ImaginativePRO Blog

ROBOTICS INDUSTRY SETS BANNER YEAR FOR ACQUISITIONS, $18.867 BIL PAID TO ACQUIRE 50 ROBOTICS COMPANIES IN 2016

2016 was a banner year for acquisitions of companies involved in robotics and automation: 50 sold; 11 for amounts over $500 million; five were over a billion. 30 of the 50 companies disclosed transaction amounts which totaled up to a colossal $18.867 billion!

Chinese money was involved in over 47% of those acquisitions. Kuka by Midea, Dematic by Kion, KraussMaffei by ChemChina, Paslin by Wenfang, Gimatic by Agic Capital, Ecoclean by SBS Group to name the top ones.

Top 10 Robotics Acquisitions in 2016

• KUGA AG - Acquired by Midea Group - $5.110 Billion - In a complex stock play over the course of many months, Chinese consumer products manufacturer Midea Group acquired over 94% of the outstanding and privately held shares of KUKA AG, a Germany-based robot manufacturers and one of the Big Four of international robot makers. The approval process involved negotiations with the German and US governments, the selling off of KUKA Aero (which is involved in sensitive aerospace technologies) to AIT (see below), and an agreement regarding jobs and plants in Germany which will be protected until the end of 2023. Also Midea agreed not to pursue a domination agreement or de-listing of KUKA’s shares.
• DEMATIC - Acquired by Kion Group - $2.1 Billion - The Kion Group, with funding from their Chinese partner, acquired Dematic Corp. for $2.1 billion. Kion’s biggest single shareholder is Chinese diesel-engine maker Weichai Power with a 38.3% stake. Kion has been on a tear acquiring all sorts of companies in the logistics sphere: Egemin, Linde, Retrotech and now Dematic.
• INTELLIGRATED - Acquired by Honeywell - $1.5 billion - Honeywell's material handling solutions are somewhat old school, hence their need to strategically acquire newer technology. Intelligrated has been a successful integrator of mobile and stationary robotic solutions and systems for 20+ years for manufacturing, warehousing and distribution material handling and automated storage and retrieval. In recent years the company has posted double-digit year-over-year growth. Intelligrated brings a large IP portfolio of warehouse automation, order fulfillment and software solutions and has an extensive presence in North American e-commerce and the retail, and food and beverage markets.
• AFFYMETRIX - Acquired by ThermoFisher - $1.3 billion - ThermoFisher Scientific acquired Affymetrix for $1.3 billion. Adding Affymetrix's products will help ThermoFisher expand its array of lab equipment and robots into biosciences and genetic analysis workflows.
• INVENSENSE - Acquired by TDK Corporation - $1.3 billion - TDK Corporation acquired InvenSense, Inc. for $1.3 billion. InvenSense provides motion sensors, and is known for its six- and nine-axis motion sensors, which are used in some advanced consumer products and applications. Recently it has added inertial, environmental, microphone, and ultrasonic sensors to its product line.
• KRAUSSMAFFEI AUTOMATION - Acquired by ChemChina - $1 billion - ChemChina and a group of other investors including Chinese state funds, acquired Germany’s KraussMaffei Automation, an industrial robot integrator and plastics, carbon fiber, and rubber processor, for $1 billion.
• ARCAM AB - Acquired by GE - $800 million - Arcam AB, based in Mölndal, Sweden, was acquired by GE. Arcam invented an electron beam melting machine for metal-based additive manufacturing, and also produces advanced metal powders. Its customers are in the aerospace and healthcare industries. Arcam generated $68 million in revenues in 2015 with approximately 285 employees.
• E2V - Acquired by Teledyne Technologies - $780 million - Teledyne Technologies, which specializes in deepwater gas and oil exploration and production, oceanographic research, air and water quality environmental monitoring, electronics design and development, factory automation and medical imaging, acquired British imaging sensor maker E2V Technologies in an all cash $780 million transaction. E2V's imaging devices, machine vision cameras for sensitive, high speed inspection processes, industrial processing systems, and other sensors, enable a range of industrial robotic and automation systems to work more efficiently and for space science and astronomy applications.
• OTTO MOTORS - Acquired by Uber - $680 million - Otto Motors, a San Francisco startup developing self-driving truck system kits, was acquired by Uber for $680 million. The deal was worth about 0.9% of Uber. Also part of the deal, Otto gets 20% of any trucking business profits they end up creating. Anthony Levandowski, a former Google engineer and one of Otto’s founders, will take charge of Uber’s self-driving car operations as well as continuing to run Otto’s trucking business.
• CRUISE AUTOMATION - Acquired by General Motors - $600 million - General Motors acquired Cruise Automation, a startup that was developing autopilot systems for existing cars, for an undisclosed sum but, according to Fortune magazine, a figure "north of $1 billion." This figure was later modified to $600 million. GM has stated their goal of creating the industry’s biggest driverless-vehicle fleet which is why GM paid such a steep purchase price for Cruise, invested $500 million into Lyft, and another $25 million to acquire the employees and technology left over from Sidecar, a ride-sharing service that shut down last December. Certainly these acquisitions are both a talent and a technology grab to help GM facilitate their fleet-vehicle goal.
• SLM SOLUTIONS GROUP - Acquired by GE - $600 million - SLM Solutions Group, based in Lübeck, Germany, produces laser machines for metal-based 3D additive manufacturing with customers in the aerospace, energy, healthcare, and automotive industries. SLM generated $74 million in revenues in 2015 with 260 employees.

There were also several robotics acquisitions where financial information was not disclosed.

Top 10 Robotics Acquisitions Where Financial Information Was Not Disclosed

• AERIAL MOB - Acquired by 5D Robotics - Price Not Disclosed - 5D Robotics, a San Diego area integrator of unmanned and mobile robotics using ultra-wide band (5D) communications, acquired Aerial MOB, a drone aerial cinematography startup. The acquisition has led to the formation of the 5D Aerial division which will provide 3D mapping, photogrammetry, thermal and multi-spectral imagery data to vertical markets including oil and gas, utilities and construction.
• ASCENDING TECHNOLOGIES - Acquired by Intel - Price Not Disclosed - Ascending Technologies, a German provider of autopilot systems, unmanned aircraft systems and multi-rotor technology for professional, civil and research applications, was acquired by Intel. At CES, Intel showed off Ascending's technology in a colorful video of 100 drones performing a light show in time with an orchestra playing a Beethoven Symphony. Intel gains expertise and technology (and 75 new employees) to accelerate the deployment of Intel RealSense technology into the fast growing drone market segment.
• BLUEFIN ROBOTICS - Acquired by General Dynamics - Price Not Disclosed - Bluefin Robotics was acquired by the Mission Systems unit of General Dynamics. Bluefin is a Massachusetts-based developer of autonomous undersea robots used for mine countermeasures, anti-submarine warfare and intelligence, surveillance and reconnaissance applications for the DoD.
• EAGLE SCOUT IMAGING - Acquired by Deveron UAS - Price Not Disclosed - Deveron UAS (previously Deveron Resources, a Canadian mineral exploration company) acquired Eagle Scout Imaging, an agricultural UAS data provider, for an undisclosed amount with the goal of renaming and rebranding Eagle Scout Imaging and Deveron Resources into Deveron UAS, a provider of aerial data to farmers.
• ERGOPEDIA - Acquired by Pasco Scientific - Price Not Disclosed - Pasco Scientific, a provider of educational robots, acquired Ergopedia, the maker of the ErgoBot educational bot.
• GATEWING (A TRIMBLE SUBSIDIARY) - Acquired by Delair-Tech - Price Not Disclosed - Delair-Tech, a French UAS manufacturer, acquired Gatewing from Trimble and also signed a strategic alliance with both Trimble and Microdrones, a German UAS maker, to be Trimbles preferred providers for UAS solutions. 100+ Gatewing employees are involved in the transaction.
• GROHMANN ENGINEERING - Acquired by Tesla - Price Not Disclosed - Tesla acquired Germany’s Grohmann Engineering, an integrator of factory systems technology including robotics. Tesla will turn Grohmann into a new subdivision dedicated to helping Tesla increase the automation and effectiveness of its manufacturing process. Although no disclosure was made regarding how or how much was paid, Grohmann’s 2015 revenue was $125 million and they employ around 800 people in facilities in Germany, the US and China.
• HOCOMO - Acquired by DIH International - Price Not Disclosed - Hocomo, a Swiss provider of robotic and sensor-based rehabilitation solutions, merged with Chinese DIH International to provide comprehensive rehab solutions. DIH International is a corporate holding group from Hong Kong with offices in China, Korea, the Netherlands and the US.
• JAYBRIDGE ROBOTICS - Acquired by Toyota - Price Not Disclosed - In a move similar to the 2015 deal where Uber hired almost the complete staff of CMU's NREC, Toyota hired the entire 16-member software engineering staff of Jaybridge Robotics, the company providing software automation of industrial vehicles across a range of industrial applications including agriculture, mining, marine, and rail. Jaybridge-engineered autonomous systems have logged thousands of hours in the hands of end-users. Jaybridge Robotics, Inc. remains an independent company and will continue to provide support for existing clients.
• KUKA AERO - Acquired by Advanced Integration Technology - Price Not Disclosed - Advanced Integration Technology (AIT) acquired KUKA Systems Aerospace North America (KUKA Aero), in a carve-out transaction to comply with U.S. regulators who objected to KUKA's sale to Chinese consumer products manufacturer Midea. The KUKA Midea transaction was subsequently approved.

Why All The Acquisitions?

A push by some of the world’s largest corporations to find new avenues to expand in the face of anemic or problematic economic growth led to major acquisitions in areas adjacent to their core business.

Chris Ventresca, global co-head of M&A at JPMorgan Chase & Co said.

“Companies are reinventing themselves, looking at their business in a new way with regards to how can they be a disrupter, and how they can prevent being disrupted – and this opens up deal flow”

Enrico Krog Iversen, who sold Danish Universal Robots to American Teradyne in 2015, when asked why his company didn't go public, said:

"Exiting to a larger company will often make sense not only for financial reasons, but also for people reasons – opening up for new/more career opportunities. You will become part of something bigger and can instantly get access to additional resources. Naturally there are also some political considerations if you choose this path. You will probably get access to a very strong board who can help you develop the company faster.

An IPO may bring more money on paper, but it is a very restricted way to exit and it is also very bureaucratic to run a listed company. In our case, I preferred to have a good sum of money in the bank instead of a lot of money on paper. Also I did not personally fancy all the bureaucracy and politics that goes with being CEO of a listed company."

COMMENTARY:  Of the 48 acquisitions thus far in 2016, only 30 disclosed the amounts involved. However those 30 transactions totaled an astounding $17.5 billion!!

Courtesy of an article dated January 5, 2017 appearing in The Robot Report and an article dated December 13, 2016 appearing in The Robot Report 

 

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WHY MICROSOFT ACQUIRED PROFESSIONAL SOCIAL NETWORK LINKEDIN, AND WHY THE DEAL COULD WORK

Microsoft Chief Executive Satya Nadella (bald dude) together with CEO Jeff Weiner (bearded dude) and Chairman Reid Hoffman (the fat dude) has said LinkedIn will be allowed significant autonomy after the acquisition.  (Click Image To Enlarge)

Microsoft and LinkedIn are a natural fit, and the deal may fare better than Microsoft’s past acquisitions

The companies jointly announced the deal: Microsoft will pay $196 a share in cash for LinkedIn, which will retain its brand, culture and independence under the new structure. CEO Jeff Weiner will remain at the helm, reporting to Microsoft CEO Satya Nadella.

Both Weiner and Reid Hoffman -- LinkedIn chairman and controlling shareholder -- fully support the deal, and the both companies' boards have agreed to the acquisition. Microsoft will report LinkedIn as part of its Productivity and Business Process segment.

The companies share a mission to empower the global workforce, Nadella said in a Monday morning conference call.

He remarked.  

"When we talk about Microsoft's mission, we talk about empowering every person and every organization on the planet to achieve more.  There is no better way to really realize that mission than to connect the world's professionals to make them more productive and successful."

