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Two Recent Deaths in the Smartphone world. Long Live the Emperor.
Within the last couple of weeks two surprising deaths happened in the Smartphone world: Kin and Nexus One (direct from Google); both of whom I had blogged about before here and here. Similar to my predictions on tablets, the world has decided to make me look bad.
I can’t say either action is a real surprise, given the success – or lack thereof – of both products, but it begs the question of what the hell is so unique about Apple that makes them so successful? Both products were reasonably good and both came out with some marketing strength and high hopes, albeit none had Jobs sticking his turtleneck out for. In fact one can almost say they are truly cleverphones. Nexus One sold directly by Google lasted a few months but managed to sell more through the carriers than direct. Kin, on the other hand, didn’t even last enough to hear comments about it. Microsoft has decided to protect their channel by pulling it out of the market and allowing HTC, Dell, Samsung, and LG who will release Windows 7 Phone Series (gotta love Microsoft’s marketing) devices this year for the “holidays”.
What I think is really happening is that even strong players like these tend to underestimate the power of the wireless carriers. They own the customer since people buy phones in order to get a service, not the other way around. Smartphone OEMs have learned the game and have succumbed to the carriers’ will, quite successfully I might add. The market has turned into a selection of services where you pick a desirable phone for. In other words, I know I want AT&T, Verizon, Telus, Vodafone, etc. for whatever reason and then I select my phone. Nexus One tried to separate it out unsuccessfully, even given the fact that Google didn’t need to make money on the phone! People still bought the subsidized phone through the carrier in spite of a long term commitment.
Microsoft on the other hand didn’t try to sell direct, but attempted to bypass OEMs, where carriers buy more devices from. So it is easier for them to add a Windows 7 Phone from HTC to the portfolio they already buy from them. Besides, Kin was a succession of project “Pink” in which Microsoft had an agreement with Verizon to supply a device. This contractual agreement forced Microsoft to release Kin with an OS that was not quite Windows 7 Phone. In addition to that Verizon changed data plans and made the Kin less than attractive cost wise. Again, a wireless carrier took control of the market.
One can also blame Palm’s near demise (and HP’s gain) on carriers’ acceptance or choice.
Whatever the reasons are, wireless carriers will continue to dominate and control the market. Granted, both Google and Microsoft have a potentially great future with their mobile OS without their own branded phones as long as they follow the desire of the carriers they sell through.
The only exception so far is Apple. AT&T has gained millions upon millions of customers that wanted one and were willing to compromise their carrier selection for the privilege of carrying an iPhone. When Apple opens up to Verizon we’ll most likely see them run back and abandon AT&T. Apple will churn the base, Verizon will add users, and AT&T will lose them. Very few new iPhone users, but Apple will continue to sell them new ones. Will Jobs be open to have an unsubsidized dual system (AT&T and Verizon) iPhone to sell direct so users can declare him his loyalty? I can see it if AT&T and Verizon decide to create cheaper iPhone plans since they will not subsidize the phone anymore and create a price war. We’ll see.
But for the time being iPhone remains the only device requested by name and the carriers maintain control over everything else. For how long?
Enjoy.
Apple or Microsoft, which is cheaper?
It is all over the news that Apple (AAPL) surpassed Microsoft (MSFT) market capitalization last week becoming the largest tech company from that metric perspective. The question is which one is more expensive?
Assume you have $500 to invest and you are trying to decide which one is a better bet. Let’s see. On June 10th, Microsoft opened near $25 and Apple near $250. So you could buy 20 MSFT or 2 AAPL. So what are you really buying with your hard earned bucks? Based on the prior 12 months and latest financial statements these are the numbers (rounded):
AAPL: revenue $51B, Net Income $10.7B, Cash and Short term investments $23B, and a market cap of $227B (908 M outstanding shares).
MSFT: revenue $59B, Net Income $17.2B, Cash and ST investments $39B with a market cap of $218B (8720 M outstanding shares).
So if you buy 2 shares of Apple your $500 buy you $112 in revenue, $23.50 in NI, and $50.70 in cash. Microsoft’s 20 shares are $135.3 in revenue, $39.4 in NI, and $89.4 in cash. In other words, picking one metric, let’s say cash, Microsoft is trading at 5.6 times cash, Apple at 9.8 times cash. That is 1.76 times more expensive!
Now, let me throw Google (GOOG) into the mix, just for kicks: Google was trading at around $480 with a market cap of $115B (240M shares). Revenues of $25B, Net Income of $7.1B, Cash $26B. You can buy 1.04 GOOG, meaning $108 in revenue, $30.8 NI, and an impressive $113 in cash (4.44 times cash).
