How to Capitalize on Smartphones and the Changing World Economy by Zacks Investment Research
Nowhere is technology changing faster than in the smartphone industry. It is transforming the way we conduct business and consume information.
This begs two important questions: 1. what happens when the majority of the world's population carries a smartphone; and 2. what type of productivity gains can occur? Today, we will examine technology development and how investors can capitalize on this.
It is hard to remember, but just six years ago there were limited smartphones on the global tech scene. Then, in 2007, Apple introduced their version of the smartphone. Today, we estimate that the global markets could see 1 billion smartphones produced and sold each year. This pace is expected to grow even faster from here.
Rarely has volume growth been so quick and so dramatic. Before, it was a laptop computer that was central to technology growth. Today, change has moved at a much faster rate with smartphones.
The growth is so strong that there isn't a large enough supply of semiconductor chips to keep up with production.
All of this together is creating tremendous growth and opportunity in Asia.
The semiconductor chip market for smartphones is largely based in Asia. There is a synergy in TV, chip, and phone makers all centered in Asia. In fact, a majority of the global technology industry is now centered there.
Furthermore, Asian technology companies are effectively able to apply pressure to their suppliers and control their costs. In other words, they will likely be able to keep control of this huge market.
Meanwhile, in the U.S., we are still a major player in technology with corporate giants such as Apple, Intel, and Micron and others. On the other hand, Europe is being left behind with Nokia being the only notable corporation, and no companies with scale in semiconductor chip manufacturing.
What does all of this mean for global growth?
Bill Gates has been known to say that people overstate the amount of change seen in a given year, and underestimate the amount of change in a decade.
In just six years since Apple introduced their version of the smartphone, the number of smartphones has reached one billion. It is difficult to determine what productivity gains are going to occur. Typically, there is a lag from when a new technology is introduced to when productivity gains are realized. It often takes years for corporations to adjust.
Over the long haul, we think continual technology development, such as the smartphone, will overcome the general malaise seen in global growth. However, the GDP growth is shifting towards Asia. In other words, global GDP growth is likely to get back to historic norms, but it won't look the same. Asia will emerge stronger, and Europe will continue to weaken.
A huge production shift is moving through the U.S. and is gripping Asia. We anticipate countries within Asia to outperform for the next 7-10 years. Uneven change in growth is a feature of the world that is not going away. Investors need to capitalize on this by focusing on the growing companies around the world.
The U.S. will continue as a major economic powerhouse, and we will lead the global economy in several areas. The Europeans however have a lot of catching up to do, and the center of gravity is going to shift towards the East.
There is not a zero sum game here, but this development shift is going to change the way markets think, the way governments think, and it is going to change the pricing of stocks.
Over the long haul I think an investor needs to be over weighting Asia and underweighting Europe. Additionally, the unprecedented technological changes we are witnessing today will likely find a means of increasing global productivity - this will provide a long-term boom in the equity markets as those productivity gains result in stronger corporate earnings.
The bet on the long-term remains in place, I am convinced that the optimists will triumph over the next ten years. While the market is due for a sell-off, over the long-term the case to be bullish on equities remains in place.
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