Please, it is time to go

April 24, 2016 by · Leave a Comment
Filed under: Business, Technology 

windows-10-phoneWell, a year ago I wrote this piece begging Mr. Nadella to stop the misery and kill Windows 10 Mobile and for some unknown reason, he didn’t read it.  Ok, I get it.  he is in denial.  But in 1Q16 the Lumia line in Microsoft got an alarming decrease in sales of 73%.  If that doesn’t make you quit, I don’t know what will.    A year ago I thought i was going out on a limb, but it does seem like the market agrees with me.  A rare occasion … let me just enjoy it for a second … OK, that’s enough.

Where were we?  right, the fiasco of Windows Mobile …

Let’s make a little bit of history, shall we?  the Lumia line came to Microsoft as the difficult to understand acquisition that Ballmer made as a parting gift back in 2013.    I wrote about that too at the time. It was a questionable acquisition from the business perspective.  Nokia mobile was losing money and had no sight at becoming profitable.   However, if you have money up the wazoo and are the perceived leader in technology, can you afford not to participate in mobile?  Nokia was the last standing soldier developing mobile phones using Microsoft’s OS.  Rumor has it that they had threatened to go Android in order to recover a position in the market share.  So what’s a rich company to do?  Ballmer had 2 choices:  let Windows Mobile die with Nokia going to Android, or plunk out an insane amount of money for a business that was losing money.  Obviously, he chose the latter, $7.2B for a shrinking business that lost money.  But it became Microsoft’s “right to play” in the mobile world, by far the largest computing platform of this decade.  Mr. Nadella wrote that investment off back in 2015 without a lot of explanation.  I guess the first quarter of this year explained it.

It does seem clear that Microsoft has not been focused at all in Mobile and are now a distant, or even negligible player.  Just to put things in perspective, Microsoft sold a little over 2 million phones in 1Q16 (fiscal 3Q16).  Apple sells that amount in less than a week, and there are more than 2 million Android phones sold every day in the world.   Yes, seriously.

Imagine if you are one of the unlucky people who happened to buy one of the 2.3 million phones?  Who is going to write apps, who is going to be my phone buddy?  So, please, Mr Nadella, the world begs you to kill this walking dead.  My loyal reader (singular), please tell Mr. Nadella to help the industry out and do like RIM and go Android.  The world will be a better place with one less OS to distract developers.

Enjoy.

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A Falling Knife?

September 9, 2013 by · Leave a Comment
Filed under: Business, Finances, Technology 

It is widely known that two turkeys do not make an eagle.  I’m not sure what made me think of this, I’m not even a golfer. But it seems to me that Microsoft just handed a bunch of their cash to Nokia for what seems to be a desperate move.  Let me explain.

Nokia operates 3 businesses.  For the first half of 2013 none actually made any money.

  • Nokia-Siemens network (~ 50% of their revenue) which is 11% below last year’s revenue and operating at roughly break even.
  • HERE, formerly Navteq, which has imploded to EUR 233M in revenue and losing EUR 100M per quarter. (amazing what an $8B investment can turn into in a few years)
  • Devices and Service, which is what Microsoft made an offer to buy, is responsible for roughly the other 50% revenue, which for the first half of 2013 was EUR 5.6B vs 8.3B for the same period last year.

This business lost “only” EUR 75M for the first half vs EUR691M for the first half of 2012.  So it is improving.  What makes up this revenue, you may ask?  That’s where it gets interesting.  EUR 2.3B is made by the sell of 13.5 mostly Windows based smartphones.  EUR 2.9B from 109.5 million of what they call  “Mobile Phones”, which do not run Microsoft’s operating system.  The rest is services, whatever that really means.  So, a little over a half of their revenue is not only non-Microsoft products, but at an ASP (average sales price) of EUR 26 (yeah, not missing any zeroes, it is twenty six euro per phone).  This is just a small, very, very small fraction of what an Office or Windows license go for these days.  The other 40% is Smartphones, which are mostly Windows based.  Those sold at an alarming EUR 175 ( $232 US) average price.  Compared that to above $600 for an iPhone and above $500 for a Samsung Galaxy makes them one of the lowest in the industry.    They are actually great devices, but they have to almost give them away for the carriers to take them to their customers.  No wonder the division is not making any money!

So, Microsoft handed $7.2B (which is actually less than 10% of their cash at the close of last quarter) for a shrinking business with the lowest sales prices in the industry, 60% of which they have no interest in.  Not surprisingly, Microsoft investors did not like the idea and drove the stock down around 10% in the first couple of days.  One has to imagine that Microsoft thought this was their only chance to get into the fast growing mobility business.  On the other hand, Nokia investors loved the deal.  The stock shot up 50% in the first couple of days!