So you tell me which one is more expensive? I know, I know, this is based on past results and does not factor in growth potential, investor’s sentiment, cult followers, and other factors. But for the same reason it clearly paints a picture of which company is more favored by investors and which one is less.
Consider one last point: Microsoft hit an all time high of $58.37 on December 31, 1999, Google $724.80 on December 14, 2007, and Apple hit $272.40 on April 26, 2010. Investor’s favoritism has been shifting over time. What’s next for all these three? If I knew, I wouldn’t be blogging about it but it is definitely interesting behavior of 3 of the most traded stocks.
Quoting Scott Adams, the creator of Dilbert, “I remind you to ignore me”. By no means this is an endorsment to invest in any of these companies. You, my fellow reader (singular) make your own judgment.
Enjoy.
Android 2.2 Brings Mobility to the Mobile World
Today Google launched Android 2.2 which, in this humble blogger’s opinion is a leap frog from anything else out there. Besides the obvious smarter smartphone capabilities like the photo gallery, customizable home screen, better exchange support, etc. , it turns your phone into a real mobility powerhouse. Hotspot and enhanced bluetooth make your phone a gateway to mobility for all other stuff you may want to carry. I know what you’re thinking, PalmPre had that already. But Android is mainstream, supported by multiple vendors, and the 2nd best selling mobile OS (after RIM’s blackberry, not iPhone).
The hotspot feature that essentially turns your phone into a Starbucks without the coffee – WiFi hotspot using 3G as back-haul. 3G may not have enough capacity, but remember 4G is coming to a city near you. The point is, my phone becomes my only truly connected device via the wireless wide area network, with a single data plan that allows any other device that I might carry to connect to the Internet through it, without extra payments. As lame as the unconnected iPad is, it is the cheapest out there (before the gPad comes out). My Android2.2 smartphone will make it connected and I do not have to pay extra data. With my laptop I can browse the web, download a book, send email, you name it, even if I don’t have a broadband adapter. My phone is the broadband adapter.
Enhanced bluetooth means that I can now have an ergonomically perfect set of devices to manage my mobile life. I can carry my phone in my pocket or briefcase and use my headset or car kit to dial, answer an make all phone calls. I can even play music through my car’s fancy audio without plugging it in. You can envision new devices that use these capabilities to get connected. A camera, for example can upload to Picassa or YouTube directly without having to connect directly. In-car GPS or portable can also connect and get faster first fixes, maps from your phone or PC, etc.
Again, this is hardly new, but the combination of all this features in Android 2.2 brings true mobility to the mainstream, and will definitely put a dent to iPhone’s reign, that is until Apple decides to add these features too. The question that remains open is how will wireless service providers embrace a single data plan? Today they all charge for “tethered mode” which is really what we all use in substitution of a broadband card; we don’t buy a card, but we still have to pay for the extra data plan. If carriers do away with this extra charge, they will create an explosion of data traffic that they are most likely not ready for. Sprint in the US has created a plan that allows all this for a fixed rate. Sprint also has the only 4G phone available today and with its partnership with Clearwire they have a shot to regain market share even if it’s only to geeks like us. Soon others will follow, though.
Soon 4G, better back-haul from your wireless service provider, and an Android 2.2 (or equivalent feature set) can make every device a connected device. The ubiquitously connected world is getting a push.
Enjoy.
iPad, gPad, or MaxiPad?
Well, it seems that the world is ponying up for what I call the third device unlike I had posted before. Verizon appears to be working closely with Google on a better Pad. At the same time Google has been posting videos of how Chrome OS will run on a tablet (I like tablet or slate better than pad for obvious reasons). The thing is “with Verizon” not “supporting Verizon”. My fellow reader (singular) this could really challenge the emperor’s Pad.
Let me tell you why I think that’s the case: As lame as the whole category is in this blogger’s humble opinion, an unconnected (i.e. no cellular support) tablet is the lame of the lame. It brings me back to the 90′s when you had to go home or to your office to get internet access. Sure, the 3G iPad is about to debut, but @ $600+ i really think the market will be limited. Now, if our friends in Verizon Wireless agree to pardon the Nexus One debacle and decide to subsidize the gPad, imagine what will that do to the price. Neither Verizon, nor Google have to make money with the hardware, which really does a job to Jobs (sorry, couldn’t help it). Estimates of the iPad cost put it at $250 – $300 US, add a 3G (or maybe a 4G – ooooh – radio), we could be seeing a street price in the $400′s. Still hefty for a useless device, but less than $600+ for the emperor’s Pad (ePad? now I’m pushing it).
