The increased focus on new devices in the market, coupled with the deployment of more advanced networks around the globe (3G and 4G), is driving rapid expansion in the wireless sector. Most notably, the introductions of tablet computers and more capable smartphones, which have consumers racing to trade in their less-advanced devices in favor of these savvy new options, offer a great deal of growth potential for the industry. As the tech giants continue to make strides in innovation, the possibilities for expansion in this arena seem more and more limitless.
So, qui bono? Who benefits? The obvious answer to this question is, of course, the moguls of Silicon Valley who are mainly responsible for these innovations, including Apple (AAPL) and Google (GOOG). And, there is no doubt that these companies will continue to thrive off the growing trend in data-capable devices in the market. But, there are a number of other players in the mobile arena that will likely benefit from the advancement, as well. Investors may want to take a closer look at these companies, which operate in conjunction with the wireless industry, as there may be some standout issues.
The smartphone market will likely grow around 10% in 2011, and there are no signs of a slowdown. This rapid expansion should boost performance for many companies whose revenue streams are closely tied to growth in the mobile sector. Note, however, that this kind of expansion often requires the ability to withstand many changes, and some companies may not be up to the challenge. The key is to highlight companies that serve a specific niche in the market and are not struggling to adapt to their ever-changing operating environments.
For example, Brightpoint, Inc. (CELL), a provider of supply chain solutions to the wireless industry, is poised to benefit considerably from the expansion in the mobile device arena. The company, which is not concerned with marketing specific products or technologies, gains simply from high turnover in the market. Essentially, as long as the market for smartphones continues to grow at a rapid pace, Brightpoint will do well. As a distributor, there is little exposure related to technology becoming obsolete, which ensures Brightpoint will benefit from the many advancements without having to make much of an effort to remain on top of trends.
Other companies are benefiting from the increased need for capacity driven by the deployment of more advanced networks around the globe. AboveNet (ABVT), which provides high bandwidth connectivity solutions to wireless carriers, is especially poised to profit from this trend over the next several years due to its fiber-optics networks, which provide large amounts of capacity. And, the company has remained focused on committing capital to extending capabilities and expanding its addressable market in order to avoid falling behind as the industry barrels forward.
Some companies, though, seem to be having trouble keeping pace with the changes in the industry. For example, Tekelec (TKLC), a network systems and software provider, has faced considerable difficulties recently due to weakened demand for its legacy products. Its next-generation solutions have not been able to outpace declines in its core areas. Companies, like Tekelec, which remain heavily reliant on older offerings, will probably continue to struggle near term as they attempt to bring more vibrant and promising products to the market.
Essentially, more devices and more advanced networks should drive growth for many companies tied to the wireless industry. The opportunities are not limited to those that develop and market these devices, but extend to other players that benefit from the existence and increasing popularity of these products. The power to fully exploit these opportunities, though, lies in the ability to embrace major the industry changes that come with rapid expansion.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.