Posts Tagged ‘nokia’

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The deal between Vodafone and Verizon announced earlier this month is, in fact, the third largest corporate deal in history. In comparison the deal between Microsoft and Nokia is small beer, but it is still a massive arrangement by any normal yardstick. Interest rates are low, but they may not be low for much longer. Is now, and pretty much right now, the time for a new M&A boom?

Let’s look at some of the reasons why the two mega deals of this month have happened. Okay, there is good strategic fit. Verizon and Vodafone both see new opportunities, particularly thanks to 4G in their domestic markets. In the case of Microsoft and Nokia the rationale for the arrangement is pretty obvious and has been discussed to death elsewhere.

But consider two other factors less commonly discussed. In the case of Vodafone and Verizon the factor is low interest rates. Fears that rates may rise soon, was possibly the main rationale for the timing of their deal – indeed Verizon referred to this very point. In the case of Microsoft, the software giant is one of the companies with a massive cash pile. There are many of them. Corporate cash piles have been a particularly notable phenomenon of recent years. Market bulls have been predicting the release of this cash mountain for some time. In the case of Microsoft, its partial release has been triggered by desperation – fear of Google, Samsung, and Apple, even Amazon. Other companies may start spending because they see signs of an economic pick-up. The reason may not matter. It was surely inconceivable that companies were going to sit on all that cash for much longer, but a trigger was required to release it.

Look further down the corporate league and other evidence of new M&A activity emerges. David Lloyd Leisure has been bought by private equity firm TDR Capital – and its new owners have plans for expansion.

The ‘Telegraph’ recently quoted Greg Lemkau, who is the co-head of M&A at Goldman Sachs, as saying: “Within two or three years from now, people will be looking back on this time as a golden opportunity.”

But the overriding point is this. The economy both here and in the US seems to be improving, and pretty significantly too. M&A is always popular during an economic upturn. But because interest rates are set to rise, the ideal timing for such activity is now.

Not everyone in the corporate world has cottoned on to the recovery; they were likewise slow to spot the seriousness of the crisis five years ago, but as the recovery gatherers momentum, the penny will drop, and then we will see a rush for leveraged deals before rates rise much further.

What are the implications? AS M&A activities rise, so too will equities. The FTSE 100, the S&P 500 and the Dow will all pass new highs – probably.

Is it all a good thing in the long run? Well that will be the subject of another article.

© Investment & Business News 2013

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Time was when 2.7 billion seemed like quite a lot of people. That is how many of us are on the internet. But hold on, if the population of the world is around 7.1 billion, what about the remaining 4.4 billion of us? Never fear, Facebook’s founder Mark Zuckerberg has a plan.

Actually, according to the Facebook press release, the plan is to get another five billion people online. It is not clear how Zuckerberg will manage this, given that – according to the maths expressed above – there are only 4.4 billion people on this planet who are not online, and some of them are babies, but hey this Mark Zuckerberg. He is very clever. Maybe he is including family pets or Martians in his projections. More likely he is projecting growth in the population into his targets.

Then again, it is not just Zuckerberg who is at it. He has set up a company called internet.org, which Facebook describes as “a global partnership with the goal of making internet access available to the next 5 billion people.” In addition to Facebook, Ericsson, MediaTek, Nokia, Opera, Qualcomm and Samsung are all signed up to the project.

Some are cynical, and say Zuckerberg is only doing this because he wants more users for Facebook. But so what if that is the case.

Sometimes monopolies can be a good thing. A social media tool such as Facebook is a natural monopoly. It just won’t work as well if some of the people you want to connect with are on a rival platform.

Facebook won’t last forever. History tells us that dominant businesses lose their dominance as technology changes. It is called innovators’ dilemma. Kodak has been a recent victim. It looks as though Microsoft may well be. Facebook will be one day.

But just imagine for one moment what it will be like if the world – that’s the whole world, or at least the human bit of the world, let’s exclude the animal kingdom – was online at the same time, logged on using say 5G, giving them pretty much instant access to all knowledge and anyone else on the internet.

What a very different world that will be. It is one that may be less than a generation away.

© Investment & Business News 2013

So Amazon’s marketing in on fire, It is literally on fire, for much rests on the success of the Kindle Fire, its answer to the Apple’s iPad. And now a UK launch is imminent.

In the US the product is selling big time, the message is spreading like… well like wild fire.

The thing about the product is its price. The products are cheap, and they are cheap for a very good reason. Amazon sees the products as a means to promote its online shopping experience.

So, in other words sell the hardware as cheap as you can and make money when your consumers start using your hardware, going online and buying from your store.  There is another way of putting it of course, give away the razors, make money on the razor blades.

It is just that Amazon’s boss Jeff Bezos doesn’t like to put it that way. He told Tricia Duryee at Allthings D “We do not like the razor and razor blade model, where you lose money up front and then somehow make it up on the backend. We also do not like the other model, where you make a lot of money on the device, because it doesn’t follow our approach “ see Making Money While Keeping Prices Low: Amazon CEO Jeff Bezos Explains It All (Mostly)

But the real point here is that Amazon’s model is different from Apples’s. Apple is a hardware company and it makes money from hardware, income for the iTunes store is good to have, but it is not core.

But these days we are seeing different business models converge.  So Google makes money from advertising, and promotes its model via the Android. That’s why it can give the operating system away for free.

The Amazon Fire is an Android with the Google disabled, and replaced with an Amazon bit. Incidentally, in the US Amazon is now offering a version of the Fire with the Amazon interface taken out, but you have to pay more for the hardware.

But is there really a difference between online advertising and the online shopping promoted by Amazon?  Well, maybe there is a literal difference, but really what Google does is make money from promoting goods, available from third parties, that you can buy on the Internet. Amazon makes money by selling products on the Internet that are available from third parties.

So Amazon, Google and its family of hardware partners, the Nokia/Microsoft alliance and Amazon are all chasing a similar source for revenue.

But they are not just competing with each other, they are competing with Wal Mart and Tesco too.

But this begs the question, if Apple and Google are using hardware to promote sales of ‘stuff’ why aren’t the big traditional retailers doing the same?

Over the last year or so Tesco has made three acquisitions in this sphere. It has bought digital radio company, WE7 and digital-movie streaming service Blinkbox. Last week it also announced the purchase of online book store, Mobcast  – which was started by ex SAS man not to mention author Andy McNab.

The Tesco deals are interesting, but they are small fry.

In a  few years time, its big rivals will be Amazon and Google, and perhaps Apple. Hardware products, especially smart phones and tablets, will form part of the battle ground.

Tesco has to dig trenches, and lay down fortification in this battlefield.

That’s not easy. Innovators dilemma explains part of the problem here. Market leaders find it very hard to adjust when an industry sees radical change. Such a dilemma explains Kodak’s descent from market leader to Chapter 11, it explains why RIM, the company behind Blackberry is having such a torrid time, and it explains the challenges facing Nokia. It may yet prove to be a problem for the likes of Tesco and Wal Mart.

©2012 Investment and Business News.

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