Professional Network

LinkedIn has grown its membership about 19 percent year-over-year to 433 million members worldwide. The network has 105 million unique members on the site per month, and 45 billion quarterly page views.

However, the company has seen its stock price falter in recent months in response to its warnings of shortfalls in projected revenue.

Mike Jude, a program manager at Stratecast/Frost & Sullivan, said.  

"By combining professional social media with their Web-based business offerings, they have the potential to develop an extremely powerful collaborative environment that crosses business lines." 

Microsoft can benefit by adding new business features to LinkedIn, but it could alienate LinkedIn members if it should push too hard to leverage their data for marketing and sales opportunities, he told the E-Commerce Times.

Many professionals use LinkedIn as their homepage -- similar to the way hardcore Facebook users begin and end their days, noted Jeff Kaplan, managing director of ThinkStrategies.

Salespeople often use LinkedIn as the default application for pursuing new business -- even more than they use CRM or other sales or marketing automation tools, he told the E-Commerce Times.

Kaplan said.

"Creating tighter linkages between LinkedIn's capabilities and Microsoft's Office 365 productivity/collaboration and its Dynamics CRM will [demonstrate] immediate benefits of the acquisition.  In addition, it will encourage more developers to build applications on Azure PaaS that leverage the LinkedIn and Microsoft functionality, and store the data in the Azure IaaS."

Despite the potential benefits of combining LinkedIn's social network with Microsoft's cloud infrastructure, it's questionable whether Microsoft can pull off a successful integration. The company has fallen short with some recent acquisitions.

Poor Track Record

Kevin Krewell, principal analyst at Tirias Research, told the E-Commerce Times.

"I'm usually skeptical of big deals like this.  The last huge acquisition by Microsoft was Nokia, and that didn't end well, with Microsoft eventually writing down most of the value of the deal."

However, Nadella may avoid some of the mistakes of previous executives, Krewell suggested, adding that there are synergies between the Office 365 cloud base and LinkedIn that can be exploited.

In addition, Linkedin has in-app messaging capabilities that could be integrated into Microsoft's Skype video, phone and messaging application, Tirias Principal Analyst Paul Teich told the E-Commerce Times. The deal also provides Microsoft with a network of business influencers to analyze with its deep learning tools.

Microsoft Corp.’s planned acquisition of LinkedIn Corp. potentially is a very savvy move, though you would be hard-pressed to discern that.

There are lots of reasons for skepticism. The price tag, for one. At $26.2 billion, it is by far Microsoft’s largest acquisition ever. The size alone is a reason for caution, given the sorry history of such large deals.

Then, there is Microsoft’s own checkered history with acquisitions. It has recorded write-downs exceeding the $9.4 billion it paid for the handset unit of Nokia Corp. in 2014. Earlier deals for Skype Technologies and Yammer Inc., designed to bolster Microsoft’s digital and social credentials, did little of either.

But this deal can succeed where the others failed.

Here’s why.

Real Synergy

There is real synergy between the companies and their products, particularly Microsoft’s Office productivity suite—now delivered primarily online—and LinkedIn’s core database of more than 400 million mostly professional profiles.

As Microsoft Chief Executive Satya Nadella told The Wall Street Journal,

“It’s really the coming together of the professional cloud and the professional network.”

In other words, we now work by toggling between our productivity software and our social networks. But why should the two be separate?

 

Microsoft CEO Satya Nadella and LinkedIn CEO Jeff Weiner discuss Microsoft's acquisition of LinkedIn. Learn more at: http://news.microsoft.com/?p=298414

Mr. Nadella is betting that were these two concepts reconceived today, they would be one.

LinkedIn Demographics Match Those of Microsoft

LinkedIn’s users are, arguably, Microsoft’s core demographic. They also offer Microsoft something it has long sought but never had—a network with which users identify. Microsoft needs to persuade LinkedIn users to adopt that identity, and use it across as many Microsoft products as possible.

Access to those users, as well as the enormous amounts of data they throw off, could yield insights and products within Microsoft that allow it to monetize its investment in LinkedIn in ways that the professional networking site might not be able to. Mr. Nadella already has mentioned a few of these, including going into a sales meeting armed with the bios of participants, and getting a feed of potential experts from LinkedIn whenever Office notices you’re working on a relevant task.

Microsoft's CRM Software Could Get Revenue Boost

LinkedIn also could supercharge Microsoft’s Customer Relationship Management (CRM) software, used to identify and track sales leads. Microsoft is in fourth place in market share among the large CRM players, including Salesforce.com Inc., SAP SE and Oracle Corp.

Enterprise Resource Planning (ERP) Software Market Shares Year 2015 (Click Image To Enlarge)

Top Six Enterprise Resource Planning (ERP) Software Vendors in Millinos Revenus For The Year Ending 2015 (Click Image To Enlarge)

Top 10 Enterprise Resource Planning Software Vendors by Revenues in Millions, Year 2015 vs 2014 (Click Image To Enlarge)

Salesforce is the market leader, but it holds a minority of the complex and sometimes ill-defined market.

LinkedIn already has its own CRM-type product, LinkedIn Sales Navigator, but more important, it has the data and reach that any CRM company would covet.

If CRM is ultimately about managing relationships, what better vehicle for that than an existing social network with its built-in insight about who is connected to whom?

LinkedIn shares fell by nearly half in a single day in February when the company issued a gloomy sales outlook. Michael Wade, professor of innovation and strategy at Switzerland-based business school IMD, says the company hasn’t lived up to its potential for a while.

Mr. Wade says LinkedIn hasn’t evolved quickly enough beyond its roots as a recruiting tool and job-search site. Most of its users aren’t looking for a job, and LinkedIn has so far done a poor job of getting them to come back to the site regularly to connect with and expand their professional networks. Only about one quarter of LinkedIn’s 400 million “cumulative” users return to the site every month.

That brings us to perhaps the biggest reason why the deal may succeed: Mr. Nadella. Put bluntly, Microsoft today is a very different company than the one that acquired Nokia, Skype or Yammer. Under Mr. Nadella’s predecessor, Steve Ballmer, Microsoft sought to drive users to its platforms, primarily Windows.

As a corollary, that meant that acquisitions were quickly integrated with other Microsoft products and development of new features slowed.

Mr. Nadella has shown a willingness to meet users where they are, even if that is devices running Apple Inc.’s iOS or Alphabet Inc.’s Android mobile operating systems. On Monday, Mr. Nadella said LinkedIn will be allowed significant autonomy, similar to Microsoft’s handling of Minecraft maker Mojang.

That would mean walking a fine line between autonomy and synergy.  The longer the rope that Mr. Nadella gives LinkedIn CEO Jeff Weiner, the less benefit there may be to Microsoft’s products.

But don’t bet against him. If Mr. Nadella can re-energize an organization as big and legacy-bound as Microsoft, who is to say he can’t do the same for 13-year-old LinkedIn.

COMMENTARY:    For Microsoft CEO Satya Nadella, the culture created inside the walls of any company isn't just important, "it's everything."

Nadella, who spoke with USA TODAY in anticipation of his keynote address Tuesday at Salesforce's annual Dreamforce customer event, says "ultimately what any company does when it is successful is merely a lagging indicator of its existing culture.  He says.

"At Microsoft, we're aspiring to have a living, learning culture with a growth mindset that allows us to learn from ourselves and our customers.  These are the key attributes of the new culture at Microsoft, and I feel great about how it seems to be resonating and how it's seen as empowering."

Microsoft has been in the throes of a small cultural revolution, one largely guided by longtime employee Nadella. Where Microsoft's ethos under predecessors such as Steve Ballmer and co-founder Bill Gates had autocratic and anti-Silicon Valley overtones, the company has made concerted efforts in the past few years to both promote internal dialog as well as forge external relationships.

Where Microsoft employees once received mandates from the C-suite, today they share ideas at company-wide hackathons. And where Microsoft once had combative relationships with rivals such as Apple, today the company has forged a variety of new partnerships with Salesforce, Box, as well as Apple. These moves are seen by many analysts as make-or-break plays to try and position Microsoft for growth in a competitive cloud- and mobile-first world.

Another big tech issue of the day is finding talent, due to a small pool of engineers being chased by a growing number of tech enterprises. In Silicon Valley, new hires are often wooed by six-figure salaries and promises of perks ranging from in-house chefs to flexible work schedules. Given such lavish overtures, a recent report in The New York Times that described a toxic work environment at Amazon caused a stir in social media circles.

Nadella doesn't hesitate when asked about the Amazon workplace debate, though he doesn't mention the cross-town company by name.  Nadella says.

"The notion of having work-life harmony in a highly competitive economy is a first-class topic.  I think the key is to make sure you're engaging in a dialog with your employees. There also needs to be flexibility in all the (workplace) policies that someone like me sets and propagates. You cannot have people burn out. It's bad for your company, and it's bad for society."

Whether LinkedIn's more casual, entrepreneurial, and innovative culture under CEO Jeff Weiner and Chairman Reid Hoffman will mesh with the corporate style of Microsoft under CEO Nadella will meh remains to be seen.  Some hints may be found in what Jeff Weiner said as a reason why he sold LinkedIn to Microsoft.

“The Microsoft that has evolved under Satya’s leadership is a more agile, innovative, open and purpose-driven company,” Weiner wrote. “It was the latter point that first had me thinking we could make this work, but it was his thoughts on how we’d do it that got me truly excited about the prospect.”

Inside LinkedIn's Numbers

On April 28, 2016, LinkedIn reported their financial results for first quarter 2016.

Jeff Weiner said.

"We are off to a good start in 2016 with strength in our core and emerging businesses, and we continue to invest heavily in innovation and in our core products, while at the same time driving focus and scale to enable growth and leverage across the business.

Total revenue increased 35% year-over-year to $861 million.

Talent Solutions revenue increased 41% year-over-year to $558 million.

• Hiring revenue contributed $502 million in revenue, up 27% year-over-year.
• Learning & Development contributed $55 million in revenue.

Marketing Solutions revenue increased 29% year-over-year to $154 million.

Premium Subscriptions revenue increased 22% year-over-year to $149 million.

Adjusted EBITDA was $222 million, or 26% of revenue.

GAAP net loss attributable to common stockholders was $46 million and non-GAAP net income was $99 million.

GAAP diluted EPS was $(0.35), compared to last year's performance of $(0.34). Non-GAAP diluted EPS was $0.74, compared to $0.57 last year.

I highly encourage you to review associated materials, including our GAAP and non-GAAP reconciliation. [1]

I will co-host a webcast/conference call with our CEO Jeff Weiner to discuss our financial results for the fourth quarter and full year 2015 and business outlook today at 2:00PM Pacific Time.

See slides below.

LinkedIn Q1 2016 Earnings Call from LinkedIn 

Courtesy of an article dated June 16, 2016 appearing in The Wall Street Journal and an article dated June 13, 2016 appearing in eCommerce Times and an article dated April 6, 2016 appearing in Apps Run The World and an article dated June 13, 2016 appearing in Time and an article dated September 15, 2015 appearing in USA Today

FACEBOOK TO ACQUIRE OCULUS VR, THE LEADER IN IMMERSIVE VIRTUAL REALITY TECHNOLOGY FOR $2 BILLION

In a press release, Oculus VR announced its acquisition by Facebook Inc (NASDAQ:FB) in a cash and shares deal worth around $2 billion. The acquisition positions Facebook to accelerate Oculus’ growth in gaming, communications and new social experiences.  

MENLO PARK, CALIF. – March 25, 2014 – Facebook today announced that it has reached a definitive agreement to acquire Oculus VR, Inc., the leader in immersive virtual reality technology, for a total of approximately $2 billion.  This includes $400 million in cash and 23.1 million shares of Facebook common stock (valued at $1.6 billion based on the average closing price of the 20 trading days preceding March 21, 2014 of $69.35 per share).  The agreement also provides for an additional $300 million earn-out in cash and stock based on the achievement of certain milestones.

 

Oculus VP Product Nate Mitchell introduces the Oculus VR Development Kit 2 during an interview with Tested at the Game Developer's Conference 2014 in San Francisco on March 19, 2014.  

Oculus is the leader in immersive virtual reality technology and has already built strong interest among developers, having received more than 75,000 orders for development kits for the company’s virtual reality headset, the Oculus Rift.

