How Investors Can Profit From Rapid Growth in Mobile Space

March 9, 2015 • Analysis • Tags: , , , ,

Mobile World Congress 2015

This past week, more than 2,000 companies showcased the latest cutting-edge technology at Mobile World Congress 2015 Conference in Barcelona. Tech executives from the world’s most influential companies attended, including Facebook, Cisco, Vodafone, Mastercard and Qualcomm, to name a few. With the conclusion of the congress, there is bound to be a pickup in M&A activity as companies materialize the initial discussions. Luckily for you, two of our premium picks happen to be in this rapidly dynamic environment.

Future of Mobile: Emerging Markets Driving Growth

Half of the world’s population now has mobile subscription—up from just 20% a decade ago. According to GSMA, this figure is expected to increase to 60% by 2020. The majority of this growth will be coming from emerging countries as 3G and more advanced networks further penetrate. To give you an idea, the most advanced LTE/4G networks reach only 26% of the world population, of which 23.5% are within developed markets. Deployments of mobile technology in Latin America and Asia Pacific will be significant growth drivers for technology companies over the next five years.

Recent Consolidation Will Spill Over Into Coming Weeks

M&A activity in the industry picked up during the week and it’s expected to continue. Cisco CEO, John Chambers, discussed the tech giant’s acquisition efforts toward purchasing small-midsized software companies. We think Radcom (RDCM), which is up over 60% since our coverage, could prove to be a sensible target for Cisco given their high margined business and the release of Cisco’s Mobility IQ. Mobility IQ is Cisco’s comparable analytics solution software to Radcom’s MaveriQ.

For more information on the potential M&A activity between Cisco & Radcom, read our latest insight piece HERE.

Other acquisition news included:

  • HP’s $2.7B purchase of Aruba Networks to boost share in the WLAN market as more employees are accessing work systems through wireless devices. HP is hopeful Aruba can help in gaining a larger piece of the networking business market share from leader Cisco.

 

  • Canadian telecom services provider Mitel entered into an agreement with mobile networking software maker Mavenir for $560M. Mitel is looking to take advantage of the 4G/LTE explosion by acquiring a Voice-over-LTE (VoLTE) and Voice-over-WiFi (VoWiFi) pioneers. These high growth technologies repackage voice calls as data and transmit them over carriers’ high-speed networks. Thus, benefits include clearer conversations, more efficient network usage and cheaper long distance calls.

The Mavenir deal was especially eye-opening because of the implications to one of our top 2015 picks, Radisys. Radisys is a technology partner to Mavenir, which received a 4.5x P/S offer from Mitel. Radisys is expected to be a beneficiary of VoLTE growth, and as a result projected software revenues to show 10% to 20% top line growth in 2015 and north of 20% in 2016 and beyond. Yet, Radisys is valued at 11.5x forward P/E and 0.5x 2015 sales. Clearly, the market is overlooking this up-and-coming player.

Read why we’re so bullish on Radisys HERE.

The fall in overall hardware sales, reliance on software to meet the demand for wireless connections and faster speeds will all contribute to a wave of acquisitions in the cloud space. Mobile carriers will utilize software base products to run networks rather than traditional hardware. This virtualized shift will ignite a consolidation in the ever growing mobile field.

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