Mobile computing and growth investing

We recently attended the 2012 Linley Mobile Technology Conference, which was held in San Jose on April 16 and 17 and hosted by technology research firm The Linley Group.  The conference was attended by numerous engineers for companies involved in the design of mobile connected devices and the components that make those devices do what they do.

The most dominant theme that emerged from the various presentations and discussions is the enormous pressure that the insatiable consumer demand for the rapidly-evolving mobile user experience places on the engineers and architects who must make it happen -- and the creative and innovative ways that those engineers and architects are meeting the challenge.

Stop and reflect on the amazing changes that "mobile connected devices" have been undergoing over the past several years: not too long ago, the only mobile devices of note which were connected to any kind of networks were mobile phones and mobile GPS devices, but now mobile connected devices (primarily smartphones and tablets) have become the mobile equivalent of desktop computers and "home entertainment centers," complete with the ability to act as mobile phones and GPS devices whenever necessary.  

We now expect to be able to consume more and more video and other demanding applications while mobile, with higher and higher resolution, we expect our device to always be able to get a signal and never drop it or even have delays in the stream, and we expect it to be able to give us all this increasingly difficult processing of data without running out of power during a long day of constant use. 

In order to keep up with these demands, and create devices that provide users with smoother scrolling, faster browsing, more graphically-intensive mobile gaming, better sound quality on calls, all-day music streaming, and the ability to interface using touch and gesture and even shaking and tilting (and many other functions that we now take for granted), engineers are designing ever-more powerful processors, which will use less and less battery power.  

One strategy for increasing processing power is the use of multi-core processors, which contain multiple cores to process program instructions in parallel inside a chip, which can result in faster rendering of graphics.  In desktop applications, where power was traditionally not as much of a factor as it is in a mobile device, multi-core processors have been around for some time, but while multi-core may provide significant performance improvements, it has some drawbacks (programming in parallel is much different from writing code to control sequential processing, for one thing) and while it is an important tool for chip and system-on-chip designers, simply throwing more cores at the problem is not always the answer.  More important is the ability to turn cores on and off rapidly, to reduce power usage, and even more important are strategic decisions (such as whether it is better to split a task into many smaller tasks, each of which takes less energy to complete, or whether it is better to split a task into fewer sub-tasks and devote a lot of power to solving them quickly, in order to shut down more rapidly and perhaps conserve power that way).

Another important trend is the use of heterogeneous chip design -- the employment of different types of processors to take advantage of the most efficient type of processor for each of the many different tasks these devices must handle.  Some of these different "types" of processors, in addition to the familiar CPU (which traditionally has performed the lion's share of the processing in computers), include GPUs (graphics processing units) and DSPs (digital signal processors), each of which have their own inherent strengths and weaknesses.  By off-loading some of the processing that was once performed by CPUs (processing audio and video with dedicated DSPs, for example), performance can be greatly increased and power greatly reduced.

One takeaway for investors, in our view, is the absolutely revolutionary nature of the mobile technology changes that have been only just beginning to transform our lives over the past several years and which will almost certainly become even more transformative in the years ahead.  For whatever reason, these changes can creep into our lives without our realizing how much they have turned the world upside down (perhaps it is some version of the "how to boil a frog" anecdote), until we stop and think back to what the world was like before.  For instance, the very first iPhone was only released in 2007, but for many it is difficult to even remember what phones -- even cutting-edge phones -- were like before then.

As investors, we need to consider carefully what new fields of growth are created by major shifts of this nature, and position ourselves to participate in the success of companies that are making them happen, or that stand to benefit from the change.  This particular mobile paradigm shift is one that we have been publicly discussing on the pages of this blog since the beginning of 2009 (see this previous post and this previous post among many others), and one that we have been researching and analyzing for a lot longer than that.  If you read through those previous posts, you will find that they are remarkably predictive of the types of trends that are shaping the industry right now.  However, this paradigm shift was largely missed by many "traditional Wall Street firms" over the past several years, and many do not fully understand it even today.

This is one reason why we believe that attending conferences such as the outstanding Linley conferences (which are more well-attended by Silicon Valley engineers than by Wall Street analysts or even members of the press) is so important.  Even more important is to understand the "classic growth" tenets that we believe are the foundation of successful investing (not just "tech" investing), which was discussed in our very first blog post. While the words we quoted in that post were written down all the way back in 1972, those principles really stretch back to the 1930s -- long before the cutting-edge technologies which drive the smartphones and tablets of today were even imagined.