There have been a number of noteworthy developments in the technology space recently. They will likely have a material impact on the companies in the sector and the markets they serve.
Sony’s Tablet Launch
Sony’s (SNE) first tablet computer is set to hit the Japanese market in mid-September. The Sony tablet will run Google’s (GOOG) Android software. The “S” Series will have a 9.4-inch touchscreen display, with memory capacities of 16-gigabytes and 32-gigabytes. The tablet will be released in the United States and Europe later in the month. The 16-gigabyte model is expected to be priced at $499. The tablets will be able to access Sony’s cloud of online content which includes music, PlayStation games, movies, and digital books. Later in the year, Sony will release its “P” Series. This model will have a folding design, featuring two 5.5-inch screens.
It remains to be seen how much success this venture will have. Sony is well behind the tablet launches of competitors such as Apple (AAPL) and Samsung Electronics. Industry analysts have questioned whether Sony’s tablets could effectively compete at pricing that is fairly close to that of the iPad. Sony is looking to become a leading tablet maker, behind only Apple. Efforts to distinguish its tablets from others that run on Android software will include such features as access to Sony content, and having one model function as a universal remote.
Initial reaction by some reviewers has been underwhelming, and the company has indicated it is willing to be flexible on pricing, if need be. It remains to be seen how the market will respond to the Sony tablets upon launch, and how the company will react to any challenges that may arise. Potential investors are advised to keep an eye on this issue, though. The tablet market will likely prove to be quite lucrative for the more successful players in the coming years. Worldwide tablet shipments are expected to grow at a brisk pace through mid-decade.
Google’s Big Move
Google has agreed to acquire Motorola Mobility (MMI) for $12.5 billion in cash ($40 per share). The transaction was unanimously approved by the boards of directors of both companies. The deal, which remains subject to regulatory and shareholder approval, is expected to close by early 2012. Motorola Mobility has been an Android partner, and this deal will allow Google to further advance the Android platform. Motorola Mobility will remain a licensee of the Android operating system. Google will run Motorola Mobility as a separate business. This move will now put Google in the smartphone hardware business. This is a departure for Google, which has not owned the hardware on which its operating system runs. Nevertheless, Google says Android will remain open to all manufacturers. Part of the motivation for the acquisition appears to be related to the history of patent lawsuits Google has experienced related to Android. The purchase of Motorola Mobility will allow Google to strengthen its patent portfolio, and enable it to better fend off litigation threats from competitors. This would help protect the Android operating system, and the companies that use it, from potential litigation.
Shares of Netflix (NFLX) declined last week, following the announcement that an important partnership with Starz Entertainment LLC (owned by Liberty Media LLC (LSTZA)) has been cancelled. Starz announced that it will not renew a contract that allows Netflix customers to stream its recently-released movies and television programs online. The impasse appears to stem from a pricing dispute. Starz content has been an important part of the Netflix lineup in recent years. However, due to progress made in licensing from other providers, Starz content now accounts for only about 8% of domestic subscriber viewing at Netflix. Moreover, this incident demonstrates that Netflix is unwilling to purchase content at prices it believes are too high. The company will instead spend money (which had been earmarked for the Starz renewal) on procuring content from other providers. Meanwhile,
Dish Networks (DISH) is reportedly planning to introduce a Blockbuster streaming service to compete with Netflix. Dish, a leading domestic satellite-television provider, acquired nearly all of Blockbuster’s assets for $320 million out of bankruptcy in April. Dish is trying to transform Blockbuster into a business that can compete with Netflix, Amazon.com (AMZN), and Hulu LLC. Blockbuster.com already offers on-demand movies for one-time purchase, though the new offering would be the first subscription-based streaming service.
As the clear leader in an attractive market, Netflix remains in the driver’s seat. However, we expect the industry will continue to attract entrants, and competition will increase in the coming years.
HP’s Change of Direction
Hewlett-Packard (HPQ – Free Hewlett-Packard Stock Report) has announced plans to exit the PC manufacturing business, and focus on enterprise software and services. The company will discontinue operations for webOS devices, specifically the TouchPad and webOS phones. The board of directors has authorized the exploration of strategic alternatives for the Personal Systems Group. The company will consider a range of options, including a spin-off or divestiture. This will allow HP to move into higher-margin growth areas. It will sharpen the company’s focus on strategic priorities of cloud, solutions, and software, with an emphasis on the enterprise, commercial, and government markets. Investment in these areas will prove important, as the company will likely face aggressive competition from software providers such as Oracle (ORCL) and IBM (IBM – Free IBM Stock Report).
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.