How To Profit From The Smartphone Market Now

by: IncomeHunter

Today, everyone wants a smartphone and most tech stocks are aware of this. However, it's obvious that not all companies trying to enter the smartphone market are able to compete at the same level or in a serious way. First, I will show how's (NASDAQ:AMZN) entrance into the market will bring up its bottom line. Next, I will show you how Nokia Corporation (NYSE:NOK) and Intel Corporation (NASDAQ:INTC) have failed in their attempt to break into the smartphone market and how it has hurt gross profits by driving up costs and failing to attract revenue. On the other hand, AT&T Inc. (NYSE:T) and Verizon Communications (NYSE:VZ) have fared well selling iPhones, Androids and other smartphones, announcing spectacular first quarters and this should continue for quarters to come.

I feel that one of the most important movements in the smartphone arena at present involves Amazon and its intention to enter the smartphone market. The company is developing a smartphone that is aimed at competing with Apple's (NASDAQ:AAPL) iPhone and with the phones that run Google's (NASDAQ:GOOG) operating system, Android. Apple estimated it sold more than 35 million iPhones in the first quarter of 2012. Samsung sold even more.

If Amazon can make a dent in the above numbers, selling millions of its own smartphones, it will boost the more than $3-billion gross profit it recorded in that March quarter. The company is trading at around $220 per share, great in comparison to where it began the year, but that does not tell the whole story. The company has brought in over $10 billion revenue each of the last three quarters (peaking at over $17 billion in the fourth quarter of 2011). It's gross profits remain above $2 billion each quarter and such cash should provide ample backing for its smartphone production. A successful foray into this market could bring that gross profit up, and reverse the loss in cash flow that it took last quarter.

Nokia's share prices seem to have taken a bit of a hit over the last year and I wonder if it is due to the company's Nokia Lumia 900 (that runs Windows) recently released in India. Although the phone seems to have more good points than bad points, as an entry into the smartphone arena it is simply not good enough to make the grade. This is reflected in Nokia's stock prices. Over the last month, the stock has declined by almost 30 percent, a very significant drop indeed. At present, the company is trading at around $2.75 per share, which is low considering that its 52-week range has been from $2 to $7.38. It definitely seems as though Nokia is drowning, yet the company keeps recording healthy numbers (gross profit is still above $2 billion, though it was over $3 billion in March 2011). There's no funeral planned for Nokia quite yet, but it needs its Lumia to make some headway.

Intel is quite a new player on the smartphone scene and recently the first smartphone run on Intel was released. The phone looks quite good and is of good quality in terms of hardware, but the problem is that you cannot expand the storage space and some apps will not run on it. The stock market's reaction to Intel's entry into the smartphone market has not been entirely favorable as the company's stock price has declined by something in the region of 5.5 percent in the last few months. My projection: a continued decline for the next short while, followed by a boost later when the cost effectiveness of the phone kicks in and sales increase.

AT&T has not had much luck recently. In fact, it fell noticeably short of Verizon's achievements lately in terms of its smartphone portfolio. Verizon definitely made the better decision in this regard, and now AT&T is starting to suffer. Some of Verizon's choices were the Motorola Droid Razr, the HTC Rezound, the world's first Android 4.0 Ice Cream Sandwich phone, and the Samsung Galaxy Nexus. The options that AT&T, on the other hand, has added to its portfolio have ranged from strange to disappointing to risky with a few gems in between. Although Verizon is the leader at the moment, in terms of the smartphone market anyway, I think that AT&T may soon have a chance to take the lead and get ahead of its main competitor. We just need to wait and see whether or not it takes the opportunity. The current portfolios have been in effect since the beginning of the year.

Despite the fact that Verizon has clearly made the better choices, there is still stiff competition between the two companies. AT&T's stock prices rose by around 21% since the beginning of the year, while Verizon's have risen by only about 17%. AT&T's revenue shot up over $5 billion from the last quarter of 2011, with profit margins returning to positive levels after dipping below 0% in 2011 Q4. This return to healthy numbers was caused by smartphone sales of $5.5 million and an increase of nearly 20% in wireless data revenue.

Verizon's gross profits are also above $16 billion, though that's been consistent for several quarters now. It took a dip in income at the end of 2011, but it's rebounded now and it's margins are back above 0%. Verizon sold 3.2 million iPhones in the first quarter, helping it raise income by 20% from the year previous.

Phone companies have turned toward smartphones. It's over, the corner is cleared. And since smartphones continue to sell well, buoyed by some shared genius by the tech companies, consumers have been hot on them ever since they came out. These companies have all fared pretty well in 2012 and I see no reason why that will stop, especially with the new iPhone coming out, new Android phones always coming, and Amazon's entrance into the market. I'd buy into any maker or seller of those, and leave the Intel's and Nokia's at bay until they can prove they can play with the big boys.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.