Morgan Stanley Global Tech Research Team
We spent Thursday at CES in Las Vegas meeting with contacts and a multiple mobile handset company executives. The following are our takeaways.
We believe Google's method for releasing new versions of its OS puts all of its handset vendors, in particular Motorola, on equally shaky footing. For each new version of the OS, Google has begun to select one handset to feature, not only releasing the new software on just that phone, but also featuring that phone exclusively on its new Direct to Consumer, or DTC, website. In the case of HTC's Nexus One, which uses Android 2.1 vs Motorola Droid's Android 2.0, we learned that while Google undoubtedly began working with HTC on the phone in early 2009 (if not late 2008), Motorola was only notified of the existence of Android version 2.1 and of the HTC phone in the late fall, at least 6-9 months after HTC and Google began working.
The odds of Motorola being chosen in any given round of Android update are slim given the number of members of the Open Handset Alliance with whom Google could choose to partner (including Samsung and LG). We believe this puts Motorola at a competitive disadvantage to the handset vendor that is chosen. While Motorola stated it would receive 2.1 as soon as it was available and be able to push it out to its devices in the field, we believe the inability to have tailored the device hardware to the new Android version's features ahead of time is another competitive disadvantage.
We therefore believe that everything we learned today reinforces our thesis that control over both the device hardware and the operating system is critical in order to differentiate, remain competitive and drive margin in the handset business and we therefore remain Overweight both Palm ($11) and RIMM ($62) and Underweight Motorola ($8).[morgan stanley]
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http://www.scribd.com/doc/24961823?secret_password=2a63vnvp0sa7b2mdr728
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