So what can the deal do for Microsoft?

In their fiscal year 2013, which ended June 30th, Microsoft ran 5 business that produced $77.6B in  revenue with mind-blowing operating earnings of $33.4B.  Every one of these businesses grew from a year ago, except for Windows, which was roughly flat.

  • Business Division, whose main product is the ubiquitous “productivity” suite Office, was 31% of their revenue and 48% of their OE (operating earnings)
  • Servers and Tools, which sells servers, had around 24% of the total revenue and 24% of their O.E.
  • Windows, which was 25% of revenue and 28% of O.E.
  • Online services, which manages Bing among other online offerings, was 4% of revenue and operated at a loss that represented -3% of O.E.
  • Entertainment, which sells Xbox, Surface PCs, and Windows phone was 13% of revenue and produced a modest 2.5% of Microsoft’s yearly earnings.

The latter is where they will probably merge Nokia’s business if the acquisition goes through and probably spin Xbox out as it has been rumored for a long time.  Assuming the revenue stays flat (a big if), it will represent around 20% of Microsoft’s total revenue, but no earnings to speak of.  Their only hope is to drive ASP (average sell prices) up.  And, my fellow reader (singular), there is only one way to do that:  with unique products that customers value their differentiation.

Consumers don’t particularly like Microsoft, but there is a group that has had a long lived love affair with them: I.T.  Most corporate I.T organizations in the world prefer Microsoft to any other operating system.  They trust them and have been supporting them for years.  Microsoft’s only hope is to leverage that.  They will have to relentlessly push for Windows based phones to become the Blackberry of Christmas past.  Focus on professional users by making email, calendar, office, and corporate apps a seamless experience.

That’s all they’ve got.

However, the world of mobility is that of 99 cents apps and free OS.  Clearly not where you want to take a $43.5B business that throws $24.7B in earnings per year selling operating systems and corporate applications. That is a boat load of 99 cent apps.  Apple and Samsung have shown that making significant amounts of money with differentiated hardware in the mobility industry is possible.

The question is, is there room for a third one …

Enjoy.

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6 Mobility Predictions

March 11, 2012 by · 1 Comment
Filed under: Business, Finances, Technology 

The world of technology, particularly mobility has been one of the most dynamic in the past 2 decades.  Well, it is my contention that it is about to change again, very fast and very drastically.  What was shown in the Consumer Electronic Show (CES) back in January in Las Vegas and the Mobile World Congress in Barcelona at the end of last month is trully game changing.  If you are an investor looking for advice, I suggest you ignore what you’re about to read here.  It is always fun to venture into the predictive “sciences” and look back a couple of months later to see what really happened but by no means I know what I’m talking about.  My time horizon is 12 – 24 months.  So read away and derride if you must.

Prediction #1:  Research in Motion will not be a stand alone company. The makers of the once annoyingly ubiquitous Blackberry have been losing ground since Apple launched the iPhone back in 2007.  Jobs’ creation revolutionized what we now call the smartphone and by most accounts it is the gadget of the decade.  In the meantime RIM tried to position itself as the preferred smartphone by professionals and the only one trusted by IT.  They were and by far.  In June 2008, RIM hit a high of $148 a share.  These days trading at a meager $13.6 indicates a stock in clear trouble.  They are still profitable and at a market cap of roughly $7B someone that needs good hardware can take them out.  Who can that be?  Read along …

Prediction #2:  Nokia will not be a stand alone company.  This story is even sadder.  The ones kings of the cellphone market could not and did not adapt to the smartphone revolution.  The Finnish company once enjoyed a 40%+ market share around the world.  They revolutionized how cellphones were used and they were the first ones to penetrate emerging markets like India or China.  Nokia back in 2008 saw its share price hit the  mid $30’s.  Now it squanders at $5 and even with their market leadership of roughly 24% share in 2011 (down from 28% in 2010) it struggles to stay profitable.  As I posted previously here, Microsoft has partnered with them and has made them their preferred partner for Window Phone 8.  In this blogger’s humble opinion it will take a lot more than $1B of Ballmer’s money to bring Nokia back to life.

