Samsung Is No Threat to Google
Here is the background: Android has 70% smartphone market share, and Samsung is the largest percentage of this 70%. Exactly what percentage it is differs from survey to survey, but suffice it to say that it is by far the single largest maker of Androids. Samsung also makes smartphones based on other operating systems such as Windows Phone and Bada, but those sales volumes are relatively minor compared with Android.
This is not materially different than the relationship Microsoft (MSFT) has -- and has had for 20-plus years -- with the Windows PC makers. Once upon a time, say HP (hpq) was or still is the largest maker of Windows PCs. Does this mean that HP is somehow a threat to Microsoft? Of course not. Never was, isn't today, won't be tomorrow.
There are some differences between the Windows PC world and this new Google-Samsung relationship:
1. Samsung already modifies the Android software. This is unlike the Windows world, where there was no such modification. However, everyone who has actually compared a pure Android Nexus device with a Samsung modification -- which it calls "TouchWiz" -- will agree that the Nexus is better.In other words, the Samsung modification is "adding" negative value. It's worse. The sad fact here is that most average consumers are totally uneducated about this and have not compared the products. They buy what they're fed at the carrier stores, and that's not Nexus.
2. Samsung could modify Android even further. A company such as Amazon.com (AMZN) already does this, having "forked" plain Android beyond recognition. At least Samsung's current "modification" is not so far away from pure Nexus that it is unrecognizable as Android.But would this really be in Samsung's interest? Is the loyalty ultimately to Android or to Samsung? I argue it's to Android.
3. Samsung could pursue other operating systems further. This includes Tizen, which is already under development, and/or acquiring BlackBerry (BBRY) , which seems entirely possible. It's not clear that this would hurt Google anymore than any other scenario for those operating systems, however.
4. Samsung is investing more in various applications over and beyond plain Nexus Android. Recent examples include the S-pen (stylus) for the "Note" tablets/phablets and the new "Wallet" app, which is basically a copy of the Apple (AAPL) Wallet app. So far, it's not clear that anybody cares about these solutions, at least until Google takes them and makes them part of "standard" Android.
How did Samsung end up in this pole position in the Android world?
1. Samsung is different than most other Android licensees because it has vertical integration for many components, from CPUs to displays/screens. It's not clear that this is a big deal, although it could be.