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Bold prediction: Strong possibility of a Samsung Texas Instruments acquisition by 2013-2014

The Interactive Data Corp. (IDC) just launched [press release] its annual wrap-up of the state of the phone market -- Worldwide Mobile Phone Tracker.  The biggest two stories of the report were smartphones' faster-than expected ascent and the growing war between rival smartphone makers Apple, Inc. (AAPL) and Samsung Electronic, Comp., Ltd. (KS:005930).

I. "The Great War" -- Samsung and Apple Wage International War

Samsung and Apple fought a bitter war in 2011 as both sales rivals [1][2] and legal rivals [1][2][3][4] in what has proven -- thus far -- to be a futile and Pyrrhic two-sided court spat.  

Samsung moved a record 90 million smartphones in 2011, including Q4 2011 shipments of 36.5 million units.  That was good enough to bump Samsung's overall sales up to 300 million (with feature phones included), giving it a second place stake in the market.  Apple narrowly out-sold Samsung, moving 93 million smartphones in 2011 [1][2][3], buoyed by a record-shattering Q4 2011.

i. 2012 Outlook

The competition is expected to heat up in 2012 as Samsung steps up sales of the Galaxy Nexus (4.65-in. display, LTE, Android 4.0 "Ice Cream Sandwich") and Galaxy Note (5.3-in. display, LTE, Android 2.3 "Gingerbread"). 
 

Galaxy Nexus
The Galaxy Nexus [Image Source: Samsung]

The Galaxy III smartphone is expected to land sometime in Q2-Q3 2012, while our sources indicate that Samsung is already exploring the possibility of a Galaxy Note 2.0, assuming sales go well of the super-sized smartphone.  Samsung is also exploring, according to the sources, a high-end smaller smartphone to directly counter Apple's 3.5-inch device.

Apple, meanwhile, is expected to launch an A6-equipped iPhone 5.  Word is that the A6 may be Apple's first true built-from-the-ground-up ARM core, versus past cores that were licensed and modified.  Apple is expected to stick with the Retina screen, though some are expecting it to boost the size slightly, to somewhere between 3.7 to 4.0-in (or in a less probable scenario release a larger variant).  

IOS 6.0 is likely going to be a major update, as Apple is lagging behind Google Inc. (GOOG) and Microsoft Corp. (MSFT) in the home screen GUI experience, with iOS 5.0 somewhat the ugly duckling of the smartphone world, until you get inside Apple's strong core apps.  Apple supporters would likely defend this approach as "simplicity at its best", but Apple is likely to be wary of being viewed as anything less than the most stylish smartphone maker, as its brand is heavily image-based.

Dude you're a barista!
Apple's thirst for strong stylish brand image will likely force it to make big changes in iOS 6.
[Image Source: Samsung]

ii. LG v. Samsung in the Display Market

In so much as a smartphone is only as good as its screen, the iPhone vs. Galaxy war is as much LG Display Comp., Ltd. (KS:034220) vs. Samsung as it is Apple vs. Samsung.  Apple's products have always been predicated on sourcing premium parts.  Typically an Apple device contains little in the way of groundbreaking hardware innovation from Apple, but Apple has a strong track record for cornering the market on the most attractive discrete components and bundling them together in slick packages.

In the display space Apple's Retina display is reaching high volumes and boosting sales for both Apple and LG Display.  The Retina display is based on the an advanced version of In-Plane Switching (IPS) technology -- a TFT LCD (thin-film transistor liquid crystal display) technology first developed by Japan's Hitachi, Ltd. (TYO:6501) in 1996.  Hitachi has since sold off much of its own production capability, although it still holds some important patents.

Retina display
The iPad 3 will finally get the LG Retina display. [Image Source: SlashGear]

Meanwhile Samsung uses its own in-house S-LCD ("Super LCD") display technology, which is based on the Patterned Vertical Alignment approach, a rival TFT LCD technology.  Versus IPS, PVA displays enjoy similar rich color and contrast.  They outperform IPS displays in response times, particularly at lower brightness.  However, their viewing angle slightly lags IPS, with slight color distortion when viewing the screen at wide angles.  

Samsung originally developed S-LCD with Japan's Sony Corp. (TYO:6758).  It has since moved, though, to acquire sole ownership of the joint venture.  PVA first popped up in 2005-era Sony televisions, long before the tech hit smartphones -- much as IPS popped up in Hitachi and partners' high-quality color computer monitors -- aimed at art professionals -- before eventually finding a home in smartphones.

iii. Hardware

Samsung is currently using a mix of in-house modified licensed ARM Holdings plc (LON:ARM) CPU cores and Texas Instruments, Inc. (TXN) OMAP cores.  Samsung and TI appear to have a growing partnership in the ARM CPU space.  

