iPhone snafu signals smartphone surge

Booming sales and constant competition on data side will send this telecom fund soaring in 2010.

By Louis Navellier Dec 29, 2009 5:48PM

Louis NavellierWith retailers desperate to sell anything for a year now, can you believe that online sales of Apple's (AAPL) iPhone were actually halted to customers in New York City?

 

Crazy!

 

Apparently, the network of the iPhone's exclusive carrier, AT&T (T), has had trouble meeting the massive data demands caused by folks who do much more than talk on smartphones. When this turned into a media flap, AT&T quickly resumed sales. (Read the story in Market Dispatches.)

 

This is a huge PR headache for Apple and AT&T. It also highlights a huge opportunity for investors. Consumers are not curbing tech spending when it comes to getting connected.

 

I was very bullish the iShares DJ US Telecommunications Sector Index Fund (IYZ) before these developments, but now I'm even more certain this ETF is going to really take off in 2010. Here's why.

 

Telecommunications service companies are about to see big business as cell phone carriers upgrade 3G coverage and forge ahead with 4G network plans. That's because iPhone users -- and all smartphone and mobile data device owners -- eat up bandwidth with their gadgets at a rate older networks can't keep up with. There's simply not enough room for all that data to be moving around.

 

In the wake of the iPhone snafu, competitors like Verizon (VZ) are having a field day mocking service interruptions and poor coverage. But the reality is that it's only a matter of time before Verizon, Sprint Nextel (S) and the like are crippled by similar demands from the next generation of smartphones. People are still calling and texting at a steady clip, but they are also surfing the web, sending email attachments, streaming video and anything else their hearts desire. These smartphone owners are using their handsets just like computers, only they're using a network designed mainly for phone calls.

 

Here's where my iShares ETF comes in. Not only do this fund's components include the carriers Verizon, Sprint and AT&T that are benefiting from booming smartphone sales, it also includes the stocks that upgrade networks, install new towers and make sure that data service is running smoothly.

 

As more customers start using high-data applications, carriers will be forced to spend big bucks to keep a high quality of service. After all, many AT&T customers have become subscribers simply because of the exclusive agreement with Apple and its iPhone. If the high-tech gadget stops living up to these folks' high expectations, they won't hesitate to switch providers. This constant competition to provide the best data service to the public ultimately helps consumers -- and helps the companies that are in the business of upgrading networks and erecting new towers.

 

If you want to play this boom, I highly recommend the IYZ telecom fund. Its diverse component stocks are perfectly suited to cash in on the smartphone surge in 2010.

 

And for more sector-based funds that allow you to zero in on the biggest opportunities without putting all your cash in just a few individual companies, read "3 Top ETFs for 2010" now.

 

At the time of this writing, Louis Navellier owned shares of AAPL, T and VZ in personal or client portfolios.

 

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