Over the past year, much of the news about Apple (AAPL) has centered on its smart phone competition with Samsung, the current standard bearer for the Android operating system of Google (GOOG). This competition is complicated for Apple, because Samsung is its competitor, and at the same time, Apple is dependent on Samsung as a major supplier of semiconductor components; in fact Samsung is Apple's largest supplier of components. The conflicts in this situation for Apple are obvious: Apple's purchases provide Samsung with profits to invest in competition against Apple, and Samsung's designers have the advantage of engaging new components earlier in the design process. The direction that Apple has taken in response to this conflict may be the only one, namely, to progressively reduce its dependence on Samsung.
Windows and Android Upheaval
Meanwhile, an even more serious conflict is emerging among Apple competitors. Major competition across all of Apple's product line comes from two alliances: Google and its Android licensees compete with iOS products; while Microsoft (MSFT) and its Windows licensees compete with Mac and iOS products. Recent events, though, are about to seriously disrupt these arrangements: as both Microsoft and Google enter the marketplace with their own hardware products, the relationships within these alliances are bound to change.
For three decades, Microsoft has played a complementary role to the major PC hardware companies. As tablets have begun to cannibalize the PC market, the same hardware companies that license Windows are struggling to establish market share in tablets. In this critical environment Microsoft has chosen to abandon its complementary role, leverage its position (and its profits) as the Windows OS supplier, and enter the market with its Surface tablet as a hardware competitor to its licensees.
Google has chosen the same route, not only introducing its own Nexus tablet in competition with its Android licensees, but also competing in the smart phone market through its acquisition of Motorola Mobile.
Compared to the competition within these alliances, Apple's problem with Samsung as a components supplier is minor. Google and Microsoft control the operating systems, the very core that determines not only the functionality of the devices but also the "feel" of the user experience. They also control the app environment and reap the profits from sales of apps.
If the hardware entries from Google and Microsoft gain substantial market share, they will present an increasing threat to their licensees. If they turn out to be weak entries, there will be increasing pressure to use the control of the operating system to greater advantage; or, in any case, there will be suspicion of their doing so.
Samsung, Lenovo, Dell (DELL), HTC
The licensees in these two alliances (Samsung, Lenovo, Dell, HTC and others) simply cannot in the long term accept this competition from suppliers of their core capability. They must figure out how to contend with the inevitable conflict. If Apple's experience with Samsung is any guide, the likeliest direction for these licensees is to move toward independence. At this point it is unthinkable that these major companies are not seeking alternative operating systems, either homegrown or through acquisition.
The conflict and disruption that will accompany these "rearrangements" can only accrue to Apple's benefit. But are there other companies for whom this conflict becomes an opportunity? High function, efficient operating systems are no small development challenge; they are time consuming and costly projects, especially the low-power mobile systems. So, are there operating systems available through acquisition?
Acquisitions: Nokia, Research in Motion (RIMM)
Hewlett Packard (HPQ) already acquired Palm with this strategy in mind, but has not yet been able to capitalize on it. HP's market cap is a big bite to swallow ($25B) and they are not likely to sell off Palm's operating system while they are getting their act together.
Nokia, with its Symbian operating system, has a lower market cap ($10B) but by failing to gain traction in smart phones and more recently by coupling its wagon to Microsoft, it may have implicitly reduced the perceived value of Symbian.
RIMM is quite another story. Its fall from grace has left its market cap ($5B) at an easily acquirable value for many players, and the Blackberry user base is a substantial asset, especially if the uncertainty of survival is removed. As the most prominent opportunity out there and given the number of potential suitors, RIMM might well be the subject of a vigorous auction that would handsomely reward investors who have bought near this low point.
In any case, the competition in both desktops and mobile devices is a highly dynamic one and the strategic factors described above don't make it any less slippery for investors to grab hold.