Will Samsung Buy Research-in-Motion to Keep from Becoming Nokia?
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While Jay Z sang, "Its a Hard Knock Life," it has been the companies in the mobile phone industry that have been living it due to the hard core competition in the sector.
Earlier this year, Nokia Corporation (NYSE: NOK) sold more mobile phones than any other company in the world. For 2012, its stock price has fallen by 41.48%. Research-in-Motion (NASDAQ: BBRY) introduced the smartphone to the world with the Blackberry. Year to date, the share price for Research-in-Motion is down by 44.34%. Motorola pioneered the cellphone industry in the United States back in the 1980s. Its fate was to be bought by Google (NASDAQ: GOOG) for its patents. Google just announced massive layoffs for thousands of Motorola employees.
Samsung, which supplanted Nokia Corporation as the biggest global seller of mobile phones earlier in the year, is now on the prowl for acquisitions to ensure that its fate does not resemble that of Nokia, Research-in-Motion, Motorola or many other high tech firms in the communications sector. There is a reason for this: According to a recent study by International Data Corporation, the Android (Google) share of the global mobile phone market will fall from 61% in 2012 to 52.9% in 2016. Gaining the most, according to the study, will be the Windows Phone from Nokia Corporation and Microsoft (NASDAQ: MSFT).
Samsung, in conjunction with Google, did not get to be the number one seller of mobile phones in the word by not anticipating changes in the market. That has been the province of Nokia, Research-in-Motion and Motorola. The introduction of the new Galaxy Note smartphone on August 29 by Samsung is being widely anticipated, and is obviously designed to undercut the momentum for the unveiling of the iPhone 5 by Apple (NASDAQ: AAPL) on September 12, according to recent reports.
Earlier in the year, the word on Wall Street was that Samsung was kicking the tires of Nokia Corporation for a possible bid. But that was just a Friday rumor to goose the stock price of Nokia and it faded quickly. However, a recent research report by the investment bank Jeffries posits that Samsung is now maneuvering to acquire Research-in-Motion should the Blackberry 10 fail to revive the company.
According to equity analyst Peter Misek, the lead author of the report, Samsung walked away from previous negotiations with Research-in-Motion "...but is still considering a BlackBerry 10 licensing deal." But Samsung could be back as the report clearly states that:“RIM, Nokia and Motorola provide stern warnings that any high-flying mobilephone company can crash in a two-year period.” While the analysts who penned the study report of no near-term issues for Samsung, its “2.5-year outlook is concerning.”
That is due mainly to Samsung not owning the software for its operating system. Addressing this issue, the new chief executive officer of Samsung stated in his inaugural speech recently, that, "A particular focus must be given to serving new customer experience and value by strengthening soft capabilities in software, user experience, design and solutions.'”
By purchasing Research-in-Motion, the South Korean high tech conglomerate would not only acquire 70 million subscribers, valuable patents, a strong business community franchise, but it would also, according to one analyst, "...offer Samsung insurance should Microsoft and/or Google vertically integrate. Further, the BlackBerry 10 user interface has been well-received, and the platform would offer bandwidth consumption and security benefits over Android and Windows Phone."
Samsung could pick up Research-in-Motion for petty cash. First of all, there is no competition. Research-in-Motion has been trying to sell itself for well over a year with no takers. Like Google and Microsoft, Samsung is loaded with the long green and Research-in-Motion is dirt cheap with a market cap of $4.23 billion. The balance sheet of Research-in-Motion is loaded with cash and free of debt, so capital outlays would be minimal.
When asked what made him "The Great One," Hall-of-Fame hockey player Wayne Gretzky replied, "I skate to where the puck is going to be." In two and half years, Samsung does not want to be in a position where, from not having its own software operating system, it becomes the next Motorola or Nokia. Buying Research-in-Motion on the cheap could help prevent that from happening.
jonathanyates13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Nokia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.