Click Image To Enlarge

While the applications for virtual reality technology beyond gaming are in their nascent stages, several industries are already experimenting with the technology, and Facebook plans to extend Oculus’ existing advantage in gaming to new verticals, including communications, media and entertainment, education and other areas. Given these broad potential applications, virtual reality technology is a strong candidate to emerge as the next social and communications platform.

Click Image To Enlarge

Facebook founder and CEO, Mark Zuckerberg said. 

“Mobile is the platform of today, and now we’re also getting ready for the platforms of tomorrow.  Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate.”

Click Image To Enlarge

Brendan Iribe, co-founder and CEO of Oculus VR said. 

“We are excited to work with Mark and the Facebook team to deliver the very best virtual reality platform in the world.  We believe virtual reality will be heavily defined by social experiences that connect people in magical, new ways.  It is a transformative and disruptive technology, that enables the world to experience the impossible, and it’s only just the beginning.”

Oculus will maintain its headquarters in Irvine, CA, and will continue development of the Oculus Rift, its ground-breaking virtual reality platform.

The transaction is expected to close in the second quarter of 2014.

In the following YouTube video, Dan from The Diamond Minecart uses Oculus VR's Rift virtuality headset with Minecraft, a VR game, to demonstrate Rift's VR capabilities.   Judging from Dan's overall enthusiasm and joy using Rift, and fun riding Harold the Pig (an animal character in Minecraft), it appears that Rift is going to be a runaway best seller.  75,000 Oculus VR development kits 2 have been presold as a testatment. 

 

In acquiring Oculus VR, Facebook is banking that games, communications and social media apps will go VR in a big way, and we will all be wearing these VR goggles in the same way we watch videos and our friends via two-way videoconferences.   

Webcast and Conference Call Information

Facebook will host a 30-minute conference call to discuss the acquisition at 3:15 P.M. PDT / 6:15 P.M. EDT today. The dial-in number for the call is (866) 751-3284 (toll free) and (973) 935-8772 (international); participants will be connected by an operator.  The live webcast of the call can be accessed at the Facebook Investor Relations website at investor.fb.com. Facebook uses the website http://investor.fb.com as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD.

Following the call, a replay will be available at the same website.  A telephonic replay will be available for one week following the conference call at (855) 859-2056 or (404) 537-3406, conference ID 18971947.

COMMENTARY:   The virtual reality headset, the gizmo that was supposed to seamlessly transport wearers to three-dimensional virtual worlds, has made a remarkable return at this year's Game Developers Conference, an annual gathering of video game makers in San Francisco.

After drumming up hype over the past year and banking $2.4 million from crowdfunding, the Irvine, Calif.-based company Oculus VR captured the conference's attention this week with the Oculus Rift, its VR headset that's more like a pair of ski goggles than those bulky gaming helmets of the 1990s that usually left users with headaches.

Oculus VR founder Palmer Luckey said. 

"Developers who start working on VR games now are going to be able to do cool things. This is the first time when the technology, software, community and rendering power is all really there."

While VR technology has successfully been employed in recent years for military and medical training purposes, it's been too expensive, clunky or just plain bad for most at-home gamers. Oculus VR's headset is armed with stereoscopic 3-D, low-latency head tracking and a 110-degree field of view, and the company expects it to cost just a few hundred bucks.

A line at the conference snaked around the expo floor with attendees waiting for a chance to plop the glasses on their head and play a few minutes of "Hawken," an upcoming first-person shooter that puts players inside levitating war machines.

Attendance was also at capacity for a Thursday talk called "Virtual Reality: The Holy Grail of Gaming" led by Luckey. When he asked the crowd who'd ordered development prototypes of the technology, dozens of hands shot into the air.

Simon Carless, executive vice president at UBM Tech Game Network, which organizes the Game Developers Conference said. 

"There's been a lot of promise over several decades with the VR helmet idea, but I think a lot of us feel like Oculus and other devices like it are starting to get it right.  We may have a competitive and interesting-to-use device, which you could strap to your head and have really immersive gaming as a result."

Sony Corp. and Microsoft Corp. are reportedly working on similar peripherals, as are other companies. Luckey contends that the innovations Nintendo Co. made with its Wii U, Sony is planning with its upcoming PlayStation 4, and Microsoft is likely tinkering with for its successor to the Xbox 360 don't seem like enough.

Luckey said.  

"We're seeing better graphics and social networks, but those aren't things that are going to fundamentally change the kind of experiences that gamers can have."

A growing list of high-profile game makers have sung the device's praises, including Atari founder Nolan Bushnell, "Minecraft" mastermind Markus Persson, id Software's John Carmack, "Gears of War" chief Cliff Bleszinski and Valve boss Gabe Newell.

Valve is planning to release a VR version of its first-person shooter "Team Fortress 2" for the Rift, but Luckey is hoping that designers in attendance at this week's conference begin creating games especially for the doodad.

Luckey noted.

"The doors are already open.  People are already telling us things they want to do with the Rift that they can't do with traditional games."

Luckey said prototype versions of the technology are being distributed to developers now, and he anticipates releasing a version for consumers by next year.

Forecast:  200,000 Virtual Reality Headset Units Sold by End of 2014, $60 Million Market Size

Announcements made at GDC last week by Sony and Oculus have helped to firm-up the state of the consumer virtual reality market in 2014. For those of you who didn’t catch the GDC news…..

• Oculus confirmed that the second iteration of the developer kit (DK2) will be shipping in July 2014.
• Sony showcased Project Morpheus, their VR headset. However, this will not be shipping in 2014 and instead is rumoured to be available early 2015.

Back in January KZero Worldwide released its State of the Market report and accompanying market sizing analysis.  In its market sizing assessment Kzero forecasted a total of 200,000 VR headset units sold in 2014, yielding a  market value of $60 million (at an average sales price of $300). It looks like KZero's forecast was pretty accurate for the following reasons:

• Oculus has sold 60,000 DK1 units to date (with sales now suspended for this version). Of this 60,000, circa 20,000 were sold in 2014 (Kzero estimated).
• Kzero expects the vast majority of DK1 buyers to purchase at least one DK2, meaning circa 60,000 – 80,000 repeat unit sales from these existing customers.
• With interest in VR and Oculus continuing to grow through 2014, Kzero forecasts at least 100,000 new sales (from new buyers) in 2014 once DK2 is released.

Kzero's five year unit sales forecast is shown below. Post 2014, its forecast is based on the following assumptions:

• In 2014 Oculus is the only company selling a virtual reality headset. So, its 2014 forecast numbers for the market is essentially a forecast for Oculus.
• Sony enters the market Q1 2015 with a consumer version of Project Morpheus.
• Oculus also launches their consumer version (CV1) in Q1 2015.
• Microsoft and potentially three other major companies enter the market towards the end 2015.  Kzero anticipates Samsung, Apple, Google and LG to be in the mix.
• Other hardware start-ups launch consumer VR headsets throughout 2015  and 2016.
• Hardcore gamers and Innovators drive initial sales (these are the people purchasing DK1 and 2).
• Early adopters and light gamers boost sales supported by the Early Majority and the Teen market from 2015, ramping up from 2016 onwards.

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Total unit sales in 2015 is forecasted at 5.7 million, rising to 10.9 million in 2016 with the VR market establishing itself as a serious contender in the global gaming and entertainment marketplaces. Over the full five year period of 2014 to 2018, Kzero forecasts total cumulative unit sales of 56.8 million.

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Kzero's Slideshare presentation containing more detailed market forecasts for consumer virtual reality is shown below. For more insight into the Virtual Reality market you can order our State of the Market report for free here.

Courtesy of an article dated March 25, 2014 appearing in ValueWalk and an article dated March 19, 2014 appearing in Kzero Blog

FACEBOOK TO ACQUIRE TEXT MESSAGING APP 'WHATSAPP' IN $16 BIL IN STOCK AND CASH DEAL PLUS $4 BIL IN RESTRICTED STOCK

Facebook has entered into an agreement to acquire WhatsApp, the popular messaging app, for $16 billion in cash and stock, according to a filing Wednesday.

The deal is by far Facebook's largest acquisition to date and comes after rumors in late 2012 and early 2013 that Facebook and Google were vying to buy the messaging service.

According to the filing, Facebook has agreed to pay $12 billion in stock and $4 billion in cash for the company. Facebook has also agreed to pay an additional $3 billion in restricted stock units to WhatsApp's founders and employees as part of the deal, which would bring the total deal price to about $19 billion.

 Whatapp co-founders Jan Koum and Brian Acton (Click Image To Enlarge)

WhatsApp, founded in 2009 by former Yahoo engineers Jan Koum and Brian Acton, is the most popular of a set of mobile messaging apps that some argued posed a threat to Facebook's business. The app served as an alternative to SMS by letting users send messages for free across smartphone platforms. It currently has more than 450 million people who use the app every day.

Mark Zuckerberg, Facebook's cofounder and CEO, said in a statement.

"WhatsApp is on a path to connect 1 billion people. The services that reach that milestone are all incredibly valuable.  I've known Jan for a long time and I'm excited to partner with him and his team to make the world more open and connected."

On an investor call that followed the announcement, Zuckerberg added:

"The growth rate they have today and the monetization that's early but promising and in place, we see a clear trajectory ahead and are excited to work together on this."

Whatsapp homepage (Click Image To View)

Unlike Facebook, WhatsApp does not make money through ads. Instead, WhatsApp is free to use for the first year and then charges $0.99 a year for a subscription after that. The founders have been firm on not wanting to introduce advertising, a point that was re-iterated by Zuckerberg and Koum on the call.

Koum said.

"We think that for our product, advertising is not necessarily the right way to go.  We think we have a very solid monetization system in place."

Whatsapp screenshots (Click Image To Enlarge)

If the deal doesn't go through, Facebook will pay a breakup fee of $1 billion to WhatsApp, which is still more than the total amount Facebook ended up paying to acquire Instagram.

Facebook stock declined by more than 4.5% in after hours trading following the announcement.

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Facebook has long been rumored to be looking to make a big acquisition in the messaging space, including a report that it offered to buy Snapchat for as much as $3 billion. With 450 million monthly users, WhatsApp is likely significantly larger than Snapchat, not to mention larger than social networks like Twitter or LinkedIn.

Arvind Bhatia, an analyst with Sterne Agee. But he argues the deal makes more sense in the long-term says.

"If you look at it from the standpoint of [WhatsApp's] user base today and the fact that it doesn't really monetize, then it looks very expensive.  It's truly one of those where [Facebook] is trying to ensure that where the user base is headed, it stays within the Facebook family."

While the price tag is high, Bhatia argues that Facebook was "smart" to pay for the vast majority of the acquisition in stocks, at a time when Facebook stock is trading at an all-time high.

Koum, the cofounder and CEO, had repeatedly denied that the company was looking to be acquired. Then again, it's not everyday you get offered $16 billion.

The New York Times reports that Zuckerberg and Koum had been in talks on-and-off for two years. On February 9 of this year, Zuckerberg invited Koum to dinner at his home in Palo Alto, where he proposed to buy WhatsApp. Koum later returned to Zuckerberg's home on Valentine's Day to talk through the details of the deal. The WhatsApp founder also reportedly ate "a plate of chocolate covered strawberries intended for" Zuckerberg's wife, Priscilla.

Zuckerberg and Koum nailed down the deal last weekend. As part of the acquisition, Koum will join Facebook's board of directors.

WhatsApp will continue to operate independently, which Zuckerberg compared to the way it handled the acquisition of Instagram.

The deal has been approved by the boards of both companies and is subject to regulatory approval. Facebook expects the deal to close later this year.

COMMENTARY:   Determined to hang onto younger users, Facebook was forced to pay Whatsapp a staggering $19 billion.  Google reportedly offered to buy WhatsApp for $10 billion -- a little more than half of what Facebook ultimately agreed to pay for the mobile messaging app. Plus, “the bid did not come with promise of a board seat, unlike the Facebook agreement,” Fortune reports, citing sources. Prior to Facebook’s announcement on Wednesday, it was widely rumors that a number of tech giants were drooling over WhatsApp, its working business model, and its rapid adoption among younger consumers.
 
