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Sal_the_man, tonetone
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FONE - February 18, 2011, 12:40 PM

Will you be investing?

Smartphone ETF: Is it the right way to bet on the smartphone craze? - MarketBeat - WSJ


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February 18, 2011, 03:04 PM

74 holdings? 45% handset makers, 45% software applications/hardware components and 10% providers.

Nope. Not now. I don't like their weighting or their mix. I'd like to see the basket narrowed to ~50 holdings and a heavier ratio put on component manufacturers and providers - something more in order of 40% network provider, 35% component/software manufacturers, and 25% handset manufacturers.

Why? Component manufacturers get long lead orders. The minimum is 90-Days out with a 10% deposit, so regardless if the handset is a success or not their money is on table and guaranteed. They don't make a single part until they have a P.O. Not to mention, I as investor get a forward looking snapshot as to the health of market and forecast for handset based on the purchase orders being put in.

Network providers, their margins are ridiculously fat and that revenue is subscription based reoccurring revenue. Every month you can count seeing an ARPU (Avg Revenue Per User) number that is multiplied by their entire subscriber base minus and churn (people leaving / cancelling) and bad non-paying accounts.

Compare that risk to an equipment manufacturer who eats it when a product is a dud. Has to deal with returned handsets and unsold goods, but more importantly they only get a single sale opportunity every few quarters.

Buy an Iphone or Android - you pay your $300 - and then you're not seen from again for another 14-16 months at a minimum as compared to a Network provider where they are ringing the register for $75-150 every single month.



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