Google Boosts Android Wireless Business and Buys Motorola in Largest Acquisition. Microsoft, Apple, Research in Motion, Nokia on High-Alert.

In an effort to boost its Android operating system, and increase market share in the highly competitive mobile phone industry, Google is buying Motorola for $12.5 billion in cash. This is Google's largest acquisition ever, and a clear indication to its competitors in the mobile space that the company is willing to utilize the significant cash at its disposal to dominate the lucrative and growing smartphone market. Apple, Research and Motion, Nokia, and Microsoft will all be on high-alert after this deal.

The deal values Motorola at $40 per share, or a whopping 63 percent premium to its closing price on Friday. Google paying such a huge take-over premium for a company may be a clear indication that current prices for other mobile manufacturers like Nokia and Research in Motion are depressed and poised to rise over the next twelve months, especially if Microsoft decides to fight fire with fire in the mobile handset wars and buy Nokia or RIM.

Google has been gaining significant market-share recently with its Android platform, but a lack of intellectual property in the wireless area was hampering its growth. Instead of innovating on its own, and devoting significant time and resources towards research and development, Google just bought a company with existing patents and previous research completed.

Earlier this month Google's competitors, including Apple, Microsoft, and Research in Motion, bought a significant patent portfolio from Nortel, effectively blocking Google from the process.

Google states that it will run Motorola as a separate business and close the deal by the end of this year, or the beginning of 2012.

More at the Vancouver Sun.

Happy Investing : )

Why Microsoft Should Buy Canada's Research in Motion. It is a Better Target than Nokia or Yahoo.

In a recent article for the Rhodes Capital Blog, Sean Farhy outlines an excellent argument in favour of Microsoft's acquisition of Canada's Research in Motion. The price he mentions that would be appropriate is $49 per share, well above today's current price of around $27 and a healthy premium for investors should a deal like this ever materialize. To be sure, if the situation at RIM gets much worse, the management will shop around for a suitor and happily take a fat golden handshake... leaving their shareholders with a wad of cash on hand, or ownership in a stronger combined entity. 


"Microsoft (MSFT), like City Hall, is the established bureaucracy and its stakeholders often feel like powerless constituents. Unfortunately for the small investor, the lack of a democracy in a stock proxy only empowers Steve Ballmer and his administration. Mr. Ballmer will play the role of our Mayor, a career politician who has done absolutely nothing for the stock price since he has come into office." 


Microsoft sits on almost $50 billion in cash, or $5.78 a share and also pays a dividend of 2.7%. Earnings are expected to be over $20 billion going forward- Mr. Ballmer, surely you can do better than maintaining your failed policy of executing the status quo? The first trial into the smartphone market failed within weeks and the likelihood of creating another profitable organic hardware system like the X-Box is virtually nil. What needs to be done is something extremely logical and affordable. Rumors were that Microsoft was going to partner with Nokia (NOK) and there was even more speculation that Microsoft was then going to buy some or all of that company. Forget about buying Nokia (which you’ve done, correctly I might add). If Microsoft is on the acquisition path, Research in Motion (RIMM) is more compelling purchase.


"Research in Motion’s market cap is now under $20 billion, with no debt, plenty of cash flow, and a solid footprint in the smartphone market. Nokia on the other hand is larger, leveraged with high-yielding debt, and offers product lines not applicable to Microsoft’s core business. Blackberry currently supports Windows and MS Office so further integration would appear to be easy to accomplish. So if the rumors are right, and Microsoft is going to make an acquisition- Research in Motion would appear to make the most sense."


Abstracts are from the Rhodes Capital Blog


Happy Investing : )

Research in Motion (TSE: RIM) Decline Way Overblown. Should You Buy RIM Before it is Taken-Over?

I must admit, as a recent owner of Research in Motion, I am a little biased in saying that the recent sell-off in the stock is overblown. Down from over $60 per share in March of 2011, to the high $20's, on the announcement of slower growth and late product development is more than a bit much. Of course, there are many bears in the proverbial Wall Street woods that claim Research in Motion is about to go the way of Palm and other early device makers, but this is not just another dog stock with terrible fleas.

