Microsoft – Band of brothers

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Microsoft’s Band is another shot at the ecosystem.

  • The new Microsoft Band is not much to look at but if it is robust and works as well as promised, then it could see some traction.
  • Microsoft Band is the latest is a slew of products that promise to monitor the key aspects of user’s daily lives and help keep them on the straight and narrow.
  • There are two main problems with almost all the pedometers, activity trackers and heart rate monitors that have been launched date:
    • First. They are not robust enough. Nike’s Fuelband, Fitbits and many others suffer from a relatively short life-span.
    • The review columns have plenty of complaints regarding the short life span of these devices and this true for almost all of them.
    • Activity trackers have to be able to withstand the hurly burly of an active lifestyle and if they break after a couple of months users are just going to give up.
    • Second: The sensors need to work on all people all of the time and be accurate.
    • The performance of heart rate sensors to date has been very far adrift of what is needed to be commercially viable.
    • This is why the Samsung Gear Fit does not offer continuous heart rate monitoring. It can’t hold the signal.
    • Accuracy is also critical. This is especially the case if the data is going to be used by health providers for monitoring, diagnosis and prevention.
  • If the Microsoft Band can address these two issues then it has a god chance of getting some traction.
  • Microsoft’s hardware products to date are surprisingly robust.
  • The Lumia devices, foldable mice and keyboards, while not water or coffee proof, are well made and withstand a lot of abuse.
  • The Microsoft Band makes no attempt at being waterproof, but its pedigree gives me confidence that it will be robust enough for the use case for which it has been designed.
  • The key will be how well it can pick-up and hold the heart rate signal.
  • The Band needs to be able to do this flawlessly on everybody all the time.
  • If it fails, then it will be useless as a fitness monitor, it will get terrible reviews and no one will buy it.
  • I am hopeful that Microsoft has made sure that this will work and assuming it does, then it has also a pretty good back-end lined up.
  • The Microsoft Band goes hand in hand with Microsoft Health which is very similar to Apple HealthKit and Google Fit in that it will collate, store and analyse all of the data regarding a user’s activities.
  • At $199 the device is fairly priced as long as it functions as promised.
  • Microsoft Band will work with all three smartphone platforms and launches with a range of partners and apps aimed at fitness.
  • This confirms that this is about developing the Microsoft ecosystem as a place to live one’s Digital Life rather than an enticement to buy software.
  • This is long game.
  • If users start spending more time with Microsoft services on Android and iOS then one day they might just be enticed to make the switch to a Microsoft product.
  • At the moment this is the only way that Microsoft will really be able to monetise these users as it has yet to go down the Google route of selling user data to advertisers.
  • The Band is not the sexiest product out there but if it works as advertised, it will be one of the best performers.
  • I remain positive on Microsoft’s ambitions in the ecosystem as it has the right strategy and buy in from the top to make it work.
  • The biggest problem remains the marketing message which still needs to be updated to address the realities of the market where it now finds itself.

 

 

Samsung Q3 14A – Deer in the headlights

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Samsung does not seem to have any idea what to do.