Prediction #3:  Android will come of age.  Are you kidding me;  it is the number one selling OS in the smartphone category?  Sure, but it is still immature.  It is very fragmented, some apps don’t run well across devices, each OEM has its own GUI flavor, enterprises don’t like it, IT can’t manage it, and there are tons of stories of malware and malicious apps that have hit it.  Even if OEMs like Samsung, LG, HTC, or Motorola fix that, corporations don’t want to deal with different tools for different devices.  Google will have to get their act together and embrace them.  Their move to acquire Motorola Mobility, that I mentioned here is a testament of their true interest in the space.  What will they do with Motorola’s hardware capabilities still remains to be seen.  But, my loyal reader (singular) you have to agree that nobody spends $12B, even Google, if they don’t have a solid strategy.  Android will be one of the 3 contenders in the smartphone/tablet battle.  Why 3? read along …

Prediction #4:  Samsung will be the next dominant player in consumer products.  This one is a classic vertical integration play.   Samsung owns ICs, displays, manufacturing, etc. they are extremely agile in their development and manufacture products that are state of the art.  If it wasn’t enough, unlike Apple, they believe consumers should have choices, in fact want choices.  For example, Samsung is the only company with a  mobility lineup of 4.3″, 5.2″, 7″, 8.9″, and 10.2″ Android devices and some Windows devices too.    Samsung had about 17% market share in 2011, are extremely profitable, and are among the price leaders in tablets and smartphones.  But that’s not it; they have impressed in recent trade shows with their integration of computers, TVs, smaprthones, tablets, music systems, etc.  A single experience across “all-screens-and-speakers” has always been the dream of the likes of Apple, Sony, Microsoft, and others.  Samsung seems to be the only one executing to it.

Prediction #5:  Microsoft will be a true force in mobility.  I know I’m starting to go out on a limb here.  They have a dismal 6% market share, about 1/2 of RIM’s.  But our friends in Redmond are pouring (to paraphrase Dr. Carl Sagan) billions upon billions of dollars in the quest. I know I’ve said the opposite before (that’s why you should ignore me) but I think this time is real.  Google’s acquisition of Motorola Mobility also opens the door for Samsung, LG, HTC, and other OEMs to rekindle their romance with Windows if for nothing else, as a hedge against Android’s marriage.  Windows phone 7 was actually pretty good, 7.5 even better.  They were “just” missing OEM adoption and apps.  But in classic Microsoft fashion Windows 8 promises to be the third time is a charm deal. Reports of the beta version of Windows 8 (on a PC) are extremely positive which will revitalize them for the mobile space.  Microsoft is the trusted adviser for corporations across the world and IT will gladly go back to them if users accept it.  The trick will be in the hardware and the ecosystem of apps.  Again, in this blogger’s humble opinion, a combination of what I’ve mentioned in points 1-3 above may be Microsoft’s ticket to mobility.

Prediction #6:  Apple will not continue its reign.  I know this may be out there  and  I’m not saying Apple will go down but at the very least they will slow down their growth.  The main reason of their success may be the cause of their change in fortune.  According g to Cook’s iPad3 launch, Apple sold a mind blowing 172 million devices.  Of those 172 million, even more mind blowing is that around 100 million were iPhones.  Think about that: 1 product (actually 2, black and white) sold in 200 countries!  Essentially Apple believes that 1 product with no changes is ideal for everyone in the world!  My loyal reader I ask you: how sustainable is that, especially when you see their competitors following the opposite approach?  iPad3 was a disappointment not because it is not a great product, it is. It became a “speeds and feeds” game; same old device, but better this and faster that.  It is a reminder of the WinTel era in which you had to have the fastest computer with the most memory and the fastest disk.  Apple themselves made Mobility to be not like that.  The market that Apple changed with music, movies apps, and multipurpose devices is about the experience.  Sure, a better this and a faster that may drive a better experience, but I believe we’re reaching diminishing returns particularly to rush and get one.   iTunes and iCloud bring the continuous experience across iOS device, but it stops there.  On top of that Apple TV was a failure.  There is life outside of our mobile devices.  But then again, with $100 B in cash, they might reinvent something else one more time.

So there you have it. 6 predictions in an 18-24 month horizon.  If you disagree, let me know, if you agree pleas do that too.  And remember to ignore me because unlike the song I will not get closer if you do.

Enjoy.

 

 

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Googorola, a New Age in Mobility

August 20, 2011 by · 2 Comments
Filed under: Business, Technology 

GoogorolaWell, it certainly has been an interesting couple of weeks in the mobility  industry.  Lawsuits galore, HP punting on the Tab (and most likely the whole Palm acquisition), Google buying Motorola Mobility (Googorola?), rumors of iPhone5 getting louder, and other rumors that Microsoft is finally going to compete in the space.  And silently, well not so silently one by one the companies that started it all are being gobbled up.  New, 21st century brands, some that can’t look at hardware if it was staring them in the eyes are taking center stage.

