Don't Be Fooled by 3G Tech Flukes
Underneath all the phone service providers vying for mobile phone customers with 3G or 4G networks are the companies that are actually building and developing the platforms, and it's important to know who has staying power and who is a flash in the pan, writes Paul McWilliams of Next Inning Technology Report.
Q) As you probably know, Spreadtrum Communications (SPRD) is making a significant amount of noise about their 3G TD SCDMA design wins, while Wall Street is seeing the market as quickly commoditizing. What do you think?
A) Wall Street often falls in love with Chinese-based companies it doesn't understand. That was the case last year when the hype, and what I thought was SPRD over-stating its case, pushed SPRD's price into the $20s.
However, after the price dropped to $14.51, I wrote in an April 30 earnings preview that there was (at the time) room to speculate in SPRD for a "short-term trade," and that I thought there was a good chance for a 30% upside.
Following that, SPRD rallied to a high of $19.75 (a 36% gain) before falling back to trade more recently in the mid-$17s. Hopefully any readers who decided to speculate on SPRD last April exited when it hit my target of $18.86 (the 30% upside).
SPRD built very substantial traction in the feature phone market. competing mostly against MediaTek and, to a lesser extent, against MStar—both Taiwan-based companies. It has since extended its reach into high-end feature phones and has won some (as best as I can tell: not very many) low-end smartphone designs.
As you would expect, SPRD competes mostly on price.