  • Samsung reported awful Q3 14A results as profitability in the handset business collapsed far below RFM’s bearish expectations.
  • Q3 14A Revenues and operating profit were KRW47.45tn / KRW4.06tn compared to RFM forecasts at KRW49.86tn / KRW6.84tn.
  • The biggest problem was the IT and Mobile Coms unit (almost all handsets) where EBIT margins fell to 7.1% from 15.5% in Q2 14A.
  • This is already way below RFM’s long-term estimate of 11%-12% and there is every sign that things are about to get worse.
  • Elsewhere, Consumer Electronics also had a difficult quarter with margins falling to break-even while Device Solutions (Semis and panels) fared a little bit better than forecast.
  • The one bright spot was cash flow where KRW10.44tn was generated from operations from good working capital management.
  • In handsets, market share has been lost again with 78.1m smartphones being shipped compared to RFM’s forecast of 83.7m.
  • Furthermore, most of this weakness has come at the high end where Samsung has really been benefitting from the profitability of selling huge numbers of highly priced products.
  • Once the R&D and marketing costs on a high-end device have been covered, the profitability increases significantly as more devices are shipped.
  • This has been the secret of Samsung’s success but equally, it is the also the main reason for the sudden weakening over the last three months.
  • Something has to change if this rapid decline is to be halted.
  • Samsung gave away the one chance that it had to differentiate its devices through the ecosystem (see here) which has substantially limited its options.
  • Samsung can focus on differentiating through hardware and on this basis it could make 11%-12% margins in the long-term as long as it can hold onto volume.
  • The problem is that it has lost significant share over the last two quarters despite every effort it has made.
  • The more share that is lost, the lower the margin it will be able to make on commodity products as the scale advantage is less.
  • There is a real risk that it ends up in-line with the rest of the Android industry at around 2%-4% in the best instance.
  • Listening to Samsung on its conference call it is the clear that beyond trying to differentiate in hardware and cost reduction, it has no idea how to halt the rapid decline.
  • I have heard all of this commentary before from Ericsson, HTC, Motorola, BlackBerry and Nokia and what followed in every case was a collapse into loss making territory.
  • Samsung is relying on the Galaxy Note 4 to restore its business mix in Q4 14E allowing its ASPs and its margins to increase.
  • However, this quarter the iPhone 6 and 6+ will be available for the whole quarter.
  • While the iPhone 6 and 6+ screens are not as good as the Note 4, I think that they are good enough and the iOS ecosystem that it offers is much easier and more fun to use.
  • Hence, the Note 4 looks unattractive against the iPhone 6+ and I suspect that users are going to continue switching.
  • Consequently, I think that market share in the high end is going to fall again which means that margins in Q4 14E are likely to be even lower than they were in Q3 14A.
  • Samsung has not done or said anything that leads me to think that it can avoid the fate of all market leaders before it and I remain fearful that the vicious cycle is only just beginning.
  • Against this backdrop, there is only bad news in the pipeline as I do not think that the worst is over.
  • Consequently, I think that earnings can fall further and continue to see downside to KRW1m per share.
  • I prefer Google, Microsoft and Apple to Samsung.

 

Facebook Q3 14A – The morning after

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The easy growth looks over. Investments are now required.

  • Facebook reported good Q3 14A results but there are signs that growth is starting to slow meaning that investments have to ramped up to develop the addressable market further. .
  • Q3 14A Revenues / EPS were $3.2bn / $0.43 compared to consensus forecasts at $3.1bn / $0.40.
  • Facebook has been enjoying very strong growth for the last year as it has been benefitting from what I call the “catch-up effect”.
  • Until recently, Facebook was capturing a lot of mobile traffic but was failing to monetise it effectively.
  • With the launch of its mobile advertising platform, this problem was solved.
  • Revenues immediately started to grow very strongly as the mobile traffic it was receiving was more and more efficiently monetised.
  • This “catch-up effect” now seems to be abating as mobile is now 66% of revenues meaning that Facebook will now have to look to other avenues to find further growth.
  • This is where investments come in and a major reason why the guidance for expenses next year is surprisingly high.
  • Guidance for Q4 14E revenues was disappointing with $3.6bn-$3.8bn in revenues expected compared to consensus at $3.73bn.
  • This represents very healthy YoY growth of 40%-47% but with the stock on 46x 2014E PER and 37x 2015E PER, clearly the market was looking for more.
  • Furthermore it seems very unlikely that revenues will accelerate next year, meaning that with expense growth of 50%-70% in 2015E, margins are going to fall.
  • The problem here is one that I have highlighted before. (see here)
  • Facebook occupies only a slice of Digital Life.
  • Social networking is a big slice, making up 24% of smartphone usage, but it means that users are spending 76% of their time doing something else on their smartphones.
  • In order to grow revenues further, Facebook needs to get users to engage with it when living other aspects of their Digital Lives and this requires investment.
  • This is why I believe that expenses will be growing so quickly next year while revenues lag.
  • Facebook is investing for another growth cycle but it is going to take some time for this growth to show through in the numbers.
  • In the meantime, the quarterly focused eyes of Wall Street will be focused on declining profitability and slowing growth in the short-term leading to a de-rating of the shares.
  • This began over night with an 11% hit in after-hours trading.
  • There is significant risk that this continues.
  • I suspect that the time to take profits is here.

Twitter Q3 14A – Good company, bad stock.

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Twitter is not the next Facebook.

