67 WALL STREET, New York - January 26, 2012 - The Wall Street Transcript has just published its Wireless Communications & Telecom Report offering a timely review of the sector to serious investors and industry executives. This Wireless Communications & Telecom Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: 4G LTE and 3G Infrastructure Upgrades - Wireless Carriers Compete for Spectrum - Smartphone Operating Systems - Emerging Markets Growth Shifts to Data ARPU
Companies include: TriQuint Semiconductor (TQNT); U.S. Cellular (USM); AT&Ts (T); America Movil (AMX) and many more.
In the following brief excerpt from the Wireless Communications & Telecom Report, interviewees discuss the outlook for the sector and for investors.
Kulbinder Garcha is a Managing Director at Credit Suisse, with responsibility for global telecom equipment and IT hardware equity research. Mr. Kulbinder joined Credit Suisse in 2002, and prior to this he covered European technology stocks for two years at Goldman Sachs, and prior to that at Morgan Stanley. Mr. Kulbinder was part of the top three ranked teams in the Institutional Investor customized survey for the telecom equipment sector research from 1999 to 2009, achieving the number one position in Europe in the past five years and top two position in the U.S. last year. Mr. Kulbinder received an M.A. in mathematics and economics from St John's College Cambridge in 1998.
TWST: What are the major investment themes you are watching in the wireless space right now?
Mr. Garcha: I think there are two to three themes that are very important in the wireless space right now. I think the first one is the continued growth of the smartphone industry. Smartphone volumes last year were 450 million units; they grew 55%, but we don't think they have maxed out yet. We think that industry will continue to grow from these levels over the next two to three years and that it will will more or less double by 2015, reaching 1 billion units. So I think there's going to be very strong continued smartphone growth. The second thing is the question of within that smartphone growth, how the various ecosystems will play out. You obviously have a very strong competitor with Apple (AAPL), with how the iPhone is progressing, and the iPhone will continue to increase its market share going forward. But you also have Android, which is going to continue to grow as well. Android has about half of the market, literally about 50% of the market, today. I also think, and we published some research on this very recently, we now have a potential recovery in the Windows platform, and Nokia (NOK) is trying to drive that. The question then is who suffers in that environment. We think certain Android vendors are on the weaker side. We think HTC (2498.TW), Motorola Mobility (MMI) and Sony Ericsson (ERIC) are maybe on the weaker side, and we also think that Research In Motion (RIMM) has some real difficulties in terms of turning around their business.
So I think the first couple of points will be, number one, smartphone growth and the continued volatile and changing competitive dynamics within it. I think that the second thing, which kind of impacts wireless mobility, has to do with how the computing market is changing. You have consistently had very strong tablet or iPad growth in the last couple of years, and our secular view is that last year, I think 60 million tablets were sold. We think that number will be 100 million in 2012 and 300 million by 2015, and this will account for 40% we think of all computing products going forward.
The additional thing here is that you've got the issue with respect to how the tablet market is going to impact not only mobile computing, but telephony as well. That is certainly another issue.I think the third thing, at least in the wireless sector, is in terms of spending levels along the networks running into constrains. You also have this balanced issue whereby the overall wireless carrier market - and by that, I mean the AT&Ts (T) and Verizons (VZ) of this world collectively - the question of their revenue issues for the infrastructure providers. We also look how that industry actually grows in revenue terms going forward.
TWST: In your opinion, are they going to continue to grow, or is that going to be difficult for them to do going forward?
Mr. Garcha: I think for the overall wireless industry, the international wireless industry or the carrier market, you have to remember we are looking at an industry now that has the best part of about 5.7 billion mobile subscriptions out of 6.7 billion of the people in the world. The market is very heavily penetrated. The issue being, how many more new users are there going to be? Is the average user spending any more? Not at the global level. In certain markets of the U.S. where you have very strong data growth, that will drive certainly growth in the industry overall, maybe growth in spending; but at the global level, it's very hard to argue though.
TWST: You mentioned some of the companies in weaker positions. What about the other side? Who is best positioned, given the current environment?
Mr. Garcha: I think the vendor clearly in all of these segments that will continue to execute very well is Apple. We think they just have a very superior ecosystem whether it's around their software, whether it's around their App Store, whether it's around iTunes or anything else, and I think there's scope for them to continue gaining market share in the phone market. They had an 18% smartphone share last year. One of the things about Apple I think that's important to remember is that they only supply 230 carriers today, and globally Nokia and RIM supply 500 carriers. In other words, Apple is still building out their distribution, there are still lot of carriers in the world that don't support the iPhone yet. And so that's an avenue for them for growth in addition to any growth they might see with their existing customer base on how to achieve new business going forward. Similarly on the tablet side, we think the whole relationship between the smartphone and the tablet is important. Apple obviously was first to market with introducing the iPad, then relatively aggressively priced it up until now, and they also have the synchronization across a PC, a phone and a tablet now with the iCloud service. So we think those are the two areas in which they will really prosper. I think for 2012, Android as a platform will keep doing well on the smartphone side. I'm a little bit more questionable about whether they long-term can keep growing at the levels they have been doing.
TWST: Is wireless a good place to invest?
Mr. Garcha: I think the wireless equipment industry is one place that is a bit difficult. Within this, Qualcomm (QCOM) we think will benefit. The problem with the mobile phone market is largely share shifting from one vendor to another. You look at Research In Motion, you look at Nokia, you look at how MMI was before it was taken out, you've got an issue whereby there aren't that many attractive investment ideas. I think Qualcomm is one that works.With Qualcomm, it's much more about the quality of their business. Qualcomm gets paid, of course, by end licensing and through their chipset business. On the licensing side, they collect royalty for every 3G and smartphone basically sold in the world and every tablet that's sold. So the growth in the end market drives their licensing business. What that basically means, we think, is that no matter who is gaining share, whether it's an Apple or whether it's a RIM, whether it's an Android vendor or someone else, Qualcomm will collect their royalty because they own the core I.P. along with two or three other companies in the world around which is designed as to how wireless standards operate. Secondly on Qualcomm, their chipset business, they have a 40% 3G WCDMA chipset share, but they are about to now ramp up or they started ramping up production with Apple, they will start with Nokia, and they continue to be very heavily aligned with Android. So with all the right customers, we think their market share will expand. So Qualcomm is a different way we think of playing the end growth in both wireless data, smartphones and even tablets.
TWST: You mentioned obviously Apple and Qualcomm. Are there other companies you like right now?
The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This Wireless Communications & Telecom Report is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
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