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If Facebook Really Goes Into The Mobile Hardware Business, Investors Should Run Away Screaming

Henry Blodget|May 27, 2012, 9:22 PM|16,147|65

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Facebook is poaching ex-Apple engineers to build a smartphone, Nick Bilton of the New York Times reports.

This is the third iteration of Facebook's smartphone plans--from hardware to software and back to hardware again.

If Facebook is serious about jumping into making smartphones with both feet this time, Facebook investors should be very afraid.

Why?

Several reasons:

* The move would clearly be defensive, not offensive. According to a Facebook employee quoted by Bilton, "Mark [Zuckerberg] is worried that if he doesn’t create a mobile phone in the near future that Facebook will simply become an app on other mobile platforms." Translation: Facebook is doing this because it thinks it has to, not because it wants to.

* Hardware is an extraordinarily difficult, low-margin, commodity business. The only two companies that are doing well right now in hardware are Apple and Samsung. Both have been making and selling hardware for decades. Lots of other companies that have been making and selling hardware for decades are cratering, such as Research In Motion and Nokia. Palm already cratered.

* The smartphone "platform" business is already dominated by Apple and Google (Android), and there are already a whole lot of also-rans. Amazon has entered the platform game. Samsung may "fork" Android and enter the platform game. Microsoft is desperate to make its new Windows mobile product matter. RIM still has a piece. And so on. If Facebook really wants to build a brand new mobile platform, it...