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Samsung, Motorola On Android Worried About iCloud

Posted on Monday, Jun 13th 2011

Samsung this week unveiled its Galaxy S II Android phone, while Apple announced its iCloud service that provides free online storage for apps, books, and media files for iOS devices. The iCloud integrates all the storage needs for devices in the iOS ecosystem, while Google has different services to cover them.

While Samsung may benefit in the short term with the delay in the iPhone 5, the new iCloud service is a googly that it needs to deal with. Another problem both Samsung and Motorola need to deal with is the crowded Android market and the need for a differentiating factor. Both Samsung and Motorola had both done well with their Android-based smartphones. While Samsung is almost closing its gap with Nokia, Motorola has managed a turnaround. However, as the market is getting crowded with Android smartphones, what will be their differentiating strategy? Let’s take a closer look.

Motorola Mobility’s Financials
Motorola Mobility (NYSE:MMI) recently reported first quarter revenue of $3 billion, up 22%. Net loss was $81 million or $0.27 per share compared to a loss of $212 million or $0.72 per share last year. Motorola ended the quarter with $3.3 billion in cash. Annual revenue in 2010 was $11.5 billion.

Home segment net revenue in the fourth quarter was $0.904 billion, up 8%, and GAAP operating earnings were $53 million, compared to $20 million last year.

Mobile Devices segment net revenue was $2.1 billion, up 30%, while GAAP operating loss was $89 million, compared to a loss of $192 million last year.During the quarter, Motorola shipped 9.3 million handsets, including 4.1 million smartphones and more than 250,000 Motorola XOOM tablets. XOOM is the first tablet with Android’s OS for tablets, Android 3.0 Honeycomb. XOOM features a dual-core processor and high-definition 10.1 inch widescreen display. In the U.S., Motorola XOOM launched with Verizon as a 4G LTE upgradeable device and Motorola XOOM with Wi-Fi launched with seven leading retailers in North America. Motorola also announced four new mobile devices specific to the China market.

For the second quarter, Motorola Mobility expects net earnings of breakeven to $35 million. Its stock is trading around $23.64 with market cap of about $7 billion. It hit a 52-week low of $24.90 on March 10.

Recent acquisitions at Motorola Mobility
In March, Motorola announced its plans to acquire Dreampark, a Swedish IPTV software provider. This acquisition is expected to be integrated into Motorola’s cloud-based Medios software suite and capitalize on the trend of convergence of wireless technology, media, mobile computing, and the Internet.

Earlier in February, Motorola announced the acquisition of Three Laws Mobility, Inc. (3LM), a developer of mobile enterprise security and device management software for the Android OS. Motorola plans to integrate 3LM’s technology into its smartphones and license the technology to other Android smartphone providers. Ryan Kim on GigaOM says

“Android devices have increasingly been adopted in corporate environments as workers bring in their personal phones for support. But IT managers have been slow to embrace Android because of lingering security and management concerns … Motorola previously built smartphones on Microsoft’s Windows Mobile platform, but it has gone all-in on Android lately, and sees enterprise sales as an important part of its business.”

Chart forMotorola Mobility Holdings, Inc. (MMI)

Samsung’s Financials

Samsung Electronics (005930.KS) recently reported first quarter revenue of 36.99 trillion Korean won ($34.16 billion), up 7%. Net income was down 30% to 2.78 trillion won ($2.56 billion). Annual revenue in 2010 was 154.63 trillion won ($142.78 billion).

Telecom, Semiconductor and Digital Media & Appliances drove revenue growth in the quarter. Semiconductor segment sales increased 12% due to stronger demand for NAND products used in smartphones and tablet PCs. However, Samsung reported that its overall net profit declined after the strong first quarter performance in 2010, weighed down by lower semiconductor memory prices and lower profitability in LCD panels and TVs.

Samsung forecasts that the challenging business conditions will persist in the second quarter, effected by lingering worries over the global economy and tight competition in consumer electronics and mobile businesses. Samsung’s mobile device sales in the quarter reached 70 million units, down 14%. However, strong sales of smartphones and high-end mobile devices helped to increase Samsung’s average sales price and boost operating profit. Smartphones made up 18 percent of Samsung’s total handset unit sales (or 12.6 million units) for the quarter, up from 4 percent during the same period last year.

Samsung this month unveiled its latest Android-based smartphone, called Galaxy S II. Samsung had sold 14 million units of its first version of the Galaxy S smartphone launched last year. The company expects Samsung’s smartphone sales to reach more than 20 million in the second quarter. For this year, the company’s aiming to sell 60 million units and maintain a double-digit market share in smartphones. According to IDC, Samsung was the world’s No. 4 smartphone maker by shipments behind Nokia, Apple and RIM. It is the No.2 mobile phone vendor with 18.8% behind Nokia with 29.2%.

Neil Mawston, an analyst at Strategy Analytics says

“A major challenge for Samsung will be how well it copes with the semi-commoditization of the Android platform over the next few years — if most Android smartphones and tablets eventually look or feel the same in hardware, software and services, then how will Samsung stand apart from the crowd?”

A valid question that I have raised often. Samsung and Motorola have written their success story based on the Android OS, but the market is getting crowded with Android smartphones. Samsung has an alternate Bada OS, while Motorola has bet it all on the Android OS. Motorola has now set its sights on the high-margin enterprise sector and also on being the security solution through its 3LM acquisition.

Apple’s latest iCloud service is not entirely new. It is an improvisation on services like Dropbox for Apple users. However, the iCloud service poses a serious threat to Android’s content services. Android users can easily sync their contacts, calendar, apps, and so on from the cloud to their device, but when it comes to content, Apple scores. Google last month had launched its cloud music service called Google Music but it is more basic in nature. Should Samsung and Motorola wait for Google to provide a more comprehensive solution to match Apple’s iCloud or acquire similar products like Dropbox, Orb Networks, and Unify from Real Networks?

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