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Mobile Web Stocks Have Had Better Weeks

26 April 2013 in Trading Ideas

Remember the sure thing that was hyper-growth in the mobile Internet sector?

It sure was fun while it lasted.

Of course, for shareholders of Apple, the fun stopped some time ago, as investors have watched the former can’t-miss stock drop nearly 24% already in 2013. Those wishing for warm fuzzy feelings from the company’s quarterly profit report late Tuesday had to hang their hopes that a boost in the company’s dividend was going to be ample compensation for what appears to be shrinking margins and a slowdown in one of the company’s franchise products.

As Henry Blodget pointed out this past week on Business Insider, Apple has been endeavoring to compete on price with its iPhone as the smartphone becomes commoditized by an increasingly saturated market. But this means the average selling price is declining.1

What’s more, with iPhone sales growth falling to just 7% in the past quarter (whereas a year ago it was more than 80%), Apple is finding that sales of lower-margin iPads have a bigger impact on overall margin, which, as noted, is falling.

This falling-average-phone-price phenomenon was echoed by mobile semiconductor maker Qualcomm in its earnings report late Wednesday after the company said that its current-quarter profit could be below some analysts’ expectations, according to Bloomberg.2

Qualcomm said that the average selling price for phones that use the company’s chips may fall short of prior projections, due to growth in markets that favor cheaper phones.

These two tales are no coincidence: Qualcomm licenses its technology to Apple and other phone makers, so it makes sense that there’s somewhat of a parallel experience. As Bloomberg reported, emerging markets contributed greatly to Qualcomm’s 28% jump in quarterly revenue – but also to its decline in operating margin to 17% from 26% just three months earlier.

For its part, Apple slashed the price of its iPhone 4 in China, which Blodget contends is evidence of the reality that smartphone market growth has moved to poorer emerging countries – and out of developed nations.

The Mobile Internet Tsunami motif, which is weighted by more than 45% by shares of Apple and Qualcomm, is down 3.3% in 2013 and has gained 2.6% in the past 12 months.

The silver lining for investors, if there is any, is that these glum profit reports – joining those by big-cap tech names like Yahoo, IBM and AT&T – haven’t resulted in any serious underperformance by tech stocks since the beginning of earnings season.

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1Henry Blodget, “These Two Charts Show Why Apple’s Stock is Collapsing,” Business Insider, April 24, 2013, http://www.businessinsider.com/two-charts-show-why-apple-stock-dropped-2013-4.

2Ian King, “Qualcomm Forecasts Profit That May Miss Some Estimates,” Bloomberg.com, April 24, 2013, http://www.bloomberg.com/news/2013-04-24/qualcomm-profit-forecast-misses-some-estimates.html