When there are winners, there have to be losers, even in a rapidly expanding market such as this.  Nokia, the once titan of the category, that robbed market share from the inventors of cellular telephony (Motorola), although still #1 are now falling like a rock.  Palm, who arguably  added the “smart” aspect of smart phones by creating the PIM (personal information manager) elements now ubiquitous, recently bought by HP are now defunct and their legacy, sadly, may follow.  Research in Motion, RIM, makers of the ubiquitous executive gadget of Christmas Past are down to a meager 3% and declining.  While Google and Apple, who dominate the mobile Operating System market share see no end in sight.

Google’s acquisition of Motorola Mobility (MMI) brings to the table the largest patent dowry available:  17000 granted patents plus more than 7000 in process, including some unimaginable radio and communication intellectual property.  This not only gives Google the ability to counter the myriad of lawsuits that make analysts weary of the future of Android, but can actually put them in the driver seat if they weren’t there already.  Unfortunately there are always downsides to every upside.  In this case its in the form of a Taiwanese and 2 Korean companies.  Yes, you guessed it: HTC, Samsung, and LG.  These 3 plus Motorola Mobility are the main adopters of Android and responsible for Google’s rise to the top OS in this category.  Together they represent roughly 25% of the market or about the size of Apple’s iOS.

The question is, my loyal reader (singular), will they pick up their marbles and go home (with a layover in Redmond, Wa)? or will they trust Google to keep MMI running independently?  Yeah right!  Just like other things in life, some win, and some lose.  The ones that win by just waiting it out, Microsoft have a  real chance to become the third horse in the race.  Mainly because they will be the only remaining independent.  But with $53B burning their balance sheet, how long can they afford to stay that way?

Enjoy.

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Losers can get married too

February 13, 2011 by · Leave a Comment
Filed under: Business, Technology 

Have you ever seen a couple walking down the street, holding hands that make you think  that only they could have found each other?  That’s the impression I get when I see Microsoft and Nokia ink a strategic alliance.  Granted, that’s not quite a marriage, but more like dating.  Two of largest technology companies that arrived late to the smartphone party and who are struggling to remain relevant in the fastest growing boom in the Tech Industry since … well … ever, decide to join forces to battle Apple, Google, and their ecosystems.  A daunting task I might add.

This is the deal:  Microsoft has not been able to do anything good in the mobile world even after pouring millions (if not billions) of dollars.  And Nokia, once the giant to follow in the cellphone industry did not see the modern smartphones come.  Together, well, in this blogger’s humble opinion, is no better.  Nokia’s hardware, as good as it is, is just that: hardware.  They have never been able to stand out as a software supplier, areas where both Google, and Apple, the 2 leading forces in the smartphone world, excel at.

On the other hand, Microsoft has not been able to cut the cord.  Still the number one player, by far, in fixed applications, has just been a disaster in the mobile world.  Windows Mobile, arguably one of the first “smartphone” OS’s out there, did not evolve.  And Windows Phone 7, a great approach, is a classic case of “too little, too late”.  While Balmer, Microsoft’s CEO, brags about the eight thousand apps in WP7’s marketplace it remains at least an order of magnitude below iOS or Android.  Carrier’s have dozens of smartphones in their lineup already with access to these apps and users preference, either by cult or anti-cult.  NokiaSoft (or MicroNokia) will have to do the equivalent of pushing a herd of elephants up Mount Everest, one by one, without a sherpa, oxygen, and very little food.

In a letter to Nokia’s associates, Stephen Elop, Nokia’s CEO explained the transition his company will make to dump all activities on Symbian OS in order to adopt WP7 as its main smartphone OS.  I find interesting he used the analogy of a “burning platform” and how people do desperate things in desperate moments.  Kudos for admitting the desperate times and comparing a partnership with Microsoft to “jumping into the icy Atlantic”.  Although it may seem a bit too much, it is more like jumping into the icy Atlantic, naked, in the middle of the night, and picking up drowning friends, with luggage, on the way down.

Granted, these are both outstanding companies with a history of innovation and impressive comebacks (remember Netscape?).  But to pull this one off will require oodles of money, several miracles, outstanding negotiating with the carriers, and great, great products.  They’ve both done it in the past, but will they do it again?  But, given where they both are in this multibillion dollar market, do they really have a choice?  Maybe not.

So good luck in your marriage, hope you both keep your maiden names.  And please do not argue about naming the kids, hire professionals  instead.  Neither of you have a good track record there …

Enjoy.

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