1 Number to Prove We're Just Starting the Smartphone Revolution

It took half a century, from 1900 to 1950, for at least half of American homes to have a phone in them. When the first mobile phone came along, that time frame shrank significantly, taking less than 20 years. Smartphones -- essentially computers in everyone's pocket -- reached the 50% saturation rate this year, taking a little over 10 years to get there.

Look at how quick adoption rates have become, as assembled by MIT's Technology Review:

Sources: Forrester, Knowledge Networks, New York Times, Nielsen, Pew, U.S. Census. "No Phone" derived by subtraction.

Obviously, if smartphones are only in the hands of half of the Americans out there, that leaves another half for mobile companies to grow in to. Though that's a big number, it doesn't offer the type of growth that some investors want. In fact, such statistics lead some to think that it's already too late to get in and profit from the smartphone revolution.

Think again
If we were just talking about America, then the bearish take on investing in smartphones would make sense. But we're in a global economy now, and the opportunities abroad are massive.

Traditionally, it was assumed that adoption of technology in developing countries would only increase at a rate commensurate with the country's GDP growth. But when the mobile phone came along, that paradigm was thrown on its head.

In 2001, the industrialized world had six times as many mobile phones per capita as the developing world. By 2011, the industrial world only had 50% more per capita. That's still a lot more, but the margin between the two has shrunk significantly -- and that meant big business for mobile phone and network providers.

The International Telecommunications Union reports that currently, about 45% of the world's population is now covered by the infrastructure necessary for 3G networks to function. That number, it is assumed, will  be growing in the near future as well. With these networks in place, the same type of growth that took place for mobile phones is ripe to occur with smartphones.

Possible big winners
At the beginning of 2012, global smartphone penetration was estimated at just 10%.

Let's say that one more time: 10%.

Whereas smartphone or network providers focused solely on America would be lucky to double their penetration in time, those focused globally have an absolutely massive opportunity in front of them.

Some of the biggest players in the world are right here at home, so you're probably quite familiar with them. First and foremost is Apple (Nasdaq: AAPL  ) . No, the iPhone might not have the greatest market share of smartphones when its products spread abroad -- but that's because it's price point may be outside of what's affordable for most of the world. That being said, sales in the company's Asia-Pacific region last quarter increased 114% from the year before and accounted for more than a quarter of the company's total revenue.

Next is the other gorilla in the room: Google (Nasdaq: GOOG  ) . The company's Android operating system is the only real alternative emerging to Apple's iOS. Though the race between the two is tight in America, Android has a commanding lead globally, owning a 59% market share.

If there's one company you don't want to bet on, it's former smartphone champ Research In Motion (Nasdaq: RIMM  ) . The BlackBerry has lost an incredible amount of ground to rivals, and it would take a herculean effort to turn things around at the company.

Smarter, lesser-known plays
I'm probably not telling you anything new when it comes to Apple, Google, and RIMM. But there are other ways to profit from the smartphone revolution as well. Qualcomm (Nasdaq: QCOM  ) , for instance, offers up patented nano-chips that many smartphones need for LTE technology. It also owns an impressive portfolio of patents that provide high-margin licensing revenues.   

But none of these companies qualifies as what we consider to be the best play on the smartphone revolution. Our top analysts have created a special free report: The Next Trillion-Dollar Revolution. Inside, the team will tell you the one company they think will profit more than the rest. To find out what company that is, get your copy of the report today, absolutely free!

Fool contributor Brian Stoffel has yet to give in and buy a smartphone, much to the chagrin of his wife. He owns shares of Apple and Google. You can follow him on Twitter, where he goes by TMFStoffel. The Motley Fool owns shares of Qualcomm, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Google and Apple, and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On June 12, 2012, at 11:17 PM, tomshiff wrote:

    Brian, I love smartphones as much as the next guy, but honestly, with 10% saturation, you think the growth potential is high. Most likely 60% of the population cannot and will never afford to buy one, never mind afford the much higher bandwidth required to run one. In the third world countries I have visited, huge numbers of people have cell phones and it has changed many peoples lives. But they are buying a $1 or $2 of voice calls at a time. I just don't see them spending $20 for data they could spend on rice for their family.

  • Report this Comment On June 13, 2012, at 12:41 AM, Fruitfan wrote:

    I agree that a large number of people around the world may never be able to afford a smartphone. But if we assume only 40% can and will own one that means the market can expand another 400% from here. Apple sold 37m iPhones last quarter. That s a potential for Apple to sell 500m iPhones in 2015. That would equal approx $43 per share in earnings just from iPhone in 2015, add in iPad which should be selling 100m units that adds another 36 per share. With just modest gains in all other products we should see over 100 per share in earnings for 2015. That would be a stock price of between 1350 - 1500 per share.

  • Report this Comment On June 13, 2012, at 2:05 AM, TMFCheesehead wrote:

    @tomshiff-

    I can't say for sure what the penetration rates will be, but I can say that I believe technology will improve, and with it, the price of owning a phone that consumes data will shrink.

    From an MIT publication:

    "The cost of a smart phone and a service plan clearly remains an important barrier in poor nations, but it is a shrinking one. ARM Holdings' Cortex A7 mobile CPU, expected in phones next year, is touted as a way to get smart phones to "the next billion people," with a price-to-performance ratio five times that of 2010 models. Meanwhile, the Chinese firm Spreadtrum has already released a chip platform targeting sub-$50 Android smart phones."

    You can read the whole piece here: http://www.technologyreview.com/news/427787/are-smart-phones...

    Brian Stoffel

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