Q3, 2011 State of Indian Mobile Phone and Smartphone markets: IDC

1. Indian Mobile markets on a growth curve. Year-on-year, shipment growth of 13.8%.
2. Q3, 2011 Indian mobile phone market grew by 12% in units shipped, over the previous quarter (Q2,2011), to clock 47.07 million units.
3. Nokia had 31.8% of the mobile phones shipment share in the Q3, 2011 followed by Samsung at 17.5%
4. Dual-SIM handset shipments notably with a sequential growth of 25.2% over the previous quarter
5. India Smartphones shipments for Q3, 2011 show an impressive growth of 21.4% over previous quarter Q2,2011 & 51.5% year-on-year
6. Android on a roll in India: Android saw a growth of 90% over the previous quarter
7. Android overtook Symbian to emerge as the top Smartphone platform in India for the first time.Garners 42.4% of the Smartphone market
8. In the Smartphone segment, #Nokia led with ODM shipment share with 35.3%, but Samsung came closer at 26%.
9. Apple iOS consolidates in Indian markets, with a 3.09% share of the Smartphone market, compared to 2.6% in Q2 2011
10. Smartphone contribution to the mobile phone shipment in India increases to 6.5% in Q3, 2011 from 5.6% in Q2, 2010

The pictures in Numbers: Indian Mobile Handset industry

Gartner release on the size and growth projections of Indian Mobile handset numbers:

Mobile handset sales in India, expected to grow an annual 8.5 percent and reach 231 million units in 2012
Annual Mobile handset sales in India to top 322 million by 2015
Smartphone sales 6 percent of the total device sales in Q2, 2011. Gartner expects to go up to 8 percent in 2012
Average selling price ASP for a mobile device sold in India is about $45
75% of the Mobile devices sold costing below $75

These set of projections amongst other things emphasize the growth of the smartphone segment in the mobile phone markets. Smartphones are projected to grow by 45% as against a total market growth of 9% Y-o-Y 2011-12.

The report also speaks about the waning klout of the Tier A brands to the local and Chinese brands such as G’Five, Micromax, Spice, Karbonn.Going forward in 2012, the big global brands will continue to face competition from local and Chinese brands as some of these brands are building capabilities to compete at a larger level covering broader consumer segments.

Gartner: Q3, 2011 Mobile Phone and Smartphone Market shares

• The global mobile handset market gained 5.6 percent in the third quarter to 440.5 million phones. It slowed from 35% growth reported a year earlier and 16.5% in the previous quarter. The slowdown in Western Europe has been compensated by stronger growth in emerging markets such as China.
• Nokia retained the top spot with a 23.9 percent market share, climbing from 22.8 percent in the second quarter, down from 28.2% year on year. Samsung, LG Electronics Inc., Apple, and ZTE Corp. rounded out the top five vendors.
• Smartphone sales by volume grew 42 percent. Smartphones gained one percentage point from the previous quarter to 26 percent of all mobile-phone sales. Smartphone sales to end users reaching 115 million in the quarter
• Google Android accounted for 52.5 percent of smartphone sales, more than doubling its share from a year earlier. This is up from the 20.5 million Android-powered smartphones sold in the third quarter of 2011, when Android accounted for a 25.3 percent market share.Android benefited from more mass-market offerings, a weaker competitive environment, and the lack of exciting new products on alternative operating systems. Android was estimated to sell 60.5 million units in the third quarter of 2011
• Samsung, maker of the Galaxy line of Android smartphones, became the biggest smartphone maker for the first time. Samsung sold a total of 24 million smartphones in the third quarter compared with Nokia’s 19.5 million. Symbian handsets lost almost 20 percentage points from a year earlier (36.3% last year) to account for 16.9 percent of smartphones as the company shifted to Microsoft Corp. Nokia accounted for 22.1% smartphone sales in the quarter that ended June.
• Research in Motion Ltd. (RIM) declined 4.4 percentage points from a year earlier to 11 percent of the smartphone market in the quarter.
• Apple was the world’s fourth-largest handset vendor, while its iOS operating system was the third-largest smartphone operating system with a 15% market share, down from 16.6% a year earlier. With a limited number of iPhone models taking on a plethora of Android-powered handsets from multiple manufacturers, Apple’s iOS actually lost market share in the worldwide smartphone market last quarter despite growing sales
• ZTE Corp.’s smartphone market share increased to 3.2% from 1.9% in the same quarter a year ago, while Research In Motion Ltd.’s (RIMM) share declined to 2.9% from 3.0%.

