Investing in the Future of Mobile Devices Part 2 – Components and Software

This article also appeared at The Motley Fool.

In Part 1, I covered a couple of device makers along with CPU and graphics chip makers. In Part 2, I’ll cover software and the components that matter the most.

After all nobody cares if they have a dual core or quad core or 1GHz or 1.5GHz processor other than geeks like me. What people care about is how cool the display looks and how easy is it to get to the features they use most or what software ecosystem.

Let’s start with screens. There are few screen manufacturers that can make mobile device screens in large volumes. They are Samsung, LG, Sharp and Japan Display. Japan Display is a jointly owned by Innovation Network Corp of Japan, Sony, Toshiba and Hitachi. Samsung is the largest maker of mobile displays amongst these, followed by LG. Sharp as a company is in trouble but they do have good screen technology and potential investment suitors in the form of HonHai/Foxconn and Apple. Samsung Display was recently spun off as an independent but still wholly owned subsidiary of Samsung Electronics. LG Display (NYSE: LPL) is a publicly traded company but it is 38% owned by LG Electronics.

Next up – memory. This is just one more category (NAND Flash) where Samsung is the largest manufacturer. This is getting to be a theme. Samsung is the world’s largest manufacturer of a lot of things. Anyway next in line after Samsung are Toshiba and Micron (NASDAQ: MU) and SK Hynix. Micron is quickly closing in on second place Toshiba as it breached the 20% market share barrier last year.

As for Flash cards, Sandisk (NASDAQ: SNDK) is the largest manufacturer followed by Samsung, Toshiba, Transcend and Kingston (2011 rankings). Flash manufacturer rankings are a complicated mess which is evident from the glaring absence of Sandisk from the general NAND flash rankings above. So it all depends on how you look at it.

Other than Flash Memory (the quoted number 8GB, 16GB, 32GB etc. for phones), phones also have RAM (which is similar to the memory on your computer). Another top spot for Samsung, followed by SK Hynix, Eplida and Micron. So the same old. Which is strange considering the top spot for all DRAM (including PCs) is held by Kingston.

 

The five year chart for all US traded companies mentioned above shows memory makers faring better than LG Display. However, looking at their income growth doesn’t look promising. The stock prices have been rising a lot faster than income.

 

Let’s look at operating system software next. Smartphones and tablets run mostly on iOS and Android. The other operating systems in the running are Blackberry, Windows, Symbian and Samsung Bada. Nokia still makes Symbian phones but is slowly turning that into the featurephone OS and Windows into their smartphone OS.

As iOS and Android dominate and Microsoft tries to muscle in, the future of anything else including Blackberry is uncertain. So investing in the future of mobile software presents you with the obvious choices of Apple and Google along with Microsoft. I would consider Research in Motion (NASDAQ: RIMM) a risky proposition until Blackberry 10 devices hit the market at which point the response to those would be a good judge of the continues survival of the company. If the reaction is anything like the reaction the Windows Phone 7, that would spell doom for RIMM. Symbian is officially being gimped as Nokia is betting on Windows. In fact as of now even the future of Nokia is uncertain, but they just might make it. I will not bother you with the depressing charts for either of them but lets just say you should avoid them unless you have a tolerance for risk. Let’s just say Apple, Google and Microsoft, all of which I’ve covered previously are your only real choices for investing in software.

In Part 3 I’ll cover more device makers and mobile applications.

Disclosure: Long AAPL, GOOG, NOK

Why TV Manufacturers should be worried about an Apple TV

Samsung claims that it is not worried about Apple TV because they have the best display quality and that is what TV buyers want in their TV. I say bah humbug. Display quality was good enough 5 years ago. All that has been happening on the TV front is slimmer TVs and lower power consumption (and 3D gimmickry). The place where TVs are lacking are in User Experience. I don’t have a newer Samsung “SMART TV” but my Samsung Home Theater has the most piss poor user interface possible. I tried one time to play music off the network and I will never repeat that torture again. So to sell well all an Apple TV needs to have is a great User Experience. I’m sure any display they find (from LG or Sharp or whoever) will be good enough.

TV manufacturers really need to up their game. Maybe Google TV is a solution? Maybe they need to license Boxee or Roku software? But they need to do something. Maybe this will turn out to be a rehash of the Android-iOS battle. Lawyers will be happy. Microsoft might rake in another billion for doing nothing. If Apple really comes up with a TV soon, trouble is brewing for almost everyone else who makes TVs (ala RIMM and Nokia).

Disclaimer: Long GOOG, AAPL. Considering opening positions in MSFT or NOK at the right price. Wishing I could buy Samsung stock directly as opposed to having it in fund holdings like EWY.