Samsung to Sell Tizen-Based Phone

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According to news agency Bloomberg, South Korean handset maker Samsung Electronics recently confirmed earlier rumors that it will sell smartphones run by Intel Corp.’s (INTC) Tizen operating system in 2013. However, Samsung did not provide any details regarding the models it plans to introduce and their price structure as well as any timeframe for the launch.

Tizen (earlier known as MeeGo) is a Linux-based operating system, which was originally developed by Intel and Nokia (NOK). However, after Nokia backed out from the project, Samsung joined forces with Intel and eventually merged its own Bada operating system with MeeGo. Currently, the open source software is supported by a number of companies that include NTT DoCoMo, Vodafone Group (VOD),Panasonic, Huawei, Orange and Sprint.

As per Bloomberg, the move primarily reflects Samsung’s strategy of reducing its reliance on Google’s (GOOG) Android operating system, after the search giant acquired Motorola Mobility in May 2012. Android is a free software offered by Google to handset manufacturers such as Samsung, HTC and Motorola Mobility.

The Motorola acquisition was primarily looked upon as a way for Google to bolster its patent portfolio. Google’s immediate decision to offload some of the Motorola facilities also raised questions about its policy regarding mobile manufacturing operations. However, of late Google has expressed its intentions to enter the high-end smartphone handset market, where both Samsung and Apple (AAPL) are strongly positioned.

Google’s entry into the handset market will intensify its competition with both Apple and Samsung. However, we believe that Samsung will be much less affected due to its diversified product portfolio that comprises both high-end smartphones and feature phones.

Moreover, Android growth is expected to slow down going forward. As per recent data (December 4, 2012) from IDC, Android’s market share is expected to decline from an estimated 68.3% in calendar year 2012 to 63.8% in 2016. During this period (2012-2016), Microsoft’s (MSFT) Windows phone operating system is expected to grow at a much faster rate, with its market share increasing from an estimated 2.6% in 2012 to 11.4% in 2016.

Since Samsung also sells smartphones run by Windows operating system; we believe that the company’s decision to diversify its product portfolio will boost its market share over the long term.

We also believe that Samsung’s decision to sell the Tizen operating system based handsets will be beneficial for Intel going forward. Over the last couple of years, the chip-maker has been looking for opportunities to enter the smartphone market, as its PC business continues to suffer from sluggish demand.

Intel already has a partnership with Google’s Motorola unit and the partnership with Samsung will further boost its market share in the mobile chip market going forward. However, we believe that Intel will continue to face significant competition from ARM Holdings (ARMH) going forward.

We maintain a Neutral recommendation on Intel. Currently, Intel has a Zacks Rank #3 (Hold).

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