Sunday, April 28, 2013

Global, Mobile and Extraterrestrial

Last week, as many global markets continued a multi-week process of positive and negative swings (last week was mostly positive), investors sought to balance generally soft economic data against economic stimulus efforts. Reinforcing the mixed economic environment, Fed Chairman Ben Bernanke said: "While employment and housing show signs of improving for the nation as a whole, conditions in lower-income neighborhoods remain difficult by many measures," and "Substantial coordination and dedication are needed to break through silos to simultaneously improve housing, connect residents to jobs, and help ensure access to adequate nutrition, health care, education, and day care.”

Several major smartphone firms shared their views of the changing dynamics of mobile computing as they reported earnings results. Samsung Electronics, the provider of the Galaxy S3, Note 2 and over 150 other mobile devices, suggested that smartphone sales may be flat for the second quarter and margins may decline. Apple’s revenue growth was in-line with expectations, but earnings growth declined for the first time in about 10 years – management was cautious about the second quarter, but more optimistic about trends in future quarters. Also, Bloomberg News reported that China Wireless Technologies (the number three player in China, behind Samsung and Lenovo) is demonstrating increased sales momentum, particularly in the low end of the mobile market.

Separately, the U.S. space agency NASA sent three smartphones into orbit to determine if these devices can be used as low-cost satellites. The mission, called PhoneSat, uses 2 HTC Nexus One and 1 Samsung Nexus S devices running Google’s Android operating system. Since the launch last Sunday, these devices have been taking pictures of Earth and transmitting the images to amateur radio operators around the world.

  • Regarding global economic weakness – As bullish investors have benefited from the strong positive move in risk assets in recent months, several seasoned investors including Seth Klarman (Baupost), Paul Singer (Elliot Management) and Stanley Druckenmiller (Duquesne Capital) remain cautious about economic fundamentals. In addition, Bernanke’s comments highlight the broadening divide between the haves and the have-nots in our society.
  • Regarding the mobile device market – the decline in Apple’s stock price since last September reinforce how the business dynamic are changing in this market. Increased penetration of the Android platform and demand for lower priced devices in emerging markets, are benefiting consumers while challenging growth investors. Value investors with a good understanding of these changes should benefit from these trends.
  • Regarding smartphones in space – this experiment is another example of how the increasing power and declining cost of smartphones continue to change the computing and communications landscape.

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