Facebook founder Mark Zuckerberg wrote in a note posted to his Facebook page on Wednesday.

“I’m excited to announce that we’ve agreed to acquire WhatsApp and that their entire team will be joining us.  WhatsApp will complement our existing chat and messaging services [including Facebook Messenger] to provide new tools for our community.”

Private messaging’s popularity does not cease as WhatsApp reported an increase of over 200 million users since April 2013, now standing at 430 million active users as of January 2014 (see above chart).  A staggering 50 billion messages are sent and received on the Whatsapp app per day.

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Courtesy of an article dated February 19, 2014 appearing in Mashable, an article dated February 20, 2014 appearing in MediaPost Publications MediaPost News and an article dated February 20, 2014 appearing in  MediaPost Publications Social Media & Marketing Daily

AN UNABASHED ANALYSIS AND CRITIQUE OF MICROSOFT'S $7.2 BIL ACQUISITION OF NOKIA'S DEVICES & SERVICES BUSINESS

Nokia CEO Stephen Elop and Microsoft CEO Steve Ballmer announce the acquisition of Nokia's Devices & Services unit, license patents and mapping software on Monday, September 2, 2013 (Click Image To Enlarge)

Microsoft announced on Monday, September 2, 2013, that it will buy most of Nokia’s Devices and Services business unit for €3.79 billion ($5 billion) and will spend a further €1.65 billion ($2.2 billion) to license Nokia’s patents — making a total cost of €5.44 billion ($7.2 billion) which will be paid out in cash.  The transaction is expected to close in the first quarter of 2014.

After the transaction goes through, several Nokia executives will transfer to Microsoft, including Nokia CEO Stephen Elop, Jo Harlow, Juha Putkiranta, Timo Toikkanen, and Chris Weber. In total, about 32,000 employees are expected to transfer from Nokia to Microsoft.

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This means that Elop will be stepping down as Nokia CEO.  Nokia announced in a statement  that Risto Siilasmaa will assume an interim CEO role for Nokia, while Stephen Elop will take on the role of Executive Vice President, Devices & Services.  

In an email to employees, Microsoft CEO Steve Ballmer says that Elop will head to Microsoft to lead an expanded Devices team, “which includes all of our current Devices and Studios work and most of the teams coming over from Nokia”.

Microsoft notes that purchasing Nokia’s devices and services business, as well as its patents, is key to “furthering the company’s transition to a devices and services company”. It will build on the partnership with Nokia announced in February 2011 that saw a series of Nokia’s Lumia smartphones being released.

With this move, Microsoft says it aims to accelerate the growth of its move into mobile devices via faster innovation, increased synergies, and unified branding and marketing. Microsoft CEO Steve Ballmer says:

"Bringing these great teams together will accelerate Microsoft’s share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services… In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution."

In it statement, Nokia says it plans to focus on three of its other businesses: network infrastructure and services, mapping and location services, as well as technology development.

Nokia interim CEO Risto Siilasmaa, also the Chairman of the Nokia Board of Directors, says:

"After a thorough assessment of how to maximize shareholder value, including consideration of a variety of alternatives, we believe this transaction is the best path forward for Nokia and its shareholders."

Microsoft’s move to purchase Nokia’s devices and services business is a smart one, considering that Nokia has been one of its most loyal partners to date (and this could probably explain the rumor that Nokia is making a Windows RT tablet).

It has been nearly three years since the first version of the Windows Phone arrived in the smartphone market and Microsoft is keen to see it gain traction faster to become a worthy competitor to iOS and Android globally. The only way to drive this forward earnestly would be to take over Nokia’s devices business and integrate it even closer with the company.

Its move also marks Microsoft’s commitment and ambition toward making it big in the mobile market. Could this possibly render the Windows Phone a threat to the dominant operating systems now (especially after positive news yesterday from Kantar that said the Windows Phone has picked up pace across five major European markets)?

COMMENTARY:  Microsoft's outlined its reasoning behind why it's gone deep into smartphones in a lengthy presentation file.  Alongside cheering Windows Phone's current growth (No.3!) to third place behind Android and iOS phones according to Strategy Analytics, it's reaffirmed that it'll bring its products and services to rival mobile OSes, still involving itself with "iPhone and Android/Galaxy phones."

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However, it tempers this point, adding.

"We can't risk having Google or Apple foreclose app innovation, integration, distribution or economics."

Given the strength of the top two, Microsoft is telling it straight, adding that it needs a "first-rate Microsoft phone experience for users" to compete, suggesting that its portfolio of devices isn't quite there yet.

The slides also outline the purchase of Nokia's patent collection, one which Microsoft believes is one of the most valuable in the tech sector. MS also thinks that the acquisition will speed up innovation within Windows Phone and protect its future. So, some high hopes for the purchase.

The Nokia Acquisition

In order to get an understanding of what Microsoft acquired for that $7.2 billion, it is important to review Nokia's financial performance, existing business operating units, partnership with Microsoft, overview of Nokia's Devices & Services business unit, Nokia's Devices & Services financial performance, competitive environment and effect on mobile phone volume sales and market shares and other issues.

Microsoft Partnership

In 2012 Nokia's Devices & Services business continued to be in transition, following the announcement of a partnership with Microsoft in February 2011 where Nokia adopted Windows Phone as its primary smartphone operating system platform and phased out the Symbian smartphone operating system platform.  The partnership, under which Nokia adopted and are licensing Windows Phone from Microsoft as our primary smartphone platform, was formalized in April 2011.

Nokia continued to sell Symbian devices during 2012, with decreasing volumes every quarter due to the deteriorating competitiveness of Symbian devices.   Nokia does not expect to sell any significant volumes of Symbian devices in 2013.   At the same time, during 2012, Nokia built
out its Windows Phone 7 portfolio and considerably broadened the geographical reach from the initial launch in six Western European countries.  Towards the end of 2012 Nokia introduced mobile devices based on the new Windows Phone 8 operating system.  

Nokia launched the Nokia Lumia 920 and Nokia Lumia 820, its first smartphones based on the Windows Phone 8 platform, in September 2012 which started shipping to customers in select markets in November 2012.   The Nokia 620, an affordable Windows Phone 8 device, was launched in December 2012 and became available in select markets in January 2013.

Nokia Mobile Phone Sales Continue To Deterioriate in 2013

According to Gartner Research, a marketing research firm that tracks sales of mobile devices, Nokia continues to experience major deteroriation in volume sales of mobile phones (smartphones and feature phones) and continues to loose market share to competitors during Q1 and Q2 2013 (See Below).

Q1 2013

Worldwide Mobile Phone Sales to End Users by Vendor - Units Sold and Market Shares - Q1 2013 vs Q1 2012 - Gartner - May 2013 (Click Image To Enlarge)

Q2 2013

Worldwide Mobile Phone Sales to End Users by Vendor - Units Sold and Market Shares - Q2 2013 vs Q2 2012 - Gartner - August 2013 (Click Image To Enlarge)

Nokia Business Operating Units

At the end of December 31, 2012, Nokia operated three business operating units:

• Devices & Services - Includes smart devices (smartphones) and mobile phones (feature phones).  The smart devices segment includes both Nokia's native Sybian OS smartphones and smartphones developed for Microsoft that utilize the Windows Phone 7 and 8 OS platforms.   This is the piece that was sold to Microsoft.
• HERE  - The HERE business, which formerly operated under the name Location & Commerce during 2012, develops a broad range of location-based (GPS) products and services for consumers, as well as content and platform services for device manufacturers, automobile manufacturers, application developers, Internet services providers, merchants and advertisers. 
• Nokia Siemens Networks - Nokia Siemens Networks is a leading global provider of telecommunications infrastructure, with a focus on the mobile broadband market. Inits target market, Nokia Siemens Networks believes it is the second largest company worldwide, by revenue. It has a strong position in the newer infrastructure technologies of 3G and 4G (LTE). In 3G, Nokia Siemens Networks is the industry leader by customers served. More than a billion subscribers connect through Nokia Siemens Networks’ 3G networks. In LTE, Nokia Siemens Networks had 77 commercial contracts at the end of 2012. The company is the number one provider of subscriber database management, an essential tool in effective network operations.

Devices & Services Operating and Reporting Segments

Nokia's Devices & Services business unit includes two operating and reporting segments;

• Smart Devices - Focuses on Nokia's most advanced Smartphones, including Lumia smartphones, and Mobile Phones, which focuses on more affordable feature mobile phones, including Asha full touch smartphones.   
• Devices & Services Other - Includes intellectual property income, net sales of spare parts and related cost of sales and operating expenses and common research and development expenses. 

Devices & Services is responsible for developing and managing Nokia's portfolio of mobile products, which are manufactured for all major consumer segments, as well as designing and developing services, including applications and content, that enrich the experience people have with their mobile devices.  Currently, is addressing all key geographical markets except Japan. Devices & Services also manages Nokia's supply chain, sales channels, brand and marketing activities and explores corporate strategic and future growth opportunities for Nokia.

In 2012, the worldwide industry mobile device volumes increased by 2% year-on-year while the market value in US dollar terms increased by 12%, according to Strategy Analytics. Smartphones continued to show strong volume and value growth, as well as continued to capture the public focus in the mobile products market. According to Strategy Analytics, Nokia’s mobile device volume market share was 21% in 2012, compared to 27% in 2011, with the decline primarily driven by market share losses in the smartphones segment. In 2013, Strategy Analytics forecast that the worldwide industry mobile device volumes will increase by 6% and the market value in US dollar terms by 7%.

Nokia Corporation Results of Operations

The following is Nokia Corporation's Results of Operations for the years ending December 31, 2012 and 2011.

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Nokia Corporation Consolidated Statements of Financial Position

The following is Nokia Corporation's Consolidated Statements of Financial Position for the years ending December 31, 2012 and 2011.

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Nokia Corporation Segment Assets and Liabilities

The following is Nokia Corporation's Segment Assets and Liabilities for the years ending December 31, 2012 and 2011.

Year 2012

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Year 2011

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Devices & Services Segment Financial Results

Year 2012

Nokia reported the following financial results for the Devices & Services division for the year ending December 31, 2012 versus December 31, 2011. 

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Year 2011

Nokia reported the following financial results for the Devices & Services division for the year ending December 31, 2011 versus December 31, 2010. 

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Devices & Services Financial Results - Year 2013

Q1 2013

Nokia reported the following financial results for the Devices & Services division for the Quarter ending March 31, 2013 versus March 31, 2012. 

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Q2 2013

Nokia reported the following financial results for the Devices & Services division for the Quarter ending June 30, 2013 versus June 30, 2012. 

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Devices & Services Net Sales By Geographic Area

The following table sets forth our Devices & Services net sales and year-on-year growth rate by geographic area for the fiscal years 2012 and 2011. The IPR income referred to in the paragraph below has been allocated to the geographic area contained in this chart.

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The 34% year-on-year decline in Devices & Services net sales in 2012 resulted from lower volumes in both Smart Devices and Mobile Phones as well as a lower Average Selling Price (ASP) in Mobile Phones, partially offset by a higher ASP in Smart Devices. Devices & Services Other net sales decreased in 2012 due to lower non-recurring IPR income, the divestment of Vertu during the fourth quarter 2012 and lower spare parts sales.

Unit Volume

Year 2012

The following chart sets out the mobile device volumes for Nokia's Devices & Services division and year-on-year growth rates by geographic area for the fiscal years 2012 and 2011.

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On a year-on-year basis, the decline in our total Devices & Services volumes in 2012 was driven by lower volumes in both Smartphones and Mobile Phones (Feature Phones) discussed below.

Year 2011

The following chart sets out the mobile device volumes for Nokia's Devices & Services division and year-on-year growth rates by geographic area for the fiscal years 2012 and 2011.

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On a year-on-year basis, the decline in our total Devices & Services volumes in 2011 was driven by lower volumes in both Smartphones and Mobile Phones (Feature Phones) discussed below.

