Competition in the smartphone and tablet market has intensified in 2011. The success of both versions of Apple's (NYSE: AAPL) iPad has spurred rivals to enter into this ever-expanding market. This has given a huge boost to accessory makers such as ZAGG (Nasdaq: ZAGG), by pushing up it sales.
Growth markets
Utah-based ZAGG manufactures protective covers and accessories for different electronic and hand-held devices. Its flagship product is the invisibleSHIELD, which is a protective cover used on iPads, iPhones, and similar electronic gadgets.
In an earlier article, I spoke about how well ZAGG had performed in 2010 largely due to the blockbuster launches of the iPhone 4 and the iPad. The company has carried that momentum forward into this year by quadrupling its profit year over year. With expansion plans in place and a predicted boom in the industry, the company looks good for the rest of the year as well. Let's take a look at how ZAGG performed in the lead off to the year.
The numbers
Revenues for the first quarter increased 207%, to $27 million, from the year-ago quarter. Net income went up 318%, to $3.3 million, and gross margin went up to 56%, from 51%. These high numbers were largely due to high sales of the recently launched ZAGGmate, which is a tablet computer case, designed with a keyboard for the Apple iPad.
Apple's introduction of the smart cover with its iPad 2 at the beginning of the year threatened to disrupt the market where the ZAGGmate had just started to gain traction. But ZAGG managed to salvage the situation by entering into a deal with Logitech (Nasdaq: LOGI), which agreed to manufacture and market ZAGG's tablet protector, as fellow Fool Sarosh Nicholas discussed. This initiative has already met with early success and received rave reviews. I expect its sales to grow as the year rolls on.
The strategic tie-up with Logitech gives ZAGG an increased market presence, since Logitech is present in over 100 countries already. Having already invested heavily in advertising for the ZAGGmate, ZAGG will hope that its efforts pay off and it is able to take advantage of Logitech's wide market, leading to a boost in its sales.
Tablet market war
After the successful launches of Apple's iPad last year and the iPad 2 this year, the competition in the tablet market has become fierce. Looking to take advantage of the growing tablet market, competition for the iPad has come from Motorola Mobility's (NYSE: MMI) Xoom and Dell's (Nasdaq: DELL) Streak 7 and more recently tech giant Sony's (NYSE: SNE) two tablets, the S1 and the S2.
With these and many other new players, this industry is expanding by the day. This will work to ZAGG's advantage, as the demand for tablet peripherals is also likely to grow. The company may also look to produce accessories designed specifically for these new gadgets.
The Foolish bottom line
With the tablet market set to explode and many new smartphones entering the market, ZAGG with its wide range of products looks set for a strong year ahead. Also, with an increased international presence, ZAGG looks good to increase its top and bottom lines. The growing tablet and smartphone market makes me bullish about ZAGG's future prospects.
