Is Apple reliving Nokia? (Part I)
This is the first of a two part blog on Apple reliving the mistakes that Nokia made 4-5 years back.
In 2007, Nokia was the biggest thing in the mobile phone market. It held 60% of the global smartphone market and more than 40% of the overall handset market. Its handset operating margins briefly topped 25%, something that was thought to be impossible in the phone business. In the summer of 2007, Nokia released the N95 – a 2.4” screen dual slider phone with a 5MP camera which in 2007 was a package that couldnot be bettered. N95 went on to create a roar in the markets – but imperceptibly Nokia’s slide was beginning. 3 months after Nokia launched N95, Apple launched iPhone and the rest is history.
The initial iPhone and even the early Samsung phones played on the large screen format – 3.2” – 3.5” and the likes. Nokia’s response to the first smartphones, was a bettered N95 – the N96 – crammed with more features which failed to tickle the market. Touch was catching on – and Nokia was lethargic in its reaction. In an age when customers were falling head over heals in love with the iPhone, Nokia was lamenting the iPhone on subjects such as 2MP Camera and lack of Bluetooth and loaded up the 2.6″ N96 to fightback (in vain). By the time, Nokia responded with the 5800 XpressMusic, it had fallen behind on its tracks. It repeated the mistake with N97 – a large screen which was woefully resistive – in an era when the iPhone3GS ruled and the Androids were beginning to fly. Nokia was edged out of the market – and had fallen behind. Nokia’s next releases N900, N8 failed to woo customers clamoring for the iPhone.
2013 – Apple’s incredible run through from 2007 onwards is slowly running out of steam and gross margins had peaked in early 2012. Apple played economies of scale on standard screen sizes to keep its BOM (Bill of Materials) cost low – driving operational efficiencies in production. However, they seem to have been reading the market wrong as the era of large screen devices was stepping up considerably against the 4” iPhone. Premium buyers were increasingly flocking to the 4.5” segment smartphones and the 5.5”+ phablet space and Apple’s roadmap to large screens is already a couple fo years behind.
The sense of déjà vu is not wasted – as Apple repeats the same mistakes in 2013 that Nokia made in 2007.
Continues to Part II
Q4, 2012 Smartphone Market shares- IDC
The new IDC report for smartphone shipments in Q4, 2012 hands it over to Android – which seems to have reached more dizzying heights than what Symbian/Nokia ever reached in their near monopolistic regime heydays. the two systems accounted for 91.1 percent of operating systems on all smartphone shipments during the fourth quarter of 2012. For the year 2012, Android and iOS accounted for 87.6 percent of operation systems on smartphones shipped.
Android smartphone vendors and Apple shipped a total of 207.6 million units worldwide during Q4 which is a 70.2 percent increase from the 122.0 million shipments of Q4 2011.
Android Saw triple-digit growth for the year. According to IDC, Samsung was the biggest contributor to Android’s success as 42.0 percent of all Android smartphone shipments during the year were by Samsung. The report notes that the intra-Android competition has not stifled companies from keeping Android as the cornerstone of their respective smartphone strategies.
At the end of 2012, Android had a 68.8 percent of market, with over 497.1 million shipments. In 2011, Android’s market share was 49.2 percent with 243.5 million shipments.
iOS also continued to register strong growth. But the report notes that iOS’s year-over-year growth has slowed compared to the overall market. Of course the report also mentions the growing buzz around a large-screen iPhone and a cheaper variant, which it says would help sustain growth. iOS shipments for 2012 stood at 135.9 million smartphones which represents an 18.8 percent market share. This is a 46 percent growth compared to 2011 when iOS smartphone shipments stood at 93.1 million at a market share of 18.8 percent.
BlackBerry OS: The report states that the decision to postpone the release of BB10 to 2013 left the platform vulnerable in 2012 and reliant primarily on older smartphones running on BB7. As a result, BlackBerry’s tight grip on enterprise users has loosened. BlackBerry had 32.5 million shipments for 2012, which gives it a market share of 4.5 percent. This is down 36.11 percent from 2011 where it had 51.1 million shipments and a market share of 10.3 percent.
Windows Phone/Windows Mobile: The report notes that this has made some progress in Q4 of 2012. Nokia’s Lumia phones were the key driver in Microsoft’s success, says IDC. Windows Phone/Windows Mobile had a 17.9 million shipments and represents a 2.5 percent market for mobile OS on smartphones. This is 98.9 percent increase from 2011 when it had only 9.0 million shipments which was a market share of 1.8 percent.
Is Blackberry looking at the wrong end of the market?
Continued from an earlier post: Why am I so deeply sceptical of BB10 as RIM’s comeback kid?