But wait, there’s more! Chrome Os is the word on the street, not Android. What that may mean is a real processor capable of Flash (not Flash lite) and real browsing. Yes, my friend, I believe it will be x86 based which means that every website you can go to on Chrome today – which is virtually any website known to mankind and robotkind – is accessible to your gPad. Not even Palm’s (future HP’s MaxiPad) running WebOs can do that! Apps anybody? Yeah, sure, real apps with Java or the like, not fake widgets that look pixelated. Content? Did I mention it is Google?
So there it is. As much as I hate the category, a subsidized x86 based tablet may be the ticket to ride. BTW, Adsense must be having a ball with this post! I’m sure the ads are funny albeit unrelated. Do comment.
Enjoy.
iDon’t Flash, say the Steves
To start off with a cliché, it is true that “the enemy of my enemy is my friend.” But to have the Steves ( Balmer -Microsoft’s CEO and Jobs – you know who he is) agree on bashing a competitor is unheard of, at least for this humble blogger. Apple has been criticized not only for not supporting Adobe Flash video player in the iPhone, iPod, and iPad (i’Ve had it with Apple’s naming) but for banning apps that have their roots on it. To make matters worse, Silicon Valley’s more revered deity sent out a letter saying that Flash sucks – battery, that is, as well as making devices crash and causing other problems. Balmer agrees. They both are in favor of the open standard video version called html5 video.
Hey, we’re all for standards, even better if they are open, but is it realistic to essentially ban all Flash designed websites from your mobile iProducts? Microsoft definitelly adds some muscle to the fight, but Shantanu Narayen (Adobe’s CEO) got there first. An estimated 70% of websites with video use Flash. It has a great advantage over html5: it exists today. It has also a huge installed base, works across browsers, and makes it easier for non-geek developers to use. The question is: will the the explosion of browsers (especially mobile) makes an open standard needed even more? Indeed, but it will not happen overnight, even with the Steves’ weight behind it.
Claiming that Flash crashed devices and drains battery is a bit too extreme, unrealistic, and quite frankly arrogant. Not that there’s anything wrong with that. But when you consider that the iPad has a 6000 mAh battery compared to the 1200 mAh battery in the iPhone 3GS sure, I’ll give you 10 hours of video too! Simply put, battery problems are solved with batteries. You want more battery life? put a bigger battery in. Granted, it drives the device’s weight, but so does the display. Palm Pre, RIM, Windows Mobile (and soon Android) devices that support Flash lite are roughly the same weight than the iPhone, and crash just as often. Reality is, Flash provides the programmer control over the video experience and that makes Jobs angry. He wants to control it all! As per Microsoft’s motive? Well, it just sounded like a good idea to blame computer crashes on somebody else’s software for a change.
Flash’s biggest limitation is the lack of mobile platform support. It is a heavy weight platform that so far only works well on “big” desktop OS’s. There is a Flash Lite out there but it is not 100% compatible with all Flash’s features. But that will have to change soon, if Narayen wants to stay on top. But then again, with more powerful processors and graphics coming to a mobile device near you will make this limitation a thing of the past. In any case, it is this bloggers opinion that html5 video will eventually take over video on the internet. The timing is the unknown. But I don’t think one should start to short Adobe (ADBE), at least not because of Flash. Au contraire mon fraire, this makes them a pricey acquisition target for cash rich software companies.
Enjoy.
Palm got a hand
Well apparently there is some hope for the nearly dead. One more time I’m wrong and someone did find enough value for Palm, unlike I had predicted before. Although in this blogger’s humble opinion $1.2B seems a little excessive. Sure, HPQ has the cash to spare, but a Webkit browser on top of Linux does not take that much money. Granted Palm has a good device or two, but in this environment it takes more than a good device to unseat the emperor. I guess they’d figure they’d offer a sign-on bonus to Palm employees ($5.70 / share is a bit too distant to the $17+ back in October 2009) since they would really struggle to assemble a team like that on their own.
Sure there’s some intellectual property and some innovation left in the inventor of the category. And it is the fastest growing and one of the most profitable markets in the industry but the world does not need that many mobile Operating Systems (OS) to choose from. I’m sorry. As I’ve pointed out before, to unseat the iPhone it will take more, a lot more than multitasking, a cool form factor, and a clever UI. I’m sure HP will make products people want to buy, but the question in my mind is will HP be able to create the ecosystem that will finally challenge Apple? I quite frankly doubt it. Not because it is impossible, or because HP doesn’t have the skills, it is because it is not in their DNA and Palm does not bring that to the table.
