Smartphones And Tablets: Own The Leaders Not The Followers

Sep. 3.13 | About: Apple Inc. (AAPL)

On August 5th, I published an article titled "Smartphones And Tablets: Winning Is All About Ecosystems Where Apple (NASDAQ:AAPL) And Google (NASDAQ:GOOG) Dominate."

In that article, I noted that Google is working to replicate Apple's ecosystem, has made some good progress but still has lots to do to close the gap. Having its Android mobile device operating system be the standard of most of the non-Apple smartphone and tablet industries is a major plus for Google.

I also noted that both Microsoft (NASDAQ:MSFT) and BlackBerry (NASDAQ:BBRY) would like to replicate the Apple ecosystem but are showing only limited progress and do not appear likely to catch up. As a result, sales of Windows and BlackBerry smartphones are weak with single digit percentage market shares.

Despite believing this is likely to continue, the Microsoft acquisition of Nokia's (NYSE:NOK) cell phone business does make sense. If it is going to truly build a tightly integrated ecosystem, it needs the hardware devices that the Nokia business provides.

Microsoft's advantage is theoretically Windows compatibility. The problem is that apps for AAPL and Android mobile devices are where most all of the developer focus continues to be so Windows phones do not have the apps to drive demand. And as a result, Windows phones have only that single digit percentage share of the smartphone and tablet markets.

These Apple and Android apps are increasingly better at providing what most people want to consume than PC software. And that Windows compatibility is not important to most of us. Having said that, there should be up to perhaps 10% of the market available to Microsoft from people who do care about Windows compatibility if it can get enough apps created that have both similar function to the Apple and Android apps and have some advantages from being Windows compatible.

Rather than try to forecast whether or when this might be achieved by Microsoft, I suggest waiting for some evidence that it is coming to pass. Until it does, I recommend avoiding ownership of Microsoft shares. And BlackBerry shares as well.

So long as Apple and Google's Android continue to dominate the smartphone and tablet markets they are the larger capitalization stocks to own in my opinion.

I also suggest the suppliers of components and technology to the smartphone markets, including Arm Holdings (NASDAQ:ARMH), Avago (NASDAQ:AVGO) and Qualcomm (NASDAQ:QCOM).

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.