Smart Phones

Investments in shares of wireless technology companies and wireless service providers have been particularly profitable in the post-dot com era. The wireless industry is in a sweet spot of the technology space. Bountiful business opportunities exist as wireless usage continues to increase in both developed and emerging markets. And driving this usage higher are new products such as smart phones whose capabilities are being augmented by the deployment of third generation (3G) wireless networks.

Feature-Rich Smart Phones.

Smart phones are more than mobile phones. A smart phone is a mobile phone with built-in functions of a personal digital assistant. smart phones pack a diverse range of features and functionalities into the handset that makes them a mobile information center and entertainment device for the user.

Smart phones commonly include features such as web browsing, e-mail, and multimedia capabilities. Certain models have enough horse power to run complex software applications such as enterprise customer relationship software and car navigation programs.

A full-featured QWERTY-type keyboard, MP3 player, and Geo Positioning Systems capability are becoming common among higher-end smart phones. Instant messaging is a cool feature making its way into the mainstream.

Smart phones, A Growing Segment of the Handset Market.

Smart phones represent a small, yet rapidly growing, segment of the handset market. According to Strategy Analytics, smart phone sales at 17.5 million units in 2004 accounted for 3% of the worldwide sales of 684 million handsets. However, this represents a significant jump from the 8.2 million units sold in 2003.

The demand for smart phones is projected to grow rapidly in the coming years. By 2009, the number of smart phone units sold is estimated to reach 125 million or 16% of total handset sales worldwide. This implies a 48% compound annual growth rate in smart phone unit shipments over the 2004-2009 period.

Smart phone Early Adoption Led by Asia and Europe.

Adoption of smart phones has been particularly rapid in Asia and Europe. The aggressive deployment of advanced wireless networks in these regions has encouraged early adoption of smart phones.

The Asia Pacific region currently accounts for about 37% of global smart phone sales with South Korea and Japan being leaders in smart phone usage. The European market accounts for 27% of global smart phone sales. Analysts expect smart phone sales in Europe to exceed sales in the Asian market in the coming years. North America’s market share in smart phone sales was expected to reach 25% by the end of 2004.

Nokia, the 800 lb. Gorilla of Smart phones.

Nokia (NYSE: NOK) is by far the dominant global smart phone manufacturer. The Finnish company is currently estimated to command half to two-thirds share of the global smart phone market.

Nokia recently introduced its feature-rich Nokia 7710 smart phone in Europe and Africa. The wide-screen Nokia 7710 smart phone includes a full Internet browser, an integrated music player, a camera with 2x digital zoom, and a FM radio. One of the nifty features of the Nokia 7710 smart phone is its ability to make weblogging mobile. Users can post pictures and text from the Nokia 7710 smart phone directly to the web through the ‘moblog’ client.

Nokia is also expected to introduce the Nokia 3230 smart phone in the first quarter of 2005. The Nokia 3230 smart phone features a video recorder and ‘Movie Director’ that will allow 1 hour of video to be captured.

Nokia is now increasingly looking at software licensing deals to help differentiate itself from its competitors. Nokia has recently signed licensing deals with Macromedia and RealNetworks. Nokia is also said to be working on handsets that will receive wireless television feeds.

Smart phone Investment Implications.

The increasing adoption of smart phones augurs well not only for Nokia but also for other smart phone manufacturers like palmOne (Nasdaq: PLMO) and Research In Motion (Nasdaq: RIMM). palmOne recently introduced the GSM edition of its Treo 650 smart phone. Research in Motion recently released the latest model in its BlackBerry 7100 series, the 7100g.

The incorporation of additional features and functionalities that make smart phones the portable information center and entertainment device of choice has bullish implications beyond just manufacturers of smart phones.

Wireless service providers like Vodafone (NYSE: VOD) should see their average revenue per user being buffeted with increasing use of value-added services that smart phones enable.

Then too, the increasing adoption and usage of smart phones will require the rollout of 3G wireless networks in earnest, translating into business opportunities for wireless network equipment providers such as Ericsson (Nasdaq: ERICY).

Notes: This report is for information purposes only. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice. This report does not have regard to the specific investment objectives, financial situation, and particular needs of any specific person who may receive this report. The information contained in this report is obtained from various sources believed to be accurate and is provided without warranties of any kind. AlphaProfit Investments, LLC does not represent that this information, including any third party information, is accurate or complete and it should not be relied upon as such. AlphaProfit Investments, LLC is not responsible for any errors or omissions herein. Opinions expressed herein reflect the opinion of AlphaProfit Investments, LLC and are subject to change without notice. AlphaProfit Investments, LLC disclaims any liability for any direct or incidental loss incurred by applying any of the information in this report. The third-party trademarks or service marks appearing within this report are the property of their respective owners. All other trademarks appearing herein are the property of AlphaProfit Investments, LLC. Copyright © 2005 AlphaProfit Investments, LLC. All rights reserved.

Sam Subramanian, PhD, MBA is Managing Principal of AlphaProfit Investments, LLC. He edits the AlphaProfit Sector Investors' Newsletter™, a publication that discusses investments using Fidelity mutual funds. For the 5 year period ending December 31, 2004, during which the Dow Jones Wilshire 5000 Total Market Index declined 6.9%, the AlphaProfit model portfolios increased by up to 186.2%, an average annual return of 23.4%. To learn more about AlphaProfit and to subscribe to the FREE newsletter, visit http://www.alphaprofit.com.