^{Most people think the smartphone was an overnight success made possible by a sudden technological leap from Apple.}

Not so. Eddie Cantor had it right 50 years ago when he said, “It takes 20 years to be an overnight success.”

Rise to Fame

Visionaries first conceptualized the smartphone way back in the 1970s. In the 1990s, that concept became reality when IBM released the Simon Personal Communicator: a cellphone that, in addition to its telephonic capability, could send and receive faxes and emails and featured a touchscreen display. Many consider the Simon the first commercial device that could legitimately be called a smartphone.

After Simon came a decade of rapid evolution. Smartphone functionality expanded to include video cameras, GPS features, and web browsing. Processing power, storage capacity, and battery life grew geometrically to accommodate the added functionality.

Meanwhile, the telecoms were doing their part to coax the smartphone caterpillar out of its cocoon. In 2001, they launched 3G networks that achieved data-transfer speeds four times that of 2G networks. Suddenly, media streaming and/or downloading from the web became practical mobile functions.

Finally in 2007, Steve Jobs and Apple—acting more like Great Synthesizers than Great Innovators—integrated all these converging elements into the iPhone. Then Apple added two important things to the mix…

1. A unique talent for designing intuitive, user-friendly devices, and
2. A robust ecosystem with thousands of apps.

Boom. The smartphone butterfly emerged and took flight. The sales trajectory has been astounding…

After seven years of sustained and explosive growth, is the smartphone market reaching saturation?

Not even close. Smartphones are ubiquitous in the US and Western Europe, but that’s not the case everywhere. Old-fashioned feature phones still dominate in many emerging countries. But as incomes rise and smartphone prices fall, legions of consumers will upgrade from feature phones to smartphones.

Indeed, the great upgrade is already under way. In China alone, almost 300 people will purchase smartphones in 2014.

The smartphone megaboom is far from over—it’s just moved to the East... and has a much different look than in the West.

Commodity Boom

Price is paramount in emerging markets, including the biggest emerging market of them all… China. Lower- to middle-class Chinese can only afford to pay about $150 for a handset. 35% of smartphones sold in China are priced below $150, and almost 60% are priced below $330…

Companies are desperate to capture this huge and growing piece of the low-end pie, and so they’re rolling out new, cheap smartphones every month.

That’s great news for consumers. But here’s the rub: in order to hit low price points, handset manufacturers are stripping out features that differentiate their products. Low-end smartphones are essentially becoming commodities.

That opens the field up to a slew of competitors. There are literally hundreds of small handset manufacturers in China trying to undercut each other for a piece of this lucrative market.

How to Invest

Handset manufacturers and proprietary chip makers are not the way to play the Great Upgrade. For handset manufacturers, competition is simply too fierce—margins, if they exist at all, will be razor thin. And brand loyalty will be almost impossible to achieve.

The same goes for proprietary chip makers—there’s simply no demand for their products in low-end devices. Such are the problems in a commodity-based market.

Fortunately, the clever minds at The Casey Report have discovered a way to play this trend. It’s a “picks and shovels” company that supplies Chinese smartphone manufacturers with a trendy, ever-expanding software product that they wouldn’t be able to do without—and it’s beating the competition by having formed strategic alliances with China’s top three wireless service providers.

What we love most about this pick is that this is one of the few companies (if not the only one) in this massive market that is nearly certain to profit from the smartphone megatrend. Let the handset manufacturers cannibalize each other—this company will cash in by selling them its services, regardless of who ultimately wins the smartphone wars.

We expect to double our money on this one within the next two years. But best of all, this stock trades on the Nasdaq—that means no dealing with foreign stock exchanges, no complicated transactions. You can profit from China’s middle-class boom and the “Great Upgrade” with just a few mouse clicks.