Facebook Strengthens Ties to Asia With Oculus Hardware Deals

Sep 04, 2014 2:57 am ET

Sept. 4 (Bloomberg) -- Facebook Inc. is already reaping a reward from its Oculus VR Inc. acquisition: closer ties to Asian hardware makers.

Oculus, the virtual-reality headset maker Facebook bought for about $2 billion this year, is working with Samsung Electronics Co. on a version that connects to a smartphone from the world’s biggest producer. The company has also had talks with Sony Corp., maker of the top-selling video-game console.

The relationships cultivated by Oculus’s team may benefit Facebook as the world’s largest social-networking company moves into consumer hardware, an area where it has little experience. Alliances with manufacturers could lead to features such as highlighting Facebook applications as defaults on Samsung and Sony smartphones or immersing gamers in “Titanfall” on the PlayStation 4.

“Whatever the companies do with Oculus, eventually it’s a way of interacting with Facebook, and connects Facebook to these hardware makers and more users,” said Ivan Feinseth, chief investment officer at Tigress Financial Partners LLC. “Facebook is going to want to become more integrated with hardware manufacturers as it expands in Asia.”

Debbie Frost, a spokeswoman at Menlo Park, California-based Facebook, didn’t respond to a request for comment.

Xiaomi, Lenovo

Oculus has been working with Samsung for a year as they try to take virtual reality mobile with smartphones.

Yesterday, the companies announced the Samsung Gear VR headset, which wirelessly connects to the new Galaxy Note 4 that can then access a virtual movie theater, photos and other content. The headset will be available to developers in the fall.

The Suwon, South Korea-based company needs a boost after posting its smallest quarterly profit in two years during the three months ended June mainly because of increased marketing costs for its cheaper smartphones amid competition from Chinese makers Xiaomi Corp. and Lenovo Group Ltd.

Samsung was the only producer among the world’s top five to post lower shipments in that period, according to data compiled by Bloomberg Intelligence from IDC.

“The smartphone market is saturating and there isn’t much room for further innovation from the hardware side,” said Lee Min Hee, a Seoul-based analyst at I’M Investment & Securities Co. “Samsung and other technology companies need to find a new source of growth, which is why Samsung keeps developing wearable devices.”

Project Morpheus

Sony said it’s talking with Oculus to spread the virtual- reality experience even as the Tokyo-based company works on its own headset, Project Morpheus, to use with games on the PS4, Sony Computer Entertainment’s Shuhei Yoshida said in Yokohama this week.

The relationship between the companies is as partners, not competitors, Yoshida said. Mai Hora, a spokeswoman for Tokyo- based Sony, declined to elaborate.

The video-game business is one of the few bright spots for Sony, where the television division has been losing money for about a decade and Xperia phones barely crack the top 10 globally in shipments.

Asia is a huge growth market for Facebook, with the company’s user base rising faster there than in the U.S. and Canada.

Asia Users

North American users increased 7 percent to 152 million in June from a year earlier, while Asian users increased 26 percent to 228 million, according to a company filing with the U.S. Securities and Exchange Commission that same month. Still, Asia lags as a moneymaker -- North America brings in almost three times as much in revenue.

That’s why Facebook is paying more attention to the region. The company this year signed a lease to open an advertising office in Beijing, though the social-network site has been banned in China since 2009. Facebook still wants to sell to advertisers in the country.

Since the Oculus acquisition closed in July, Facebook has mostly helped support the unit with legal and accounting functions, Chief Executive Officer Brendan Iribe said. The deals with Asian partners are sourced by the Oculus team, he said.

“As far as building out the ecosystem, it’s being spearheaded by Oculus,” Iribe said. “We had this relationship with Samsung long before we even thought of partnering with Facebook.”

--With assistance from Grace Huang in Tokyo.