Mobile is set for another big year in 2011, but the hierarchy of tech giants is shifting.
A year ago, Android was just a promising upstart in the sector. RIMM was barely holding its own, while NOK and PALM/HP were struggling.
Motorola was showing signs of life, as it looked like their bet on Android might pay off.
Apple, of course, was undisputed king of smart devices.
Fast forward to today, and this chart by Millennial Media says it all:
They’ve got a ways to go yet, but Google is starting to run away with this one.
Wildly profitable
Apple shares are up more than 3500% over the last 10 years.
As long as we’re cherry-picking dates, from September 1985 until today, AAPL shares notched up 18,885% gains.
Mr. Jobs and his team have shown us just how profitable gadgets can be, but the stock’s run is getting long in the tooth.
In July of 2010, I proposed Apple is at or near its peak for this cycle.
I may have been a little early — I did mention that only a madman would short it — but I stand by the theory.
Why?
For years, AAPL had the only “fun” smart phone on the market. This is no longer the case.
Android is a game-changer. In the long run, increased competition will compress margins and reduce Apple’s piece of the pie (yes, the pie itself is growing larger).
No company stays Wall Street’s darling forever. Upside in AAPL here is limited for the near- to mid-term, and the downside risks are increasing.
It’s a great company, but there are simply much more attractive opportunities out there…
Rotate into GOOG
The new mobile growth story is about Google.
Now I’m not necessarily bearish on AAPL. But it is among the most widely held stocks in the world, and millions of investors are sitting on big gains.
When all those shareholders and money managers take profits, Google would seem a logical stock to rotate into. And this rotation effect could give Google shares a nice boost throughout 2011.
This scenario appears to be playing out today, as Apple shares are down about 3% on news of Steve Jobs’ medical leave, and Google shares are up 2%.
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Motorola’s time to shine
Google is a relatively safe bet in mobile. It still only makes up a small percentage of their business (for now).
Motorola, on the other hand, is more of a high-risk, high-reward play. Their Android-powered Xoom tablet knocked the cover off the ball at CES. They expect to ship 800,000 units by April.
Motorola’s line of Droid phones are also selling well, and the company just split in two. The new firms trade under separate tickers, Motorola Mobility Solutions (NYSE: MMI) and Motorola Solutions Inc (MSI).
The split is good news for investors looking seeking a pure play in the mobile space, as MMI is just that.
Quality of Motorola products has been on the rise, as well. The WSJ recently noted that a survey of smartphone consumers showed promising results for MMI:
71% of MMI’s [Motorola Mobility’s] customers were very satisfied, only six percentage points fewer than the 77% of iPhone customers, according to ChangeWave Research. HTC, an Android pioneer, had 63% satisfaction…
Improving product line, sales, combined with low R&D costs (a benefit of using open-source) and a solid brand. That’s what makes MMI my second-favorite tech pick.
Like I said, it is relatively high-risk. The company is expected to lose money for a few quarters, as new production ramps up. But with $3.5 billion in cash on the balance sheet — and zero debt — they have time.
Those eye-popping Apple gains have me searching high and low for the next big consumer electronics play. I like Motorola’s chances.
Adam Sharp
Analyst, Wealth Daily
disclosure: long GOOG, MMI, and MSI