  • Twitter and Facebook are often compared directly against one another but in reality they are very different animals.
  • Facebook productises its 1.3bn users who spend 18% of their smartphone time using its app and sells this data to advertisers.
  • Twitter has a core of active users that generate content that is then viewed by hundreds of millions that are not logged in or don’t have accounts.
  • Twitter sells content-relevant advertising that is distributed along with the tweets.
  • More and more, Twitter looks like a broadcaster and less and less like a social network.
  • There is nothing wrong with this model and Twitter is doing an excellent job of monetising the generated content.
  • Unfortunately, the default position of the market is that Twitter will become the next Facebook which is why hopes and dreams get far ahead of what the reality can ever deliver.
  • Q3 14A results are another classic example where revenues were ahead of expectations but the stock collapsed because the user count is showing no signs of reaching Facebook’s levels.
  • Q3 14A revenues / adjusted-EBITDA were $361m / $68m ahead of consensus at $350m / $52m as execution of monetisation remained very strong.
  • This is particularly encouraging given the recent shake-up at Twitter and gives me confidence in management’s ability to remain focused on what really matters.
  • Guidance was also good with Q4 14E revenues expected at $440m-$450m with adjusted-EBITDA at $100m-$105m.
  • This is comfortably in line with consensus at $447m and $99m.
  • Despite this to stock collapsed 11% in after-hours trading as user numbers were 284m and still failing to show the kind of growth that is needed to reach Facebook levels.
  • Twitter has significant reach but its user base is always going to remain a small subset of the number of people who actually see the content.
  • The release of its Fabric SDK allows third parties to integrate Twitter into their apps which should increase its reach further.
  • This will help monetisation but it will do very little for the total number of users that the company reports every quarter.
  • Twitter is executing well and delivering on its financial promises but unfortunately the market remains riveted on the user count and its growth.
  • It also holds on the idea that Twitter operates like Facebook and until that changes, the stock will remain mispriced.
  • If the number of people who see the tweets continues to grow then revenues can still expand even if the user base remains completely static.
  • This is why the way that the market values Twitter has to change before the stock can be properly priced.
  • Remaining fixated on user numbers is the equivalent of valuing HBO on the basis of the number of shows that it makes rather than the number of people who actually watch them.
  • Based on this reality, I estimate that a fair price for Twitter is in the low to mid $30s per share and I still see more downside.
  • Until the market digests this, the stock will continue to bounce around as dreams are created and then dashed by reality.

Apple vs. MCX – Current of change

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Apple Pay is the victim of a much bigger conflict.

  • It looks like mobile based payments are at last about to see some traction, catalysed by Apple Pay, but already the battle lines are being drawn
  • CVS and Rite Aid, the number 2 and 3 pharmacy chains in the US have both decided withdraw support for Apple Pay and Google Wallet despite having all the hardware already installed that is needed to support it.
  • Users have already used Apple Pay in both pharmacies since the system launched as it generally works with all retail NFC systems despite neither being a launch partner for Apple Pay.
  • Both companies have decided to switch off support for NFC based payments entirely, I suspect at the request of MCX.
  • MCX is the Merchant Customer Exchange which is an alliance of retailers who have got together to create an alternative to Visa and MasterCard for the processing of consumer purchases.
  • Each time a consumer pays with a card, the retailer pays a fee to have the transaction processed and this has a meaningful impact on the wafer thin margins of the retailers.
  • This is a constant problem for the retailers and they are very keen to find an alternative where there is a much lower fee just to cover the real cost of the transaction.
  • MCX has created its own mobile based payments system called CurrentC and there is a preference that consumers use that.
  • CurrentC is a system that has been clearly designed to meet the needs of the retailer to the detriment of the user experience.
  • Consequently, using CurrentC is more cumbersome than paying with a credit card and I think that consumers will refuse to use it.
  • By contrast, Apple Pay is fast and easy but it uses the established processing infrastructure.
  • This means that if Apple Pay becomes a standard method of payment in the US, the retailers will be even more locked into paying away a big portion of their profits for payments processing.
  • However, Walgreens which is the biggest pharmacy in the US, has embraced Apple Pay with many users reporting success.
  • The crunch will come if users start going to Walgreens rather than CVS or Rite Aid for their pharmacy products due to this issue.
  • Should this come to pass than CVS and Rite Aid will have no choice but to return to supporting the NFC-based mobile payment systems.
  • If MCX is smart, it will quickly move its payment processing infrastructure to support Apple Pay because then it can achieve its own aims while keeping the consumers happy.
  • Unfortunately, I suspect that there are all sorts of vested interests that will keep this from happening putting the success of MCX at risk.
  • The consumer is king and there will always be alternative’s where he can use whatever payment system he desires.
  • The sooner MCX realises that the financial well-being of its members depends on happy consumers, the better its chance of breaking Visa and MasterCard’s stranglehold on payments processing.