The usual story for defunct technology companies is that they begin to burn cash quicker than they can make it. To be sure, many even have to borrow hordes of cash from investors and banks just to stay current with new developments and recent trends. RIM does not fit this bill. It has over $2 billion of cash in the bank, and it earned almost $700 million in the last quarter alone! To be sure, growth is slowing... but that does not mean everyone should just abandon ship and find the nearest lifeboat. They are at the end of a product cycle and it will take some time for them to release and market their new QNX operating system products, like those similar to the Playbook.

The other reason, which is clearly starting to gain traction, is that investors are starting to really smell a takeover target. When this happens, a floor starts to be created in the price of a stock. According to the CBC, potential "suitors mentioned in the past have included the likes of Microsoft, Oracle, Cisco, IBM and Hewlett-Packard." Each of these companies has deep pockets that could gobble up and enjoy RIM for breakfast. In addition, there are many great technology companies that would love to seize all of RIM's technology in one fell swoop. Why spend billions inventing your own systems when RIM's could be had for much less... plus you get the cash in their bank account remember. Most estimate the cost of buying all of RIM at around $20 billion. This is a large number, but not that large for the technology giants of the world's stock markets.

Happy Investing and be sure to give RIM a look in the near future.

Here is some additional information on this story:

http://www.cbc.ca/news/business/story/2011/06/17/f-rim-shares-buy.html

Telus and Microsoft Team up to Offer Skype Phones.

Telus, (TSE: T), realizing the growth in the market for data fees on its cellular network, is teaming up with Microsoft's (NASDAQ: MSFT) Skype to permit smartphone users to use the once derided service.

The partnership, announced this week, is the first such partnership to exist in Canada. Previously, carriers, such as Telus, Bell, and Rogers, had feared allowing Skype to be used on their networks because it has the potential of reducing their revenues, especially for long-distance calls. But the rapidly changing landscape of the telecommunications industry, with the advent of social networking and text-messaging, has forced carriers to consider new ways to ensure that customers stay tied to their telephones in an era of less voice communication. 

To be released this summer, the Skype branded phone will be an LG Optimus Black phone that comes pre-loaded with international Skype calling credits for users to enjoy. Of course, as many users of Skype already know, Skype-to-Skype calls will be free, but traditional calls to other carriers will require a monthly subscription or a per-minute payment. 

Some benefits that Telus customers will enjoy with the new Skype plan will be having Skype credits added directly to their Telus bills and free technical support to help Telus customers use Skype.

Of course, to utilize the Skype service, a conventional Telus plan is still required... so they are not losing anything here, it will generally only be a net-addition to total revenues as there is undoubtedly a revenue sharing agreement between both Microsoft and Telus. 

The conclusion for the Intelligent Investor: A big thumbs up to both Telus and Microsoft on this one. A great new revenue stream for both of them in an era of intense and ever-increasing competition. It allows both of them to offer something new and different in a highly crowded marketplace.

The World's Most Valuable Brands. Apple, Google, and IBM Take the Lead.

Reuters news agency has released a list of the world's most valuable brands. The annual BrandZ study reveals that Apple (NASDAQ: AAPL) now leads its rivals Microsoft and Google by a wide margin. The iPad maker's brand is now worth an estimated $153 billion dollars, which amounts to about half of the company's market capitalization. Simply put, consumers are now far more apt to pay more for many of Apple's products due to the company's brand name recognition.

Like most successful luxury brands, Apple has been able to use higher prices to reinforce the value of the brand in the consumer's eyes. Hype and effective marketing of its products have now left consumers clamouring for every new gadget or device the company releases, which has allowed the company to reap profit margins in the range of 20 - 30 % after taxes and all other expenses have been paid. That is a healthy margin that leaves the company with lots of room for shareholders to breathe.

The Top Brands by Value:

1. Apple
2. Google

3. IBM

4. McDonald's

5. Microsoft

6. Coca-Cola

7. AT&T

8. Marlboro

9. China Mobile

10. General Electric

Clearly, technology companies dominate the ranking this year, with old stalwarts like McDonald's, Coke, Marlboro, and GE rounding out the rest. 

Why cigarette maker Marlboro? There are still many loyal cigarette consumers in North America and Europe, and though it is declining slowly here, the popularity of smoking is booming in Asia, where there is often a fascination for everything American. The same is very much the case for McDonald's, which is seeing a rise in the value of its brand as Asian consumers develop a taste for unhealthy fast-food of the North-American variety.

