Want to Make Money in Tech? Find the Next Killer Part
Editor's note: Nobody at Stansberry Research has a deeper Rolodex than our own Dave Lashmet.
Dave travels to dozens of conferences, talking to hundreds of industry experts, in search of the next breakthrough technology... life-saving medicine... and devices that make lives safer and better.
You won't find the information he shares with subscribers of his high-end Stansberry Venture Technology research advisory on CNBC or in the Wall Street Journal. As Porter once wrote, "What he has done for investors is simply incredible. I've had many investors tell me they made millions by following Dave's work."
In today's Masters Series essay, Dave discusses the historic rise and epic collapse of camera company Kodak, and explains how it relates to today's smartphone market...
Want to Make Money in Tech? Find the Next Killer Part
Kodak invented the digital camera in 1975.
But its inventor wasn't allowed to publicly talk about it or show his prototype to anyone outside Kodak. The company was afraid the digital camera would eat into chemical-film sales. As the New York Times reported...
Kodak had a virtual monopoly on the United States photography market, and made money on every step of the photographic process. If you wanted to photograph your child's birthday party you would likely be using a Kodak Instamatic, Kodak film and Kodak flash cubes.
To keep digital cameras from going mainstream, Kodak priced its killer tech through the roof. By 1995, a high-end Kodak digital camera cost $28,000.
One year later, the floor dropped out. In 1996, the first digital-camera patents expired. After that, Kodak couldn't stop rival silicon chips.
First, Casio came out with the QV-10, a $900 digital camera with a two-inch viewfinder. And yes, it was buggy. At launch, if the software crashed – even for something as simple as a dead battery – you had to send the camera back to Casio.
By 1997, the bugs were fixed. That year, entrepreneur Philippe Kahn bought and mashed together a QV-10 into a Motorola StarTAC, the most popular mobile cellphone at the time. Then, he did something no camera-user ever had: He sent a picture of his newborn to his friends and family in real-time.
Next, Kahn designed the first camera phone for Sharp. It hit the market in Japan in 2000 and cost $700.
For its time, it was a big seller – Sharp moved more than 100,000 units. More important, it was awe-inspiring: Folks called it "cool," "fun," "helpful," "a joy," and "infinitely useful."
There were only a few negative reviews. Mostly, the critics looked at the limits of this first camera phone, compared with what it might become...
This first-production camera phone had a 110,000-pixel camera and a 20,000-pixel, 256-color display. By today's standards, this is trivial. But portable digital cameras with wireless service didn't need film. Instead, you could take digital pictures and send them to your friends through your phone to their PCs. That killed Polaroid's "spontaneous" photography.
And as cameras improved, Kodak was doomed. Better screens dealt the final blow. When a viewfinder became a perfect picture frame, chemical film died.
Check out this table of growing display resolution in camera phones...
In eight years, screen resolution jumped nearly 10 times. In eight more years, it jumped 10 times again. And the new iPhone XS Max will have a 3.3 million pixel screen.
In other words, what was once a viewfinder became a photographic print.
Today, of course, camera phones are video phones, too. So every phone is its own television studio and 2K television set.
Now, here's what a 100x jump in pixels means for investors...
To make money in tech, find the next killer part.
Kodak ignored where the tech was heading until it was too late. It made billions by licensing its patents to other tech companies, but it ultimately went bankrupt.
What you need to watch is the chips that go inside of the 35 billion smartphones that have been made and sold since 2000.
Thirty-five billion is a lot of anything. For example, it's how many bottles of Coke the world drinks every month. But globally, a Coke is a $0.50 product. New smartphones cost at least $500 on average – or 1,000 times more.
Plus, smartphones require data plans, accessories, and endless software, songs, movies, and video games.
The global smartphone market is approaching $2 trillion. It's worth less in Botswana, more in Japan. The difference is in the towers. Simply put, the developing world uses surplus towers.
But that's changing.
Fifth-generation cell service – or "5G" – is coming. This next generation is necessary to support screens with more pixels. Basically, 5G phones will have four antennas to take in four signals so that you can fill your screen.
That's why I'm focused on the pixel count, not screen size. The network only cares about pixels and data. And as networking giant Cisco (CSCO) says, most of the data that moves is video.
As the developed world moves to 5G, the old 3G and 3.5G tech will get shipped to Africa. That means Africa will start using smartphones, too – not just feature phones. In other words, video is going global.
Starting next year, we won't see 1.5 billion smartphones and 500 million feature phones. Instead, we'll just see 2 billion smartphones – some at 5G, others at 4G, and the rest at 3G.
This means the world will use the Internet wirelessly. Every carrier will simply deliver data to you. In other words, "voice" is gone, with the crazy analog networks this required. Everything will be digital.
Two billion identical, robot-made parts is a brilliant business.
For investors, the hard bit is knowing which chipmaker wins. It can't be the commodity suppliers. Instead, it has to be a monopoly – like Apple (AAPL) has in software, or Corning (GLW) has in Gorilla Glass.
And a few months ago, I think I found the next "killer" part. It's as profound as cameras, apps, screens, and glass. Every single smartphone maker – Apple, Samsung, LG, Sony, and Lenovo – needs it.
See, the one critical requirement for a smartphone is electricity. Without it, your smartphone is a paper weight. Without electricity, you are lost to your network.
The answer doesn't lie in better batteries. Batteries are chemistry. And as Kodak shows, we know what chips do to chemistry.
Instead, my team and I have found a small firm with a monopoly on wirelessly driving electricity to phones from a distance. This technology isn't perfect yet. But think about if you could have owned a monopoly on the first buggy camera phone. That's the kind of potential we're looking at here.
Good investing,
Dave Lashmet
Editor's note: The company developing this incredible new technology faces plenty of competitive pressure. But tech investors rarely – if ever – have the opportunity to invest in a company that can turn 100,000 units into 2 billion. Dave scoured the globe to find this new technology. And the small-cap company behind it could set off an entire new tech revolution. Get all the details here.