It’s the “Gunfight at the OK Corral” in the technology space right now
As has been much reported on this blog, the balance of power within the computer industry continues to shift away from the decades old desktop PC model underpinned by Microsoft Windows. The hardware technology power houses of the past such as Dell and Hewlett Packard are struggling to find their way in a world increasingly shifting to the mobile and tablet space in which Apple, Samsung and Google hold sway. Lower cost producers based in Asia, like Acer and Lenovo (the former IBM PC business) are also increasingly pressurising the traditional PC heavyweights.
As well as the shift in consumer usage, an intellectual property land grab is now well under way in the fast growing mobile computing space with an accompanying blizzard of court room law suits and counter suits. The lawyers have been busy, and the decisions being made will largely dictate who dominates the landscape in years to come. The success of the Apple iPhone and Samsung Galaxy phones have demonstrated how much the consumer has adopted and integrated smart phones into their lives to access many of the functions “on the go” they would have traditionally done on a home work station just a few years ago.
Last week Hewlett-Packard reported a quarterly net loss of $8.9 billion, the largest in its history, driving its shares down to $17.58 at the close on Friday, compared to a recent high of $30 in February. The big loss was driven by large write down’s in its services businesses after a series of disastrous acquisitions over the last few years. The purchase of EDS in 2008 for $14 billion and UK based Autonomy for $10 billion in 2011 proved to be ill advised at the prices paid. More worrying for investors is that revenues dropped 5% to $29.7 billion, compared with the same quarter of 2011 as PC and printer sales continued to decline – unit sales of printers declined 23 per cent and notebooks dropped 12 per cent. Meg Whitman, HP’s chief executive unlike her ousted predecessor, Léo Apotheker, remains committed to the PC market.
Dell shares finished the week at $11.26, down 15% for the year to date after its quarterly earnings on Tuesday night confirmed a similar picture to HP. It is now the 4th largest PC manufacturer, with Lenovo and Acer taking share. Its second quarter profit came in at $732 million, or 42 cents a share, on $14.5 billion in revenue, compared with a earnings of $890 million, or 48 cents a share, on $15.7 billion in sales in the same period a year ago. The company forecast a drop in its third-quarter sales by 2-5%.
The battle in the mobile space also continues apace between Apple and Samsung. On Friday, the closely watched case between the two companies regarding the intellectual property of Apple’s mobile devices came to a head when a US federal court jury found that Samsung had infringed six out of the seven Apple patents under dispute and awarded $1.05 billion in damages.
Apple’s technical patents at issue covered iPhone touch screen features such as “tap to zoom” and “bounce back” scrolling. Its design patents cover iPhone elements such as its edge-to-edge glass front, rounded corners and app icons, as well as the iPad. The jury also found however that Apple did not infringe any of Samsung’s patents at issue in the case and awarded Samsung no damages despite a $400 million claim.
Google must now be sweating a little over its Android mobile platform (which is used in Samsung mobile devices) after the outcome of the Samsung/Apple case. Google’s acquisition of Motorola Mobility for $12.5 billion in May was primarily completed for the mobile manufacturers’s 17,000 patents and 7,500 pending patents to give it more firepower in defending its Android IP. Motorola/Google has filed a complaint with the US International Trade Commission, alleging that the iPhone’s location reminders, email notification and video playback features all infringe its intellectual property.
Apple’s co-founder Steve Jobs always believed that Google’s Android system was a copycat of its Iphone operating system and pledged to do everything in his power to kill it before his untimely death on October 5th 2011, a task he handed to his successor Tim Cook. The outcome of the Apple-Samsung case last week gives Apple the edge so far but Google and Samsung aren’t going anywhere fast in defending their belief that they have created separate and unique intellectual property.
From a mobile smart phone and tablet user perspective, it has to be a good thing that Samsung and Apple play a role in this arena in addition to Apple to drive further innovation and maintain healthy competition. It will be interesting to see how things play out over coming months. Whether Research in Motion (maker of the Blackberry) and Nokia feature in this emerging space is also the big question. They have stumbled badly so far and whether they can really outmanoeuvre the current leaders seems debatable as independent entities. It seems evident that to really compete, they need to partner or be bought by other players who really understand the mobile consumer.
Contrarian Investor UK
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