The Smartphone sector looks to be one of the most extreme oligopolies of the 21st century- even while the market is exploding at 35% YoY (700 million in 2012 versus 490.5 million in 2011) – there is little room left for any one but Android and Apple.
Apple and Android contribute to 92% of the Industry Volume and 102% of the Industry profits! All others combined for 8% of the market volumes but were edged out of the profits – leaving little space for investments into devices and the markets. The thing about market share is that it is liable to change rapidly in a rapidly growing market.However, with the base of 700 million it is possible that growth rate would have topped out. On the other hand, North Americas and Europe are visibly saturated in volumes/and growth is slowing down; and with maturity are only driving Revenues and profits as people tend to purchase more high-end smartphones, including the more expensive Android variants and the iPhone.
Blackberry with its Z10 and Q10 is targetting the high end of the smartphone market – The space that is dominated by Samsung Galaxy SIII, Apple iPhone, Nokia Lumia 920 alongwith handfull others. Instead of beating its competitors out on price, it wants to offer a genuinely quality product that the most tech-savvy consumer would be happy to purchase. This part of the market is by far the most cutthroat, and also the slowest growing.Ergo, even if Blackberry succeeds in creating space in this segment, it will be just a niche! Blackberry is trying to sell an expensive smartphone with a high margin, but it is competing against the most entrenched players imaginable. The part of the market that Blackberry is choosing to enter will not grow much, and RIM will face vicious competitors from every angle. There isn’t room in the lucrative high-end smartphone market for small fry ~ a $8billion Blackberry for instance! (Refer to the Blackberry Torch as an example – well crafted – but it didnot take BB where it was designed for)
Unveiling the new Blackberry!
On the other hand, the smartphone market is growing super because Android is powering the low end of the market. These markets are typically the South East Asian regions, Indian subcontinent, China and Africa. Even while Blackberry has a strong presence in nations like India, it is the Android army that it has to content with in such markets – and currently Blackberry’s portfolio in the low end is only based on the 4 year old Blackberry Curve which is appearing a little jaded and last generation.
Thus Blackberry really needs to be focussing on low end innovation, pricing, volumes and markets – currently there is no visibility of it doing this. Hopefully it gets its act together before its too late. A flagship device is one thing – numbers, profits, revenues is quite another.
The Apple- Samsung duopoly in Mobile Phones/ Smartphones space
Most of 2012 is behind us and it is still an Android – Apple duopoly on Smartphones and tablets. While Android devices and the iPhone make up an overwhelming majority of all smartphones being sold (85% as Gartner Q3, 2012), Windows Phone is still to get the traction it hoped for (although it registered a 1.5X growth over Q2, 2012).
In the mean time, Samsung and Apple dominate the smartphone landscape sharing between themselves 104% of the total mobile phone industry profits generated. iPhone cornered 63% of Mobile phone profits, Samsung made away with 40%. The only other OEM who has been in the black is HTC @ 1% of the mobile phone profits. Phone brands other than Samsung and iPhone have seen a reduction in market value of a combined 64 per cent (Q3, 2012 versus Q3, 2011).Over the last year (YoY Q3,2012 versus Q3, 2011), Samsung profits from Mobile operations jumped 231% while Apple increased 163%.
Mobile Phone Profits – Asymco- The Samsung/ Apple duopoly
The good news is that the industry has had net value creation–always a healthy sign that innovation is being valued and absorbed and there could be an outside chance for a third payer (possibly Microsoft) some chance at gate crashing into the industry profits. However, with most of the profits getting banked only at Samsung or Apple, there is very little room for other OEMs (i.e Nokia & RIM) to spend lavishly on devices and services.
The Samsung and Apple duopoly has played up in Smartphone segment volumes
On the good many others who are completely sidelines (the list includes Motorola, Nokia, Sony (Ericssson), LG, Blackberry) – the decline is monumental. They all saw Apple coming a mile off. The media had been speculating for several years on when iPod would become iPhone. Yet they sat on their hands, too busy creating monopolies of their own to see where the world was headed. And in doing too many things for too many segments across too many geographies on a varied range of price points – they never built a roadmap to what could be the future of mobile computing.
Interestingly enough, almost all the value from the Android ecosystem is concentrated in Samsung. From the mobile operators’ point of view this emerging duopoly must be deeply worrying. Having been forced to bend to Apple’s will, they were very happy to see the emergence of Android, with its promise of a multitude of manufacturers competing for their attention. Now it looks as though Samsung is in position to
call all the shots in the Android market
Going forward in Q4, 2012, the only thing that can be expected in this equation is Apple regaining ground basis the holiday season bookings of iPhone5 which has generated much of a hysteria around the world
Gartner: Q3, 2012 Mobile Phone and Smartphone Market shares
- Worldwide sales of mobile phones to end users reached almost 428 million units in the third quarter of 2012, a 3.1 percent decline from the third quarter of 2011.
