jump to navigation

Google-Samsung Partnership: When The Hunter Becomes The Hunted March 14, 2013

Posted by Ishmael Chibvuri in Latest Articles!!!.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…)

Google (GOOG) is well known for its search business, which has made consumers more often use the company’s name as a verb. Nonetheless, the company also controls roughly 69% of the smartphone OS market, thanks to Samsung (SSNLF.PK), which uses Google’s Android mobile OS. Additionally, Google has also ventured in the smart devices business with its Nexus tablets and the acquisition of Motorola last year. But Android could ultimate prove to be a weak link for the company’s margins.

Samsung smartphones account for 40 percent of Android devices sales, which critics fear could be an Achilles heel to Google’s authority over the partnership. Samsung is rumored to be plotting a possible negotiation for a share of Google’s Ad revenue associated with the use of Android. While Samsung still gains more than Google from the sale of any Android device, the Korean company’s dominance in device sales could be a huge bargaining power.

Recent statistics show that Apple’s (AAPL) iOS holds a market share of about 22 percent with the likes of Microsoft (MSFT) Windows Phone and BlackBerry (BBRY) holding less than 5 percent each. Anyone dreaming of a late challenge from the BlackBerry and Windows Phone would have to be a staunch supporter of either of the two. Realistically, this sounds like a long shot. Nonetheless, the companies are not giving up yet.

Indeed there are new entrants already plotting an ambush to the current ecosystem of a two horse race; of course, you could argue that Android is way ahead of iOS, but still is the closest and most realistic challenger. Regardless, Firefox is planning to launch its own OS to challenge Android and iOS. The company is looking to deliver its browser to consumers’ hands in an aggressive way. Does it stand a chance? Well, as a freeware, perhaps it does. But wait…

Remember WeBos, when it came up and quickly sank to the abyss of failure. Also, reckon that Android seems to be people’s choice. The common denominator to these two is that they are freeware. So, could we say Firefox has a 50:50 chance of survival? A bold assumption is that it would depend on the relationship between Samsung and Google, on Android OS.

The Hunter Becomes The Hunted!

Samsung Electronics holds the upper hand against Google, and this is already sending jitters across major financial media hubs. Wall Street Journal recently had a take on the subject and expressed a strong indication that we cannot write-off the possibility of Samsung asking for as a share of ad revenues. In the beginning, it was Google, the Android OS owner that had the upper hand. Google’s android OS is used by several companies in their smart devices.

However, Samsung smartphones have tramped all the other Android users claiming the lion’s share of the market. Google can no longer stand and say, we’ve got HTC, Sony Ericsson etcetera. Whatever proceeds it gets from each of them could be a rounding figure in the case of Samsung. So that is the gauntlet that Google must handle if Samsung comes to the negotiating table.

The Korean electronics giant also has several opportunities at disposal. The company has the option of choosing between the awaited Firefox OS, BlackBerry, Windows phone, or its very own Bada. Other reports also indicate that Samsung could consider using Tizen (the embedded Linux successor to LiMo, Moblin and Maemo) as it plans on offering a new phone based on Tizen this summer.

Some might argue that Samsung still needs Google’s Android if it wants to continue experiencing impressive sequence of sales, after all, Android’s popularity is another strength that cannot be ignored. All in all, it is pretty clear who is in control now. If Samsung leaves Google, 40 percent of sales could slip away in thin air. The manner in which the news is absorbed by the investment fraternity would also be key. People would ask questions with regard to splitting, the likely culprit being Google.

Can Samsung choose iOS? Never say never in Business, I wouldn’t be surprised if the two rivals in the smartphone market struck a deal. However, it is highly unlikely. Apple uses iOS on its own devices, and it’s not a Freeware. Even OS X is only available in Mac computers. Perhaps the company sees it as a competitive advantage of the sort, in terms of vertical integration. iOS still struggles to recoup the market share lost to Android. In fact, the gap continues to widen, primarily due to Samsung smartphone sales. A deal with Samsung could be like "making a deal with the devil". But if Samsung wants to become "the hunter", then there is always a chance. Nonetheless, it would not be easy for the electronics giant to negotiate a favorable deal from Apple than what it has from Google. The same case applies to BlackBerry, which also uses its OS in its own devices alone.

Microsoft Windows Phone OS. This is the likely of the options available, aside from Bada and Tizen. Samsung laptops use Windows OS, which means the two companies already have a deal in place. The question would be whether Microsoft would be willing to extend the current deal to Windows phone for use in Samsung’s smartphones. At the moment, Windows Phone and BlackBerry are almost inseparable in terms of market share with both holding under 5 percent. This means that Android’s market share is about 14 times more than what Microsoft holds.

Windows Phone is Nokia’s primary OS for smartphones, a company that is trying tooth and nail to remain significant in the smartphones industry. Microsoft Windows Phone is trying to beat Blackberry to the third spot in smartphone OS ecosystem. The latest edition, Windows Phone 8 is struggling to gain traction to an environment where, Android or iOS seems to be the only language.

The Bottom Line

Google seems to be finally getting the competition it deserves, a competition it created itself. When a partner becomes a prospective competitor, be prepared for a harvest. The consumer becomes the beneficiary, but the investor? Not so obvious!

The search engine giant is approaching the $900 mark, and some analysts are already predicting a price target of $1000. However, as we all know, high expectations have been so often the downfall of several companies. For instance, Apple has fallen nearly 40% from its all time high of $705, not because it has been underperforming, but because investors had high expectations from the iPhone maker.

Nonetheless, Google has shown great stability coupled with consistent growth that has helped the stock come so close to reaching $900. That said, the likely impact on Google if Samsung was to switch its smartphone OS would not go unnoticed. However, the chances of that happening are debatable, which makes Google an attractive Buy, albeit for the short term. This could change in the long-term if Samsung decides to make the switch.

Source: http://seekingalpha.com/article/1268221-google-samsung-partnership-when-the-hunter-becomes-the-hunted?source=email_investing_ideas&ifp=0



No comments yet — be the first.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: