Here’s How Samsung Could Benefit From Its Acquisition Of Joyent

SSNLF: Samsung Electronics logo
SSNLF
Samsung Electronics

Recently, Samsung Electronics (PINK:SSNLF) announced that it is acquiring Joyent, a public and private cloud provider, which will give the former access to its own cloud platform capable of supporting its growing line up of mobile, Internet of Things (IoT) and cloud-based software and services. This acquisition indicates that Samsung is increasing its focus on software and services such as Samsung Pay and reducing reliance on hardware. As the company struggles to grow smartphone sales, diversification into services will ensure a steady revenue stream in future. Joyent sells hosting services that enable customers to run their software on cloud, similar to Amazon Web Services. It also helps companies to build their own cloud-style systems in their own data centres. We believe the acquisition of Joyent will strengthen Samsung’s services business as the company looks to diversify its revenue streams.

Own Cloud Platform To Support IoT

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Samsung is increasing its focus on Internet Of Things (IoT) and announced recently  that it will invest over $ 1.2 billion in the next four years on IoT related research and start-ups.  IoT is expected to be at the center of Samsung’s strategy in future and the company is planning to increase its focus on connected devices. A cloud platform of its own, in place of third party services, can work to the company’s advantage as it scales up its smart and connected consumer devices. Acquisition of Joyent fits well within Samsung’s strategy of developing more connected devices.

Less Reliance On Mobile Phone Segment For Revenue Growth

Once the biggest contributor of its revenues and profitability, Samsung’s smartphone business is struggling as it faces intense competition from Chinese players at the low end of the market and from Apple at the high end. The company now appears to be looking at other growth avenues to drive profitability such as IoT and services.

According to our estimates, the mobile phone segment accounts for nearly 30% of Samsung’s valuation and we expect Samsung mobile phone market share to decline from nearly 21% in 2016 to around 18% by the end of our forecast period.

 Services such as Samsung Pay should drive revenues for the company in the future, rather than relying exclusively on hardware. The company recently announced a collaboration with Citibank to deliver Samsung Pay within the Asia Pacific region, especially Singapore and Australia. The company is seeing significant global growth for Samsung Pay and the partnership is expected to keep the momentum going. Samsung’s investment in a cloud infrastructure of its own should also support this expansion.

 

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