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Facebook (FB) Phone: The Third Time Will Not Be The Charm

By Evan Niu, CFA – Oct 15, 2014 at 12:30PM

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Facebook might be working on yet another phone, except this time it may be switching hardware partners.

When it comes to phones, Facebook (META 3.01%) doesn't know when to stop. The social network's first 2 partnerships to score deep phone-level integration have been with one manufacturer: HTC. The Taiwanese smartphone maker launched the HTC Cha Cha in February 2011, which was subsequently followed by the HTC First in April 2013.

Both devices were deemed commercial failures. While the Cha Cha merely featured a dedicated Facebook button, the First was a more ambitious attempt to take over the Android home screen with Facebook Home. Facebook Home is available for download separately, but the First was the only phone to include the suite of apps and services pre-installed.

Facebook is reportedly in talks with a new hardware partner for a possible third attempt: Samsung.

Mr. Zuckerberg goes to Seoul
Mark Zuckerberg and other Facebook executives have been meeting with Samsung executives in South Korea, according to The Korea Herald and The Korea Times. The latter publication says that the two companies have agreed to develop mobile content, but it's not clear what that might entail.

The social network is supposedly looking to strengthen its mobile presence, while Samsung still needs help on the content front. The inevitable speculation is that Facebook and Samsung may be working on a smartphone together.

Facebook's Oculus VR partnered with Samsung develop the Gear VR, a virtual reality accessory for the Galaxy Note 4.

Failing can be a success
Facebook Home was a spectacular failure, but it was also a success in the sense that it was a low-cost experiment with a lot of potential to boost engagement. It's precisely the type of risks that Facebook should be taking. It didn't pan out, but Facebook deserves some credit for trying. Home is available for numerous Samsung models, but has been downloaded less than 5 million times. HTC probably got hurt more by unmovable inventory.

Anything that Facebook can do to grow its mobile engagement is a smart move, particularly as Samsung remains the No. 1 smartphone vendor in the world by unit volumes. Even as Samsung is getting squeezed in the low-end and high-end of the smartphone market, with operating profits expected to fall 60% this quarter, Facebook is more concerned with scaling its service to as many people as possible.

Samsung has tried for years to differentiate and avoid commoditization within the Android camp, but low-cost Android vendors are starting to chip away at its position in key markets like China. But the only way that partnering with Facebook might help would be if Samsung is able to score exclusive features, which directly conflicts with Facebook's interests of widespread availability.

Until the companies provide more details about what they may have up their sleeves, investors should just hope that there isn't yet another Facebook phone in the works.

Evan Niu, CFA owns shares of Facebook. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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