Microsoft and Amazon – Chalk and Cheese

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Microsoft has the bit between its teeth while Amazon flounders.

  • Microsoft and Amazon reported results on 23rd October leaving me in no doubt that a strong preference for Microsoft over Amazon is the right way to go.

Microsoft Q1 15A

  • Microsoft reported excellent results with Q1 15A revenues and EPS of $23.2bn / $0.54 compared to consensus at $22.0bn / $0.48.
  • The combination of the stability in the PC market and hardware shipments being ahead of expectations, underpinned the outperformance.
  • Cloud, Office 365, Surface and Lumia all had an excellent quarter and this is expected to continue into fiscal Q2 15E.
  • Phone hardware is expected to decline this quarter but this is more due to the rationalisation of the non-smartphone business which I am expecting to be wound down over the next few quarters.
  • This performance is also gratifying as it comes in the midst of the biggest shakeup Microsoft has been through in the last 20 years.
  • Focus has not been lost and I am comfortable that the businesses should continue to perform despite the internal upheaval.
  • The key now is to bring all of the disparate pieces of the Microsoft ecosystem together.
  • When they are all integrated and they all know about each other, then Microsoft can offer a full and complete offering for both Digital Life and Digital Work.
  • This is the panacea that will return Microsoft to steady growth but there still remains a mountain to climb.
  • In the meantime the fundamentals are steady and the stock looks likely to continue its steady performance.

Amazon Q3 14A

  • Amazon reported bad Q3 14A results as growth continues to come at the expense of profitability.
  • Q3 14A revenues and EPS were $20.6bn and LOSS$0.95 compared to consensus at $20.9bn and LOSS$0.75.
  • Included in the figures was a $170m write-down of unsold Fire phone inventory.
  • This looks like a $200 write off per device implying that Amazon had made commitments for somewhere around 1m units.
  • It looks like Amazon has shipped something in the region of 35,000 devices to date.
  • This comes as no surprise (see here) and I continue to believe that Amazon is conducting an expensive series of random experiments rather than having a real strategy to build an ecosystem.
  • Guidance for Q4 14E was also very disappointing with revenues of $27.3bn-$30.3bn expected and net loss of $570m to a net profit of $470m is expected.
  • This compares unfavourably to forecasts of $30.9bn and a net profit of $461m.
  • Erratic ecosystem strategy aside, the fundamental problem with Amazon is that it makes no money.
  • Investors have been waiting a long time for scale to start working in its favour and for the company to start earning some money but it never seems to happen.
  • Worst of all, at 126x 2014E PER and 69.4x 2015E PER the shares are already pricing in improvements that never seem to materialise.
  • The correct valuation for a company that will never make a net profit for shareholders is 1x book value.
  • In Amazon’s case this is $10.3bn which is far below the current market capitalisation of $146bn.
  • It is an extreme statement to say that Amazon will never make any money for shareholders but it is clear that until it does, one should steer clear.
  • Google, Microsoft and Apple are far better places to be.

 

Microsoft – Trojan Horse

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Apps for Android signal a real change in strategy.