Average Selling Price (ASP)

Year 2012

Nokia's total mobile device Average Selling Price (ASP), including IPR income, in 2012 was EUR 47, down 18% from EUR 57 in 2011.  The decrease in Nokia's mobile device ASP in 2012 was due to a higher proportion of Mobile Phones volumes and lower Mobile Phones ASPs, partially offset by higher Smartphone ASPs.   Nokia's total mobile device ASP, excluding IPR income, in 2012 was EUR 45, down 18% from EUR 55 in 2011.

Year 2011

Nokia's total mobile device Average Selling Price (ASP), including IPR income, in 2011 was EUR 57, down 11% from EUR 64 in 2010. The decrease in Nokia's mobile device ASP in 2011 was driven primarily by the increase in the proportion of Mobile Phone sales partially offset by the positive effect of higher IPR income and the lower deferral of revenue related to services sold in combination with our devices. On a year-on-year basis, the impact from the appreciation of the euro against certain currencies had a slightly negative impact, almost entirely offset by the positive impact from foreign currency hedging. Our total mobile device ASP, excluding IPR income, in 2011 was EUR 55, down 14% from EUR 64 in 2010.

Gross Margins

Year 2012

Nokia's Devices & Services gross margin in 2012 was 21.3%, compared to 27.7% in 2011.  On a year-on-year basis, the decline in Nokia's Devices & Services gross margin in 2012 was due to gross margin declines in Smartphones and to a lesser degree in Mobile Phones (Feature Phones) and Devices & Services Other.

Year 2011

Nokia's Devices & Services gross margin in 2011 was 27.7%, compared to 29.9% in 2010. On a year-on-year basis, the decline in Nokia's Devices & Services gross margin in 2011 was driven primarily by gross margin declines in both Smartphones and, to a lesser extent, in
Mobile Phones, as discussed below, which was partially offset by higher IPR income.

Operating Expenses

Year 2012

Devices & Services operating expenses decreased 20% year-on-year in 2012.   On a year-on-year basis, operating expenses related to Smartphones decreased 32% in 2012, where Mobile Phones (Feature Phones) remained approximately on the same level.   In addition to the factors described
below, the year-on-year changes were affected by the proportionate allocation of operating expenses being affected by the relative mix of sales and gross profit performance between Mobile Phones and Smartphones.   This resulted in higher and lower relative allocations to Mobile
Phones and Smartphones, respectively.

• Research & Development Expenses - Devices & Services research and development expenses decreased 24% year-on-year in 2012 due to declines in Smartphones and Devices & Services Other research and development expenses. The decreases in research and development expenses were due primarily to a focus on priority projects and cost controls as well as business divestments.
• Sales and Marketing Expenses - Devices & Services sales and marketing expenses decreased 15% year-on-year in 2012 primarily due to lower overall business activity, improved efficiency in general marketing activities and business divestments.
• Administrative and General Expenses - Devices & Services administrative and general expenses decreased 19% year-on-year in 2012, primarily due structural cost savings as well  as business divestments.
• Other Income and Expense - In 2012, Devices & Services other income and expense had a negative year-on-year impact on profitability.   In 2012, Nokia recognized special items of net EUR 393 million in Devices and Services Other, comprised of restructuring charges of EUR 550 million and related impairments of EUR 30 million, a benefit from cartel claim settlements of EUR 56 million, a net gain from the sale of a real estate of EUR 79 million and a net gain from the divestment of the Vertu business of EUR 52 million. In 2011, we recognized special items of net EUR 287 million in Devices and Services Other, comprised of restructuring charges of EUR 456 million, impairment of assets of EUR 90 million, Accenture deal consideration of EUR 251 million, impairment of shares in an associated company of EUR 41 million and a benefit from a cartel claim settlement of EUR 49 million.

Year 2011

Nokia's Devices & Services operating expenses decreased overall by 20% year-on-year basis in 2011.  Expenses related to Research & Development decreased by 9% year-on-year between 2011 and 2010.  Most of the decreases was in lower smartphone-related R&D expenses, which offset higher mobile phone (feature phones) R&D expenses.  Sales and marketing expenses decreased by 4% year-on-year between 2011 and 2010.  Administrative and general expenses decreased by 7% year-on-year between 2011 and 2010.   Nokia incurred other expenses of EUR 773 million in the year 2011, as opposed to other income of EUR 170 million in 2010.  This meant that other income and expenses increased by  EUR 943 million between 2011 and 2010.  Most of the increase in other expenses had to do with the writedown of non-operating assets in 2011.      

Operating Margins

Devices & Services reported an operating loss of EUR 1.1 billion in 2012, compared with an operating profit of EUR 884 million in 2011.  Devices & Services operating margin in 2012 was negative 7.0%, compared with positive 3.7% in 2011.   The year-on-year decrease in operating margin in 2012 was driven primarily by the lower net sales and gross margin compared to 2011 in both Smartphones and Mobile Phones (Feature Phones).   The net sales, unit volume, average selling prices and gross margins for Smartphones and Mobile Phones (Feature Phones) for the years 2012 and 2011 are compare below.

Smartphones

The following table sets forth selective line items for Smartphones for the fiscal years 2012 and 2011.

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The declines in Smartphone net sales, unit volume and average selling prices was driven by the strong momentum of competing smartphone platforms relative to Nokia's Symbian devices.  On a geographical basis, the decrease in volumes was due to lower volumes in Greater China, Europe, Asia Pacific, Middle East & Africa and Latin America, partially offset by slightly higher volumes in North America.

Mobile Phones (Feature Phones)

The following table sets forth selective line items for Mobile Phones for the fiscal years 2012 and 2011.

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The declines in Mobile Phones (Feature Phones) net sales, unit volume an average selling prices was due to the challenging competitive environment and market environment, which negatively affected Nokia volumes across the Mobile Phones portfolio.   In particular, low-end smartphones powered by the Android operating system proliferated at lower price points throughout 2012.   During the second half of 2012, Mobile Phones started shipping Asha full touch smartphones, which improved the competitiveness of Nokia's higher end Mobile Phones product portfolio.  During the second half of 2012, Mobile Phones shipped 15.8 million Asha full touch smartphones.

Conclusions

As you can readily see, Nokia is experiencing intense competition in both Smarphones and Mobile Phones (Feature Phones) in all major geographic markets and by every measurement metric.  The result are significant declines in market share, net sales, unit volume, average selling prices, gross margins and net profits since the start of 2010.  Competing iOS and Android smartphones are the principal culprit. Microsoft will have to find a way to stop the hemorraging in order to prevent the acquisition of Nokia's Devices & Services units from becoming a major boondaggle.

Microsoft clearly overpaid Nokia in order to acquire the Devices & Services business unit and related patents and copyrights.  If you use Nokia Corporation's Segment Assets and Liabilities as of December 31, 2013 as a benchmark for valuation purposes, the Devices & Services business unit had a negative net book value of EUR 800 million (Liabilities of EUR 7.173 billion less Assets of EUR 6.373 billion).  Microsoft paid EUR 5.44 billion or $7.2 billion for Devices & Services and related patents and copyrights.  That's an over payment of EUR 6.24 billion or $8.25 billion.  Microsoft is probably treating this as a "cost of market entry" for becoming a player in the highly competitive cellular device market.  

I won't second guess Steve Ballmer's decision to acquire Nokia's Devices & Services business unit and related intellectual property, but it might actually be cheaper than developing a mobile device brand on your own.   The acquisition brings Nokia's Devices & Services management team and Nokia's former CEO into the Microsoft family.  That's a huge plus, but is this enough to make Microsoft Windows Phone's competitive in the marketplace.          

Acquiring a competitor outright or a competitor's assets to enter a hot or emerging market is not a new strategy, but more often than not, they are money losing propositions or under-performers for the acquirer.  

Truth be known, Microsoft has made numerous acquisitions, and with very few exceptions nearly all of them have failed or underperformed.  

• aQuantitative - Acquired in 2007 for its digital advertising technology for $6 billion to match Google's acquisition of DoubleClick.  The integration with Microsoft failed miserably and aQuantitative CEO and other key executives quit.  Microsoft has used some of aQuantive's technology in its own ad platforms, but a lot of it was discarded, and Microsoft sold Avenue A for $530 million to ad conglomerate WPP in 2009.
• Navision - Microsoft bought this Danish accounting and business management software company for $1.45 billion in cash and stock in 2002 to round out its Microsoft Business Solutions portfolio -- Navision was stronger in Europe while Great Plains (acquired in 2001) was stronger in North America. Of all the products gained in those two acquisitions, the Axapta software suite from Navision is probably the most successful, but the overall business unit never quite lived up to early expectations.
• Danger - Microsoft bought Danger for a rumored price of $500 million in early 2008 to help boost its mobile strategy. But the acquisition was botched by internal infighting -- while the Danger team was put to work on what eventually became the Kin phone, a separate group was building Windows Phone 7. The Kin launched late and with fewer features than specified, and was can celled less than two months later.
• WebTV  - When the Internet first became popular, Microsoft -- like a lot of folks -- thought that people would want to surf from their TV. To make sure it had an offering, Microsoft bought WebTV for $425 million in cash and stock in 1997. The product sold poorly, however, and a rebrand as MSN TV didn't help. Microsoft finally stopped selling MSN TV a couple years ago, and is focusing its living room strategy on the much more successful Xbox.
• Hotmail - Microsoft bought one of the first Web-based e-mail providers, privately held HoTMaiL (the capitals spell out HTML, get it?) in 1998 for a rumored price between $400 and $500 million. Hotmail is still around, but rebranded as Outlook.com, but Microsoft admits that it's basically a break-even business that is used to drive traffic to more strategic products like Bing and Office 365.
• LinkExchange - In a classic case of missed opportunity, Microsoft bought this early pioneer in paid search for $265 million in 1998. But as LinkExchange founder Ali Partovi (pictured here) explained in an essay for TechCrunch, Microsoft shut down the service a few months after launching it on MSN Search because it was scared it would cannibalize banner advertising. Whoops.
  
• Massive - Microsoft bought this company, which figured out how to place ads in console games, in 2006 for about $280 million. But in-game advertising never really took off, and in 2010, Microsoft shut the unit down.
  

Other companies have tried the acquisition strategy to enter new markets and failed miserably.  

• Hewlett-Packard  - In July 2010, HP acquired Palm's WebOS operating system for $1.2 billion.  It incorporated WebOS into its TouchPad tablet.  But, after only a few months following its launch, HP took TouchPad off the market due to poor sales, then this was quickly followed by a fire sale of its remaining inventory.  In February 2013, HP sold the remnants of WebOS to LG Electronics for an unspecified price.   In 2011, HP acquired Autonomy, an enterprise software provider for $8.8 billion.  In November 2012, HP wrote-off that $8.8 billion after discovering gross errors in Autonomy accounting which seriously overstated its value.  In 2008, HP also wrote off $8 billion in assets pertaining to its acquisition of Electronic Data Systems.          
• Facebook - In December 2011, Facebook acquired Gowalla, a location-based social network startup for a reputed $3 million in Facebook stock.  Within just a few months, Facebook shutdown Gowalla, rather than have to compete headon with LBSN market leader foursquare.  It later claimed that it bought Gowalla for its mobile knowledgeable staffers.  

According Microsoft CEO Steve Ballmer, the acquisition of Nokia's Devices & Services division is part of the company's mission to transform Microsoft from a predominantly software company to a hardware business.  The company has also established some very lofty goals for the Nokia Devices & Services acquisition.  It would like to boost its smartphone share to 15 percent by 2018, around four times what it has now, depending on which numbers you believe (See above charts).  Redmond also revealed that it makes less than $10 per handset in its current arrangement with Nokia, and thinks it can make over $40 going forward, while saving $600 million in costs. With all that, Microsoft is projecting $45 billion extra in revenue by 2018, with profits in the $2.3-4.5 billion range. High hopes indeed.

I have to admit that those are some very lofty goals considering the dominance of Android and iOS in the marketplace.  By its own admittance, the Microsoft Windows Phone "experience" is not up to snuff.  The new Windows Phone OS  UI did not go over very well with many users. There is a longer learning curve and takes take to getting used to.  

