Manufacturers shipped 216.2 million smartphones worldwide in Q1, 2013, compared with 189 million regular cellphones, according to IDC. IDC Q1, 2013 numbers compare facorably to 402.4 million units in the Q1,2012 (YoY) and down from 483.2 million units in the Q4, 2012.Smartphones thus made up 51.6 percent of the 418.6 million mobile phones shipped. The shift to a global majority of smartphones is now being driven by consumers in developing countries such as China, India and Indonesia.
Samsung retains the smartphone crown taking 32.7% of the market shipping out 70.7 million smartphones – thus becoming the defacto Android standard. Samsung’s up 61% over a year earlier.Apple slipped in its numbers to close Q1, 2013 at 17.3% of the smartphone market share with 37.4 mln units. Apple’s market share market share fell to 17% from 23% a year earlier. Samsung’s dominance of the smartphone markets is so superior that it ships more smartphones than its next 4 competitors put together.
Total Mobile phone shipments increased 4% YoY driven solely by 41% increase in smartphones compensating 19% drop in dumbphones.
This is third and concluding part of a series of posts that discuss the Rise and Fall of Educomp track the growth of the prodigal education services company and track the factors that led to its fall. Read Part I and Part II here.
A Capex intensive balance sheet and a diffused sense of direction aside, it was Educomp’s financial wizardry and creative accounting that puts the spotlight on Educomp taking what is clearly a unsustainable basis for business. Educomp formed Edusmart, an ‘unrelated’ company headed by one of Educomp’s senior executives. The new company took over all of Educomp’s newer five-year school contracts, pledged the receivables with banks in return for roughly 75 percent of the amount as a lump sum, most of which it meekly handed over to Educomp. This innovative technique even ended up making its debt disappear for a while. Educomp itself was the guarantor of the bank loans to Edusmart.
The model’s sole purpose seemed to allow Educomp to book three-fourths of a school’s five-year annuity revenue right upfront, thus inflating revenue and profits. Clearly, the move was amied at keeping the securitised debt off Educomp’s books as contingent liability, otherwise the higher leverage ratio would have meant banks wouldn’t lend money for their K-12 schools business. This is why Educomp’s total debt as of March 2012 is just Rs 337 crore, while its total liabilities were Rs 2,148 crore. When Educomp saw growth slowing down because they’d penetrated most premium ICSE and CBSE schools, a better way would have been to educate the market and make itself more sustainable instead of changing their accounting model by using a private company to book revenue upfront.
And just when, you would think the list of follies was closing, Educomp stepped into even more capital-intensive setup by deciding to buy the land on which to put up its schools instead of long-term leases like most competitors. Schools are valued on the basis of their cash flows, not land banks. Because whatever the land’s real value, on the school’s books it can only be notional because it can’t ever be de-linked and sold. Today, the 47 schools run by Educomp have nearly 50,000 seats between them, filled with only 22,000 students.
In India any educational services company should be a private and not public listed business. While listing might bring capital, it will inevitably also force businesses to take unsustainable steps to drive higher growth and valuation. In Educomp’s case it was a combination of poor execution, lack of adequate planning and oversight, and overreach as its businesses grew at a faster pace than its management capability.
Lately and Belatedly Educomp seems to have realized its mistakes. Post a $155 million infusion by International Finance Corporation, Proparco and Mount Kellett – Educomp seems to be focusing on a transformation plan that seeks to focus the company’s attention on two primary businesses: The content-based Smart Class and the asset-backed K-12 schools. Most other businesses will be sold off progressively.
Since July last year Educomp has sold off its stake in Eurokids, a pre-school chain and raised Rs 22 crore for its online learning subsidiary authorGen in a funding round led by private equity firm Kaizen. Pearson is likely to acquire its entire stake in the loss making IndiaCan venture imminently. Also up for sale are Educomp’s majority stake in coaching firm Vidyamandir Classes and test preparation company Gateforum.
But would that be enough? I guess not. Educomp will find it difficult to bounce back to its former glory – the market today is more crowded and perhaps more specialized. Educomp will be one of the bigger players (perhaps the biggest), but the markets would have split into fragments – all of which Educomp will not recover.
Reproduced from Article on Forbes: The Rise and the Fall of Educomp (April 8, 2013)
This is Part II of a series of posts that discusses the Rise and Fall of Educomp track the growth of the prodigal education services company and track the factors that led to its fall. Read Part I here
From an asset light services to a capex laden balance sheet player – Educomp was getting its business mode wrong – Why did Shantanu Prakash (CEO, Founder) and Educomp move to this business model which would take in more capital and where the money would not come in quickly? The Answer – The lure of high valuation. In January 2008, it’s price-earnings multiple was 27.8 (today it is just a fraction of that at 6.77).
Buoyed by Educomp’s rosy growth numbers, between 2008 and 2009 investment banks and broking firms started putting out fat reports on the massive pot of gold at the end of the education rainbow. And Educomp was buoyed by its greed to ride the wave. The potential market was estimated at $30-35 billion across various education segments like multimedia-in-classrooms, privately run K-12 schools, vocational training, preschools, coaching classes and higher education.