- However compatred to Q2, 2012, the market has grown by 2.3% propelled by the growth of smartphones which added 15.6 million units to its Q2, 2012 number
- Smartphone sales accounted for 39.6 percent of total mobile phone sales, as smartphone sales increased 46.9 percent from the third quarter of 2011.
- Smartphones continued to fuel sales of mobile phones worldwide with sales rising to 169.2 million units in the third quarter of 2012.
- The smartphone market was dominated by Apple and Samsung. Both vendors together controlled 46.5 percent of smartphone market leaving a handful of vendors fighting over a distant third spot.
- In the smartphone market, Android continued to increase its market share, up 19.9 percentage points in the third quarter of 2012.
- Although RIM lost market share, it climbed to the No. 3 position as Symbian is nearing the end of its lifecycle. Channel destocking in preparation of new device launches for RIM, resulted into (lower than usual) 8.9 million sales to end users in the third quarter of 2012.
- With the launch of iPhone 5, Gartner analysts expect iOS share will grow strongly in the fourth quarter of 2012 because users held on to their replacements in many markets ahead of the iPhone 5 wider roll out. Windows Phone’s share weakened quarter-on-quarter as the Windows Phone 8 launch dampened demand of Windows Phone 7 devices.
All figures as per gartner.com
Nokia’s second coming – The Lumia!
Too often technology is being used to protect old business models rather than unlock new ones. Fortunately for Nokia, it seems to have broken this paradigm as it embarks on a slow climb upward from it Symbian to Microsoft Windows 8 OS. O 5th Septmebre 2012, Nokia went to show the first Windows 8 devices for the record. The event tagline - SwitchtoLumia is very apt, timely and relevant as RIM & some Android users are looking for something different. Unboutedly, iPhone5 will pick up many of the BB/Android dissenters, but the latest Lumia launches by Nokia, gives it a chance – its real one in over 3-4 years.
The success story has rolled over from devices to platform and now on to eco-systems. Devices and apps are only a part of the story. Nokia’s latest efforts with Lumia has shown that it is focusing on the right thing: owning up eco-system and improving service delivery user-experience. Apple still has the big marketing edge as long as it’s the only company to consistently do this and owns end to end delivering the experience – it’s what happens when you control the end to end experience… it does matter. But the good part for Nokia and Microsoft is that they have made a start. Unlike iPhone and iPad, no single product shall define this approach for Nokia/Microsoft -
The good thing for the Nokia- Microsoft duo is that no one will ever confuse Windows Phone with Android or iOS. The challenge is can Nokia and Microsoft explain how different is better. Nokia’s second challenge is to differentiate Nokia devices from other Windows Phones. Samsung has already tried one-upp’ing Nokia by pre-announcing the ACTIV S 5 days before Nokia announced the Lumias.
Nokia has clearly raised the bar in terms of core hardware features. Visible differentiation is there in terms of the device look, finish and feel. On the positioning front, Nokia is betting big on Imaging,Music and Location as core differentiators that can drive adoption. WP8 is the enabler but getting the eco-system to ride on the top and provide key differentials is what’s going to differentiate these devices versus the Android Army. Thats a hell of a ask, with the number of partners involved and the fact that everyone needs to be in sync.
If you are smartphone maker, you shouldnot ignore the BRIC! (IDC)
IDC today reports that China will by the end of this year over take US as the biggest smartphone market, globally. China will contribute a quarter of the global smartphone sales beating US at 17.8%. The growth in smartphone rightly comes from the top end as well as the economy-entry end. By 2016, IDC predicts China smartphone markets to come down to 24% of the globaal volumes.
India ranks in 4th with 2.5% contribution to the global smartphone sales. For the Indian markets this is up from 2.2% in 2011 and this figure is expected to grow to 8.5% by 2016. With 3G in nascency and the intrent habit catching on, the potential held forward by India is tremendous. Close on Indian heals is Brazil with 2.3% of the global numbers. Russia is also close at heals.
If you were a smartphone number the BRIC phenomenon is the “in” thing till 2016.
Gartner: Q2, 2012 Mobile Phone and Smartphone Market shares
Worldwide sales of mobile phones to end users reached 419 million units in the second quarter of 2012, a 2.3 percent decline from the second quarter of 2011, according to Gartner. Demand of feature phones continued to decline, significantly weakening the overall mobile phone market
Demand slowed further in the second quarter of 2012. The challenging economic environment and users postponing upgrades to take advantage of high-profile device launches and promotions available later in the year slowed demand across markets.
