CanaccordGenuity on CES: 4G tablets and high-end Android smartphones for 2011

Our friends at the Equity Research group of CanaccordGenuity have just returned from the CES show in Las Vegas. Here’s a summary of what they saw and heard:

CES highlights: 4G tablets and high-end Android smartphones for 2011

Investment recommendation

We hosted several meetings at CES, and OEMs launching high-end Android smartphones and Android 3.0-based tablet launches in C2011 were key themes. While we were impressed with new high-end Android smartphones and tablets from Motorola Mobility, Samsung, and other OEMs, we believe consumers will benefit from the increased competition, whereas OEMs may struggle to differentiate Android product offerings. Based on our expectations of strong smartphone and tablet sales in C2011, a longer-term 4G upgrade cycle and ramping M2M sales, we reiterate our BUY ratings on large-cap top picks Apple and Qualcomm and small-cap top picks Smith Micro and Sierra Wireless.

Investment highlights

Apple — solid catalysts in H1/C2011 : While Apple was not present at CES, we anticipate the iPad2 will launch in H1/C2011 and a CDMA version of the iPhone4 will launch at Verizon in February. In fact, Verizon announced a special press event in New York on Tuesday, Jan. 11, when we expect the CDMA iPhone4 announcement.

Qualcomm — Android momentum positive: A common theme at CES was high-performance Android-based smartphones and tablets launching throughout C2011, including devices with dual cores and 1 GHz processors. Further, all four leading North American carriers announced aggressive 4G plans for C2011. Qualcomm should benefit given its leadership position in HSPA+/LTE. Overall, we anticipate ramping 4G network deployments and the continued strong global demand for smartphones/tablets should drive strong QTL licensing revenue growth and strong QCT sales growth.

Smith Micro and Sierra Wireless — remain top small-cap picks for C2011: We anticipate a solid 4G upgrade cycle throughout C2011. In fact, we believe Sierra Wireless should benefit from sales of 4G mobile hotspots such as its Overdrive at Sprint and LTE solutions for AT&T in H2/C2011. Smith Micro should benefit from connectivity sales as customers upgrade data cards from 3G to 4G at carrier such as Sprint,
Verizon, and AT&T during C2011 and C2012.

Motorola Mobility and Novatel announce strong products: While both Motorola Mobility and Novatel Wireless had strong product announcements, we maintain our HOLD ratings due to these stocks trading near our price target and due to both companies’ customer concentration with increasingly competitive Verizon Wireless.

MRM