Indian Mobile markets: Looking ahead at Growth & Consumption

According to a study by FICCI and E&Y, demand of mobile phones in India is expected to reach 350 million units per annum by 2020. The same source estimates the current size of the domestic Mobile market is close to 130 million p.a. My estimate from a few other sources roughly put the current size of the Indian mobile phone market at 170 million p.a. Given the variance in numbers by about 30%, the CAGR calculated for the 350 million p.a number is around 7-10% (Depending upon whether you choose 130 million or 170 million as the base).

E&Y FICCI estimate 505 million handsets are estimated to be manufactured in India, during the same year (2020), which would thus establish India as a global exporter of entry level and feature phones. Towards this, the study establishes a need to set up handset manufacturing cluster parks that would enable a sustainable ecosystem for the manufacture of mobile handsets in the country. The study has found that average selling price (ASP) of handsets in the country is estimated to increase to Rs 2,950 by 2020 as compared to Rs 2,300 in 2010. Thats a healthy 40% increase in ASP of the phones.

Affordability of feature-rich handsets and consumption in rural markets is expected to be a key enabler of handset adoption.A favourable policy and regulatory initiative conducive for handset manufacturing in India is expected to drive sustainable growth in this segment.

The number of 3G subscribers expected to cross 300 million by 2020, fuelling the growth of 3G-enabled handsets.

The story behind Nokia Meltemi

Nokia has been risking an “also ran” tag in the mobile phone markets it used to dominate till about a few quarters back. It is already marginalized in the Smartphone segment and provided the WP-Nokia deal works out great, Nokia is already a thing of yesterday in smartphones. Nokia’s decision not to compete in the US markets and moving out of other hyper smartphone markets such as Japan indicate the weakness.Just as Nokia has been out-innovated in the smartphone market in recent years, the company has been slow to adapt in developing markets where share is being stripped by other big players and gray market handset vendors alike

As Nokia fights to regain its footing, the company recently abandoned Symbian and MeeGo to instead adopt Windows Phone in an effort to stabilize its declining smartphone business. But that move only addresses half of Nokia’s problem. A firm position in the big-margin smartphone market will be paramount to the vendor’s success moving forward, but the market for low-cost devices is still massive. Just as Nokia’s smartphone sales have spiraled downward in recent quarters, Nokia’s feature phone business been in sharp decline as well. Nokia took drastic measures in an effort to turn its smart device business around, and with the announcement of Meltemi, it appears as though the Finnish phone maker also has plans for its low-end phones.

Towards the later purpose, Nokia is developing a Linux-based operating system code-named “Meltemi”. The Meltemi will allow the phone maker to offer devices with smart capabilities at rock bottom prices, extending well beyond the company’s potential reach with Windows Phone in emerging markets. Meltemi will be the Linux based replacement for the Symbian S40 platform that has been workhorse at Nokia. Now with the UI and Apps taking the centre piece in Mobile OS, Symbian S40 wasnt cutting the ice. The choice of Linux is but obvious given that Linux with opensource code makes development easier and cheaper.

Phones powered by Nokia’s Meltemi operating system will not be smartphones at all, and the standings of Windows Phone with Nokia doesn’t change a bit.The new platform is on the one hand very much aligned with Nokia’s mobile phone strategy stated earlier in the year (‘connecting one billion to the internet…’), but it’s also a competitive response to the newest trend seen in the gray handsets markets in the emerging world. China vendors are producing quasi-smartphones, another potentially unmet demand segment at significantly low prices based on the MTK chipsets.

Meltemi will come into play, providing a smartphone lookalike that will essentially be a feature phone to address the demand for these phones in the emerging world and, Nokia hopes, preempt competition from the gray market vendors as well as their main nemesis in this segment – Samsung.

Nokia-WP partnership and the upcoming Nokia-WP Mango smartphones have been hogging the limelight ever since the “burning platform” declaration by Stephen Elop. Windows Phone is only part of the puzzle Nokia is now in the process of piecing together, and its upcoming proprietary OS will play an equally important role in helping Nokia re-establish its position as a global leader.

