Yesterday was an epic, game-changing day for Google (GOOG:NASDAQ). It alters the landscape in the smartphone industry. In one expensive move, Google made its first foray into proprietary hardware territory. The move was another kick in the head for top competitor Research In Motion (RIMM:NASDAQ).
Google is now a hardware manufacturer. Never in the history of the company has it produced a product that consumers can actually hold in their hand.
At $12.5 billion, the purchase of Motorola Mobility (MMI:NYSE) is a drop in Google’s big cash bucket. Motorola produces high-quality phones and has a clean reputation with most consumers in the smartphone industry (not like RIMM). This will be a major leap for Google and a catalyst to propel it higher in the coming years.
MMI lacked a marketing catalyst and its brand was lost in the shuffle. That made it a prime candidate for Google to snap it up.
That, and this: Motorola Mobility’s 17,000 patents.
They are a sort of immunity to the lawsuits that happen so frequently in the smartphone industry. With the patents in its pocket, Google can focus on creating a "super phone" that integrates all the best features of its Android system with a sleek, functional, high-quality piece of hardware.
Apple is the only other company that does this. But unlike Apple, Google will still license its operating system to other phone manufacturers. That means increased partnerships with demand for new apps and functions. This could hurt Apple.
Apple doesn’t share well. It must have missed that lesson in kindergarten. The company lost a similar battle to Microsoft in the ’80s. Apple only offered its operating system on its own computers, while Bill Gates let anyone buy a copy. This sent Apple into a 12-year hole and made Microsoft one of the most profitable companies in history.
It may not be that bad this time around, but Apple has a serious, more powerful contender in Google (Android). It’s now both the top-selling mobile platform in the world and the largest aggregator of all types of information in the world. This gives Google an extreme edge.
Frankly, the other phone manufacturers don’t have anywhere to go, unless of course they want to run Windows Mobile, which is currently only 9% of the U.S. market. That wouldn’t be smart.
Google is the Microsoft of the new millennium, only smarter, more nimble and with a much larger potential reach. When Bill Gates was at the top of his game, he could only dream of the things that Google is now capable of.
I would be buying Google here.
RIMM’s Smartphone Future
Everyone loves the underdog, but I doubt that this fight is going to end for RIMM like it does in the Rocky movies. Sadly, the Canadian phone manufacturers still has some beatings to take and won’t win this one. Some investors think that a company like Microsoft, Dell or Hewlett-Packard will come in and buy the company for their large subscriber base.
Of course, adding 77 million RIMM subscribers to your platform is a great way to achieve a critical mass of customers right away and RIMM does have unique security features that set it apart from Android or iPhone.
But a purchase of a company like RIMM has a downside. The company is losing serious market share to Apple and Android. Its phone and tablet design is dull and its operating system drab and outdated, which would mean some serious research and development time and costs for the acquirer. The worst part about RIMM is its application selection (app store) pales in comparison to Apple and Android.
Buying a RIMM phone is like buying a computer that no one makes software for.
To put it bluntly, RIMM needs to be bought by a company that is willing to bet it all and has little left to lose. Dell, HP and Microsoft all fit the bill. Yes, RIMM stock is relatively cheap, but many said Nokia was cheap when its shares were at $16. They fell below $5 recently.
If you are a risk taker, you can buy RIMM below $27, but I would keep it small and stick to the stock.
The one thing you don’t want to do is make the mistake that many investors did with MMI.
Who Bought MMI and Lost Yesterday?
You would think that just about everyone was a winner in MMI yesterday. Google is paying $40 in cash per share, more than MMI has ever traded for since coming public in late 2010. But there were losers…
Investors who bought out-of-the-money call options with a strike price of 40 or more lost ALL their money. Even options that expire all the way out till January 2013 are now practically worthless.
A good friend of mine used to say, "If you don’t know what you are doing, you’re gonna hurt yourself." Unfortunately, for many this was a tough lesson to learn.
Most likely these call buyers were speculating on a takeover. The worst part is that they were right, but they picked the wrong option! Options can increase your chance of success in a trade and they can multiply your returns exponentially, but when used incorrectly, they can hurt you.
Written by Jared Levy for Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed. Republish without charge. Required: Author attribution, links back to original content orwww.taipanpublishinggroup.com.