The Microsoft-Samsung Partnership Will Improve Windows Phone Prospects

Samsung (PINK:SSNLF.PK) recently announced that it will soon release its first Windows 8 based phone, the ATIV S.(Windows Phone Blog) We think that a stronger partnership with Samsung can do wonders for Microsoft in its quest to increase Windows 8 market share as Samsung currently has the largest market share among smartphone providers. Microsoft (NASDAQ:MSFT) primarily competes with Apple's (NASDAQ:AAPL) iOS, and Google's (NASDAQ:GOOG) Android in the mobile OS space.

The recent figures released by IDC show that Samsung has captured approximately 32.6% of the smartphone market.^[1] As Apple's OS is only available on its own devices, Samsung's smartphones have, until recently, been primarily Android-based. However, to mitigate the impact of Google releasing its own high end smartphones via Motorola, Samsung is seeking to diversify its OS offerings by using the Windows 8 platform.

We think that a new Samsung Windows phone can help Microsoft ride on Samsung's coattails in the smartphone space. Samsung is a leading hardware manufacturer, and we could see the Windows phone sell mainly on the Samsung brand. After the hiccups in its partnership with Nokia, partnering with the largest smartphone provider in the world should help Microsoft gain market share. For example, assuming a flat number of units sold, if 10% of Samsung's smartphones are Windows-based, it means that Microsoft would sell 5 million units a quarter. Even though Windows phone revenues are currently an inconsequential percentage of the stock price, the company can leverage new users on the mobile platform to cross sell its other offerings such as Office 15 and the Windows 8 PC operating system.

Increase in Windows OS market share will help Bing

Another product that Microsoft has invested in heavily is the Bing search platform. We previously wrote on how Android's market share in the mobile OS space helps Google maintain its mobile search market share. We expect the same for Windows-based phones as an increase in its market share should increase Bing market share on mobile devices. If Samsung Windows phones are a success, we could see Microsoft gain a foothold in the highly lucrative mobile search space. Even though Bing's revenues are currently immaterial to Microsoft's value as a whole, we could see this change if the Windows 8 platform is successful, going forward.

We currently have a $41 price estimate for Microsoft, which is approximately 30% above the current market price.

Notes:

1. Worldwide market share for smartphones, a market dominated by Apple and Samsung, Washington Post

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Source: http://seekingalpha.com/article/849491-the-microsoft-samsung-partnership-will-improve-windows-phone-prospects?source=feed

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