It seems that one of the fastest-growing sectors in technology is about to slow down, according to an IDC report released yesterday. "2014 will mark the year smartphone growth drops more significantly than ever before." Is the industry outlook really that bad? I think there may be insights here for Apple (NASDAQ:AAPL) and BlackBerry (NYSE:BB).
The law of large numbers is behind IDC on the overall industry analysis, but upon closer examination of the details, there are a few significant things to point out. First, however, realize that an analyst is handicapped by the data. Things will change a year from now that can't be figured into multi-year projections. Since you buy, use, and talk about cell phones, consider yourself an expert and decide whether these assumptions pass the smell test.
Apple's growth rate is going to accelerate over the next five years
According to IDC's shipment projections for iOS, the compounded annual growth rate will be 10.2% from 2014 through 2018. If you're an Apple investor, that's fantastic. For a business that generated $94 billion in revenue over the last 12 months, 10.2% unit growth is something to write home about. In the December quarter, unit growth was only 7% year over year, so if there are signs that unit growth will speed up rather than slowing down the way that it has been, consider buying more shares of Apple. This probably isn't going to happen, but it is a nice thought.
Windows Phone shipments will grow 2.5 times faster than the industry
The IDC projections also show Windows Phone increasing its market share to 7% of the overall industry. That seems reasonable with the Nokia Corp (NYSE:NOK) acquisition but what happens if the culture at Microsoft Corporation (NASDAQ:MSFT) or the public's desire for a Windows based phone has crimps Nokia's ability to grow? Does 29.5% growth seem reasonable for a business acquired by Microsoft?
BlackBerry will lose 70% of its current market share
IDC is projecting that the once-mighty BlackBerry will drop from its current 1% market share down to 0.3%. IDC was probably trying to be kind in saying that the company will not exist as a relevant player, instead of saying that the company simply will not exist. BlackBerry has a good chance to build a niche among security conscious entities. After last week's introduction of a $200 smartphone, that likelihood now seems even greater.
Analysts have the thankless job of making projections based on historical data. Their projections will be wrong almost every time, so it's just a question of how wrong. True value comes in understanding the assumptions behind the numbers, which forms the basis for market expectations.
Don't get caught up in the details
As investors, your job is to find opportunities where analysts have it wrong -- expectation vs. reality. If market expectations are that BlackBerry won't even exist in five years, yet you think that it will, perhaps the stock is worth buying. If you think Apple's growth will slow over the next five years perhaps it is worth selling. Don't get too focused on the details.