A marketing concept I learned in graduate school says that consumers will only switch to a competing brand when the switching costs are not overly prohibitive and the benefits of switching greatly outweigh the switching costs.  In order for Microsoft Windows Phone to succeed and steal away market share from the competition and meet those lofty goals is to create smartphones that far exceed anything offered by the competition.  This requires making a quantum leap in technology.  Steve Jobs "re-invented" the mobile phone when he unveiled the iPhone.   Jobs truly elevated the user experience to a new level.  The new phone will have to disrupt the industry standards to such an extent that consumers will clearly see the advantages of switching to Microsoft Windows Phone.  Whether Microsoft will be able to accomplish this remains to be seen.  

Another huge part of the user experience is apps.  Microsoft has ramped up mobile apps for Windows phones, reporting that in July 2013 it had 160,000 apps in the Windows Store. 100,000 of them are for Windows 8.  However, those number pale in comparison to Apple (700,000) and Google Android (800,000).  In July 2013, Windows reduced its Windows developer registration fee from $99 per year to $19 for 60 days.   A lack of sufficient apps can kill a product very fast. Here's a history lesson:  A lack of apps resulted in the downfall of HP's TouchPad tablet and slow death of BlackBerry phones and PlayBook tablet.  

Technological design innovation needs to be ramped up in order for Microsoft Windows phones to compete against No 1 Samsung and No 2 Apple.  Samsung stole Apple's thunder when it launched the Samsung Galaxy S4 equipped with a faster processor, more storage, longer battery life, and a huge 5-inch display sporting clearer and brighter resolution.  You can expect Apple to try to match or exceed the Galaxy S4 specs that when the new iPhone 5S is unveiled later this month.  Microsoft cannot just copy what the competition is doing, but greatly exceed it with every new product launch.  

To its credit, Microsoft showed touches of design brilliance when it launched the Surface tablet on October 26, 2012.  However the Surface RT and Surface Pro tablets caused confusion in the marketplace.  The RT was wholly underpowered and quickly crashed and burned in the marketplace.  This leaves only the Surface Pro with a faster processor, but it still does not match the iPad 5 in the specs that count, and its lack of sufficient apps could spell its downfall. Microsoft must win the battle of technological design innovation if the Windows Phone series is to capture the hearts and minds of consumers, otherwise it will remain at the bottom of the cellar. 

Courtesy of an article dated September 3, 2013 appearing in The Next Web, an article dated September 3, 2013 appearing in Engadget, an article dated August 1, 2013 appearing in Engadget, an article dated March 8, 2011 appearing in Business Insider, Nokia Corporation Year Ending December 31, 2012 SEC Form F-20 and an article dated June 27, 2013 appearing in The Next Web

HEWLETT-PACKARD TAKES HUGE PUBLIC RELATIONS HIT, WRITES-OFF $8.8 BILLION FROM AUTONOMY ACQUISITION

 

Meg Whitman’s Hewlett-Packard tried to put the debacle of its Autonomy acquisition behind it last week by taking an $8.8 billion write-off, charging that previous management had been misled by cooked books and other nefarious deeds on the part of the UK-based software automation company. The claims have turned into yet another public relations spectacle for the Palo Alto-based company as Autonomy founder and former CEO Mike Lynch fights back with fire and feist, and pundits again point fingers at HP’s management, board and outside advisers for ineptitude.

Meanwhile, a class action suit filed in San Francisco yesterday “alleged that HP had issued false and misleading statements on its financial performance and prospects between August 2011, when the $11 billion Autonomy deal was announced, and November 20 this year,” when the write down was made public, as Chris Nuttall reports in the Financial Times.

The write-off of Autonomy and class action lawsuits hit HP's stock hard today:

Hewlett-Packard Company (NYSE:HPQ) Share Price Between November 28, 2011 and November 27, 2012 - Google Finance (Click Image To Enlarge)

The civil action was not unexpected, and more lawsuits may follow.  Labaton Sucharow partner Dominic Auld tells Nuttall while disclosing that his firm is considering action of its own.

“It’s hard to imagine that this deal goes so far south so quickly without somebody having culpability.”

Whitman, now HP president and CEO but only a yea-voting member of the HP board at the time of the acquisition, effectively blames her predecessor, Leo Apotheker, and the former chief strategy officer, Shane Robison, for the bad deal. 

ISI Group analyst Brian Marshall told Reuters’ Poornima Gupta and Nicola Leske when the write-off was announced.

"To put it bluntly ... this story has been an unmitigated train wreck, and it seems every time management speaks to the Street, there is new negative incremental information forthcoming." 

The Wall Street Journal’s “Heard on the Street” columnist, Rolfe Winkler, offers a scathing appraisal of the situation this morning, pointing out in his lede that

“More than two people from Hewlett-Packard were responsible for the disastrous Autonomy acquisition, never mind what chief executive Meg Whitman says.”

He names names, from current CFO Cathie Lesjak to current board chairman Raymond J. Lane. But although investors might like to see “more heads roll,” that may not be a prudent response.

Winkler concludes.

“The sad reality may be that the company is in such bad shape that it can't afford more turnover at the top. Until it can, investors should stay away from the shares, no matter how cheap they appear.”

And as Reuters’ Nadia Damouni and Nicola Leske pointed out last week,

“15 different financial, legal and accounting firms were involved in the transaction -- and none raised a flag about what HP said Tuesday was a major accounting fraud.”

Meanwhile, Lynch, who in 1991 played a hunch that the “theories of the then-little-known 18th-century Presbyterian minister and mathematician Thomas Bayes could be used to search and understand unstructured data,” as Wendy M. Grossman relates in The Guardian, has been vigorously pushing back against HP’s charges.

The New York Times’ Quentin Hardy writes.

“Lynch has been unusually candid and vocal in defending himself and the company he built, rather than hiding out behind a phalanx of lawyers as might be expected.  He says he was blindsided by a long-prepared public relations onslaught by HP, little of which had to do with the substance of its claims about Autonomy.”

Lynch is not limiting himself to denying the accusations. Among his charges in an interview with Business Insider’s Julie Bort:

"HP executives engineered the ouster of Apotheker and appointment of Whitman because they feared Apotheker's plan to spin off the hardware business in favor of software, which caused Whitman to abandon the software strategy, which left Autonomy and Lynch in the lurch."

And to top it off,

“HP's convoluted bureaucracy created situations where its own salespeople couldn't sell Autonomy.”

If all these convolutions have you scratching your head, Reuters’ “Breakingviews” columnist, Quentin Webb, delves into such accounting procedures as “Vendor Specific Objective Evidence” (VSOE), which allows companies “to book upfront payments in full if they establish a predictable pricing framework,” in a “Guide for the Perplexed” piece. 

Webb writes, pointing out. 

“As things stand, HP’s accusations are hard to judge that it still has to prove its claim that it was duped by fraud which could not be detected before acquisition.”

The market makes its own judgments, of course.

Richard Waters and Chris Nuttall wrote in the Financial Times Friday evening.

“As HP’s reputation as the company that cannot shoot straight has grown to almost legendary proportions, its stock price has collapsed.”  

It was up 2.4% yesterday to $12.74, but was trading in the $50 range as recently as April 2010.   At the end of trading on November 27, 2012, HPQ shares ended at 12.36, down 0.38 or 2.98%, then dropped an additional 0.03 or 0.24% in after-hours trading.

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COMMENTARY:   Coming off the biggest quarterly loss in Hewlett-Packard's history, CEO Meg Whitman braced investors for even more trouble ahead as she methodically tries to fix a wide range of longstanding problems. Those challenges will be compounded by a feeble economy that Whitman expects to weaken even more during the next year.

Hewlett-Packard Company (NYSE:HPQ) Annual Revenues, Gross Profits and After-Tax Income FY Ending October 31, 2009 through FY Ending October 31, 2012 - Google Finance (Click Image To Enlarge)

Hewlett-Packard Company (NYSE:HPQ) Quarterly Revenues, Gross Profits and After-Tax Income - Google Finance (Click Image To Enlarge)

On Wednesday, October 3, 2012, Whitman delivered the disappointing forecast at a meeting that the ailing Silicon Valley pioneer held for analysts and investors. The gathering gave Whitman the opportunity to persuade Wall Street that she has come up with a compelling strategy for turning around HP one year after being named CEO.

The EDS charge is the main reason that HP lost $8.9 billion during its most recent quarter, which ended in October 31.   In early October, some analysts are worried HP would absorb another charge on an $11 billion acquisition of software maker Autonomy, which hasn't lived up to expectations since the deal closed last year.  This finally came to pass today.  

HP bought EDS while it was being run by Mark Hurd, who resigned in 2010 after the company's board raised questions about his expense reports. The company agreed to buy Autonomy during the reign of Leo Apotheker, who lasted less than a year as CEO before being replaced by Whitman.

Hewlett-Packard Merry-Go-Round in the last seven years includes CEO's Carly Fiorina, Mark Hurd, Leo Apotheker and now Meg Whitman (Click Image To Enlarge)

Whitman said. 

"There are no silver bullets to solve our challenges.  We will solve our challenges through consistency of leadership, focus, good blocking and tackling and, most importantly, great products and services delivered in the way that customers want to buy them."

HP said the internal and economic turmoil will cause its earnings to fall by more than 10 percent next year, a decline that hadn't been anticipated by analysts who follow one of the world's largest — and most dysfunctional — technology companies.

Investors evidently didn't like what they heard.  HP's stock plunged 13 percent after Whitman's presentation, shoving the company's shares to their lowest level in nearly a decade.

HP's troubles stem from a combination of managerial malaise, high-priced acquisitions that haven't paid off and an inability to offset the damage done to its personal computer and printer divisions by the rising popularity of smartphones and tablet computers.

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Whitman maintained that she inherited a bloated, poorly managed company that hasn't been innovating quickly enough in any of its divisions, which span from PCs and printers to software and data storage.

In a recurring theme during her tenure, Whitman said that she will instill the discipline, focus and accountability needed to rehabilitate HP, but she reiterated that the recovery will take several years to complete.

It could be 2015 before Hewlett-Packard Co.'s revenue growth begins to accelerate again, according to Whitman. By 2016, she envisions HP's revenue increasing as the same pace as the U.S. economy's overall growth, with earnings rising at a faster clip.

Whitman said.

"It is going to take longer to right this ship than any of us would like." 

Investors are worried HP's woes will allow its competitors — a long list that includes such technology powerhouse as Apple Inc., IBM Corp. and Oracle Corp. — to race even further ahead. In that scenario, HP is constantly scrambling to catch up with new technology trends, leaving the company in a state of perpetual disarray.

Whitman, who won acclaim during a successful decade-long stint running eBay Inc., is confident HP can recapture the drive and creativity that established the company as an industry leader through most of its 73-year history.

She hopes to orchestrate the same kind of turnaround that has revitalized IBM after a long stretch of decay brought on by the shift from mainframe computers to personal computers in the 1980s and 1990s. IBM managed to transform itself into a company focused on providing technology services and software, a transformation that HP is struggling to duplicate.

HP Turnaround Initiatives

Whitman mentioned the following initiatives to turnaround HP:

• Reduce Staff - In her shake-up of HP, Whitman has already reshuffled management and started to eliminate 29,000 jobs through employee buyouts, attrition and layoffs. She's trying to trim the company's annual expenses by more than $3 billion.
• Performance-Based Compensation Programs - She assured analysts Wednesday that she is imposing more internal controls to align employees' paychecks with their performance. 
• Utilize New Technologies - She said she is also requiring the company to subscribe to technology services offered by smaller companies such as Salesforce.com Inc. and Workday Inc. to automate many of HP's customer management and personnel systems.
• Reducing Product Lines and Inventories - HP also is reducing the number of different printers that it makes. It is also rolling out a new line of personal computers and tablets running on Windows 8, an overhaul of Microsoft Corp.'s operating system that's designed to appeal to consumers and companies that want more mobile devices with touch-control display screens.
• Introduce New HP Smartphone - Whtman wants HP to design another smartphone, something it did two years ago after buying Palm Inc. only to scrap the device after a few months on the market. HP's return to the smartphone business isn't planned for next year, though.
• Cloud Computing Products - Whitman also is lacing big bets on "cloud computing" — a term that refers to the increasingly popular trend of storing software applications in remote data centers that are accessed over the Internet instead of installing programs on individual machines.
• Big Data Products - HP also is angling for a bigger piece of the "Big Data" market, a field devoted to helping companies and government agencies navigate through the torrent of information cascading through Internet-connected devices.

