The explosion in smart phone use across the globe has benefitted few companies as much as ARM (LSE:ARM), which grew from a tiny Cambridge processor designer in the mid-2000s to the global giant it is today. However, now that global smart phone sales growth is beginning to slow, what does the future hold for ARM?
The good news is management saw this change coming and invested heavily in the past few years in designing new chips for connected devices for the Internet of Things (IoT). The IoT is a large and growing market as companies race to connect their cars, refrigerators and thermostats to the internet in order to use the vast amounts of data collected to improve services, reduce energy usage, or many other useful applications.
The problem for ARM investors is that it isn't the only company to realise the money to be made in this segment. Competition from other chip designers is heating up and ARM is unlikely to retain the remarkable 85%-plus market share it currently has in smart phones. On the flip side, ARM is still growing sales and profits at an impressive clip and shares now trade at 29 times forward earnings, their most reasonable valuation in years. For investors who like ARM's £800m in cash, growing number of IoT chip patents and believe the company can build on past success, now could be an interesting entry point.
Unlike ARM, traditional estate agents such as Countrywide (LSE: CWD) have had little reason to cheer the expansion of internet-connected devices. This is because Countrywide and its ilk are increasingly losing their stranglehold on information to the likes of online property databases such as Right Move and Zoopla. These two sites have become the first resource prospective property buyers or sellers check, rather than wandering down to their local high street estate agent as they once did.
Right Move and Zoopla have leveraged this position into charging significant fees to estate agents to list their properties, cutting into margins. The success of these two prompted major estate agents to band together and form their own site, OnTheMarket.com, but this has largely failed and is becoming increasingly irrelevant.
Even more worrying, online-only agents such as Purplebricks and easyProperty are cutting out high street agents completely and charging owners incredibly low fixed fees to sell their properties. This is why Countrywide recently announced it was rolling out its own online-only offering. Countrywide's online offering may succeed, but it will be watching as its core business is carved up one way or the other.
The major changes facing Royal Mail (LSE: RMG), which still brings in 48% of revenue from letters, need little introduction. The slow and steady decline in the volume of letters being posted has caused Royal Mail to shift its focus to the growing market for parcel delivery, which is largely driven by the rise of e-commerce.
By investing heavily in new sorting and distribution centres, Royal Mail is seeking to become the dominant force in domestic parcel delivery. However, while the company is growing volume at a steady clip, it has only grown in line with the market at large. If the heavy investment in parcel delivery infrastructure doesn't lead to increased market share and improved margins, Royal Mail could be looking at its own slow and steady decline in the coming years.
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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings and Rightmove. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.