Say "smartphones," and a lot of investors start to drool uncontrollably. Mention China, and you'll get the same reaction. So when we're talking about a direct play on Chinese smartphones, the slobbering should reach absolutely torrential proportions. Right?
Well, not always. Witness if you will Spreadtrum Communications
For a company that nearly doubled sales in 2011, a mere 19% year-over-year revenue gain in the next quarter feels like a letdown. CEO Leo Li pins the weak period on a transition to new manufacturing techniques for its smartphone and 2.5G products. He also mentions seasonal effects, but that argument doesn't really hold water in year-over-year comparisons.
Major customer China Mobile
I'd also worry about increasing competition. Spreadtrum's most direct competitors today are European powerhouse ST-Ericsson, local giants MediaTek and MStar Semiconductor, as well as the mobile communications division of global chip titan Intel
In short, Spreadtrum needs to watch its back. I don't feel great about the company's chances of navigating these challenges if ramping up a new manufacturing model is enough to derail the revenue train.
This stock certainly merits a spot on your Foolish Watchlist, but the execution here is less than crisp. I wouldn't back up the truck to buy shares on this particular drop. If you're looking for smartphone plays flying under the average investor's radar, you don't even have to look in the Chinese Twilight Zone -- we've compiled three surprising smartphone stocks as American as grandma's apple pie.