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Android Mergers & Acquisitions

Samsung buys Joyent as it chases non-smartphone revenues

 

As Huawei seizes smarphone market share with P9 hit, Samsung aims to build cloud services business in mobile and IoT

Huawei’s share of the global smarphone market has risen to 8.5% following its strongest launch ever, the P9. Samsung has announced the acquisition of cloud vendor Joyent to accelerate its push into mobile and IoT (Internet of Things) services.

The two pieces of news, which emerged on the same day, are clearly part of the same picture. The smartphone market’s growth is slowing, but a few Chinese vendors are succeeding in bucking the trend and increasing their market share. Both trends are putting intense pressure on the established handset giants, notably Samsung, which is seeking growth elsewhere, by expanding into services, software and IoT devices.

Samsung’s track record in software and services is far less impressive than in hardware and components, but it is investing heavily in the area, diverting considerable R&D resources to the challenge and making a string of acquisitions. Like Apple, it has a dual strategy – to create brand new revenue streams based around cloud and IoT services, and to introduce enhanced applications and user experiences to the core smartphone line, to restart growth there and seize market share back from Chinese challengers.

In most cases, those challengers share Samsung’s lack of expertise in software. That is true of Xiaomi, Lenovo (despite some of the assets acquired with Motorola Mobility) and others – but not Huawei, which has huge potential to tie its devices into its cloud platforms and enterprise services, creating new mobile business in the same way that Apple is doing via its IBM and Cisco alliances.

So with Huawei claiming 8.5% of the smartphone market in the first quarter of 2016, and 2.6m sales of its P9 and P9 Plus models in their first six weeks on the shelves, Samsung is on the back foot.

The Joyent acquisition is part of its fightback. Silicon Valley-based Joyent was one of the pioneers of containers, which have become an integral part of modern hyperscale cloud deployments, and recently launched a public cloud platform called Triton Cloud to add to its private cloud offerings.

It will bring Samsung a readymade container infrastructure platform which can be applied to the firm’s existing data centers,  to accelerate its move into cloud services, initially focused on the mobile space, and later on the IoT and connected cars and homes. Eventually, it could move beyond enabling Samsung’s own mobile services for enterprises and customers, and support those of partners. It will become part of Samsung’s California-based Global Innovation Center (GIC). The acquisition was led by the mobile business, but Joyent’s infrastructure will be applied to all its business units.

Injong Rhee, CTO of the Korean giant’s mobile division, told ZDnet: “We have been focusing on software and service. Along that line, we found cloud to be more and more important. We wanted to strengthen our competitiveness that we cannot not do within the device.” He added: “Cloud is at the centre of rolling out services. Our competitors have already invested hugely in cloud infrastructures. As we expanded services, using just Amazon and Microsoft was insufficient for our internal need. Clients such as mobile carriers with data centers need efficient cloud services.”

He insisted that Samsung did not intend to compete directly with Amazon and Microsoft, its current cloud infrastructure suppliers, and would continue to use their platforms as it scaled up its activities. He also said that Joyent would remain free to support its other customers and win new business.

Joyent CEO Scott Hammond said: “We’ve been working with Samsung for a while now as a customer, and then, in the process, they got to know our technology. We are a cloud platform used by enterprise to build next generation applications for web, mobile, and IoT. Looking at Samsung’s product and software services, you can see that they are heading towards those market segments that we are interested. This will give us strong alignment with the end market segment.”

Samsung’s sales fell by 3% last year, to KRW200.65 trillion ($171bn), while net income dropped by 19%, to KRW19.06 trillion ($16.2bn). The IT and mobile division accounted for more than half of sales, but is under the most pressure, with chips and displays being stronger performers.

By contrast, Huawei recorded a 33% rise in 2015 net profit, to CNY36.9bn ($5.7bn), on sales of $60.8bn, with its consumer business delivering the strongest results (73% year-on-year sales growth to $19.9bn) largely because of smartphone success. In the first quarter of 2016, Huawei said it shipped 28.3m units globally, up 64% year-on-year.

And the P9 has recorded sales which are, on average, already 130% higher than those of its predecessor, the P8, despite stagnation in the overall handset space. Huawei said Europe is a particular highlight – in France, sales of the P9 are 1,000% higher than those of the P8; in the UK, 300% higher; and in Finland and Poland, 400%.

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