The past week saw quite a few developments in the mobile sector. Google (NASDAQ:GOOG) acquired Motorola Mobility (NYSE:MMI) earlier this week after China finally signed off on the merger following months of intense speculation about China’s true intentions. Microsoft’s (NASDAQ:MSFT) COO for the Greater China region said that the company’s Windows Phones have already reached a 7% market share in the country trumping Apple (NASDAQ:AAPL) iPhone’s 6%. Further, after multiple rumors surrounding Apple’s iTV plans came out, we took a deep dive into the TV market to see how much of an impact the much rumored TV would have on Apple’s stock.
Google has received the final approval for its proposed Motorola Mobility acquisition from the Chinese authorities after months of intense speculation that the country could block the deal altogether. China has however extracted a promise from Google that Android would remain completely open-source for the next five years at least. Google has already received approvals from the U.S., Europe and Israel, and will be looking to close the deal this week itself.
The news alleviates investor concerns that the deal may face significant roadblocks in China considering the rather unpleasant past relationship between Google and China. (see Why Investor Concerns on the Googlorola Deal Falling Apart Are Premature)
The acquisition however will put Google’s margins under immediate pressure. We estimate that Motorola Mobility will generate $13.1 billion in revenues and only 64 million in operating profits in 2012. This will significantly dent Google’s overall operating margins (adjusted for operating leases) to about 27% from ~35% pre-acquisition. (see Google’s Margins At Risk With Mobile Push From Motorola Deal)
A Microsoft executive claims the company has made good on what seemed like a lofty claim made just two months back that it plans to overtake iPhone’s market share in China. According to the company’s COO for the Greater China region, Microsoft’s Windows Phone has already reached a 7% market share in the country trumping Apple’s 6%. (see Microsoft Passes Apple In China As Nokia Cheers) While it was never a tall order for Microsoft to achieve that target considering that iPhone’s market share wasn’t too high in the first place, the fact that the company has reached this milestone in such a short period of time shows that China will play a key role in shaping Windows Phone’s as well as its key partner Nokia’s fortunes in the coming quarters.
Growing acceptance for Windows Phones will help Microsoft and Nokia draw in developers to build apps for the platform. Although the Lumia has garnered rave reviews on the web and is seen by many as a worthy third competitor to Apple and Google, lack of app support for the platform is Windows Phone’s biggest weakness currently. Microsoft is trying to overcome this weakness by coming up with an app migration service that would let users port apps and app data from other platforms on to Windows Phone. (see Microsoft Working At Migrating Other Platform Apps to Windows Phone)
Rumors surrounding Apple’s (NASDAQ:AAPL) foray into the TV market seem to be growing in number every day with some even claiming that the new iProduct could be arriving as soon as before the end of the year. The most recent one was floated by AppleInsider, which claimed that Apple is seeking to buy German luxury TV maker Loewe but the latter shot down these claims soon after. While most of these rumors have not been fact-based, Foxconn parent Hon Hai Precision Industry’s confirmed decision to invest in LCD display maker Sharp Corp a couple of months back lent some credence to the rumors. (see Is Apple The Invisible Force Behind The Sharp-Foxconn Deal?)
While there is a lot of speculation surrounding Apple’s new iProduct, there have been few attempts so far to size the opportunity that the TV market presents for Apple. Unlike smartphones and tablets, two markets that were still very young or even unformed when Apple launched the iPhone and the iPad, the TV market is a huge multi-billion dollar industry that Apple will be trying to penetrate. Still, the general opinion seems to be that the opportunity is there for Apple to enter and disrupt it. However, we believe that the TV market holds very little value for Apple should it launch what is being rumored to be the ‘iTV’. (Read Apple’s Rumored iTV Plans Don’t Add Much To $700 Stock Value to know why)