2. NFC and Security
Two of the next smart phone frontiers are NFC (Near-Field Communications) and security, and they are often related. Google has launched its NFC initiative with the Nexus S smart phone, working with retail payments in Portland, San Francisco and New York. This is a huge effort and touches on the payments/banking world.
While the NFC opportunity is gigantic – witness the transaction volumes enjoyed by VISA, MasterCard, AmEx and the banking system – it is also an area where security is paramount. Google claims to have resolved any security issues, and surely they have done a lot.
But worries remain. The NFC link itself may have been secured, but if the underlying OS platform has to be 100 per cent trusted. One emerging problem with Android is a consequence of its openness, and that is the emergence of various viruses and other security breaches, including keyloggers and other forms of spyware. NFC may be safe for now, but what if malware takes control of the entire platform?
One key thing that BlackBerry brings to the Android party is a trusted new QNX OS platform that can do a better job than Android in securing against such platform security threats. QNX runs power plants and numerous widgets in the US Department of Defense, among other things.
Some of the most prominent premium car brands put QNX to run automobile systems. The BlackBerry PlayBook recently became the first tablet to obtain the U.S. government’s critical FIPS-140 security certification, which can be a requirement for deployment.
What is the bottom line here? Without QNX and BlackBerry’s trusted (but closed) platform, Google’s ambitions in NFC and related commerce may be for naught. It may have to cede this to Apple’s much more secure iOS platform, which may not be as secure as QNX, but sure is more meaningfully secure than Android.
Adding insult to injury, despite Microsoft’s horrific security reputation for Windows PC, it has what appears to be an OS in the same class as Apple’s iOS for the smart phones: Windows Phone. Google has all the other pieces to win this game, but the weak link is Android’s sub-par security. In relation to Google’s commerce opportunity that can easily be measured in the many hundreds of billions of dollars, RIM’s ex-cash market cap of $10-billion pales.
3. Those patent wars
Recently having flown into focus, several actors including Microsoft, Apple and Oracle have asserted their considerable patent portfolios against Google and/or its Android licensees. I am not remotely qualified to judge the validity of these numerous highly complex claims. What seems clear, however, is that Google may have an increasing appetite for beefing up in this arms race.
For example, IDCC ran up materially a couple of weeks ago based on rumors that Google and Apple may be interested in acquiring said company. Numbers that have been thrown around in the press have been up to $5-billion, or half of RIM’s enterprise value.
Everyone knows that Motorola Mobility, Nokia, Broadcom and Qualcomm have some of the largest patent portfolios in the business. That said, RIM also has a respectable patent portfolio, and most people know that RIM has spent considerable amounts over the last decade to develop its own stacks. MMI and Nokia are scraping near the break-even level, while RIM remains hugely profitable, however, so Google would be able to pay a far bigger premium for RIM than any of those other companies.
With RIM’s enterprise value near $10-billion, and other patent portfolios going for approximately $5-billion, it would appear RIM is trading at an even more amazing bargain price than first meets the eye.
Conclusion: Who else would join a bidding war?
I don’t think the U.S. government – even more so than the Canadian – would allow RIM to be sold to the Chinese, or most any other non-North American company. It’s just so sensitive to our national security.
So apart from Google, this leaves only a few companies as potential suitors, in order: HP, Dell, Microsoft and Motorola. Of those, HP has the muscle, Dell has sufficient muscle, Microsoft is highly unpredictable, and Motorola would have to make it more like a merger of equals. I don’t think any one of them are as ready right now as Google from a motivation and financial standpoint combined, although they are all possible and should by no means be ruled out.
The platform convergence, NFC, security and patents all point to Google, in my opinion.
Anton Wahlman was a sell-side equity research analyst covering the communications technology industries from 1996 to 2008: UBS 1996-2002, Needham & Company 2002-2006, and ThinkEquity 2006-2008. At the time of publication, this writer was long AAPL, GOOG, QCOM and RIMM.