This partnership makes sense as TI's OMAP 4000 Series are respected as one of the best ARM core designs on the market, particularly in battery efficiency, but trail in process technology.  Meanwhile Samsung leads all ARM manufacturers in process technology, being the first to hit mass-production of smartphone CPUs at the 28 nm node.

The relationship is also convenient out of pure geography.  Texas Instruments -- as its named implies, is based in Dallas, Texas.  And one of Samsung's largest global facilities outside of South Korea is its massive Austin, Texas chip fab complex, which houses only Samsung's second non-memory chip fab, a sprawling 2.3-million square foot factory that cost $3.6B USD [source] and may total billions more in ongoing upgrade costs.  The site is also home to one of Samsung's biggest memory chip fabs.

Samsung Austin Texas
Samsung's second CPU plant is located in Austin, Tex. near Texas Instruments.
[Image Source: Let's Go Digital]

Texas Instruments is exactly what Samsung needs -- a core designer sourced close to one of its biggest production facilities, in one of its biggest markets.  This is seemingly a match made in heaven, and the first results (the late OMAP4430-based iterations of the Galaxy II and the OMAP4460-based Galaxy Nexus) have appeared to be terrific.

Given TI's strong value proposition to Samsung and relatively low $37.6B USD market cap, we boldly predict that there is a strong possibility of a blockbuster TI acquisition by Samsung sometime in 2013-2014.  Samsung is committed to spending a record $42B USD in 2012, including on acquisitions, so it is possible such a deal could already be in the works.

Meanwhile there's major movement on the Apple chip front as well, according to our sources.  Apple has reportedly transitioned from an ARM core licenser who modifies ARM Holdings' cookie-cutter intellectual property (IP) designs (think decorating sugar cookies out of a tube), to baking its own homemade ARM cores based on an ARM instruction set license (think making homemade chocolate chip cookies).

Like a chocolate chip cookie, Apple's core design for the A6 will be somewhat a product of the instruction set and fundamental RISC design architecture.  In that sense it is likely to resemble other ARM Cortex-A15 (or possibly A9 if it has not yet made the switch) designs.  Apple is likely to add a low power helper core to its dual-core smartphone and quad-core tablet chips, similar to designs being pushed by NVIDIA Corp. (NVDAand Marvell Technologies Group, Ltd. (MRVL).

On the graphics front, Apple and Samsung both have traditionally been committed to Imagination Technologies Group Plc.'s (LON:IMG) PowerVR GPU IP cores, though Samsung has also dabbled with ARM Holdings plc's Mali GPU IP cores.  Looking at 2012, Samsung looks to transition all of its next-gen. dual-core (smartphones) and quad-core (tablet) Exynos chips to ARM Holdings' impressive next-generation Mali 600 series cores.

A (slightly) lower level view of the Mali T658 chip. [Source: ARM Holdings]

The commitment will likely be less than total for Samsung, though, as Texas Instruments is still using PowerVR exclusively, and Samsung's close ties to TI means that there will probably be PowerVR chips in some of its phones in 2012.

II. Other Competitors Remain Hungry

The IDC's report only covered the world's top firms in terms of total shipments, hence it did not cover firms like Taiwan's HTC Corp. (TPE:2498) who exclusively sell smartphones.  Apple was the only company to make the ranks without selling feature phones.

Still, even looking at these dual-mode firms, there's strong hunger among those near the top.

i. Nokia

The IDC report was relatively positive about Nokia Oyj. (HEL:NOK1V), writing, "The company took another step in its storied transition, having officially launched its first Windows Phone-powered Lumia smartphones and its Asha line of smartphone-like feature phones. While both have received positive response from the market, Nokia has been quick to adjust its retail experience, customer engagement, and hardware bug fixes."

Nokia sold only about 16 million more total phones than Samsung in Q4.  The company remains the world's top mobile phone seller.  While Samsung was nipping at its heels in Q4, Nokia remained almost 90 million units ahead of Samsung for full-year sales.

In terms of smartphones, Nokia ultimately is looking to go the same route Samsung did with the Galaxy with its Lumia 900 and supporting cast -- deploy a superphone and rise out of obscurity in international smartphone sales.


The Nokia Lumia 900. [Image Source: Nokia]

Nokia also is eyeing transitioning its feature phone lineup to pseudo-smartphones -- possibly bumping margins.  The IDC cites the launch of Asha 200 and 300 series phones in developing economies such as South America and Southeast Asia as a big reason why Nokia held off a surging Samsung in 2011.
Nokia Asha
The Nokia Asha 200 [Image Source: Nokia]

The Asha series uses Nokia's a refined version own S40 operating system.  While Nokia may be killing Symbian, it is likely to retain S40 for its offerings in developing markets.