  • Microsoft Garage is a skunkworks inside Microsoft known for being a geeky haven, and it has just released three free apps for Android.
  • These apps are free and feature no internal purchases meaning that there is no direct means by which these apps can be monetised.
  • I suspect that I am seeing the beginning of a strategy to push the Microsoft ecosystem across every platform, extending its reach way beyond the devices that it makes in house.
  • Three apps have been launched:
    • 1) Torque. This is an Android Wear application that removes the need to say “OK Google” to activate the voice recognition.
    • Instead users twist their wrists towards them in order to activate the voice function.
    • This raises the possibility of the voice recognition being activated by accident, but I would hope that this has been extensively tested prior to release.
    • Critically, the app returns search results from Bing rather than Google.  
    • 2) Next Lock Screen. This is an app that is aimed at professionals with Android devices.
    • The idea here is to place the most relevant and important information on the lock screen with direct links to the relevant functions.
    • For example if is there is a call to be made on the calendar, this information with the number will be displayed on the lock screen and the user can directly from there.
    • This app will clearly work best with productivity applications, which again shows signs of pushing the Microsoft Digital Work ecosystem onto Android devices.
    • 3) Journeys & Notes. This is location based blogging app that allows the user to log a journey and share it with other users.
    • This is essentially a specialised social networking application whose success will very much depend on how good it is and how many users can be enticed to log their journeys on it.
  • The question is why would Microsoft waste its time and money on developing for Android?
  • The idea here is to draw users into the Windows ecosystem.
  • If users begin to realise that Bing is not as bad as everyone thinks and they begin putting that together with Skype, Here, Minecraft and XBox, they will be spending more of their Digital Lives with Microsoft.
  • At some point there is a chance that they might decide to switch to a Windows product if it can deliver these services in an easier, more fun and useful way.
  • At the moment this is a big ask as these assets remain disparate services randomly scattered throughout the Microsoft empire and they don’t really know anything about each other.
  • They need to be integrated to be more aware of each other such that a better quality service that is more coherent and useful to the user is offered.
  • Furthermore, if Microsoft ever decides to go down the monetisation by advertising route, this will be essential to achieve decent monetisation.
  • I think that more and more of Microsoft’s ecosystem will be made available for both Android and iOS over time making the Microsoft ecosystem available to everyone who wants it even if they don’t have a Microsoft device.
  • This is yet another sign of how much Microsoft is changing.
  • The old “Windows, Windows, Windows” mantra is gone to be replaced with a strategy of making the services so good that users turn up of their own accord.
  • This is the right strategy but now it all comes down to execution which is somewhere where Microsoft has struggled to date.
  • I am hopeful that Nadella will now turn his attention to making it al happen.
  • Microsoft remains, along with Google and Apple, one of my top choices for investing in the mobile ecosystem at the moment.

Yahoo! Q3 14A – Game of numbers

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Yahoo! must focus on registered users to have any chance of growth.

  • Yahoo! reported reasonable Q3 14A results but still the commentary and promises are failing to show through in the numbers.
  • Q3 14A Revenues-ex TAC / EPS were $1.09bn / $0.52 compared to estimates of $1.05bn / $0.30.
  • Display based advertising continues to be the biggest problem which fell heavily by 6% YoY during the quarter.
  • According to Yahoo!, it is PC based advertising that is causing all of the problems which is dragging revenues down by $60m a quarter.
  • This is offsetting growth in search (up 6% YoY in Q3 14A) and mobile which grew 100% YoY to $200m in revenues during the quarter.
  • It is here that I can’t get the numbers to add up.
  • Yahoo! claims that it will generate $1.2bn in mobile revenues for the full year 2014E but it has only generated $200m during Q3 14A.
  • If mobile is growing as fast as it claims, then Q1 14A and Q2 14A mobile revenues would have been much lower than $200m, meaning that Yahoo! will need to generate something like $800m in mobile in Q4 14E alone in order to make the target.
  • This represents QoQ growth of 4x and would massively offset further declines in PC based display advertising.
  • I can only assume that Yahoo! actually means that the run rate of mobile revenues will be $1.2bn by the end of the year implying Q4 mobile revenues of $300m.
  • Even this looks to be a stretch but it is much more credible than what the company has actually stated.
  • Even if this is correct, this represents $100m in incremental revenues compared to Q3 14A, which alone would more than offset the $60m drag from PC advertising and allow the company to see growth.
  • However, this is absent from the Q4 14E guidance with $1.14bn-$1.18bn in revenues representing a YoY decline of 4.2%.
  • The midpoint of this guidance is $1.15bn, below consensus at $1.17bn.
  • Furthermore, Yahoo!’s user figures continue to be misleading in my opinion.
  • Including Tumblr, Yahoo! now reports active monthly users at 550m up 17% YoY.
  • However, this figure includes a substantial number of users just turning up to one of its properties to browse the content.
  • I suspect that less than half of these users are registered users about whom Yahoo! can build a profile and start offering targeted advertising.
  • The rest will only receive the generic display based advertising that Yahoo! is trying so hard to get away from.
  • Consequently, I suspect that registered users are less than 300m of which the vast majority only really use Tumblr.
  • Here lies the challenge for Yahoo!
  • It must take its excellent collection of assets and integrate them such that users want to register and become part of the ecosystem rather than just turn up for a quick look.
  • To do this it must move past just content and offer users services within which they want to live their Digital Lives.
  • That is how the user profiles will be built and how Yahoo! can get access to the revenue streams where advertisers are really spending.
  • This is how Google manages to outperform Yahoo! on growth despite being nearly 15x its size.
  • Until this becomes a reality, the numbers are going to underperform the big promises, harming the potential for a stock that has a lot of fundamental upside.
  • Google, Microsoft and Apple look like better prospects and I would continue to take Alibaba related profits on Yahoo!