As a shareholder or investor, it is always important to pay close attention to the brand awareness of consumers. Brands provide a moat, or a defensive wall around your business that is often very powerful at preventing competitors from stealing away your customers.

Happy Investing and be sure to own some top brands in your portfolio's. 

Queen's University Develops PaperPhone, a new Paper-Thin Computer / SmartPhone / E-Reader!

Queen's University in Kingston has announced the development of a new paper-thin and bendable computer/smartphone/e-reader. The school's Human Media Lab has named it the "PaperPhone" and it measures 9.5 centimetres diagonally. Interestingly, it can even be rolled up and stored like a regular piece of paper. 

Queen's has stated that the device is probably about five years away from being available to the mass market, but this is surely a game-changing technology that many companies will love to get a hold of. RIM, Apple, Microsoft, and others will undoubtedly be paying close attention to how this develops.

The prototype cost $7,000 for Queen's to make, but within a few years the school should have that number way down. The key to the future prosperity of this invention is that the price needs to come down low enough so that consumers and businesses will conceivably own multiple e-paper sheets of many sizes. They could utilize them to cover desks, office walls, and board room tables. To be sure, the possibilities in the institutional and corporate environments for this type of technology are immense.

Eventually, the devices will even be able to be folded into your pocket so that you can carry around a huge screen for presentations etc.

For more information, check out the link from Queen's University below:

http://www.queensu.ca/news/articles/revolutionary-new-paper-computer-shows-flexible-future-smartphones-and-tablets

Investors Should Buy What They Know and Steer Clear of What They do not Understand.

It is important for the intelligent investor to "buy what they know." Or only stick to owning businesses for which they would be able to notice opportunities, changes, or threats in their respective sectors. When competing with millions of other people around the world for the buying and selling of stocks, one must possess a reasonable expectation of spotting competitive, strategic, or systemic threats to the businesses that they own. It is, therefore, important to diversify, but only within reason.

For instance, many investors have an appetite and desire to own technology and renewable energy stocks. On the whole, the rapid and inherent nature of change in the technology sector makes threats and difficulties very difficult to notice with regards to many technology stocks on the market today. Many great technology names have come and gone over the years, and few have managed to withstand the constant pressure to innovate and re-invest themselves.

IBM (NYSE: IBM) has done so for decades, and continues to do so with much success, but many others are in constant fear of being overtaken by the next great technological fad or change. Even the great Microsoft (Nasdaq: MSFT) is beginning to come under siege by Google (NYSE: Goog), Apple (Nasdaq: AAPL) and others... especially in the cloud computing arena, which might be the next great shift in the technology space.

Other individuals might be very astute at spotting key developments in the fashion or retail space. Personally, many clothing stocks such as Aeropostale (NYSE: ARO), American Eagle (NYSE: AEO), Gap (NYSE: GPS) etc. carry a lot of uncertainty as I may be unaware of important trends taking place in the fashion space. On the other hand, trends in the energy, banking, or consumer staples arena are much easier for me to wrap my head around. A knowledge of current oil inventories and reserves for Suncor (TSE: SU), in combination with a prediction of energy prices over the next year, could give me a reasonable valuation for the company, but a variety of key factors concerning current clothing trends would leave me at a disadvantage compared to other investors in this sector of the economy. In the Art of War, Sun Tsu said to evade your enemy if unequally matched. In investing, the same is true.

Warren Buffet, the Oracle of Omaha and guru for many value investors, always said to steer clear of something that you do not understand. It is nearly impossible to tell if a company has a "durable competitive advantage," or good defence against competition, if you do not understand how its business operates, who its primary competitors are, and what threats or changes are on the horizon. Without this knowledge, the intelligent investor is exposing themselves to far too much risk. Investing should never be a guessing game, but a calculated and well played match between you and other investors to acquire businesses for a reasonable and well rationalized price.

If you cannot assign a true dollar value to the company, independent of the current stock price, than you should not own it. You would not buy a rental property without first understanding the neighbourhood it is in and how much rent it generates, so do not buy a stock without first knowing how it actually makes its money, who its customers are, and what the competition is like.

If most industries are unfamiliar to you, a quality, low-fee mutual fund or exchange traded fund are probably best.

Happy Investing : )