Psion shareholders to benefit from shipments of more Smartphones
Sales of Smartphones using the Symbian operating system are set to explode over the next few years. Whether the Symbian Operating System becomes the Microsoft of the mobile world remains to be seen.
Symbian Limited is a joint venture company owned by Psion, Ericsson, Panasonic, Nokia, Siemens, Sony Ericsson and Samsung.
Psion plc, with 31.1% is one of Symbian's biggest shareholders. If Symbian does well, shareholders in Psion will be handsomely rewarded. Unlike Symbian's other main shareholders, Nokia and Ericsson, Psion is a small company with a market worth of �340 million based on a recent share price of 82 pence. The future of Psion is likely to be impacted by the success of
the Symbian Operating System. These are early days in the mobile world.
Symbian operated phones are beginning to reach the shops and demand is strong. New Symbian operated phones like the Nokia 6600, the Nokia N-Gage, and the Sony Ericsson P900are flying off the shelves. The full list of Symbian Operated phones can be seen at http://www.symbian.com/phones/index.html
In December 2003 there were 11 Smartphones using the Symbian Operating System and a further 31 were under development by 9 licensees. Shipments of Symbian Operated Handsets are expected to be close to 10 million this year with Nokia supplying the bulk of these. There were only 2 million units shipped in 2002. ARCchart has issued a new report which is forecasting that the number of handsets shipped using the Symbian OS will rise from 10 million in 2003 to 106 million by 2008. http://www.arcchart.com/reports/symbian.asp
Symbian receives a royalty on each phone based on Symbian OS shipped by licensees. From Symbian OS v7.0 onwards, the royalty has been set at $7.25 per unit for the first 2 million units shipped by a licensee and $5 per unit thereafter. Its three main competitors are the Palm OS, Microsoft's Windows Mobile for Smartphone (WMS), and Linux. Symbian is expected to take the lion's share with its OS in 69% of smartphones, whilst Microsoft might take 20%.
The key shareholders in Symbian are Psion with 31.1% and Nokia with 32.2%. The other shareholders are Ericsson (17.5%), Sony Ericsson (1.5%,) Matsushita (7.9%), Siemens (4.8%) and Samsung (5%).
If smartphones catch on, Symbian's shareholders are going to be very happy.
Psion plc and their shareholders should be the happiest of them all since Symbian represents such a large part of Psion. Analysts estimate that more
than half of Psion's value is attributable to its stake in Symbian. A floatation of Symbian is a definite possibility in the coming year. Such a move would allow shareholders to see the true value of Psion's stake in Symbian. A clue as to the true value of the Symbian Stake can be garnered from the fact that Psion was wiling to pay �17.4 million to Motorola for a 5.8% holding in August 2003, taking it's holding from 25.3% to 31.1%. Until then the book value of their 25.3% stake was shown as �6.7 million.
If we assume that in a couple of years global handy phone sales will amount to 500 million units and of these 125 million are smart phones, and 69% are Symbian operated, the total sales will be 86 million units generating at least $5 per unit or $430 million of Revenue. Psion's share will be $133.73 million or �78 million. Royalties are mostly pure profit. Apply a P/E ratio of 20 to that number and Psion's share of Symbian will then be worth �1.56 billion or nearly five times today's market capitalisation. Apart from holding its stake in Symbian, Psion owns and runs a mobile solutions company called Psion Teklogix which had turnover of �63.3 million in the first half of this year generating �5.3 million of profit in the six months.
At their peak in 2000, Psion's shares traded at over �15 each. As uncertainty set in over the future of technology businesses, interest in Psion waned. Psion was doubly hit when it took a decision to pull out of manufacturing hand held computers in order to focus of Symbian and mobile solutions, at a time when Symbian's success was far from assured. Over a three-year period their shares declined to below 50 pence. Sceptics doubted that the Symbian Operating System would be able to compete against the light of Microsoft. Now that the Symbian Operating System is actually appearing in phones on the shelves that scepticism seems misplaced. Symbian has come through as one of the survivors.
There have been whispers that Nokia may be interested in a purchase of Psion plc http://www.arcchart.com/blueprint/show.asp?id=346&qtabs=99999 Nokia is set to be the dominant player in the Symbian Operating System smartphone market, and for that reason alone, it may want to take control of the Symbian Operating System. An acquisition of Psion plc would give it control of Symbian with 63.3%
With Symbian establishing itself as the dominant player in the smartphone market, and with sales set to take off in 2004 it would be wise for Nokia to make a move now before the value of Symbian heads north. ARCchart estimates that, between 2004 and 2008, the accumulated fees Nokia will have to pay to Symbian will be around �585 million. Such a number means that they could afford to pay a healthy premium compared to Psion's Market capitalisation of around �340 million.