Booms and Busts in the Smartphone Industry
Booms and busts happen with regularity in the financial markets.
As an analyst for 20 years, I’ve covered a lot of them.
The boom and bust in uranium prices…
In timber prices…
In oil prices…
In corn prices…
In cryptocurrency prices…
And most recently, in stock prices.
On April 14, when it looked like COVID-19 would demolish the stock market, I said…
Booms become busts. Busts become new booms. Lather. Rinse. Repeat. And for the third time this millennium — beginning with the bursting of the dot-com bubble (2001)… the financial crisis (2008)… and now the COVID-19 contagion (2020) — the market has shed years’ worth of gains in a short span of time. If you’re reading this, you’re ready to deploy fresh capital into the market. I applaud your foresight and conviction. You couldn’t have picked a better time.
The market has proven me correct, as the Nasdaq now trades in record-breaking territory.
Yet despite their pivotal role in financial markets, not every boom and bust gets media attention.
Take the smartphone industry, for example.
It’s experiencing a phenomenon I’ve only seen a few times in my career…
A boom and a bust… in the same industry… overlapping each other.
Talk about a brain twister, right?
I can’t believe the mainstream press isn’t covering this story.
But we sure are.
Let’s take a deeper dive into the smartphone industry, starting with an epic bust.
Cobalt’s Meteoric Rise and Sudden Collapse
Cobalt is one of the world’s priciest resources, trading on the London Metal Exchange for $28,500 per metric tonne.
It’s expensive for two reasons: 1) Cobalt is rare in nature and 2) Cobalt is hazardous, requiring a toxic smelting process before it has any value to the technology industry.
You’ll find cobalt in every smartphone, as a key component in lithium-ion cathodes for rechargeable batteries.
As demand for smartphones grew throughout the last decade, cobalt’s value to the industry became so intense… so indispensable… so coveted… that insiders dubbed it “blue gold.”
At face value, considering how smartphones are expected to have an even greater impact on our lives in the 2020s… investment in cobalt seems like a solid bet.
That is, until you see a chart of cobalt prices, which paints a more menacing picture.
To be perfectly frank, the chart is downright hideous.
Here, see for yourself…
So how did cobalt go from hero to villain in two years, you ask?
It’s pretty simple, really…
In 2016, a new breed of speculator entered the cobalt market, placing wild bets that electric vehicles (EVs) would soon dominate American roadways… further skyrocketing demand for rechargeable batteries and blue gold.
But as the chart indicates, EV speculators dramatically overreached on their prediction.
Not only will it take most of the 2020s for EVs to replace internal-combustion engines as the industry standard for automobiles…
But cobalt won’t be along for the ride.
See, nearly 60% of cobalt production comes from the Democratic Republic of Congo.
Sadly, the job of sourcing Congolese cobalt is often given to children, who spend between 10–14 hours per day inside of cobalt mines.
The public backlash against cobalt is intense and growing. In fact, Elon Musk, speaking about his company Tesla, tweeted, We use less than 3% cobalt in our batteries & will use none in next gen.”
For this reason alone, cobalt isn’t worthy of investment consideration.
But while cobalt was booming and busting…
American companies quietly began blasting satellites into low-Earth orbit.
“Satellites in Low Orbits Are Taking Over the Skies,” says a headline at Scientific American.
And Bloomberg published an article on “Why Low-Earth Orbit Satellites Are the New Space Race.”
“We predict that by the end of 2020, there will be more than 700 satellites in low-Earth orbit… up from roughly 200 at the end of 2019,” reports Deloitte.
The proliferation of satellites should not be taken lightly, as I believe it marks the beginning of the second age of smartphones.
Onward and upward,