If your portfolio stops at Google, Apple, and Samsung, you could be missing out on some big profits in tech.
What about the companies that supply the microchips that power devices? These chip companies stand to profit no matter who owns the dominant share in the tablet or smartphone markets. Forget the Apple versus Google debate – these firms supply to both!
Which chip companies have the brightest future? Let’s take a look.
A decade of dominance
When most of us think computer chips, we immediately think of Intel Corporation (NASDAQ:INTC), the world’s largest chip maker by revenue. Intel Corporation (NASDAQ:INTC)’s revenue totaled $53.3 billion in 2012, down slightly from $54 billion the year before. Intel Corporation (NASDAQ:INTC) designs and builds the chips that power more than 85% of PCs on the market. Intel Corporation (NASDAQ:INTC)’s dominance in the PC industry hasn’t been challenged in recent years – Intel Corporation (NASDAQ:INTC)’s market share is almost unchanged since 2002, when the firm had 86.8% of the market.
However, the problem for Intel Corporation (NASDAQ:INTC) is that the PC market is eroding as consumers shift to tablets and smartphones. In the fourth quarter of 2012, PC shipments dropped an alarming 6.4%, rounding out a 3.2% drop on the year. Then, in quarters one and two of 2013, PC shipments plummeted further by 13.9% and 10.9% respectively.
Still, the worst part for Intel is that the future looks even more bleak. Research firm IDC predicts that shipments of tablets will surpass desktop PCs later this year, and will eclipse portable PCs in 2014. Moreover, IDC predicts that desktop PCs and portable PCs will lose 6.4% and 5.8% of market share respectively in the connected device market by 2017. In contrast, IDC predicts that tablets will gain 5.3% in market share over the same period. Note the down-trending growth projection of the PC market and the uptick for tablets and smartphones.
The shift to tablets and smartphones is a problem because Intel is late to the party. Another firm is already in control.
A long ARM
One of the most dominant companies on the evolving microprocessing market is British firm ARM Holdings plc (ADR) (NASDAQ:ARMH). According to Forbes, ARM Holdings plc (ADR) (NASDAQ:ARMH) controls almost 90% of the smartphone and tablet application processors market. That means that almost every smartphone and tablet on the market runs on ARM Holdings plc (ADR) (NASDAQ:ARMH) technology.
What Intel is to the PC market, ARM Holdings plc (ADR) (NASDAQ:ARMH) is to the mobile market. The only difference is that ARM Holdings plc (ADR) (NASDAQ:ARMH) doesn’t actually make the chips.