Apple Q4 14A – Beat and raise

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Apple on course for a superb quarter to the detriment of Samsung.

  • Apple reported Q4 14A results that comfortably beat estimates and guided above consensus as demand for the iPhone 6 continues to outstrip even the most bullish forecasts.
  • Q4 14A revenues and EPS were $42.1bn / $1.42 compared to consensus at $39.8bn / $1.29.
  • 39.3m iPhones shipped during the quarter compared to forecasts of 38m and I suspect that there is another positive surprise to come in January.
  • 12.3m iPads were shipped compared to consensus at 13m which is a little disappointing but not a huge surprise given:
    • Most users knew there was a new iPad coming and probably held off purchases.
    • The tablet market is slowing to almost no growth at all this year compared to 44% in 2014.
    • I suspect that the iPhone 6+ is likely to cannibalise shipments of the iPad Mini.
  • For the next quarter, weakness in iPad is not an enormous concern as all the attention is being focused on the surging demand for the iPhone 6.
  • Apple sold 5.5m Macs taking its market share to its highest level in almost 20 years as back to school demand had a significant effect this year.
  • Market share is still less than 10% globally but it is inching inexorably up with time.
  • Guidance for the coming quarter (fiscal Q1 15E) was positive with revenues of $63.5bn – $66.5bn expected which compares favourably to consensus at $63.4bn.
  • Q1 15E EBIT is implied to be $19.3bn in line with consensus at $19.4bn.
  • However, I suspect that Apple is continuing to be pretty conservative and consequently, I think that number should be comfortably beaten come January.
  • The popularity of the iPhone 6 is likely to mean market share gains both in unit terms and for the iOS ecosystem overall.
  • The main loser here is Samsung which has owned the large screen phone market for the last 3 years and is now showing every sign of rapid decline.
  • Google is likely to be unaffected in the short term as RFM estimates that 50% of its mobile advertising revenues are generated on iOS devices.
  • Hence a shift in ecosystem share to iOS away from Google’s Android is unlikely to affect revenues in the short-term.
  • However, this is not a great state of affairs for the long run as I am pretty sure that Apple would dearly love to remove Google from its devices and its App Store if it could afford to do so.
  • Reliance on its biggest competitor for its revenue growth is a state of affairs that Google will be very keen to avoid.
  • Google, Microsoft and Apple (for the next quarter) remain the top companies to look at for investing in the mobile ecosystem.

 

Samsung and Facebook – One chance

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Samsung has one chance to avoid the fate of its predecessors.

  • Samsung looks to be teetering on the edge of suffering the same fate as all market leaders before it as its products have become commodities.
  • In order to prevent disaster, it must add something back to its products to make them again desirable to users.
  • The iPhone now has large screens and the Chinese are voraciously attacking at the low end, leaving Samsung very little to fight with other than price.
  • This is why its relationship with developers and providers of Internet services is now so important.
  • RFM’s analysis has indicated that its best chance is to work with content developers to create Samsung specific versions of their apps. (See Samsung and Google – Gorilla war, 27th May 2014).
  • This is why Samsung’s recent meeting with Facebook is so important.
  • Smartphone users spend 24% of their time on their devices using social networking and Facebook accounts for 75% of that time.
  • If Samsung and Facebook work together to make the Facebook experience meaningfully better on Samsung devices than anyone else’s, then users will have a reason to choose a Samsung product other than price.
  • This is the key to retaining margins at attractive levels as preference is what drives pricing and how Apple makes such fantastic margins.
  • Currently, over half of the Android devices in the hands of users are made by Samsung.
  • This combined with the fact that Android remains very fragmented means that every developer wants to develop for Samsung devices before any other.
  • This creates the potential for a mutually beneficial relationship that can extend far beyond Facebook to all of the other major app developers.
  • Games can be extended with Samsung specific versions with extra levels or downloadable content as can media or productivity apps and services.
  • This is where Samsung must focus and it must do it immediately.
  • The more share that is lost, the less attractive the relationship becomes for app developers and the less willing they will be to write Samsung specific versions.
  • With Google firmly in control of the ecosystem, this is Samsung’s only option to support its handset margins and avoid the death spiral that has consumed all market leaders before it.
  • There is a chance for Samsung to avoid repeating history but it must act immediately and wholeheartedly.
  • In the short-term I still see downside in Samsung to KRW1m where there is significant psychological resistance.
  • Google, Microsoft or Apple in the short-term make far better options in the ecosystem.