Other bloggers (the real ones) are talking about tablets and netbooks using WebOS. Now that is even crazier. If a stretched out iPhone makes little sense, a bloated Pre (will they call it HP-Pro or the Maxi?) doesn’t make much sense either. A clever-phone OS will make a tablet look like a dumb keyboardless PC (no offense Steve). Besides, with no app store, no cult to follow you, no content delivery, no store chain, no Steve (sorry Mark) things don’t look too promising. Besides, HP is a much more powerful brand than Palm, so it’s not that they’re bringing that to the table.
So, my dear follower (singular). Let’s just regret having covered our short a day too late and wait for their next move. An app delivery company? video distribution? or perhaps music delivery? We’ll see. But one thing is certain: there will be more of these moves (some may be really big). Microsoft, Dell, HTC, RIM, and others will be on the M&A news soon.
Enjoy.
Ma Bell teaches us a lesson
In the shadow of Apple’s kick-butt quarter, AT&T reported results that made the market yawn. “Yeah, yeah, you sold 2.7 million new iPhones in the quarter, added 1.9 million subscribers for a total of 87 million (1 in every 3.5 US residents uses AT&T), reduced churn, and increased ARPU (average revenue per unit) 3.9%, and a 30% increase in data revenue; so what?” is essentially what Wall Street said. I don’t know about you, but a company that still manages these numbers in a market that is essentially 100% penetrated is impressive – sure, a 6%+ dividend helps . But the really impressive, albeit insignificant number to this humble blogger is the “connected devices” increase of 1.1 million to a total of 5.8 million.
AT&T has close to 6 million non-phone devices on the network. Now why is that even relevant, my fellow reader (singular)? Simply because there are a lot more non-phone devices and a lot more things out there that need to be connected than there are phones or people. Yes, they may not be sexy, play music, browse the web, or even wash your car, but they essentially do everything else. Beyond the obvious (Kindles, iPads, etc.) these things are everywhere and in desperate need to be connected.
Take your car, for example. If you have Onstar it’s already connected (not with AT&T) so you know some possible apps. But imagine a world in which you go to Google Maps, plan a route and squirt it into your car’s GPS! Or simply download the movie you want your kids to watch from your home DVR. Your electric meter one day will be connected to so you can monitor your consumption real time (Ok, Ok, i don’t know why would I want to do that either, but you can). Every thing out there can be connected and can benefit from the internet. But where things really start changing is with Enterprise Applications.
Next time you receive a FedEx or UPS package go to the web immediately after you sign for it and voila it says received, in real time because the device where you signed is connected. The copier service personnel can consult schematics and order parts in real time when his/her machines are connected. Or the copier can ping someone when it’s running out of toner; the end of the empty copiers or useless service visits. Making every device a smart device has endless applications that are starting to look affordable. Ma Bell’s humble cellular non-phone numbers are starting to show growth. The ubiquitously connected world is getting started. Make sure you are ready for it.
Enjoy.
Palm Looks for a Helping Hand
In the past couple of days Palm’s stock (NASDAQ: PALM) has soared from around $3.5 to above $6 (from a 52 week high of $18 by the way) amidst rumors of an imminent buyout. The question in my mind is who wants to pay close to a billion dollars for a company that looses $100M a quarter, has no cash, and it is debt ridden? A fraction of that money will get any company in the smartphone game. Most are already there, arguably with a little excess as I pointed out here.
Granted, their products are good, WebOS is a neat idea, but they have lost the clout they once had. It is sad to see a Palm, in a way the inventor of the category suffer this fate. But hey, in this industry you have to listen to Bob Dylan: “You’d better start swimming or you’ll sink like a stone, ’cause the times they are a-changing.”
So what happened to Palm? Execution and focus, lack of them, that is. Back in the late 90′s with an explosive IPO after a spin-off of US Robotics everything looked rosy. But they got greedy instead of focused. But as Michael Douglas said in Wall Street: “Greed is good”. No question but greed has to have a source. And my fellow reader (singular) that has to be your products, not Wall Street itself! It is my theory that Palm, as many other great corporations get too caught up in Wall Street’s metrics, quarters, and their leaders making money off of money alone, that they loose focus on the main thing: Their products. Countless corporations (Google, Apple, Toyota, Ford, etc.) are the opposite: they have focused on creating the best products or services, and Wall Street follows.
Greed is indeed good, but with a focused source.
Enjoy.
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