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Technology Round Up - October 4, 2011
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.
Amazon’s New Offerings
Amazon.com (AMZN) has recently announced the introduction of four additions to its Kindle family. The lightest, smallest version of the popular e-reader can be purchased for $79. The Kindle Touch goes for $99, and features an easy to use touch screen. The Kindle Touch 3G is priced at $149. This top of the line e-reader has the same features as the Kindle Touch, but also offers 3G with no monthly fee or annual contract. This means a user can download books anywhere (in over 100 countries), without having to find or pay for a Wi-Fi hotspot. Perhaps most interesting, though, is the Kindle Fire. This new class of Kindle is priced at $199 and allows users to view all of Amazon’s digital content on a 7-inch full color LCD touch screen. This includes over 100,000 movies and television programs, more than 17 million songs, and over one million books. Magazines, newspapers, applications (apps) and games can also be accessed. The Kindle Fire’s web browser, Amazon Silk, features a split browser architecture that uses the speed and power of the Amazon Web Services Cloud to offer a faster browsing experience. The latest generation Kindle (for $79) is already available, while the Kindle Touch, Kindle Touch 3G, and Kindle Fire will begin shipping in November.
Amazon is expected to sell millions of the Kindle Fire during the upcoming holiday season, and sales ought to remain strong throughout 2012. This tablet device should also facilitate the sale of Amazon’s digital goods and services. Apple currently has much of the market share in the North American arena market, and should remain in the driver’s seat for the foreseeable future. The Kindle Fire may pose something of a challenge to Apple’s (AAPL) iPad tablets, however, which start at $499. Amazon’s device ought to do very well in the lower-end of the tablet market, though we expect the iPad to remain very popular in the higher-end of the market. The Kindle Fire could very well take the number two spot in the tablet market, gaining share at the expense of other Android-based devices. This may compel other Android tablet makers to reduce prices in the coming months. Meanwhile, the Kindle Fire, along with the Amazon Prime streaming service, may also present a challenge to Netflix. On that note,
Netflix’s Troubles Continue
Shares of Netflix (NFLX) have collapsed since July. The company has experienced more than its share of challenges since then. Following an impressive two-year run fueled by considerable growth in the subscriber base on the popularity of the company’s streaming offering, it comes as little surprise that such adverse events resulted in a dramatic selloff. It all started when the company announced a decision to split its streaming and DVD-by-mail offerings into two distinct businesses. The move has upset some customers, and the company has since lowered its domestic subscriber estimates for the third quarter. Netflix has announced plans to separate the two businesses, and will name the DVD-by-mail service Qwikster. Qwikster will now offer video games, as well as movies and television shows. Users who subscribe to both services will have to log in to two different web sites, and manage two different accounts. Moreover, an important partnership with Starz Entertainment has been cancelled. As a result, Starz will not renew a contract that allows Netflix customers to stream recently-released movies and television shows online. In addition, we expect the industry to continue drawing competitors going forward. Current streaming competitors include Hulu Plus and Amazon Prime. Moreover, Dish Network’s (DISH) Blockbuster is also entering the fray.
On the bright side, Netflix has signed a streaming deal with the movie studio DreamWorks Animation, which covers new releases, beginning in 2013. The company also has inked a streaming deal with Discovery Communications for its popular television adventure programs. Moreover, Netflix should now be able to focus entirely on its streaming service, which we expect will prove increasingly important going forward. The company ought to continue benefiting from the popularity of its online streaming offering, and we expect solid growth in the coming years. Efforts to procure exclusive rights for this offering should prove important. That said, investors may prefer to remain on the sidelines until the share price stabilizes, and visibility improves.
Microsoft and Samsung Sign Patent Licensing Deal
Microsoft (MSFT - Free Microsoft Stock Report) has signed an agreement with Samsung Electronics to cross-license the patent portfolios of both companies. This provides broad coverage for both company’s products. As a result, Microsoft will receive royalties for Samsung’s mobile phones and tablets which run Google’s (GOOG) Android platform. Moreover, the companies have agreed to cooperate in the development and marketing of Windows Phone. A number of other companies, which manufacture Android-based devices have also signed licensing deals with Microsoft. This could serve to limit the attractiveness of Google’s Android, with Android-partners having to pay licensing fees to Microsoft.
Alibaba Appears Interested in Purchasing Yahoo!
China’s Internet conglomerate Alibaba appears interested in Yahoo! (YHOO), which currently owns a substantial stake in Alibaba. Alibaba’s Chief Executive Jack Ma has recently indicated he may be interested in purchasing Yahoo!, should the opportunity present itself. Private equity firms may also be eyeing Yahoo!. This isn’t the first time the company has been pursued. Several years back, Microsoft tried to purchase Yahoo!, but the deal fell through. Readers are reminded that nothing substantive has yet been announced. At this point, speculation on a possible deal is just that. Moreover, it remains to be seen whether a potential merger would meet with regulatory approval.
Apple Unveils Next-Generation iPhone
Tech giant Apple, with new CEO Tim Cook at the helm (he recently took over for the company's ailing co-founder, Steve Jobs), unveiled its long-awaited, next-generation iPhone. The new smartphone, dubbed the iPhone 4S rather than the iPhone 5, is set to hit store shelves on October 14th. However, it did not appear to make a great first impression on investors, many of whom had expected a more substantial refresh. Indeed, the large-cap stock slid about 5% immediately following the product announcement, before staging a late-afternoon recovery.
But the latest iPhone installment should be more than sufficient to keep Apple's strong earnings momentum going through fiscal 2012 (began September 25th), even at a time when the company is facing stepped-up competition from rival OEMs using Google's popular Android mobile operating system. The 4S device, which will come in black or white and sell from $199 to $399 (depending on the amount of storage space) with a two-year service contract, does boast some improved features, including new voice recognition capabilities, a faster processor, and a higher-resolution camera. And, in addition to AT&T (T – Free AT&T Stock Report) and Verizon Wireless (VZ – Free Verizon Stock Report), it will now be offered by Sprint Nextel (S). This further move to a multi-carrier distribution model will go a long way, we think, toward helping Apple solidify and grow its market position, particularly here in the United States.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.