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Samsung Continues to Lessen Android Dependence

By Jamal Carnette, CFA - Jul 3, 2015 at 9:03AM

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Samsung is carefully testing and increasing its use of its own operating system, Tizen.

Source: Samsung

On the surface, it would appear Samsung (NASDAQOTH: SSNLF) and Google have a strong relationship based on a shared desire to ship Android-based Samsung phones, along with a common enemy in Apple. And while that line of thinking is broadly correct, certain nuances make the hardware and operating system relationship less amicable than it initially seems.

Google's fear of Samsung has been chronicled before, most notably in The  Wall Street Journal. At that time, February 2013, it was reported Samsung sold roughly 40% of all devices running Android. Google feared Samsung could use its huge market share advantage to demand concessions, particularly related to Google's mobile ad business, and discourage other OEMs from building Android-based phones and tablets. In the end, the latter never materialized as Asian Android vendors ate into Samsung's market share.

But Google's not wrong to be anxious about the partnership. In true Joseph Heller fashion, "just because you're paranoid, it doesn't mean they aren't after you." Samsung has been attempting to build its own ecosystem for years, a move that would cut Google out of the process and allow Samsung to become more like Apple by controlling all facets of its smartphones -- hardware, software, and operating system. According to Reuters, Samsung is doubling down on its OS efforts.

Samsung will launch several Tizen smartphones this year
Samsung's partnership with members of the Linux Foundation appears to be bearing fruit. The partnership's mobile operating system -- dubbed Tizen -- is Linux-based. Samsung's initial Tizen phone rollout was rocky: The company's highly anticipated Samsung Z launch in Russia was quickly canceled last year, and the company blamed concerns about the ecosystem for the delay. Unfortunately, in many cases, ecosystem development presents a "chicken and egg" problem: Developers won't build apps until you have users, and users won't select your product until you have apps.

After a somewhat inauspicious start, however, the company's actual first-released Tizen phone has done rather well and brought users to Samsung's nascent Tizen ecosystem. The Samsung Z1 was launched in India in January, and Reuters reported the device has found a reasonably receptive audience for an unproven operating system. Samsung has reportedly sold 1 million units of the Z1, which is good news in the world's third-largest smartphone market. Not only that, Reuters, citing an unnamed source, reported Samsung intends to release several new Tizen smartphones at varying prices this year, pointing toward a higher-cost unit than the Z1's low-end price tag of $100.

Will Samsung go high end with Tizen? It already has
Perhaps the biggest question is if Samsung will produce a truly high-end Tizen smartphone model to compete with Apple. While that seems far less likely than using the new operating system to gain market share at the low end, Samsung is already using Tizen-based devices on the high end -- just not phones. Right now, the latest Samsung Gear 2 smartwatches use Tizen, a change from the initial model that featured Android. Samsung's present moves are small, but it does appear to be looking to reduce its dependence on Android.


Jamal Carnette owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. 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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