Global sales growth for smartphones and tablets is expected to slow this year. IDC forecast worldwide smartphone shipments to rise just 12.2% year over year in 2015, down from 26.3% growth in 2014. The research firm also expects tablet sales to inch up just 2.1% this year.
That slowing growth might mean the heyday of high-growth mobile stocks is over, but several blue-chip stocks in the market remain solid investments. Let's take a look at three such stocks: Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT).
Apple is the second-largest smartphone maker in the world, with a 19.9% share of the global market in the fourth quarter of 2014, according to IDC.
Apple has three core strengths. First, it can sell hardware at bigger markups than other mobile players, thanks to its reputation as a luxury brand. Second, it has no direct competitors, since iOS is a closed-source operating system. Third, it keeps its portfolio of mobile devices small, whereas rivals flood the market with phones and tablets for all price tiers.
Thanks to those three strengths, iPhone revenue rose 55% year over year last quarter and accounted for 69% of Apple's top line. Shipments rose 40%. Sales of the iPad, however, are fading, with revenue falling 29% and shipments declining 23% year over year last quarter. That weakness is caused by the commoditization of the tablet market and the iPhone 6 Plus' cannibalization of the iPad Mini.
Apple's main weakness is its top-heavy dependence on the iPhone. Unless the company can diversify its top line by boosting Mac and Apple Watch sales, any slowdown in iPhone sales will cause the stock to tumble. Nonetheless, this stock is still fundamentally cheap at 13 times forward earnings and pays a forward dividend yield of nearly 1.7%.
Google's mobile OS, Android, is found on 77% of smartphones worldwide, according to IDC. Google monetizes Android in two ways -- mobile ads and the Google Play store.
Unlike Apple, Google doesn't manufacture its own mobile devices. Instead, it gives out Android for free to tether more mobile device makers and users to its ecosystem. It also occasionally licenses its "Nexus" brand to hardware partners like LG and HTC.
However, its mobile ad business is under siege by a disruptive challenger: Facebook (NASDAQ:FB). According to research firm eMarketer, Facebook generated $3.54 billion in mobile display ad revenue in the U.S. last year, compared to just $1.13 billion for Google. This is because Facebook tethers third-party sites and apps back to its main site and app.
Last year, Facebook launched the Audience Network, which extends those ads to third-party apps. Google's weakness in social is a liability here, since Facebook users often use single sign-ons to synchronize apps and sites back to its News Feed. As a result, Facebook has created a "hidden" mobile OS across multiple platforms.
Nonetheless, Google still generates the highest ad revenue of any Internet company in the world. Last year, Google brought in $59.6 billion in advertising revenue, compared to Facebook's $11.5 billion.
Microsoft's expansion into mobile devices has been a costly one. To catch up to Apple and Google, Microsoft bought Nokia's handset division for $7.2 billion last year. The unit's Lumia devices now account for the vast majority of Windows Phones.
Between the fourth quarters of 2013 and 2014, Microsoft's share of the smartphone market slipped from 3% to 2.8%, according to IDC. Last quarter, Lumia unit sales rose 18% year over year to 8.6 million, but Windows Phone revenue fell 16% -- indicating that it was mostly selling low-end devices in emerging markets.
But that's exactly what Microsoft planned to do. Microsoft's mobile strategy consists of three main parts. First, it uses Nokia's feature phone business to tether users to its ecosystem with simplified versions of its Internet apps. Second, it sells low-end smartphones that are only moderately pricier than feature phones. For example, its $70 Lumia 430 is even cheaper than Google's Android One devices. First-time smartphone buyers who used Microsoft/Nokia feature phones before might then buy Lumias instead of Android devices.
Finally, Microsoft will soon update all those devices -- from the Lumia 430 to the high-end Lumia Icon -- to Windows 10, which will link them to the same ecosystem as its tablets and PCs.
Simply put, Microsoft is leveraging its strength in PCs to expand into mobile devices. If that strategy succeeds, Windows 10 could gain considerable market share against Android and iOS on mobile devices.
The road ahead
Looking ahead, it's unlikely that Apple, Google, or Microsoft will double from current prices, but they're still solid blue chip bets on the mobile market. The three companies play different roles: Apple remains a top-heavy favorite, Google is a great mobile ecosystem play, and Microsoft is an overlooked underdog that still has a lot of bite.
Leo Sun owns shares of Apple and Facebook. The Motley Fool recommends Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.