How You Can Profit From the Mobile Revolution Without Picking Sides
Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The mobile revolution is expected to continue on full-steam. Research firm Canalys is expecting global shipments of mobile devices to reach 2.6 billion units by the year 2016, with the overall mobile devices market advancing 8% in growth annually. The firm sees tablets and smartphones growing quickest, with annual growth rates of 35% and 18% respectively. You can argue all day long who will "win," who will be most popular, whether Android is better than iOS, if Windows Phone will be a challenger, or if the new Blackberry 10 will gain market share. Or you can step aside from the bickering and the noise and look at the real situation. Some companies will benefit from these mobile players, no matter who leads in market share or sells the most mobile devices.
All mobile devices need chips...
And that's where Qualcomm (NASDAQ: QCOM) comes in. The company is a dominant player in the mobile chip market shipping 86% of the 47 million LTE-capable chips shipped in 2012. Revenue and earnings were both up a whopping 30% year-over-year at the end of the company's last quarter, as well. The company's chips can be found in everything from your Android tablet to Nokia's Lumia 920 Windows Phone.
The company also has bright prospects going forward, recently introducing its RF360 radio chipset which covers 40 different LTE frequencies. This is more than just innovative, it's revolutionary. Why? Because carriers have selected such a wide array of frequencies for 4G that LTE around the world has become fragmented. Qualcomm's new chip works on all of them. The company is also claiming that power consumption is reduced by up to 30%, and the new chips are up to 50% smaller than current models.
Qualcomm is also baking other technologies into its chips. Back in November the company acquired ultrasound technology assets that will enable their chips to provide devices with the capability of supporting and integrating features such as the stylus (already found on some Samsung Galaxy models) and possibly even "touch-free interfaces for devices" in the future. Oh, and don't forget sound.
It's about time audio quality became a priority in mobile…
According to Rachel King of ZDNet, Qualcomm is also working with audio king Dolby (NYSE: DLB) to up-the-ante in mobile sound. Dolby Digital Plus technology, (which can already be found, or rather heard, in its first adopter, the Amazon Kindle) will now be incorporated into Qualcomm's silicon platform to bring the high-definition entertainment experience to mobile. Dolby's audio technology will be implanted directly into Qualcomm's chips, which will leave implementation headaches for OEMs out of the picture. In a report conducted by Dolby, audio quality for mobile was seen as highly in-demand amongst consumers as well:
A partnership with the dominant Qualcomm instantly propels Dolby out of the dying PC age and into the relevant mobile market space. This also allows them to build a solid foundation in the early stages of premium sound for tablets, smartphones, and other mobile devices.
And last but not least... The screen
I have already written a good amount about Gorilla Glass maker Corning (NYSE: GLW), but I am deeply convinced that they are discounted unfairly by the market. The company dominates the display market for mobile with its glass products, and its signature gorilla glass can be found in almost any mobile device with touch screen capabilities from the iPad to the Kindle Fire HD. Chances are if you are scrolling through your smartphone to check a text message you are touching the company's gorilla glass. With Windows 8 sparking a brigade of touch-enabled devices, and Google deciding to follow suite with its Chromebook Pixel, the catalysts for the company are mounting, especially in the growth department as the company is introducing other innovative products such as its bendable Willow Glass.
The bottom line
Not only will the three aforementioned companies profit from the mobile revolution no matter what the hottest selling brand is, they are in great shape financially as well.
- Qualcomm is sitting on over $13 billion in cash with almost no debt.
- Dolby has about $435 million in cash with no debt (keep in mind the company's smaller market cap)
- Corning is holding $3.5 billion in debt, but can easily cover this with over $6 billion in cash
Each of these three companies are also reasonably valued to undervalued. Corning is probably the "cheapest" carrying a P/E of only around 11 and trading below its book value. The company also pays out a decent dividend that yields almost 3%. Dolby is trading at about 14 times earnings. Qualcomm is trading at 17 times earnings, but carries a forward P/E of only around 13, and if they continue on the same profit-generating path they have been on lately, they should be able to easily meet, or perhaps even beat, analysts expectations-- making them seem pretty cheap in retrospect. When it comes down to it, all three of these companies will give an investor a way to profit from the mobile revolution no matter what brand is selling best or what the the hottest mobile gadget on the market is.
All financial data and company profiles obtained from Yahoo Finance
Jharry1 owns shares of Corning. The Motley Fool recommends Corning and Dolby Laboratories. The Motley Fool owns shares of Corning and Qualcomm. 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!