Nokia was number one in the world in total mobile sales.

ii. ZTE

Another rising star of the mobile market is China-based ZTE Corp. (SHE:000063).  Fueled by strong sales of both smartphones and feature phones in the world's largest feature phone and smartphone market, ZTE came in fifth place for the year with 17.1m units sold in Q4 and 66.1m sold for the year.

ZTE is growing rapidly and starting to pick up the pace in smartphones with the mass-market Blade and mid-range Skate Android phones and its Tania Windows Phone.

ZTE Blade
"Bladerunner": The ZTE Blade [Image Source: Bonnie Cha/CNET]

The Chinese phonemaker grew over 30 percent in 2011 sales, but saw its growth slow towards the end of the year.  Still, it made it out well ahead of Nokia who shrank.

iii. LG Electronics

...and that brings us to LG Electronics Inc. (KS:066570), who like Nokia also ended 2011 with both seasonal and quarterly market share losses.  LG's marker share losses were far bigger than Nokia's as it plunged 42.2 percent in Q4 to enter into a near-tie with ZTE, with 17.7m units sold.  It plunged 24.5 percent for the year, settling into fourth place in yearly sales, as well.

All of this would sound like game over for LG Electronics, were it not for the fact that the firm is finally profitable and has started to produced the kind of Android superphones that customers are looking for, with its Optimus LTE Android smartphone.

LG Electronics is no Samsung Electronics, but it can aim to be a modest competitor in 2012, though it still feels like a company searching for an identity -- even more so than Nokia.

While overshadowed by the Galaxy Nexus, LG Electronics "Spectrum" -- a high-end $200 smartphone -- is earning positive reviews.  With a full 1280x720 pixel HD 4.5-inch display, 1.5 GHz dual-core CPU Snapdragon S3 (Qualcomm Inc. (QCOM)), and LTE, the phone has the pixels to look good, the processing power to fuel them, and the modem speeds to slurp down good content.  The phone has earned some positive reviews.  E-Week praises, "It's certainly LG's best Android phone to date, and should be even better when its gets the update to Android 4.0 Ice Cream Sandwich this year."

LG Spectrum
The LG Spectrum LTE [Image Source: TechRadar]

The Spectrum has the advantage of retailing in the U.S. on America's largest network, Verizon Wireless -- the joint venture between Verizon Communications Inc. (VZ) and Vodafone Group Plc. (LON:VOD).  It should see some pretty good sales given the positive buzz and top shelf hardware.

As an added bonus for LG, regardless of its smartphone fortunes, its sister company in the conglomerate -- LG Display -- is going to town in terms of display sales, thanks to the iPhone's record-shattering year end.

iv. Overall Market

The IDC had predicted severe slowdown in phone growth as feature-phone purchases slowed.  The IDC predicted an anemic 4.4 percent growth in Q4.  As it was, this pessimistic prediction fell slightly short as 6.1 percent more phone units moved.

The deciding factor that kept the situation from deteriorating further in terms of unit sales was faster than expected smartphone adoption.  

Ramon Llamas, senior research analyst with IDC's Mobile Phone Technology and Trends team says that feature phones still play a key role in this changing market.  He comments, "Feature phones accounted for a majority of shipments from four of the five market leaders during the quarter.  Even though their proportion is eroding, feature phones maintain their appeal on the basis of price and ease of use."

But he acknowledges that they are being assimilated a la the Borg, themselves becoming pseudo-smartphone, thanks to new media features.  He remarks, "At the same time, feature phones are fighting to maintain their market share.  To meet the challenge, feature phones are becoming more like smartphones, incorporating mobile internet and third-party applications. While this may not stem the smartphone tide, it should slow down the rate at which smartphones are selected over feature phones."

Feature phones go dinosaur
Feature phones are set to become twentieth century dinosaurs of the consumer electronics world. [Image Source: Xanga]

One weakness of IDC's analysis in its press release is that it misses the big picture.  The smartphone versus feature phone battle is not a level playing field.  One smartphone can earn an OEM 5 to 10 times the profit of one feature phone.  Thus if companies like Nokia and LG see their sales drop, but manage to push more smartphones into the market, their shareholders should be cheering, rather than bemoaning the sad fate of the feature phone.

Source: IDC [press release]



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RE: Reactions should be fun
By retrospooty on 2/3/2012 3:47:31 PM , Rating: 2
" it's the concept of a full-screen grid of icons (even if not automatically ordered like iOS), a status bar up top, and common tasks at the bottom, all in a touch-first interface."

Remove the last part "touch-first interface" and you have a Palm Treo (or more specifically a Palm handheld from the 90's).

Again, fine for Apple to copy, but not anyone else.


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