How Investment Pros Look at Gadgets

I'm not sure how long this article will last at this link before disappearing into the subscribers-only archives, but Investor's Business Daily (subscription required) writes about what investors look for when sorting through the myriad companies in the gadget space.

The article discusses that top picks aren't always the big names brands, but are often smaller companies with "big profit margins and a fast-growing market share" in supplying the key components, platforms, applications, content and services.

Albert Lin at American Technology Research advised, "Investors will have to grow used to the idea that products that are hot today have very short product life cycles and might be old tomorrow. Don't expect all these tech companies participating in this boom to have great margins."

The article cites data from Jupiter that shipments of portable music devices are expected to double in 2005, but notes this is only a 12 percent penetration rate in the U.S. The article rightfully states that "they still have a ways to go before becoming mass-market products."

According to analyst Gene Munster of Piper Jaffray, "it's important to hitch investments to devices with mainstream reach," and like the handset market, "devices stand better chance of mass-market adoption when their prices get below $100."

Even with Apple's recent successes, Munster believes there is still room for growth."The biggest reason is that there is still an opportunity with Apple is price points haven't hit mainstream." He also warned, "If they don't innovate, they're dead. With a music-only player, there will be a slow decline in that business."