Smartphone sales accounted for 36.7 percent of total mobile phone sales and grew 42.7 percent in the second quarter of 2012.
Samsung and Apple continued to dominate the smartphone market, together taking about half the market share, and widening the gap to other manufacturers. No other smartphone vendors had share close to 10 percent.
In the race to be top smartphone manufacturer in 2012, Samsung has consistently increased its lead over Apple, and its open OS market share increased to one-and-a-half times that of Apple in the second quarter of 2012.
In the smartphone OS market, Android extended its lead with an increase of 20.7 percentage points in market share in the second quarter of 2012. While Apple’s iOS market share slightly grew year over year (0.6 percent), it declined 3.7 percentage points quarter on quarter, as users postponed their upgrade decisions in most markets ahead of the upcoming launch of the iPhone 5.
Apple & Samsung monopolize smartphone profits (Even as Apple pulverizes Samsung)
Samsung shipped about 50 million smartphones last quarter — about double the number Apple sold and, according to IDC, the largest number of units ever shipped by a handset vendor in a single quarter. However, if Raymond James data is any indicator, Samsung’s 2:1 lead over Apple is a statistic in vain. Apple — thanks to the higher gross margins of the iPhone and iPad — far outshines its rivals in both revenue and operating profits.
Having generated only about 6 percent of the industry’s smartphones and tablets in the second quarter, Apple captured about 43 percent of the industry’s revenue and an astonishing 77 percent of the industry’s operating profits. Thats about 2.65 times that of Samsung’s. Interestingly enough, Apple and Samsung account for 96% of the global Mobile computings EBITs. Now you know why the rest of them are such a deep shade of Red! Apple’s statistic is of note especially in the light of the fact that Q2 in generally Apple’s weakest quarter and Samsung had the Galaxy SIII launch in Q2.
Ultimately, profits are the feedstock of innovation; and, innovation drives profit. Until Samsung starts generating more profits than Apple, we would not be overly concerned with who has the unit share lead. Remember, HP and Dell still sell a lot more PCs than Apple sells Macs, but does it matter. Probably not to Apple.
How the iPhone5 measures up?
At launch, iPhone was christened Jesus Phone and over the last 5 years, while there have been challengers to crown of the “World’s best smartphone”, iPhone has seen most of the challengers and challenges off. The list of iPhone contemporaries includes Moto Droid, HTC Evo 4G and Samsung Galaxy SII prominently.
However with every iteration, the Android army has gotten nearer to the iPhone so much so that Samsung Galaxy SIII is arguably a better device than iPhone4S. With a 4.1 upgrade, the Siri factor should also take care of itself (Google Now).
However, if rumours are to be believed the iPhone5 will do what it is expected to do. Raise the bar a notch higher for the Samsungs, Motos and HTCs to aspire for. Here’s how the iPhone5 scores over the Samsung SIII
1. Samsung will retain the screen edge with the massive 4.8″ screen. However to iPhone5′s credit, this is the first screen size upgrade to iPhone in 5 iterations in 5 years. Apple will thus graduate to 16:9 resolution, rather than the 3:2 currently.
2. It is rumoured that the Exynos processor, which powers the SIII will be the one that will power iPhone5 with a quad core.
3. In terms of design, Apple will hold the aces with a supposed Liquid metal which is quasi glass feel which in terms of touch and feel will be heads and shoulders above the Plasticy Samsung SIII
4. Perhaps the most earth-shattering change in the iPhone 5 is that it’ll reject the 30-pin connector used across iPods, iPads and iPhones in favour of a much-smaller (reportedly) 19-pin model. While a converter would be in scheme of things, this could momentarily create inconveniences for hardware/accessory makers in Apple stable.
5. Apple has sacrificed an increase in battery power to maintain the slimness of the machine. However one expects that it would still be higher than the 1430 mAh in iPhone4S
6. iPhone5 slimness quotient is worth raving. iPhone5 would cut the slimness quotient by a factor of 19% for iPhone 4S and 11% against the Samsung Galaxy SIII
7. In terms of pixel density, iPhone5(325PPI) would be 6% more richer than Samsung Galaxy SIII (305PPI) and 13% richer than iPhone4S(305PPI).
8. Last and final, rumours abound about 3D camera given the Apple patents around the same. While its a long shot, it is a dream shot. Hope Apple gets this through because the camera story needs to more than a linear progression into something more meaningful
Any bets on the Apple share price at iPhone5 launch? I would bet $700
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