The Payoff

But the payoff from those initiatives won't come in HP's fiscal 2013, which starts Nov. 1.

The company, which is based in Palo Alto, Calif., expects its earnings for fiscal 2013 to range from $3.40 to $3.60 per share, after stripping out charges for layoffs and other accounting measures unrelated to its ongoing business. The projection translates to an 11 percent to 16 percent drop from the adjusted earnings of $4.06 per share that HP expects to deliver in its current fiscal year.

HP Shares Tumble

Whitman's forecast for next year caught investors off guard because analysts, on average, had predicted HP's adjusted earnings would be $4.17 per share.

HP shares shed $2.22 to close Wednesday at $14.91. The stock price has fallen by 35 percent since Whitman became CEO last September.

 

Courtesy of an article dated November 27, 2012 appearing in MediaPost Publications Marketing Daily Top Of The News

SALE OF BLACKBERRY TO FACEBOOK OR AMAZON IS EMINENT, RIM LOSES MOUNT, LOOSES A THIRD OF MARKET SHARE IN ONE YEAR

Research in Motion CEO Thorsten Heims announces hiring of investment bankers to sell all or parts of the BlackBerry platform.  Possible suitors include Facebook and Amazon. (Click Image To Enlarge)

Facebook Inc (FB) and its future e-commerce rival, Amazon are gearing up to talk with Canadian telecom giant, Research in Motion (RIM), to discuss the purchase of its BlackBerry phone manufacturing division in an effort to expand their influence in the ever growing cellular market .

RIM is also considering dividing its interests and the sale of its handset production to either Amazon or Facebook. If that happens, the company is likely to retain its troubled but still popular e-mail processing services. RIM had previously confirmed that it is taking keen measures to develop a strategy for the company’s fortune to run, which could be selling or renting its assets.

Blackberry, the world’s largest mobile email company, which has long been in deep water,  is believed to be seriously considering selling part of their business to a rival as the last attempt to resuscitate the platform which is hitting brick walls, despite changing the management and laying off several thousand employees.

One of BlackBerry’s biggest challenges, apart from financial troubles, is innovation.  With the presence of Apple iPhone, Samsung Galaxy and Google’s Android phones, it is very hard for RIM to penetrate in the market which is loaded with designer phones. This is the reason why Blackberry and Nokia are not being able to compete in this market and the upcoming releases of Apple’s iPhone 5, Samsung Galaxy S3 and Google Nexus 7 will only add injury to BlackBerry plight.

Last month, RIM admittedly said in a press release that it had involved financial consultants  JPMorgan Chase and RBC Capital Markets to assist the company in evaluating various financial strategies and options, one of which they are particularly keen about is sharing the BlackBerry platform with other companies through a licensing agreement.

Facebook has long been rumored to launch its own mobile phone device and the acquisition of the BlackBerry’s manufacturing skills could help it overcome the difficulties pertaining to hardware services. Amazon will also have the similar advantage, primarily in the form of technology which it can use to improve its Kindle eBook reader.  Amazon will also have some advantage in getting into the smartphone market.

COMMENTARY:    In May 29, 2012, Reuters reported that Research in Motion announced it it was hiring some investment bankers to conduct a "strategic review" of its options due to huge losses of market share in the smartphone market, mounting operating losses and loss of confidence from shareholders due to a huge drop in the value of RIM shares.  It now appears that those bankers told RIM management SELL, SELL!!

I have been extremely critical of Research in Motion for quite some time now, especially for its lack of technology innovation and late entry in the touchscreen smartphone and tablet market, and slowness in making the necessary changes to turnaround the company.  

In a blog post dated January 23, 2012, I reported that co-CEO's Jim Balsillie and Mike Lazaridis, were relinquishing their posts, and that Thorsten Heins, RIM operating officer for software, hardware and sales , was appointed as the new chief executive officer.   

New RIM chief executive Thorsten Heins faces the challenge of keeping existing customers happy while moving into the touchscreen era. Photograph: Geoff Robins/Reuters

Mike Lazaridis, who co- founded RIM with a childhood friend in 1985, becomes vice chairman and will lead an “innovation committee,” Ian Austen reports. Jim Balsillie, who invested $250,000 in the company in 1992, remains a director and will maintain his stake in the company.

Research In Motion co-CEOs Jim Balsillie, right, and Mike Lazaridis resigned under pressure to turnaround the troubled maker of BlackBerry cell phones

It's absolutely scary just how drastically and quickly RIM's smartphone marketshare has dwindled between Q1 2011 and Q1 2012.  Between these two quarters, RIM's market share declined by 29.7%.  That's nearly a one-third of its market share!!

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The handwriting has been on the wall for well over a year now.    On a quarter-to-quarter basis,  between Q4 2012 and Q4 2011, RIM's worldwide smartphone market share declined from 14.6% to 8.8%.   That's a drop of 24.9% in just one quarter!!  Most of that share went to Android and Apple iOS smartphones.  

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The bad news doesn't stop here.  RIM's worldwide market share of total mobile devices began to drastically decline during 2011 when both Android and iOS devices began to pickup steam. Although RIM's worldwide market share of total mobile devices declined slightly from 3.1% to 2.9% year-to-year between 2011 and 2010, the damage had already been done.  Not apparent from the following chart, RIM began to lose a huge chunk of its worldwide market share of total mobile devices in the U.S., its largest market, while international sales of of mobile devices remained relatively unchanged.

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When you look at a quarter-to-quarter comparison between Q4 2011 and Q4 2010, you can see that RIM's market share of total worldwide mobile devices declined by 6.6% (2.8% in Q4 2011 versus 3.3% in Q4 2010).  During this period, Apple took the lions share of RIMS market share when its market share more than doubled between Q4 2011 and Q4 2010.

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In spite of the huge layoffs that RIM recently announced, this DOG is DEAD!!   It's a shame too. BlackBerry was the mobile phone of choice for SMB's and corporate enterprise users for nearly ten years, but the mobile device market has changed dramatically within the last two years, and RIM failed to adapt and innovate.  Personally, I don't care who acquires the BlackBerry platform.  The mobile phone market is very crowded and industry consolidation is the order of the day.  I hope that Facebook and Amazon thoroughly think through any plans of acquiring BlackBerry.   Whoever acquires BlackBerry will have their hands full.  Are you listening Zuck?  Jeff?   

Courtesy of an article dated July 9, 2012 appearing in Potential Traders News and an article dated February 15, 2012 appearing in Gartner

FACEBOOK ACQUIRES PHOTO SHARING APP INSTAGRAM FOR $1 BILLION, GIVES FACEBOOK A STRONG FOOTHOLD IN THE MOBILE MARKET

FACEBOOK INKS ITS BIGGEST DEAL EVER; NEUTRALIZES THREAT POISED BY INSTAGRAM, THE NO 1 PHOTOSHARING STARTUP, AND GIVES FACEBOOK A STRONG ENTRY INTO THE MOBILE MARKET

In October 2010, Stanford University graduates Kevin Systrom and Mike Krieger launched a new iPhone application, Instagram, yet another oddly named tech start-up in a crowded field of hopefuls.

Facebook has just announced they will be purchasing Instagram, the popular photo-sharing app, for roughly $1 billion. CNET Editor-At-Large Rafe Needleman discusses what both companies stand to benefit from the partnership. CLICK IMAGE TO VIEW VIDEO

On Monday, the two twenty-somethings said they sold their photo-sharing service—which has about a dozen employees and no revenue—to Facebook Inc. for $1 billion in cash and stock.

That 18-month journey underscores the frenzied state of the tech investing game, where even the smallest Web companies can develop global followings in a matter of weeks.

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Only last week, Instagram closed a $50 million funding round from venture capital firms. The company's valuation: A whopping $500 million.

Incredibly, such a number would turn out to be paltry in the days ahead. Shortly after that deal, Facebook Chief Executive Mark Zuckerberg contacted Mr. Systrom, Instagram's 28-year-old CEO, to buy the company.

Mr. Systrom came up with the idea for Instagram and is the company's largest shareholder with about a 45% stake, said people familiar with the matter.

Facebook CEO Mark Zuckerberg, Facebook CTO Adam D'Angelo and Instagram CEO and Co-Founder Kevin Systrom (Click Image To Enlarge)

The two had spoken about a deal the previous summer, according to other people familiar with the matter.

The acquisition came together over the weekend.  Steve Anderson, a founding partner of Baseline Ventures, one of the company's early investors said.  

"It was all Mark.  It was CEO to CEO."

Buying Instagram improves Facebook's mobile offerings while removing a rival for users' attention. Instagram, with more than 30 million registered users, grew rapidly by helping people share photos, a fundamental reason people use Facebook.

The deal is the largest ever for Facebook, which people familiar with the matter say will sell shares to the public in May. The company in the past has paid millions of dollars for a series of small ventures, primarily in an effort to acquire talent.

Mr. Zuckerberg called the deal a "milestone" for his company. But, he said,

"We don't plan on doing many more of these, if any at all."

Instagram is one of a cohort of young start-ups that have built products around the iPhone and have registered incredibly fast growth in a short period of time. The company bills its service as a fun and quirky way to share photos with friends. A user can snap a photo with an iPhone, then choose a filter to transform the look of the shot, say by giving it the look of an old Polaroid.

Users can share the photos with followers, where they can post comments and "Like" recommendations. Some people describe the app as a visual version of Twitter, where it is heavily used to share photos.

On March 11, Mr. Systrom gave a keynote talk at the South by Southwest conference in Austin and announced that Instagram's count of registered users had nearly doubled since December, rising to 27 million from 15 million. Last week, the company launched a version of its application that works on smartphones running Google's Android system and instantly added millions of users.

All this growth hasn't yet translated to revenue. But in the lingua franca of today's social-media industry that doesn't matter as much as user engagement and the ability to access those users' personal data.

Facebook has about 845 million users, many of whom came to the service to share photos. The company has been falling behind in mobile and has let Instagram capture much of the buzz in photo sharing. The company has rarely changed its photo feature, even as newer companies built more sophisticated apps.

Photos are a key driver of user "engagement," or how long someone spends on Facebook. Users spend an average of 7.5 hours a month on the site, according to research firm ComScore, the highest of any social network.

Those numbers matter to Facebook's marketers, who want users to view advertisements and interact with brands on the site. Advertising accounts for 85% of Facebook's revenue, or $3.1 billion in 2011, up from $1.8 billion a year earlier, according to the company's regulatory filings.

But the company has to capitalize on mobile. It only begun in February to sell limited advertising on its mobile site, despite the fact that about half of its membership uses Facebook on their mobile phones.

Instagram has yet to develop a model for generating revenue, and substantial obstacles remain, such as whether small smartphone screens are sufficient to draw advertisers' attention.

Ann Taylor owner Ann Inc. and fashion label Marc Jacobs have created accounts and use Instagram to promote their brands. The app is also popular with celebrities and politicians who have created accounts, including singer Justin Bieber, President Barack Obama, professional skateboarder Tony Hawk and rapper Snoop Dogg. Last year, Apple named Instagram the iPhone app of the year.

The Instagram deal harkens back to Google's $1.6 billion acquisition of video-sharing site YouTube in 2006. At the time, analysts questioned the hefty price tag. But the deal instantly made Google a leader in Internet video and allowed it to expand its advertising to new formats.

In early 2011, Instagram raised $7 million in venture capital from Benchmark Capital, Baseline Ventures, Lowercase Capital and a handful of early-stage investors in a round that valued the company at about $30 million, said people familiar with the matter.

The new company almost immediately drew interest from suitors.

Twitter reached out to the company to express interest in buying it in 2011, people familiar with the matter said. Last summer, Mr. Systrom took a meeting with Mr. Zuckerberg, who floated the idea of a sale to Facebook, the people said.

Messrs. Systrom and Kreiger rebuffed all of the offers and seemed intent on building an independent company, said people familiar with their thinking.

