The Other China Mobile Deal (That Didn't Involve Nokia)

Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

China Mobile (NYSE: CHL) is the world's largest cellular company, with over 700 million subscribers.  Nokia  (NYSE: NOK) has recently formed a partnership with the company, and will be providing its high-end Lumia 920T smartphone through China Mobile- something even Apple (NASDAQ: AAPL) hasn't been able to accomplish. Nokia seems to be the future beneficiary of a large amount of Chinese smartphone growth, beating out the iPhone. By providing China Mobile with a desperately needed premium smartphone for its huge subscriber base, Nokia may see some much needed growth in sales and revenues. 

Qualcomm (NASDAQ: QCOM) is hopping on the China Mobile bandwagon, as well. Emerging markets, especially China, are expected to provide explosive growth going forward, as well as the highest growth rates in smartphone adoption. Qualcomm is yet another company looking to capitalize off of this growth; designing quad-core chip sets that are cheap and ready for use in conjunction with emerging market needs- especially the needs of dominant China Mobile.  Qualcomm will also have its Snapdragon processors in Nokia's Lumia 920T.

The markets seem to be buzzing about China Mobile's recent moves, especially after beaten down Nokia struck it rich with some much needed good news. News from the world's largest cellular company contributed to Nokia's share price shooting up, rising over 13% last Wednesday. Investors duly noted the significance of Nokia's new partner and rewarded the Finnish handset maker with some nice gains. 

China Mobile Is More Than Just Smartphones:

In the midst of all the Nokia news, Dolby Laboratories (NYSE: DLB) was also quietly aligning itself with China Mobile. China Mobile isn't just about handsets, it also has a wireless music base, which according to company executives, accounts for 83% of China's domestic wireless music market. In fact, China Mobile's music base has become the biggest licensed music library and the largest legal, genuine music marketing platform in China. The company has announced a strategic alliance with Dolby. China Mobile's music service and Migu music player will utilize Dolby Pulse technology, which is capable of providing users with low-bit rate technology that reduces traffic by up to 70% without sacrificing any of the acoustic quality of the traditional MP3.

This is a huge step in the right direction for Dolby- because they are not only immersing themselves into the Chinese Mobile market by integrating with China Mobile's wireless music platform, but they are also introducing and providing the audio technology in the Nokia Lumia 920T smartphone, which will soon be infiltrating the Chinese market as well. Dolby may have found a new outlet for sustainable growth, capable of destroying the current concern of some that they are stuck on the sinking PC ship. 

Valuations:

 

Dolby is attractively valued at first glance. Digging deeper, the company becomes even more attractive considering that it contains a good amount of cash, no debt, and an extremely impressive current ratio:

The Bottom Line

Dolby is getting into China in a big way and should continue on its march to adapt and monetize mobile, while also transitioning from its more traditional niches- such as the PC market and DVDs. The company is also making moves state side, and provides the premium sound for Amazon.com's (NASDAQ: AMZN) Kindle Fire HD tablet. At the end of Dolby's last quarter, revenues were reported at 8% lower year-over-year, but according to the company's CEO, Kevin Yeaman:

“Fourth quarter revenue came in higher than expected, primarily due to strength in mobile devices... We continue to see increasing adoption of our technologies in smartphones and tablets, and during the quarter, Amazon incorporated Dolby as a key feature in its latest family of Kindle Fire HD products.”

As a leader in audio quality, supported by a rock-solid balance sheet, Dolby is now transitioning into mobile in not only the U.S., but most recently China. The fact that the company not only clearly recognizes its need to adapt into mobile, but is also executing its transition into mobile successfully and globally, (with companies like Amazon, Nokia, and China Mobile) is promising for investors. The company has a moat in premium audio and operates in many niche markets. Partnering up with the world's largest cellular operator, China Mobile, should provide growth and help to continue to increase revenue streams. Hovering closer around its 52 week low of around $30 a share than its 52 week high of $45.83, it may be time to pick up some shares of Dolby while they are still cheap.


Jharry1 owns shares of Nokia. The Motley Fool owns shares of Apple, Amazon.com, China Mobile, and Qualcomm. Motley Fool newsletter services recommend Apple, Amazon.com, and Dolby Laboratories. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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