- The Washington Times - Friday, May 22, 2009

OPINION/ANALYSIS:

Times of turmoil can make it difficult to keep our heads up and look forward. The last several months have been just that when it comes to the stock market and the gyrations we have seen over not only the last several months but also the last few weeks.

As investors both professional and personal, it’s not difficult to take our eye off the ball and focus on damage control - understanding what is going on with our existing portfolio, what is or is not working, and what to do against a turbulent backdrop. While this is healthy, it also can be a trap. In taking our eye off the ball, we can miss a sea change in an industry that has been slowly building and is poised to take off. One such industry that is on the verge of change is the wireless industry.

Most people associate the wireless industry with cellular phones and to some extent Wi-Fi, though that is beginning to change largely due to the growing presence of smart phones such as Apple’s iPhone and Research in Motion’s BlackBerry. Aside from e-mail and text messaging, these devices, most especially the iPhone, have spurred an entire new business model around applications. In late April, Apple’s iTunes store passed the 1 billion download mark. Not surprisingly, Nokia, Palm and others including some mobile operators such as Vodafone are following suit.

Clearly, how people use wireless services is changing, and it’s not just with mobile phones, although they will be the dominant form of wireless consumption in the near term. Amazon has had very good success with its Kindle, a software and hardware platform for reading electronic books, developed by Amazon.com subsidiary Lab126. Kindle hardware devices download content over Amazon Whispernet using the Sprint EVDO network.

Another aspect of how wireless is being packaged with devices is evident in a number of laptop computer models from Sony, Hewlett-Packard and Panasonic. Each of these companies now offers devices equipped with cell-phone technology that enables the notebooks to access high-speed wireless networks around the globe. What is different now is the technology is embedded into the notebook computers and thus there is no need to add an external air-data card. That also means there is no air card to lose or break. A consumer still requires a contract with a wireless carrier such as AT&T, Verizon or Sprint, but the mechanics of acquiring that “always-on” connectivity are in my opinion far easier than ever.

Another area poised to benefit from going wireless is the field of smart meters, the advanced meter usually for gas or electric that communicates its reading over a network back to the local utility for monitoring and billing.

The American Recovery and Reinvestment Act of 2009 has allocated $4 billion for advanced-metering projects and while not all will use a wireless platform, several utilities such as Southern Cal Edison, Pacific Gas and Electric, and San Diego Gas and Electric have started to do this. Some estimate that there are roughly 2.5 billion meters globally and only 5 percent or so have become automated. To be fair, this is a long-term investment - research firm Gartner expects only about 150 million meters to be upgraded to wireless technology from 2009 to 2012.

The logical question to ask as investors is “who benefits from these more-or-less newfound wireless opportunities?”

On the one hand there are the domestic-network service providers I already mentioned such as AT&T, Verizon and Sprint as well as others around the globe including Vodafone - all of which are publicly traded companies. While that is an interesting play, many of these companies also are involved in landline service. Therefore what they gain in the wireless business, as consumers migrate there, may be offset by those landline losses. Make no mistake, these operators will benefit as these alternative wireless services grow; after all, these devices all need to talk to a network.

In my view, a better way to play this would be along the lines of not betting on the war but on the arms dealer. By that I mean, why bet on which company has the hot device - be it a mobile phone, a notebook computer, an e-book or an advanced meter - when there is the opportunity to bet on those companies that are bringing wireless technology into these devices?

One way to identify these companies is to look for teardown reports, which are reports that simply take a device or solution apart piece by piece and identify its components, technologies and the like.

According to iSuppli, the main application chip in Amazon’s Kindle 2 is manufactured by Freescale Semiconductor, which also powers Microsoft’s Zune and the Ford Sync’s media controls. The Kindle 2 also uses Qualcomm’s wireless module chip and a Novatel Wireless cellular module. Scanning some press releases for those embedded-cellular laptop models reveals that a fair number of them are using Gobi, a global mobile internet solution from Qualcomm. Two companies that are participating in the advanced-meter market include RF Micro Devices and Skyworks Solutions.

In my view this is but one industry that is poised to change and evolve; there are many others that will evolve in a similar way as new technologies are adopted. Broadcasting, entertainment and medicine are some obvious candidates, but they are hardly alone. As investors, we need to examine these changing landscapes to identify the next opportunity and, as always, stitch together our supporting data to make sure it is a real opportunity and not a head fake.

Chris Versace is the director of research at Think 20/20 LLC, an independent research and corporate access firm based in Reston. He can be reached at [email protected] times.com. At the time of publication, Mr. Versace had no positions in companies mentioned, however, positions can change from time to time.

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