The Smartphone Revolution is Here


Apple received 600,000 advance iPhone orders on the first day customers could sign up to receive the iPhone 4, and it has recently seen strong demand for its new product - the iPad.

Tech companies are always coming out with new products, and the rate of technological advancement is only increasing. Nowhere is this more apparent than in the smartphone industry.

There was once a time when you saw only businessmen and wealthy individuals using smartphones. But now they are becoming more accessible to the average person - and are stealing market share from basic cell phones as features such as music, video streaming and web browsing become increasingly more attractive to the general public.

***As of the fourth quarter of 2009 more than 20 percent of the mobile-phone market was taken up by smartphones. Analysts at Nielsen, a market research firm, predict smartphones will overtake feature phones before the end of 2011.

Whether or not smartphones become the dominant player in the mobile market by the end of 2011, the strong trend toward these devices is undeniable. Consumers want phones that let them listen to music, surf the web, watch video, and access a wide array of applications. Maybe even occasionally make a call or two.

There is, however, a dark-side to this smartphone revolution. The web-browsing, video-watching, Pandora-streaming mobile devices devour bandwidth. Bandwidth refers to the data transfer rate on a network, and these little machines consume huge amounts of it. That wouldn't be a problem if providers could deliver unlimited data. But providers can't - so bandwidth is becoming an increasingly scarce resource.

AT&T ( T ) is the provider of choice for smartphone companies like Apple and Research in Motion (Nasdaq: RIMM) , maker of the Blackberry device. As such, AT&T's successes and failures foreshadow what the entire industry will soon experience.

The company is desperately trying to update its infrastructure to accommodate the massive bandwidth demands of customers. It's fighting a losing battle, as AT&T is being attacked on two fronts.

There is a literal fear of network collapse among mobile providers, and they're scrambling to find a solution.

***I recently uncovered a tiny Israeli technology company that develops technology specifically designed to manage bandwidth use. The company's solutions are critical for Internet Service Providers ( ISP ), cable companies, landline operators, mobile phone companies, businesses and governments.

I just pulled the trigger and added this small cap stock to the Small Cap Investor PRO portfolio . What's more, the company just reported earnings, and shares moved higher yesterday - despite the broad weakness in the market.

In the first and second quarters of 2010, this tiny tech company reported greater than 30 percent revenue growth over the comparable quarters in 2009. It is profitable on a non-GAAP basis, and is sitting on $55 million in cash.

This is a great investment opportunity and you can get my full research report on the company when you sign up here .

***As more people use smartphones to listen to music, watch videos, or surf the web, companies are trying to accommodate the massive bandwidth demands of its customers. Bandwidth refers to the data transfer rate on a specific network, and these tiny devices eat up large amounts of it.

There are a few caveats to consider before investing in this space. The big one is that bandwidth segmenting technology has its enemies. The technology plays a pivotal role in the United States' net neutrality debate.

The idea of net neutrality is that all customers should have equal access to bandwidth, and all should pay the same rate for the same service. Service providers disagree. They think bandwidth hogs should have to pay more since they consume more. These bandwidth consuming individuals (or firms) make the overall service more expensive, which providers claim is unfair.

The bottom line is this: the book is not closed on net neutrality, nor will it be for some time, if ever. The debate could hold bandwidth management firms from moving drastically higher, especially if they have large exposure to the U.S. market where the FCC is still debating net neutrality. But this is not the case in many overseas markets, and companies with a solid foothold in the market are unlikely to see their stocks fall dramatically. In other words, I believe there is more upside potential with companies like the one I recently recommended than downside risk.

***This company is a play on the future growth of smartphones, and the near certainty that service providers will segment bandwidth in order to design service plans tailored to customer behavior. What's more, this tiny company is certainly a potential takeout candidate and management has shown an ability to orchestrate acquisitions in the past. Investors should expect solid gains with this low-beta micro cap, although intra-day price volatility will be high due to poor liquidity.

If you're interested in getting my full research report on this company, I encourage you to sign up for a trial subscription to Small Cap Investor PRO . The service is only $199 a year and I offer a 30-day money back guarantee. Click here to get started today.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: ISP , T

Wyatt Investment Research

Wyatt Investment Research

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