Tech Stocks

Forget Apple: The Profitable Way to Play the Smartphone Boom

In recent quarters, the handset market has bifurcated, with manufacturers that produce the inexpensive smartphones favored by consumers in emerging markets growing their shipment volumes at a rapid pace.

At the end of 2010, smartphone handsets priced at less than US$300.00 accounted for slightly more than one-quarter of the global market, compared to 50 percent today. Meanwhile, the share of high-end handsets that retail for more than US$550 has remained roughly flat at about one-quarter of all smartphone shipments.

Shifting competitive dynamics mean that Apple no longer dominates the market for high-end smartphones, thanks to inroads made by Samsung’s Galaxy series of handsets. Meanwhile, Apple has ceded low-end handset volumes in emerging markets to the competition, preferring to address this market with older iPhones rather than new, cheaper models. And even if Apple does introduce a cheaper iPhone this quarter, this handset would face intense competition from established local players in China and other emerging markets. Profit margins on a lower-end iPhone would also likely be lower relative to the company’s premium products.

Don’t Enter the Handset Warzone

Trying to pick a winner in the increasingly competitive handset and tablet market is a risky endeavor. Instead, investors should focus on names that benefit from growing demand for mobile devices regardless of which handset maker comes out on top.