The great Google-Nokia-Apple war

By Jim Jubak

When it's finally all over -- when housing prices stop falling, when banks stop taking $10 billion losses, when the stock market bear growls its last growl -- investors suddenly will notice that the technology battle that counts is Google (GOOG, news, msgs) vs. Nokia (NOK, news, msgs) vs. Apple (AAPL, news, msgs).

The very existence of this battle will come as a surprise to too many investors. Fixated on the Fed, mesmerized by mortgages and infatuated by inflation, investors have by and large ignored the significance of the game-changing moves from Google, Nokia and Apple.

But the battle isn't news to technology companies themselves. Look at the fast and furious launch of Atom, a new low-energy microprocessor from Intel (INTC, news, msgs), or the TouchSmart generation of touch-screen PCs from Hewlett-Packard (HPQ, news, msgs).

Both product lines represent an effort by a past leader to remain a significant combatant in the new tech struggle. These companies know the sector is undergoing a seismic shift that's likely to result in a new generation of technology dominated by so-called near computers, devices that deliver much of the power and functionality of a PC but in a package that more closely resembles a phone or an iPod than a conventional laptop computer. The move to near computers also will again reconfigure the relationship between software and hardware -- this time, it appears, in favor of companies that can put the two together into a cool, user-friendly whole.

Market bellwethers

Woe to the investors who come out of the current bear market thinking that all they have to do to start making money again is load up on the old leaders. It just doesn't work that way. Think back to the last bear market, in 2000-02. Many of the leaders of the stock market and economy in 1999 still haven't regained their footing, nor do they seem likely to -- ever. Still holding on to Nortel Networks (NT, news, msgs) or Alcatel Lucent (ALU, news, msgs)?

The process is by no means limited to the technology sector. This time around we'll see upheavals in banking, energy and retailing turn champs into chumps and set sector crowns firmly on new heads. But right now the process seems most clearly visible in technology. So understanding the Google-Nokia-Apple war is a chance to see where you can make money in the technology sector and develop a strategy for building a post-bear portfolio in other sectors.

Here's my guide to the new battle in technology. The easiest place to start is with the avalanche of news from Nokia in the past nine months:

• In October, Nokia inked a deal to buy digital mapping company Navteq (NVT, news, msgs) for $8.1 billion.

• In January, the company acquired Norway's Trolltech, a maker of tools that let software developers target multiple operating systems from a single database.

• In June, Nokia bought Germany's Plazes, a social-mapping service that links users by activity and location.

• Later that month, Nokia announced that Warner Music Group (WMG, news, msgs) would join Universal Music Group and Sony BMG Music Entertainment as providers for its all-you-can-eat mobile music service, Comes With Music. When it's launched later this year, Comes With Music will give cell phone buyers unlimited free downloads of music for a year. After that they can pay for a subscription to continue the service or buy new music a la carte.

• And at just about the same time, Nokia announced it would buy the 52% of Symbian that it didn't already own. Symbian's operating system, while a poor fourth in mindshare in the U.S. market to Microsoft (MSFT, news, msgs), Research In Motion (RIMM, news, msgs) and Apple's software, has a 60% share of the worldwide smart phone market. (Microsoft is the publisher of MSN Money.) Symbian's employees will work for Nokia, but the code will be available to all comers through a foundation that will supply the operating system on an open-source basis.

What's behind all the activity?

Blame it on Apple

In the narrowest sense, it's all about the iPhone and the iPod. Those two devices from Apple have demonstrated how big the market for the new generation of mobile smart phones will be. Apple has said it hopes to sell 10 million iPhones in 2008. That would give the company something like a 1% share of the mobile phone market.

But the prize isn't share of the overall mobile market -- projected by investment bank Cowen to grow 12% in 2008 -- but a share of the much faster growing and much more lucrative smart phone market. The market for these advanced phones -- boasting operating system software that lets a user access a raft of programs based on full Internet connectivity, location mapping and navigation, and social networking -- is still relatively small at just 11.5% of the total handset market in 2007.

But Cowen calculates that smart phone sales will grow 44% in 2008, 48% in 2009 and 43% in 2010. By the end of that year, smart phones will make up 28% of the total handset market. And Apple, on current growth projections, will sell not 10 million units but 36 million annually.

Continued: Market shift

 1 | 2 | 3 | next >