question. However, with BlackBerry's generally positive return to the smartphone arena showing steady share price gains since the beginning of 2011, the smartphone industry is looking less monopolized than the numbers show.

What's Inside the Shell

Software has a lot to do with it. Just as Microsoft (MSFT) dominated the PC industry for many years through setting the standard for computer software programs throughout the world using its Windows Operating System, so too do the iOS and Android platforms rule the industry because they boast the largest smartphone apps base. But that is definitely not the whole story since markets are still paying close attention to minority companies like BlackBerry.

Whereas the Apple iOS is used exclusively on Apple products, Google's Android OS is open source and is used for smartphones made by a variety of companies in the industry, most notably Samsung. Other minority OS platforms are Microsoft's Windows Phone and Accenture's (ACN) Symbian OS (on behalf of Nokia (NOK)). All of these platforms serve their niches of customers, such as the Symbian remaining the dominant OS in some developing countries. This niche market targeting is precisely where the smartphone industry is going.

iPhone? Anything Else?

After the trendsetting iPhone became a standard of sorts for the smartphone industry, the competitors that followed either tried to best the iPhone by features and/or by price. Samsung (OTC:SSNLF) and Nokia, for example, did both. HTC (2498.TW) was the first to use the Android platform in place of the Windows Phone OS. But what about the other companies, mainly using Google's (GOOG) open-source Android OS, that are appearing in markets and what are their merits that may convince investors to look their way?

Let's take a look at some of these up-and-coming entrants to the smartphone industry.

  1. ASUStek (2357.TW) - First entered the market with the Padfone and came up with the Padfone 2, which is a 4.7-inch Android phone that docks into a 10.1-inch tablet, last year. It is also in talks to offer Windows 8 smartphones. The company is a Taiwanese-based company and is the fifth largest PC vendor in the world.
  2. Huawei (002502.SZ) - Historically made affordable, second-tier smartphones, but recently announced two high-end Android phones, the Ascend Mate and the Ascend D2, as well as its first Windows 8 smartphone. The company is based in Shenzhen, China.
  3. ZTE (000063.SZ) - Also makes more affordable smartphones and is a competitor to Huawei.
  4. Lenovo (OTCPK:LNVGY) - Revealed flagship Android smartphone IdeaPhone K900 and is looking to be number one in China. The company has its operational headquarters in North Carolina and its registered office in Hong Kong. It is also the second-largest PC vendor in the world.

Bottom Line

The era of high-momentum growth in the smartphone industry is over. Apple's growth generally leveled off and a case of stock rallies in January generating momentum for Apple, Nokia, and BlackBerry stocks disappeared within two hours. The rally was generated by Nokia's Lumia sales, yet the momentum came and went for the smartphone industry as a whole. This shows that markets no longer think of the smartphone industry as individual companies like Apple, Samsung, or Nokia. Each company has its merits that contribute to the industry.

Company

Smartphone Niche

Market Cap (in millions USD)

P/E

Mean Est. EPS LT Growth

Samsung

Quality phones using mainly Android and Windows OS, a top choice for those who want something different from the iPhone. World's largest mobile phone maker by unit sales. Also makes a variety of electronics.

215,367

10.88

24%

Apple

iPhone, industry standard of quality.

450,682

10.88

19%

BlackBerryOnce the leader in smartphones, BlackBerry recently returned with its BB10 OS leading to a stock rally, which quickly lost heat as Home Depot (HD) switched to using iPhone.7,326-5%

Nokia

Quality phones partnering with Microsoft and using the Windows OS in its Lumia. Main maker of smartphones using Windows OS. Was Second-largest mobile phone maker by unit sales. Recently returned to profit.

15,384

-

5%

HTC

Makes a range of smartphones, often at lower prices than competitors with decent quality, tends to be a techies preference. Also makes tablets.

7,844

8.65

5%

ASUStek

Looking to fill in niches with its Padfone 2, solid tech company

9,086

12.6

13%

Huawei

China-based, historically made more affordable phones, looking to make quality phones

-

-

-

ZTE

China-based, traded in HK, makes affordable smartphones, looking to make quality phones

5,923

-

4%

Lenovo

Long-time electronics company, 2nd largest PC vendor by unit sales, perhaps the strongest up-and-coming smartphone manufacturer, looking to become top in China

11,658

20.49

20%

Figures from Reuters.com

The smartphone industry is an increasingly fractionated sector where companies find their niche of customers to cater to. Its growth must be looked at as a whole and I recommend holding portfolios of these smartphone companies, mainly Apple, BlackBerry, and Android OS smartphone producers like Samsung and Nokia, to take advantage of the smartphone industry growth that comes from all niche phone contributors. The industry's growth will continue as smartphones continue to become a staple of everyday life.

Source: BlackBerry's Return Means No More King Of The Hill