Mr. Zuckerberg convinced Mr. Systrom that Instragram would be stronger under the Facebook umbrella than operating as an independent player.

He told Mr. Systrom that Instragram would function as an independent company under Facebook—a promise that Mr. Zuckerberg had never made to any other acquisition targets.

COMMENTARY:    Facebook lags behind in mobile, and acquiring Instagram and its nearly 30 million users is a huge coop.  I'm really surprised that Google did not grab Instagram earlier and spoiled Facebook's thunder.  The acquisition adds a huge feather in the "Boy CEO" Mark Zuckerberg whose executive experience to lead a multi-billion company has been questioned, including yours truly.   The acquisition gives Facebook something to brag about on the eve of its forthcoming IPO in May.  This acquisition is worth at least a 5-to-10 point boost in Facebook's share price when it goes public.   

The announcement that Facebook acquired Instagram created waves, to say the least.  Facebook reasserted its commitment to mobile at (quite literally) any cost, and Instagramming addicts have threatened to jump ship.  But for all the business implications and user reactions seen so far, what this acquisition concretely means for the Facebook and Instagram experience is exposure for both parties to each others audience.  

But now there is a glimpse of how the platform might integrate with the Facebook Timeline. You may have noticed that Instagram is currently missing from the roster of official Timeline apps, which is somewhat surprising.  Names like Spotify, Pinterest, LivingSocial, and Foursquare are there – why not another incredibly popular service? In fact, there isn’t any sort of Instagram app available for Facebook. Aside to being able to push your photos to the site, the two have had very little to do with one another. Up until now, this is what your Instagram to Facebook content looked like:

And this:

According to InsideFacebook, a tight integration between the two has been in the works for awhile. Facebook told the site.  

“We’re currently working with a small set of partners to text extending the publish_stream permission to include the Open Graph publish_actions permissions to enable apps to publish to Timeline.” 

To put that in clearer terms, you’ve always been able to post your Instagrams to Facebook (see above). But now, they will include an action (“Molly took a photo with Instagram”) as well as the activity box you see from other apps summarizing your content from a particular integrated service. Here’s how it will look (via InsideFacebook):

This is all within the bounds of how current Timeline-approved apps work. And now that Facebook owns the immensely popular photo platform, it has all the more reason to introduce it to Timeline and drive traffic to the app.

This is only skimming the surface of what we’re likely to see from the deal. Other possibilities include filters for Facebook’s mobile app, mass importing your Instagrams to Facebook, and the ability to tag your Facebook friends in Instagram images. But for now, the only sure thing is that Instagram is $1 billion richer and integration with Timeline will hit very soon. 

Courtesy of an article dated April 9, 2012 appearing in The Wall Street Journal and an article dated April 10, 2012 appearing in The Wall Street Journal and an article dated April 10, 2012 appearing in Digital Trends

 

 

 

 

 

IT'S OFFICIAL: FACEBOOK CONFIRMS IT ACQUIRED GOWALLA, THE LOCATION-BASED SOCIAL NETWORK

Facebook on Monday confirmed its purchase of Gowalla, which had been reported on Friday, but says it isn’t buying the brand’s service or location-based technology but will instead absorb the management team behind the company.

The following statement was issued by Facebook:  

“While Facebook isn’t acquiring the Gowalla service or technology, we’re sure that the inspiration behind Gowalla will make its way into Facebook over time.”

Gowalla’s team, including CEO Josh Williams and co-founder Scott Raymond will move from the company’s Austin, Texas, headquarters to Facebook home base in Palo Alto, Calif.

It’s not clear how Facebook will integrate Gowalla’s technology. The latter company created a location-based social network that lets users check in to various locations. The service was similar to that of Foursquare, but Foursquare has a much larger user base — 10 million vs. Gowalla’s 2 million. Facebook currently lets users check in to locations via Facebook Places.

In a blog entry, Gowalla CEO Josh Williams detailed his decision to take Facebook’s offer.  Williams wrote.

“About two months ago, my co-founder Scott [Raymonds] and I attended F8.  We were blown away by Facebook’s new developments. A few weeks later Facebook called, and it became clear that the way for our team to have the biggest impact was to work together.”

Facebook’s statement was along the same lines:

“In talking with the Gowalla team, we realized that we share many of the same goals: building great products that reach millions of people, making a big impact quickly, and creating new ways for people to connect and share what’s going on in their lives.”

Williams wrote that Gowalla will be winding down at the end of January and  Williams added. 

“We plan to provide an easy way to export your Passport data, your Stamp and Pin data (along with your legacy Item data), and your photos as well. Facebook is not acquiring Gowalla’s user data.”

Meanwhile, Gowalla’s chief rival, Foursquare, released a statement on Friday about the move:

“Congrats to Josh and the team in Austin. Here at Foursquare, we continue to focus on building an amazing product and growing our 15,000,000-strong community.”

Here's All Things Digital's Kara Swisher interviewing Josh Williams:

 

COMMENTARY:  I had read over the weekend that there were rumors of a Facebook acquisition of location-based social network Gowalla.  Now it's official.  In a blog post dated August 29, 2011, I revealed that Facebook was shutdown Facebook Deals, only four days after it announced it was shutting down Facebook Places, its location-based check-in service, and Facebook said they were not completely abandoning location-based social networking.  Looks like they had their eyes on Gowalla all the time.   

Foursquare is still in the drivers seat with 15 million users, but in a blog post January 29, 2011, I questioned its business model, and ability to generate revenues and its valuation.   In June 27, 2011, I announced that venture capital firm Andreessen Horowitz had invested $50 million in venture capital in foursquare, giving the LBSN a valuation of $600 million.  

This now makes you wonder what exactly is Facebook's plan for Gowalla, and where does this leave Loopt, the third place LBSN. 

Courtesy of an article dated December 5, 2011 appearing in Mashable

H-P'S NEW CEO MEG WHITMAN ANNOUNCES HUGE DROP IN Q4 2011 EARNINGS, BRINGS INTO QUESTION HP'S DECISION-MAKING AND STRATEGY

Hewlett-Packard Co. announced a sharp drop in quarterly profit and issued a cautious outlook for the current period and fiscal year, moves suggesting the company hopes to hit the reset button after more than a year of turmoil.

 

Hewlett-Packard delivered better-than-expected earnings Monday, the first quarterly report since Meg Whitman took the helm. MarketWatch's Rex Crum highlights the quarter and tells Stacey Delo about the outlook for H-P. (Image: AP)

For the fourth period ended Oct. 31, H-P's net income fell 91%, as the company took charges related to shutting down its mobile-software business. Revenue fell 3%.

Meg Whitman, H-P's newly appoionted CEO said during a conference call.  

"We didn't live up to our expectations in 2011."

She added.

"H-P was committed to getting back to the basics of executing business fundamentals."

The results capped off a tough quarter for H-P. In mid-August, the company made a series of announcements, including that it would explore a spinoff of its PC business and that it would spend more than $10 billion to acquire a software company. The news sent H-P's stock down 20%, and eventually led to the firing of CEO Leo Apotheker in September.

Ms. Whitman, the former eBay Inc. chief and an H-P board member, took his place and soon reversed course on the PC move. Ms. Whitman made it a priority to restore stability to H-P.

For the fourth period, H-P's net income fell to $239 million, or 12 cents a share, from $2.5 billion, or $1.10 a share, a year earlier. Revenue declined to $32.1 billion from $33.3 billion. After one-time charges are factored out, H-P put earning per share at $1.17, one cent higher than its forecast in August. Company executives suggested that figure is a sign that H-P could operate though adversity.

For the current quarter, H-P projected earnings per share, excluding one-time charges, between 83 cents and 86 cents, well below the $1.17 analysts expected. For the full year, H-P expects earnings, excluding items, of at least $4 a share; analysts on average had expected $4.90 a share, but much lower unofficial "whisper" estimates had been circulating on Wall Street.

In an interview, Cathie Lesjak, H-P's chief financial officer, called the outlook "cautious" and cited an uncertain economy and internal investments the company plans to make.

Another factor is the flooding in Thailand, which is causing shortages for hard drives, key component which are made there. Ms. Lesjak said she expects H-P to feel the impact for the first half of 2012. H-P will shift its inventory to higher-end computers and may have to raise prices, she said.

Still, some analysts were heartened by what they saw as an appeal for a fresh start by the Palo Alto, Calif., company.

Brian Marshall, an analyst at ISI Group said.  

"They have to reset expectations. This is exactly what we needed to see."

H-P shares were down 4% at $26.86 in 4 p.m. trading on the New York Stock Exchange. The stock declined to $26.29 in after-hours trading following the announcements.

The company's PC business seemed relatively unaffected by the spinoff talk. Revenue in the segment, H-P's largest, declined 2% to $10.1 billion. Sales to consumers slipped 9% amid greater falloff in PCs, while sales to businesses increased 5%. Ms. Whitman said in an interview that the full impact of the spinoff exploration might occur in the current quarter.

H-P's services business, which has been struggling lately, grew 2% to $9.3 billion from a year earlier. But revenue in the company's server group fell 4% to $5.7 billion, and its big printer business fell 10% to $6.3 billion.

Investors have expressed concern lately with H-P's use of cash. At the end of October, H-P had $8 billion in cash, down from $13 billion at the end of July. The company said it had $22.6 billion in long-term debt, up from $19 billion in July.

Ms. Whitman said that H-P was committed to rebuilding its balance sheet and that the company wouldn't be making any large acquisitions soon. She still expected to use funds to buy back shares.

Overall, she said, H-P should grow in line with or better than the overall economy, but would focus on growing income faster and producing cash.

COMMENTARY:     In a blog post dated September 23, 2011, I commented on the appointment of Meg Whitman as new CEO of Hewlett-Packard, replacing the ousted former CEO Leo Apotheker, and I also had some fun with the revolving door of CEO's at H-P.

In another blog post dated October 12, 2011, I commented on Meg Whitman's decision to "rethink" the spinoff of HP's personal computer division.   Although Meg Whitman provided some good reasons for not spinning off the personal comptuer division, I pointed to that division's terrible profit margins, and joked that HP had not really capitalized on any economies of scale.  In fact, I stated infatically, that if HP had true economies of scale and brand loyalty, it should be commanding premium prices and generating higher profit margins.  Instead, HP has gotten itself into an irreversible price war with Lenova and Dell, lost market share to Lenova, and that strategy had hurt its image with consumers as a manufacturer of premium quality PC's. 

In a blog post dated August 21, 2011, and after doing considerable financial analysis, I came to the conclusion that Mr. Apotheker's decision to spinoff the HP's personal computer business was the right decision.  Personal computers are a bad business for HP.  All this talk of economies of scale is just a poor execuse for keeping this subpar performing division.   

I am beginning to really question HP's decision-making.  Ray Lane, HP's Executive Chairman, and that whishy-washy HP board of directors have made some terrible decisions.  That HP board is as much a part of the problem.    

The HP board also approved the decision to get into the tablet business when they introduced the HP TouchPad, only to take it off the market after poor sales. Then they set a record for selling tablets during their $99 fire sale.  Why did they get into the market in the first place?  The TouchPad was a superior tablet.  They just gave up on a huge potential market.  Management should've had more patience and thought longterm.  I fault the board of directors for this.  

The same punks (Meg and Lane) agreed with Leo to take the TouchPad off the market and spinoff the personal computer business, and now reverse course.  You would think Meg had a plan and strategy before she agreed to take the HP CEO job.

HP's Q4 2011 net income drop from $2.5 billion in Q4 2010 to $239 million in Q4 2011 and YTD revenue decline to $32.1 billion from $33.3 billion are total disasters.  HP is carrying too much debt and their cash balance is a direct result of their poor margins on their personal computers. I also question the decision to acquire Automy Software for a booming price tag of $10 million. 

Here's the Hewlett-Packard (HPQ) QR 2011 Earnings Call - November 21, 2011 from Seeking Alpha.

Hewlett-Packard (HPQ) QR 2011 Earnings Call - November 21, 2011

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Courtesy of an article dated November 22, 2011 appearing in The Wall Street Journal and an article dated November 21, 2011 appearing in Seeking Alpha