The Changing Mobile Growth Story

In the following video, Brendan Byrnes asks Eric Bleeker to comment on the changing face of mobile growth in 2013. A transcript follows the video. 

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Brendan Byrnes: Hey, Fools, I'm Brendan Byrnes, and I'm joined today by our senior technology analyst, Eric Bleeker.

Eric, we make a lot of to-do about this mobile revolution. We talk about this a lot, but we've seen Apple tanking after earnings, after their recent high of $700 in September, so I think a lot of investors might want to look -- Apple included, but maybe a little bit beyond Apple -- what are some storylines in 2013 that you're watching?

Eric Bleeker: The storyline is, essentially, mobile has been incredibly transformational. It's just enormous. It's already well past PCs in terms of how many sales we're looking at, but we're looking at a different leg of growth.

What we saw in the first leg was a lot of growth in countries like the United States, Europe, and now we're seeing it shift markets.

Why that's really interesting, you think about the U.S. -- it's kind of a perfect storm for Apple, right? It's this market with high incomes, a subsidy plan, so that it's really locked in that you don't have to pay a lot for your phones, and it's also where Apple is headquartered, so it's where they first launched and got this huge lead.

You see the initial growth there, but last quarter on AT&T we saw over 80% of activations being iPhones. That's a really high market share. It's hard to grow much off that, especially when the market's slowing down.

What we're looking at now is high-end phones, where the iPhone sits, maybe 4% growth across the next half decade, compared to low-end phones, which are just exploding in terms of growth rates. I think the mobile storyline, and what's going to determine who the winners are across the next four years, who can capture some of that low-end opportunity?

I'm talking about phones selling for $200 or less in markets like China, Brazil, India. Who's going to be able to capture that? And what strategy is Apple going to use? Are they going to just stick to their guns and focus on that higher end, or are they going to create a differentiated product line, create a cheaper iPhone, create something like the iPhone today and maybe a larger-screen one?

There are opportunities there, and there are also huge risks. It's a brand play, largely, in China, where people want the iPhone because it's a luxury good, essentially, so you're taking risks there. 

I was looking at a mobile device survey. It was from Goldman Sachs, and the key reasons people want to switch a phone? Pricing, and a different screen size. Well, what are the problems with Apple? Pricing, especially in emerging markets, and they are only hitting one screen size right now.

I think, you look at this market, a company like Qualcomm, that hits all levels of growth because they just get basically a tax on phones, a licensing fee, 20 times earnings. Apple, 10 times only at the high end, so whoever can go across all those different areas is going to be, really, the winner across the next three or four years.

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