Some interesting numbers for technology investors interested in companies that participate in the connectivity ecosystem. Worldwide recession notwithstanding, there are some areas of significant growth which should bode well for companies in several sectors. The NASDAQ has outperformed the Dow index significantly this year, and some of the statistics below may reveal some of the reasons why. During earnings season AAPL, IBM, NOK, INTC, GOOG all beat consensus estimates and all but GOOG (which does not provide guidance) have indicated positive outlooks entering H2 2009. In fact, IBM has increased its guidance for the last half of the year. Investors should expect positive outlooks for both CSCO and RIMM when they report next, although positive outlook may have been priced into these stocks.
Notwithstanding a pause in growth in some areas during H2 2008 and H1 2009, the global march towards greater connectivity continues.
Total worldwide: 1.5 billion or 23.6% of total world population.
Most users: China with 288 million or 22.4% of population.
Regions with greatest penetration: N.A. 62.7%, EU 60.7%
For China to obtain similar levels of connectivity as North America or the European Union, another 500 million or so Chinese users would need to come online over the coming years, requiring massive investments in base infrastructure.
Emerging economies continue to drive internet connectivity growth, but are more likely to leverage fixed wireless broadband infrastructure to compensate for under-built wireline infrastructure. Even still, BRIC countries are likely to represent the vast majority of backbone investment as mega-operators in countries such as China and India continue to lay down the fundamental capacities to support growth in internet traffic.
Total worldwide: 4.1 billion
Fastest growing regions: Middle East 32% CAGR and Africa 24% CAGR over past 5 years.
Basic mobile subscriptions in emerging economic regions are being used as a means by people to get access to basic services including banking. EEFT and First Data, among others, are likely to be vendors providing access to low-cost financial services options.
Mobile data services:
Total worldwide: 225 million
2009 growth rate: 93%
The most compelling growth rates that exist, even in the depths of a major recession, continue to be related to the mobile data services channel. Hence, investors continue to see better than expected results from companies associated with this niche. As stated many times in previous posts, the scale and complexity of the emerging infrastructure should benefit technology companies that supply solutions to this niche. Eventually, all current mobile subscribers worldwide are likely to adopt mobile data services at some point. The current penetration of data services into the mobile subscriber market is still very modest at 5.4%.
As the world continues to become more connected, capacity, capability, energy consumption and security should remain key issues. Worldwide, there should be more investment and innovation in these areas.
The top basket of Canadian stocks to think about in the connectivity ecosystem include: RIM, CGI, BWC, DWI, RCM, WIN, RKN, and TUN. Most of these companies have demonstrated excellent recent earnings performance, sustained and sometime expanding gross margins, with solid balance sheets and low debt ratios. These could represent a pretty good "connectivity" portfolio. Others to possibly consider include ABS, SVC, PIX, Q, and AXX.
I have probably overlooked a few key favorite stocks, feel free to add.
Disclosure: I own CSCO and BWC. I do not own any of the other stocks mentioned.