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How Much Further Can Smartphones Propel Apple and Google?

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Apple's (NASDAQ: AAPL  ) and Google's (NASDAQ: GOOGL  ) success in the smartphone market has been nothing short of astounding.

The two technology giants are far and away the most important players in this new tech paradigm, no matter how you slice it. For instance, Apple kick-started the modern smartphone movement when it famously introduced the iPhone on Jan. 9, 2007. Google followed up with Android in November 2007 and has seen its open-source operating system blossom into the world's default mobile OS, with 78% of the market share last quarter. And though Google has usurped Apple in terms of the number of smartphones that run its software, Apple still collects the majority of the smartphone industry's profits each quarter.

Like I said, any way you slice it.

However, all markets have their natural limits. Expansion slows. New buyers grow scarcer. So when will that sad day arrive for Apple and Google, and how should investors handle this major tech transition? Let's take a look.

New becomes old
Yesterday, research firm IDC released its estimates for the next several years of the smartphone market. According to IDC, 2014 should once again see strong, albeit increasingly skewed, smartphone growth with the overall market expanding around 20%.

However, as you should hopefully suspect by now, IDC's findings also predict that global smartphone growth will slow to single-digit expansion as soon as 2017, when it will each a tepid 8.3%. The 6.2% smartphone shipment growth expected in 2018 will be more reminiscent of the PC market than the searing growth we've come to expect from the smartphone market.

Thankfully among the various smartphone ecosystems, Apple's iOS and Google's Android should still fare quite well in the years ahead. IDC predicts that Android and iOS will see 10% average annual gains through 2018. And although Microsoft's Windows Phone has the most enticing growth profile during the period (29.5% CAGR), their respective growth rates should be enough to support Android's market share stranglehold and Apple's massive profit margins in the years ahead.

Either way, it's interesting to note just how quickly the smartphone market is heading toward maturity. What only years ago was the new thing in tech is now starting to be viewed as an aging standard, and it's important that investors take notice before it's too late.

Source: Wikimedia Commons.

Could 2014 be a year to remember?
The implication for investors in all this is that they'll need to increasingly shift their focus from smartphones to new potential markets such as wearable tech, smart TVs, and the Internet of Things as areas of growth.

This isn't a new observation by any means. Companies large and small from Samsung to Qualcomm to Pebble have already launched smartwatches, with more likely to follow suit soon. Similarly, smart TVs are by no means a new or revolutionary concept.

The year 2007 will go down as a revolutionary one in technology -- one in which, thanks to Apple and Google, technology took a major leap forward. In the past 12 months, we've seen a number of products reach market in these aforementioned pockets of opportunity. However, many of these devices are more reminiscent of Palm or BlackBerry circa 2006, rather than Apple or Google back in 2007.

However, as is always the case in technology, that will of course change, and change quickly. Apple has promised at least one new product this year, and Google is busy buying its way into anything that vaguely represents an emerging technology. Investors who anticipated these sea changes have assuredly prospered since. And as we begin to see signals that the smartphone revolution might be cooling in front of our eyes, investors would be well suited to begin to do the same once more.

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Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 01, 2014, at 1:21 PM, k1moops wrote:

    I totally disagree with the article. The current iPhone 5 form factor as inherited from the original iPhone 2007 is quite possibly the very best form factor for a computerized human companion. Simple elements like a long lasting battery, SoC, memory, display, and other components that can execute meaningful tasks have physical dimensions that cannot be better optimized better than the iPhone. With the A7 SoC in the 5S and iPad Air, Apple is clearly creating a brand new market for the iPhone and iPad - a new genre called the 'personal mobile server'. With servers, 64-bit chips are crucial, because those machines often need gobs of memory for running many tasks simultaneously and keeping as much of it as possible in fast-response RAM. With PCs, 64-bit chips are useful to avoid bumping up against 4GB memory limits, which is about where the mainstream market is today. The fact that the iPhone 5S and iPad Air only has 1 gig of RAM is because mobile device RAM is still extremely expensive by comparison. Many current trends such as main-memory analytical databases (SAP HANA, for example) typically execute at speeds 50 times faster than traditional relational databases, iPhone and iPad running tasks and apps in huge amount of on-device RAM introduces a new age of not often instant, but extremely powerful computing that totally empowers the nations that can afford and deploy these wonderful 'personal mobile servers'. With the Apple iCloud and new versions of iTunes, these new iPhone 'personal mobile servers' can interconnect with each other making these fortunately rich and affluent people not only totally connected with each other, but each iPhone owner will be running newly developed server class apps that rival today's multi-billion dollar enterprise servers running today's world. Apple's most crucial mission now is a lot more than just making the iPhone lighter, slimmer, and faster. Currently the largest non-ECC memory is 32GB which costs $1.4k for one stick in a motherboard slot, iOS 7 can theoretical support up to same RAM limits of other 64-bit operating systems, Apple can really benefit from miniaturizing these big memory sticks putting them into the iPhone. The real limits of the 64-bit or higher iPhone are the battery, big RAM, and the heat handling capability. I see Apple making a slightly thicker new iPhone 'personal mobile server' incorporating batteries that are at least double the capacity of the Galaxy Note 3's 3200 mAh battery and big RAM, possibly 32 Gig and above. People who spend a lot of time watching videos should really use the iPads anyway. Apple's fortune will rise tremendously if Apple can successfully expand upon the 5S's 64-bit platform with the above-mentioned improvements. The Apple apps after the iPhone 5S will never be the same.

  • Report this Comment On March 01, 2014, at 5:56 PM, nickryan04 wrote:

    8 percent tepid the new word for you fool writers...

  • Report this Comment On March 01, 2014, at 7:14 PM, deasystems wrote:

    The author wrote, “…Google followed up with Android in November 2007.” That is incorrect. Android was released on September 23, 2008, about 16 months after the iPhone was released.

    Google needed that time to recover from the shock of realizing that the iPhone had a pervasive touch-based interface and adjust Android’s user interface accordingly.

    “The year 2007 will go down as a revolutionary one in technology -- one in which, thanks to Apple and Google…”

    Nope. The thanks for that year’s technological revolution goes to Apple alone.

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Andrew Tonner

Andrew Tonner is a tech specialist for The Motley Fool. He is a graduate of The University of Arizona with a degree in Finance.

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