Gartner: Q2,2011 Mobile Phone and Smartphone Market shares

Analysts predicted that sometime around the first week of July, the Mobile phone population of the world touched 5 billion devices mark.The global mobility is at 73%.However growth in the mobile phones devices markets continues unabated as Gartner recorded 16% Y-o-Y growth in number of mobile devices sold. However, look deeper and there are a few other interesting trends.Smartphones as a sub-category is powering growth in mobile phones. While smartphones have grown at 74% Y-o-Y as against 16% Y-o-Y growth registered by Mobile phones, Smartphones have also contributed 75% to the differential volume units in mobile devices sales.

Smartphone sales continued to rise at the expense of feature phones.Google and Apple are the obvious winners in the smartphone ecosystem. The combined share of iOS and Android in the smartphone operating system market doubled to nearly 62% in the second quarter of 2011, up from just over 31% in the corresponding period of 2010. The platforms’ popularity can be tied to their usability and apps

The mobile phone category is rapidly evolving and is actually moving away from brands. Sample this: While the today number of branded OEM units remained constant at 252 million, the entire growth in the mobile phone category was powered by Local brands and white label manufacturers such as ZTE and Huawei. Others, ZTE and Huawei grew 52% by unit volumes Y-o-Y. Nokia, Samsung, LG, Motorola, Sony-Ericsson, Blackberry-all the players who defined the market pre-2008 are loosing thier markets.

Consumers in mature markets are choosing entry-level and mid range Android smartphones over feature phones, partly due to carriers’ and manufacturers’ promotions. Local ODMs are making decisive inroads into the markets basis a better value equation and prices on their handsets. Operators are also increasingly looking at the device bundle space to support value propositions to consumers. Mobile phones category is one where value-for-money is winning over the brands proposition. Do we term this as commoditization? In some sense, yes!

Mobile Operators: From Dumb Pipe to Nightmare Scenario

A new Juniper report estimates that while global operator-billed revenues will exceed $1 trillion annually by 2016. This would be something to celebrate were it not the case that costs are forecasted to rise in accordance with revenues — and exceed them. Mobile network operators (Telcos) face the prospect of a “nightmare” scenario under which operator costs will exceed revenues within four years unless remedial action is taken.

Smartphones contribute to 25% of the global mobbile phone sales. Smartphones are to become the highest-selling consumer electronic device category in 2011.Cellular data traffic doubled in 2010.The Coda Research Consultancy predict global smartphone sales of some 2.5 billion over the 2010-2015 period, and also suggesta that mobile Internet use via smartphones will increase 50 fold by the end of that period.Gartner expects over 500 million smartphones to sell in 2012.

As revenues begin to flatline – the result of market saturation allied to declining ARPUs – and the surge in data usage pushes backhaul costs ever higher,operators margins and profits will increasingly get squeezed. This is called the Nightmare scenario.

There is no one-size-fits-all solution for Telcos, simply because the circumstances of individual operators differ widely, even within the same market. To survive this nightmare scenario, Telcos will need to offer integrated rate plans, while also providing a wide range of segmented postpaid and postpaid tariffs.The potential for double-sided revenue streams in areas such as cloud, M2M and mobile financial services where Telcos can leverage their existing assets.

Second tier networks (those with lower traffic) could be poised to gain significant advantage by retaining flat rates for data bundles. Likewise, Integrated Mobile Broadcast represents a new 3G standard that has the potential to add infinite capacity to 3G for popular content, offering a solution to the impending capacity crunch. \

Lastly, as the cost of fossil fuels continues to increase, transition to green networks and base stations is beginning to “represent both an environmental and economic imperative”.

Q2, 2011 Mobile Phone market shares: IDC

The Q2,2011 mobile phone shipment volumes and the market share report by IDC has a few interesting take aways. The report estimates that worldwide mobile phone market grew 11.3% year over year in the second quarter of 2Q 2011, despite a weaker feature phone market, which declined for the first time since 3Q09. Vendors shipped 365.4 million units in 2Q11 compared to 328.4 million units in the second quarter of 2010. The 11.3% growth was lower than IDC’s forecast of 13.3% for the quarter and was also below the 16.8% growth in 1Q11.

