By Dan Gallagher
As more wireless customers flock to smart phones, companies like
Apple, Research In Motion, Motorola and Palm have the advantage
over current cell phone giants such as Nokia and Sony Ericsson,
according to a new report from Credit Suisse.
In a study issued Tuesday morning entitled "Smart phones ...
smarter investments," the broker predicted strong growth in the
smart-phone category, which includes popular devices such as the
iPhone, BlackBerry and Palm Pre.
"We believe smart phones represent one of the most attractive
secular trends in technology, given our projected long-term
compound annual growth rate of 18%," lead wireless analyst
Kulbinder Garcha wrote in his report.
But the growth will not benefit all players equally. Garcha
downgraded Nokia (NOK) on worries that the world's largest maker of
wireless handsets will not be able to hold onto its market share,
given challenges with the company's software platform and strong
competition from new players.
Research In Motion (RIMM) and Motorola (MOT) were upgraded to
buy ratings in the same report. The broker also left its buy rating
on Palm (PALM), which is expected to benefit from a new operating
system launched this year.
Apple (AAPL) - maker of the iPhone - is covered by the broker's
IT hardware analyst, but currently carries the equivalent of a buy
rating.
"We conclude that secular share gainers will be Apple, RIM, and
possibly Palm," Garcha wrote. "Nokia's 45% smart phone share is
likely to decline given slow progress in software and services, and
other vendors, including HTC, LG, Samsung and [Sony Ericsson],
could struggle due to less focused software strategies and weak
distribution."
Winners
Credit Suisse believes unit shipments in the global smart-phone
market are likely to grow by 11% this year and 19% next year.
The broker believes the total addressable market for smart
phones is 1.5 billion units - leaving the market less than 22%
penetrated at present. The corporate market is only 7% penetrated,
the report found.
The opportunity in the corporate market was a big reason for the
broker's improved view of RIM. The company's line of BlackBerry
smart phones has proven to be especially popular with corporate
customers, due to security and management features.
"We believe RIM's global corporate smart phone share of 63% in
2008 is sustainable in the near term given switching costs and
RIM's tried and tested enterprise functionality," the report
read.
Motorola was a surprise pick, given the company's troubles in
its handset business. But Garcha expects Motorola will be able to
turn around its performance with improvements in the business -
which includes a new line of smart phones based on Google's Android
operating system.
The first of those devices are expected to be unveiled next week
at an event in San Francisco.
"The company has clearly articulated a multiple chipset sourcing
strategy and an OS strategy centered on Android," Garcha wrote.
"While a focused product strategy, coupled with the company's
distribution and brand should allow Motorola to increase
smart-phone share from 2% in 2008, questions remain on Motorola's
implementation of Android, as well as the company's services
strategy."
Palm remains at an outperform rating. The company launched its
new Pre smart phone earlier this year with a new operating system
called webOS. Garcha believes the system will become a successful
platform for future models, but noted that the company's product
cycle "is still in the early innings."
Losers
Credit Suisse said Nokia is likely to retain a dominant position
in the cell phone market in the coming years, but the company risks
losing market share.
In particular, the broker pointed to challenges with Ovi --
Nokia's mobile Internet service -- as well as the company's Symbian
operating system, which it said "still lacks the quality or the
look and feel of several competing devices."
For Sony Ericsson, Garcha said that because of the company's
"unfocussed software and product strategy, weakening brand and
undifferentiated services offering," its smart-phone market share
will likely remain in the 1% range next year.
Garcha also downgraded Qualcomm (QCOM) to a neutral rating.
Qualcomm makes chipsets for wireless phones and develops CDMA
technology, which it licenses to other manufacturers. The broker
said the company's CDMA technology still faces strong growth
potential, but the stock lacks any near-term catalysts to push it
higher.
-By Dan Gallagher, 415-439-6400; AskNewswires@dowjones.com