Get Connected to Cellular Modems' Uptrend

Last week Dell (DELL - commentary - Cramer's Take) announced that several new high-end laptop models would include embedded cellular modems. Cellular modems utilize the same wireless networks as mobile phones to receive and transmit data, particularly to access the Internet. Several other PC companies also have recently announced they would offer models with embedded cellular modems, including Hewlett-Packard (HPQ - commentary - Cramer's Take), Lenovo, Acer and Fujitsu Siemens.

I believe this represents the beginning of a new trend as competition between PC manufacturers heats up. In order to differentiate their products, PC makers will need to introduce higher performance and new features at a faster rate. Dell's recent purchase of Alienware speaks to this. Although the company could have created similar high-performance models on its own, purchasing Alienware outright demonstrates the greater emphasis on time to market.

Price has also been a big inhibitor for cellular modems in the past. However, Verizon (VZ - commentary - Cramer's Take) just announced last week that it would offer 24-hour sessions for $15, which is suitable for infrequent business travelers.

More interesting is that this price only applies to owners of specific laptop models that already have embedded cellular modems. Those who own regular laptops still can get unlimited high-speed data service for $60 a month from Sprint (S - commentary - Cramer's Take).

Additionally, several major cellular protocols are being revised for faster transmission speeds. This could result in an upgrade cycle for customers who use data-intensive applications such as voice over Internet protocol, or VoIP.

I believe the companies that represent the best plays on upcoming cellular-modem growth are Novatel Wireless (NVTL - commentary - Cramer's Take) and Sierra Wireless (SWIR - commentary - Cramer's Take). These companies are the largest pure plays in the U.S, and both already have several agreements with major PC manufacturers and wireless-service providers.

Opportunity Is Built In

After being a niche technology for years, cellular modems are finding a new growth opportunity in laptops.

Research firm In-Stat forecasts that combined cellular PC card and embedded module units shipped should increase from 4.4 million in 2005 to 14.6 million in 2009.

---

At the time of publication, Wana was long Sierra Wireless, although positions may change at any time.

Joseph Wana is founder and president of Naga Capital Management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Wana appreciates your feedback; click here to send him an email.