However, the feature phone market shrank 4% in 2Q11 when compared to 2Q10. The decline in shipments was most prominent in economically mature regions, such as the United States, Japan, and Western Europe, as users rapidly transition to smartphones. This was the first decline since Q3 2009 and reflected a combination of conservative spending and continued shift to smartphones.

For the overall market to grow by double digits year over year, despite the decline in feature phones, is testament to the strength of the global smartphone market. While this is not a new trend – smartphones have been the primary engine of growth for the last several quarters. However, the 2Q 2011 timeline is an milestone, because it does mark something of a transition point, as demonstrated by the growing number and variety of smartphones featured in the vendors’ portfolios. One might as well add a subdued demand from Japan given the Earthquake and component shortages.

In the OEM space, the same story plays out with Nokia loosing close to 10% market share and with shipments falling 20% YOY. High channel inventories in China, competition from Samsung in mi end and Chinese white label manufacturers in low end and a free fall on the smartphone space have led to Nokia’s loss. The story rings the same for LG as well which lost 19% YOY and 3% market share points.

Samsung which has had an impressive run lately both in entry and mid level in Europe and Asia and has catapulted to No.2 slot on the global smartphones list has registered 10% growth which is a shade lower than the 11% market expansion.

Apple thrived in China thanks to strong iPhone 4 demand. If Apple was to release a low cost iPhone as rumored, it could make major inroads and overthrow LG from the no.3 spot. That is quite phenomenal considering that Apple did not sell phones till about 4 years back.

China-based vendors gained share in India, West Asia, Africa and Southeast Asia at the low end.

In Western Europe, the market declined sequentially compared to the first quarter. The feature phone market declined while smartphone shipment growth slowed as phone makers and carriers reduced inventories in advance of expected third-quarter product launches.

Civil unrest in West Asia, North Africa and other Arab countries, impacted sales negatively.

In North America, smartphones once again took center stage, propelled by lower prices, key device launches, and enhanced channel marketing. In particular, Android-based devices extended their lead in the United States and took leadership in Canada thanks to Samsung, Motorola, HTC, and LG. Meanwhile, demand for feature phones continued to slide, but there still existed pockets of interest for voice-centric and quick-messaging devices.

The Latin America market growth was driven by low-cost smartphones, specifically those with social networking features. Lower smartphone prices, including those of the Android variety, are driving smartphone penetration in several Latin American countries. Price is expected to be a point of differentiation – as well as applications and device features – between Android players in future.

Nokia Slumps! (on profit warning)

Nokia stocks took the hammer today and haemorrhaged 17.5%, following a dramatic downgrade of its 2Q,2011 outlook. Nokia expects net sales from its Devices and Services division to be substantially below its previously expected range of 6.1 billion euros to 6.6 billion euros ($8.77 billion to to $9.48 billion) it previously expected. Nokia expected to earn somewhere between $530 and $850 million off its Devices and Services business this quarter, and now expects those figures to be “substantially lower”—right around a breakeven point. The second quarter results are expected by July 2011.

Nokia’s full market capitalization now stands at $25 billion, a figure that analysts say that Apple Inc. could earn in net profit alone during 2011.

Nokia in a statement has indicated that it could no longer give a full year forecast which effectively means that Nokia is pessimistic/unable to react to and contain losses that the phone major is beginning to see all around its business units. The lack of revenue assurance is a psychological set-back which manifested itself by a free-fall in share prices. Nokia was trading at 4.34 Euros, its lowest in the last 13 years. Bernstein Research downgraded Nokia from “market perform” to “underperform” on Wednesday, cutting its price target to 3.00 euros from 5.50, and Goldman Sachs removed its “buy” tag on Nokia, labling it only as “neutral”.

Nokia attributes the lowered forecast to three primary factors, including aggressive pricing from competitors, lower average prices and margins across its own product line, and “competitive dynamics and market trends,” particularly in China and Europe. However, the bottom line is that Nokia isn’t selling as many phones as it would like. Check Gartner reports here.

The problem with Nokia is that they are losing market share at such a pace that there’s a risk that consumers won’t be interested in buying Nokia phones anymore. That could whiplash into inventory blockages globally which could further dent the channel confidence in Nokia. Nokia’s market share had fallen to 29 percent from 33 percent in the first quarter of 2010, and compared with 40 percent in the first half of 2008. The numbers are stark. In the first quarter, Google’s Android operating system ran on 34% of smartphones in Western Europe, up from only 8% a year ago. By comparison, the percentage of smartphones that ran Symbian fell by half to 21% in Europe from 40% a year ago.The influx of Android devices aimed at both the premium and mass markets has Nokia cornered.

