Smaller Computers, Bigger Profits

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Technology moves in huge leaps and bounds. We're standing at the threshold of yet another huge revolution in how high-tech gadgets touch our lives, and the best trinkets we have today will soon look clunky and downright quaint.

We have come a long way from the ENIAC computer, which filled a room with radio tubes to run a handful of calculations per second. Today's technical marvels from the likes of Intel (Nasdaq: INTC  ) and Dell (Nasdaq: DELL  ) run circles around the supercomputers of yesteryear. And the carousel of progress is still spinning.

The science-fiction saga continues unabated thanks to ever-smaller and faster chips, better industrial design, and a neverending flow of scientific breakthroughs. Moore's famous law, which says that the transistor density on modern chips should just about double every other year, has met challenge after challenge and always pushed on through to the next one.

The battle keeps shifting. ENIAC was a one-shot government project. Mainframes and supercomputers were always the domain of big business, government, and academia. Microcomputers and PCs moved into offices and living rooms. And the next battleground is in your pocket.

If you think that the Apple (Nasdaq: AAPL  ) iPhone is an amazing work of engineering art, you're absolutely right. But you simply haven't seen anything yet.

What's cooking?
We're about to get flooded by innovations that have been brewing in research labs for years. Today's smartphones are just an intermediate step in the direction of the true payoff. In two, maybe three years, you should be able to carry a supercomputer in your pocket that puts today's smartphones to shame.

It could have a fold-out OLED screen or a hyper-efficient projection display, giving you some much-needed display real estate. Thanks to the engineers at Intel, ARM Holdings (Nasdaq: ARMH  ) , and Texas Instruments (NYSE: TXN  ) , among others, tomorrow's mobile chips will be faster and use less power than the Cortex and Atom chips we have now. Put the projection and tiny-chip trends together, and we shall soon arrive at wristwatches doing everything your laptop does today. (And then dental fillings. That one's still a few years out, though.)

That's not all. From punch cards to flash memory cards and beyond, input and storage methods are getting better. Touch screens are the newest input hotness, and we're not far from the ultra-cool touch displays Tom Cruise used in Minority Report. But call me back when I can control my computer using only my eyes and brain waves. You've seen it on House, and researchers are working on it as we speak.

Tomorrow never dies
So if you think we live in a science-fiction world today, baby, you just ain't seen nothin' yet. Desktops are yesterday's news. Laptops are enjoying their golden age right now, but they feel the pressure from netbooks and smartphones. And the shrinkage continues. Never assume that the technology you use every day will be around forever. Something better will come along and crush it in just a few years. And someone will figure out how to use all that new technology for new forms of entertainment, or to make our lives better.

The trick is to invest in tomorrow's ubiquitous technologies today. That means looking at today's technology trends, such as computers getting smaller and more common, and then taking the next logical step: Where is this trend taking us next?

 I'm betting that the hardware scene will consolidate and boil down to just a few makers of commodity chips. Intel is big and rich, and the Atom chip reflects a desire to do something big in the mobile market. I wouldn't be surprised to see Intel buying up mobility experts like Broadcom (Nasdaq: BRCM  ) in the next couple of years, or even the motherlode of handheld-computing tech that is ARM. Texas Instruments could also go on a spending spree. But buyout betting in the hardware space isn't where the real money is.

Show me the money!
The real action in computing -- mobile or otherwise -- will be in software. When everybody has a supercomputer in their pocket (or on their fingers, etc.), you win by helping them make better use of all that power. And for my money, Google (Nasdaq: GOOG  ) looks like it thinks the same way about the future.

Google's mission is to "organize the world's information and make it universally accessible and useful," even if you don't have a computer handy. Efforts like the Android mobile platform and the free 1-800-GOOG-411 service don't directly add to Google's top or bottom lines, but if you "focus on the user, all else will follow."

Happy Web surfers stick around and click on more ads in the end. Though some companies come close, nobody else is so perfectly poised to profit from everyday, everywhere computing. A computer in every pocket will give this Rule Breaker billions of potential customers.

You heard it here first.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. Google is a Motley Fool Rule Breakers pick. Apple is a Motley Fool Stock Advisor recommendation. Intel is a Motley Fool Inside Value recommendation. Motley Fool Options has recommended that you buy calls on Intel. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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  • Report this Comment On November 27, 2009, at 12:33 PM, ceh4702 wrote:

    I see some possibilities for smaller computers. However, before that can happen what we would really need to see is some kind of standard like a smaller case design that is supported by a standards committe. Right now we have standard sized 3.5" bays for hard drives and floppy(dont need), and 5.25" bays for DVD drives. This could easily change. We are making 1TB drives and Dual Layer DVD's so we need to shrink their size. I think it is possible to have 3-2" DVD's and use similar designs as the 2.5" hard dries. So, to pull it all together there is a need for a standard case layout to use the smaller drives. The Optical drive does not really need to be the standard width of a DVD.

    Money is what drives the OEM Computer market. Standardization is what makes parts available and keeps the prices low. The problem is smaller is more expensive, not less Expensive. I see no reason why you cant get an operating system, a Game or a program or even MS Office Suite on a device like a Flash drive. We dont really need DVD Drives that are 5 1/4" wide.

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