The smartphone industry is the place to be for 2013. Gartner projects there will be over 5 billion smartphones sold between 2012 and 2016. While smartphones sales should help smartphone manufacturers, such as Apple (AAPL) and Nokia (NOK), my favorite play within the smartphone ecosystem is Qualcomm (QCOM). I will display my investment thesis for Qualcomm in later articles. First, let's start with the demand side.
Below shows Qualcomm's 3G/4G licensed device sales (which should technically cover 100% of 3G/4G device sales) segmented by country. As you can see, most of the growth is coming from the emerging markets.
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Smartphone Catalyst number 2: India (For number 1, follow this link)
Unusually Low 3G Penetration Rates: According to Kleiner Perkins Caufield & Byers Internet Trends Report for 2012, only 4% of India's mobile phone users have 3G data plan subscriptions. As a comparison, China's 3G penetration is 22%, South Africa 21%, and even Indonesia and Philippines are 11% each.
Carriers Cut Data Plan Pricing By 70%: India's carriers spent significant amounts of money building out their 3G infrastructure during 2011 and 2012. In order to repay the loans they took to build out their infrastructure, carriers all kept data plan pricing very high. Thus, only 4% of mobile users in India have purchased a 3G data plan. However, in June of 2012, the four largest telecommunication carriers began to reduce their 3G data tariffs. This price war led to operators cutting their 3G data plans by an average of 70%. This drastic cut in price should cause Indian 3G penetration rates to rise to those of other comparable countries.
In order to take advantage of all of the features 3G provides, consumer will rush to purchase smartphones. As you can see below, while everyone forecasts strong smartphone demand, the range of estimates widely differs. Moreover, because of Qualcomm's new modem chip that is compatible with China Mobile's TD-SCDMA, as well as India's data plan prices being reduced significantly, I believe smartphone demand will be beat Gartner and IDC estimates.
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Disclosure: I am long QCOM.