Nokia states that sharp outlook downgrade was part of a rocky transition period as it phases out its Symbian smartphone platform in favour of a tie-in with Microsoft Phone, and hopes to regain lost ground when it starts shipping its first Microsoft handsets at the end of this year. While Nokia has been announcing launch of its Windows phones by 4Q,2011, there are unanswered questions about costs, eco-system and consumer acceptance. Then again, a 4Q,2011 launch would mean that Symbian led smartphones would continue bleeding in volumes as well as ASPs. In an initial estimate I had predicted that the next 3 quarters could see the Symbian-Nokia at 10% of the smartphone sales. Nokia already has transferred maintenance of the out moded Symbian platform to Accenture and laid of 7000 jobs thereby saving its $1billion this fiscal.
Nokia has started shipping dual SIM phones, a trend that it missed altogether in 2007-08 and has also announced the E7 shipping start. It is doubtful that these are going to alter the balance any more in favour of the beleaguered mobile giant.

Bottomlines

Nokia’s crisis has been in the making for the last 3 years. There has hardly been a Nokia phone to write home about except the E70 in 2008. Each of its flagships failed post that as Nokia was stuck in its device and hardware focus and Android / iOS stole the march with swanky OSs and smartphones. Nokia misread the evolution of the smartphone category, touch and did not execute most of the elements in its service strategy well (Ovi??). Worse, the organization as such was a sloth and as the joke goes, Nokia was the proverbial oil tanker that took ages manoeuvring in any direction. For 3 years after the launch of the iPhone, the writing and the trend was on Nokia’s face but it did not react compounding the crisis. The Q2,2011 outlook downgrade is the proverbial tipping point and I expect small disasters ahead. We will wait to know if Elop’s Windows Phone association does anything to reverse the fortunes of the beleaguered giant.

Gartner: Q1,2011 Mobile Phone and Smartphone Market shares

Mobile phones device sales increased 19% Y-o-Y to total 427.8 million units in Q1,2011, On the same lines, Smartphone sales registered a 85% increase and accounted for 23.6% of overall mobile sales in 2011. Smartphones registered 100.8 million unit sales in 2011. Smartphone numbers have seen a depression due to the situation in Japan and the fact that buyers haven’t invested in smartphones in Q1,2011 anticipating stronger and bigger device releases in Q2,2011.

Graphic:Gartner Mobile device market shares

Graphic:Gartner Smartphone market shares

The smartphone numbers only re-inforce the familiar rise of Android to Ubiquitous status, the marginalization of Symbian in Smartphone OSs and pressure on Nokia to defend its leadership. Symbian lost 24% share in 9 quarters, whereas Android gained 35% of its market in the same 9 quarters propelling the likes of HTC to No.7 in Devices and lifting the ASPs for Motorola, Sony Ericsson and Motorola. Android currently is in the mode of moving into the $100 price feature phones to get into the mass mode.

Nokia’s move from Symbian to Windows was announced this February and there is a 1 year or more waiting time before the Nokia Windows Phone hits the shelves. In the meantime, consumers are expected to shy away from Symbian and thus in the ensuing quarters, Symbian market shares are expected to free fall further. By the time, the Windows tie-up kicks in for Nokia, Nokia could well be around 10% market share points and combined with Windows, it would claw back to 20% but never really challenge the dominance of the Android OS, eco-system and partners.

Graphic:Market shares for device makers over the last 9 quarters

With presence across 90 countries from 186 CSPs, Apple has doubled its number of units sold Y-o-Y. It is unlikely that Apple will push past the 20% market share in Smartphones majorly, but the unique eco system of devices, applications, platforms and services would make it the most profitable mobile platform.

Graphic:Market shares of device majors

In the first quarter of 2011, RIM announced that it would transition its BlackBerry portfolio to the QNX platform in 2012. This should make its smartphones more competitive in graphics, performance and touch, and unify RIM’s tablet and smartphone user experience.
Windows devices launched at the end of 2010 failed to grow in consumer preference and CSPs continued to focus on Android. In the long term, Nokia’s support will accelerate Windows Phone’s momentum to double figures.