Each week, a professionalinvestor tells MoneyWeek where he'd put his money now. This week: Bolko Hohaus, Technology Fund Investment Team, Lombard Odier Investment Managers.
We're living in a golden age for technology investors. Valuations are close to 30-year lows, free cash flows are high, there are two billion new customers in emerging markets, businesses are buying back stock and the likes of Apple and Dell are paying dividends for the first time. But what are the most investable trends?
As mobile devices get more sophisticated, controlling as many components as possible is the best way for firms to keep innovating with high margins. Customer experience is now key to the success of a product, as Nokia's hard-to-use Symbian operating system proved. Fully integrated software and hardware is the essential ingredient for a great user experience.
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That means we're seeing the convergence of consumer technology and mobile computing. This has created two integrated giants, Apple (Nasdaq: AAPL) and Samsung (KS: 005930). Everyone is trying to join them in the rush to seamlessly integrate software, silicon and hardware. Microsoft is trying to get back into the hardware business and Google has bought Motorola's handset business to launch its own range of phones and tablets.
But Apple and Samsung are different. Apple controls both its software and hardware, together with the application processor component. Samsung is even more of a poster child for vertical integration. The Koreans already provide their own screens, most of their own application processors and chips. Their external suppliers are often part owned by Samsung, or their allies. The only element lacking is Apple's software expertise, and Samsung is working on this.
Meanwhile, some businesses are failing to adapt. Intel's chip market is shrinking as Apple and Samsung develop their own. Microsoft's software-only mobile strategy lacks good hardware partners for its operating system. Research in Motion's Blackberry and Nokia missed the importance of software and couldn't compete with Samsung's hardware. HTC may join them as the number of applications for Android and Apple's ecosystems means time has probably run out for other operating systems to catch up.
All this is, in part, bad for tech investors. The investment universe is being swallowed by these giants making component stocks into more of a single stock risk. But it's also an environment benefiting super component' names, such as ARM Holdings (LSE: ARM) in semiconductor design, TPK (TW: 3673) in touch panels, Dialog Semi (DE: DLG) or Audience Inc (Nasdaq: ADNC) in power management and noise cancellation. These best of breeds don't care if it is Samsung or Apple or HTC who win.
Investors also shouldn't underestimate social media stocks. Opportunities exist in firms that encourage consumer interaction. TripAdvisor (Nasdaq: TRIP), for instance, lets customers provide feedback on consumer experiences . It has built a presence in the online travel and leisure sector, which conducts a vast volume of business: 60% of travel bookings in America are now made online.
