Tech Smashing for Big Profits

You may take it for granted, but it’s a small miracle.

There are hundreds of millions like it, but the one you’re holding is yours.

I’m talking about your smartphone, the device you’re probably using to read this right now.

Dictionaries, encyclopedias, newspapers, maps, notebooks, voice recorders, cameras and camcorders, paper money and credit cards, radios, walkie-talkies and land phones, clocks and watches and many more things have been replaced or can be replaced by your smartphone.

It’s the electronic equivalent of a Swiss army knife.

No one person can assemble a smartphone from start to finish. From the C-level office suites to the factory floors, it takes the work of thousands — actually millions — to make this pocket-sized miracle. That’s pretty incredible.

Take the popular iPhone, for example. Its story began with a design team in California’s Bay Area. Years of research and development coalesced around the final design that would become your phone.

The team that built your phone is doing so on knowledge that has been accumulated over many years all over the world. We all stand on the shoulders of those who came before.

Engineers and scientists working over decades in places like Massachusetts and the United Kingdom laid the foundation for the phone you use today.

To do this, they used the ultimate resource: imagination and the power of the human mind.

But smartphone growth is slowing. Innovation lacks in this market. I’m looking for companies that can profit from the new growing tech trends — things like augmented and virtual reality, as well as smart and autonomous cars. These trends have outpaced anything the smartphone has done in years.

Until now.

I’m going to show you new ways you can profit from the latest smartphone innovations — and you don’t have to buy a company like Apple to do it. No, instead, we’re going to smash the smartphone wide open to reveal where the real profit opportunities are.

And it all starts with the earth. Dust, dirt, minerals and metals. The millions of people who made your phone transformed raw resources — the stuff the planet is made from — into one of the most complex products ever made.

And that’s where the real profits lie…

Big Opportunity From Tiny Specks in the Ground

Your phone is comprised of different natural materials from all over the world.

One of the most important materials used in your phone, silicon, came from a quarry in the ground — maybe from North Carolina’s Blue Ridge Mountains.

Although it’s the second-most-common element in the planet’s crust, only some locations have a quality good enough for making chip-grade silicon.

Even then, it takes hundreds of steps to transform what’s basically sand into a silicon wafer that can be used to make a complex computer chip like your smartphone’s CPU. By the time the raw material is transformed and ready, it can cost more than $50,000 per ton.

That CPU can contain billions of transistors, intricately arranged in microscopic patterns to the specifications of the chip’s design — using fabrication equipment capable of accuracy down to billionths of a meter. They order materials containing elements like arsenic, antimony, boron, gallium and phosphorus.

That CPU in your phone isn’t manufactured in California or North Carolina, however. It’s probably made in Taiwan in a giant chip fabrication facility that cost billions of dollars to build — or maybe a different multibillion-dollar plant in a place like Singapore, Texas, Oregon or South Korea.

The all-important battery in your phone uses lithium to store energy. That lithium might have been mined in Bolivia or Nevada. Like silicon, this element has to go through a lengthy process from dirt to device. The lithium is combined with cobalt mined in Congo.

More than a dozen rare earth metals, mostly mined in China’s east, are also needed to make your phone. They have the critical electrical properties necessary to make your phone’s functioning possible.

There’s indium for the touchscreen, as well as others like yttrium and scandium. Neodymium’s magnetic properties make it ideal for speakers, microphones and tiny vibrating motors. The rare earth deposits aren’t hard to get to, but the process of making them yield a pure and useful product is.

Overall, the raw materials bill calls for over five dozen different elements for the phone’s various components. To put that in perspective, the periodic table of the elements has only about 80 stable elements — your phone uses more than three-quarters of them to work.

There’s the protective case, which might be made of aluminum mined from an Australian bauxite deposit. If it’s carbon-based plastic, then it was made from oil that might have been wrested from the ground in North Dakota.

The camera’s outer lens might be made of a hard sapphire sheet — synthetic but almost as hard as diamond.

There’s the LCD screen, and its touch-sensitive layer is glass — more silicon. And not just any glass… a specially tough and scratch-resistant glass that might have been made in Japan but was originally invented in New York state.

Gold, tungsten, silver and copper are needed to connect the various components to the main circuit board. These include modems, sensors, memory chips, power circuits, switches, radio-frequency circuits, antennas, microphones, speakers and many more. And they are all finally assembled in a huge factory — probably in China.

The original smartphone team didn’t necessarily come up with the original design for all of these components — but they had specifications for this device’s many parts. The actual implementation of these specs is handled by dozens and even hundreds of other innovative firms.

The iPhone, for example, can’t be made without the know-how of over 200 suppliers.

It took millions of people from all over the world peacefully cooperating through trade and markets to make your phone. Perhaps only a few of them gave thought to something beyond their own personal benefit… but each added a little value to the final product you hold, and received some in return.

But it didn’t just take cooperation — it also took competition.

Huge Smartphone Catalyst on the Horizon

The battle to get a design win in a popular smartphone — like the iPhone — can be fierce. Electronics companies pour billions into research and development to come up with the most powerful designs.

Designing a winning component can be make-or-break for a semiconductor company — but the road can pave the way to huge revenues and big profits. The next iPhone — Apple’s 10th-anniversary model — is expected to be scheduled for release this September.

Some tech companies are proud to share their progress as they work on new designs and get them ready for the market. Apple, however, holds its cards close to its vest — the company is notoriously secretive. It keeps new products under wraps until it releases them in grand fashion.

The original iPhone was revolutionary and created the modern smartphone market — but every model since has been an iterative improvement rather than a quantum leap.

The new iPhone, however, is rumored to be unlike any we’ve ever seen from the company before. As in the past, the new phone will, of course, feature more powerful chips, denser memory and a better display.

But among the rumored new features are an all-glass body with an edge-to-edge screen as well as wireless charging — something users have been clamoring for. The new phone might also include features like a 3-D camera as well as iris, facial and gesture recognition.

Another revolutionary feature of the next iPhone might be the price — $1,000 or more for a flagship model. And analysts expect it to sell over 120 million units — a record for the company.

Of course, many Apple fans will want the latest and greatest tech, but the timing of the 10th-anniversary iPhone is also expected to coincide with a window of time in which millions of existing users will be due for an upgrade.

This could translate to success for Apple — but also for tech companies supplying one of the hundred key components that go into an iPhone.

And the beauty of investing in these tech companies is that they can also sell into the broad smartphone market. Being “good enough” for Apple’s latest creation means a tech edge, something competing smartphone-makers will want in their own products as they try to “catch up” to the Cupertino trendsetter.

When it’s all said I and done, the companies behind the trends are where the real big profits are.

And the smart play in the smartphone craze is looking at the companies that are the nuts and bolts behind smartphone innovators like Apple’s iPhone.

To a bright future,

Ray Blanco

The Daily Reckoning