The Wireless War - Who Will Win?
Monday, November 19, 2007 | Wayne MulliganRating:
There are well over two billion wireless subscribers worldwide.Compare that to only 1.2 billion internet users.
Yet, only very few websites and applications work on mobile devices.
Do I smell an opportunity for someone to make a lot of money?
You bet I do!
What we have here is an explosive situation on a global scale – even in the U.S., there are 10% more people with cellular phones than there are people who access the web.
So whoever figures out how to dominate this space will essentially become to mobile phones what Microsoft was to PCs – and could make investors some handsome profits in the interim.
As I see it, there are three main contenders:
Microsoft (Nasdaq: MSFT) with its WindowsMobile operating system.
Research in Motion (Nasdaq: RIMM) which makes the ubiquitous BlackBerry (or, as I like to call it, the “CrackBerry” due to its addictive nature) device.
And while I wouldn’t have added this next company to this list last year, this year it makes all the sense in the world to do so. And that company is none other than ... Google (Nasdaq: GOOG)!
Here’s why ...
Google recently made two major announcements:
1. The company has entered into a partnership with dozens of the world’s leading mobile phone makers and mobile service providers. The plan is to launch a standardized, open source operating system for mobile phones, Now let me explain what that means in plain English.
Essentially Google wants to create a system that will allow richer and more valuable web and software applications to run on peoples' cell phones. They also want to make the system as cheap and scalable as possible, so they’re developing it based on Open Source technology. Open Source technology is basically software that is built by thousands of disparate programmers which theoretically adds to its reliability, scalability and ability to adapt to new environments. In a nutshell, it has the potential to be a product superior to that which any single company could create alone.
What does this mean for Google?
Well, first off, it means Google can now serve more advertisements – which is its core business, after all. On a platform as large as the mobile market, we could one day see Google’s ad revenue from mobile advertisements surpass its traditional web-based sales.
And while the stock may look expensive at over $600 per share, a few years from now that might look cheap compared to what the stock could do if Google’s wireless plans work out.
2. The second thing Google is doing is getting together a $4.6 billion war chest so it can bid in the wireless spectrum auction in January.
Again, to explain this in plain English, your cellular phones work much like radios do. You have an antenna that broadcasts data through a particular frequency. Mobile carriers have to own the frequency they want their calls broadcast through – so Google is ramping up to purchase a large swath of long-range wireless frequencies ... the type you’d buy if you were planning to launch a national wireless network.
So Google is not just preparing to partner with major wireless companies, it’s planning on becoming one on its own.
Considering US Wireless carriers did over $96 billion in revenue last year, Google is going to be playing in a very lucrative playground.
This won’t be an easy fight, however. Like I said before, Google will still have Microsoft, RIM and a handful of other heavy-weight competitors to go up against.
But it’s not like Google isn’t used to being an underdog. And by putting down a bet this big, rest assured the Mountain View company is sharpening its knives, loading its guns and getting ready for a Wireless War!
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Wayne Mulligan
Contributing Editor
The Tycoon Report
Tuesday, November 20
8:30 - Housing Starts (for October): Consensus 1160K, Building Permits (for October): Consensus 1190K
Big Picture: Housing starts reached a 14-year low in September, with no sign of the fundamentals (housing demand) needed to turn the direction over the intermediate term. The plunge has been a large drag on economic growth, as further risk surrounds the defaults coming from sub-prime and other mortgage borrowers. Q2 starts were slightly stronger than Q1, but the Q3 plunge showed acceleration. The upturn could be a long way off, mid 2008 may be optimistic. The correction for the inflated housing market was expected (and needed) but with a more moderate decline. Stability will have to wait for new home sales to begin to tick higher and a smaller supply of unsold inventory.
Implications: Housing Starts are a measure of the number of residential units on which construction is begun each month. A start in construction is defined as the beginning of excavation of the foundation for the building and is comprised primarily of residential housing. Building permits are permits taken out in order to allow excavation. An increase in building permits and starts usually occurs a few months after a reduction in mortgage rates. Permits lead starts, but permits are not required in all regions of the country, and the level of permits therefore tends to be less than the level of starts over time.
Wednesday, November 21
8:30 - Initial Claims (for 11/17): Consensus NA
Big Picture: Weekly initial claims can be volatile as recent movement suggests some easing in the tight labor market. Layoffs (seen in initial claims) have risen modestly as hiring (seen in continued claims) has turned higher since the highs in August. Claims provide a nearly real time read on layoffs and the labor market as the low 4.7% unemployment reflects the broader combined read of layoffs and hiring. A level above 350K for claims is worrisome as a 375K level would signal a potential recession. We're nowhere near there.
Implications: Initial jobless claims measure the number of filings for state jobless benefits. This report provides a timely, but often misleading, indicator of the direction of the economy, with increases (decreases) in claims potential signaling slowing (accelerating) job growth. On a week-to-week basis, claims are quite volatile, and many analysts therefore track a four-week moving average to get a better sense of the underlying trend. It typically takes a sustained move of at least 30K in claims to signal a meaningful change in job growth.
10:00 - Leading Indicators (for October): Consensus -0.4%
Big Picture: Six monthly declines in 2006 reflect the weaker economy last year, as do the five declines over the first nine months of 2007. But the six-month growth is flat, as the last three-month string of declines was back in 2001. Over the last 17 years, the index correctly signaled the 1990 and 2001 recessions while providing a false signal during the 1995 soft-landing. The recession alarms go off when the cumulative six-month decline exceeds -1% amid a string of three or more consecutive monthly declines. No recession warning bells yet and none expected.
Implications: The Leading Indicators report is, for the most part, a compendium of previously announced economic indicators: new orders, jobless claims, money supply, average workweek, building permits, and stock prices. Therefore, the report is extremely predictable and of very little interest to the market. Though this series does have some predictive qualities, it is a common criticism that it has predicted "nine of the last six" recessions.
10:00 - Michigan Sentiment-Rev. (for November): Consensus 75.0
Big Picture: The push to a two-year high in January was largely tied to the drop in gasoline prices. The housing recession, troubled financial markets and rising energy prices since January have pushed the index down 23% since to the lowest level since the devastating Gulf Coast hurricane in October 2005. The index is now below the low point during the 2001 recession. The University of Michigan survey is significantly smaller (500 phone calls, just 250 in preliminary) than the Conference Board's, includes a longer outlook (for expectations) as questions are focused on the household compared to the business-heavy CB survey. The index far better tracks the consumers' mood than spending habits better indicated through interest rates and income growth.
Implications: The Michigan index is almost identical to the Conference Board Consumer Confidence index, though there are two monthly releases, a preliminary and final reading. Like the Conference Board index, it has two subindexes -- expectations and current conditions. The expectations index is a component of the Conference Board's Leading Indicators index.
Source: www.Briefing.com