Secondly Shantanu Prakash and Educomp diffused the effort over too many businesses in education using every conceivable strategic tool. For instance, Educomp’s joint ventures list reads-
IndiaCan with Pearson Plc (Vocational training)
Raffles Millenium colleges with Raffles Education
Topper TV with Network 18 in the TV space.
There were investments and acquisitions
PurpleLeap in vocational training
Vidya Mandir and Gateforum in test preparation
Eurokids in preschools.
And of course there were numerous new subsidiaries of which its own brand of K-12 schools was the most significant one.
Educomp’s annual report for 2009-10 listed 15 directly held subsidiaries, 28 indirectly held ones, five joint ventures and 14 associate companies spread across India, Singapore, Canada, USA and the British Virgin Islands.
Diffused sense of direction alongwith an awry business model is one of the worst cocktails and Educomp was brewing this.
Continued in Part III
Reproduced from Article on Forbes: The Rise and the Fall of Educomp (April 8, 2013)
This is part 1 of a series of posts that will discuss the Rise and Fall of Educomp track the growth of the prodigal education services company and track the factors that led to its fall.
For a company that almost single-handedly created the hype around money-making opportunities in school education, Educomp’s stock is down 72% YoY; 84%over two years; 91% over three years. Its market capitalisation has fallen from Rs 7,000 crore in November 2009 to just Rs 786 crore as of May 1st 2013. Of the $150 million in new funding it raised in July 2012 from three foreign investors, two-thirds would go to pay back a five-year-old foreign currency loan it couldn’t repay on its own, given the debt and liabilities on its stressed balance sheet.
Educomp’s rise to glory is a story not too far away in history – From 2006 to 2012, revenues jumped 30X (from Rs 51 crore to Rs 1,500 crore); profits jumped 30X (from Rs 6 crore to Rs 180 crore); school customers increased 200X ( from 75 to 15,000) plus 250 preschools, 47 schools with 22,000 students and 350 vocational training centres. However, the devil they say is in numbers – and Educomp’s net profit margin has fallen 61 percent during the last four years; the net cash generated by its operations has been falling significantly for the last three years; the time taken to collect its money from customers almost doubled in the last four years; and most importantly, its overall liabilities in 2012 were over twice its revenues.
Educomp’s biggest star is the Smart Class – an interactive multimedia heavy digitally powered teaching experience which supplement the normal textbook and blackboard approach. To make things easier, Educomp does not charge for the infrastructure and works on a per student monthly fee for a contract period. The school in turn would pass the cost as a monthly fee increase of Rs.150-Rs.200 per student. Driven by the paucity of good teaching mediums, the technology enabled Smart-Class grew from 100 schools in 2006 to over 6550 schools in 2011.
While all that business and growth is hunky dory – the reality bites in when one accounts for delayed payments from schools and sometimes no payments from schools. The risk is that this technology sales model becomes akin to the sub-prime mortgage scenario that caused the credit crisis in the US. Like in the US where loans were given to people who did not have the repayment capacity, there is some danger that ambitious schools looking for a magic bullet are buying hardware and software they ultimately can’t afford.
It is the job of a financing institution, not an educational services vendor, to finance a school. Otherwise you end up bearing business risk, execution risk and financing risk. Unfortunately the business model of Educomp was treading the risk bit a little too high. Educomp initial assent on the bourses was because it was supposed to be ‘asset-light’ education software company that would scale with lightning speed. Unfortunately the business model chosen was driving Educomp from an ‘asset-light’ education services player into being a balance-sheet player.
Reproduced from Article on Forbes: The Rise and the Fall of Educomp (April 8, 2013)
ABi research reports that the tablet market will grow this year by 38% to 150 million units. But the Microsofts and Blackberrys will contiunue missing the boat! With 3% of the current Tablet markets globally, Microsoft, Blackberry and other unidentified OS implementations don’t show signs of significant growth.
The ABI Research report says that an estimated 150 million tablets will ship in 2013, worth an estimated $64 billion.The total number of tablets will grow by a projected 38% over 2012, and the total revenue will grow a projected 28%. Last year, according to ABI, 60% of tablet used iOS, 37% used Android, and the remaining 3% was made up of “others”.
App publisher Animoca recently calculated the top 12 Android tablets, based on app usage, and it found that five of the top six are 7-inchers- and with iPad Mini touting the 7″+ form factor – Tablet markets in the foreseeable future could look to stabilize at 7″ form factor.
Theoretically, that could bode well for Microsoft, because the company is said to be at work on a 7-inch Surface tablet. Surface tablets haven’t sold well, but perhaps a less-expensive and smaller form factor would help. A possible winner would be a 7-inch Windows tablet that takes advantage of Microsoft’s partnership with Barnes and Noble and taps into B&N’s vast book repository and growing video offerings, as well as into Microsoft’s successful Xbox-based gaming ecosystem.
Still, if ABI Research numbers are right, Microsoft so far hasn’t been able to tap into people’s growing desire for tablets, and won’t in the foreseeable future.
As the industry waits with baited breath for reliance Jio to create the landmark disruption, there has been an uproar over VoLTE i.e Voice service over LTE spectrum. Reliance Jio paid Rs 1,658-crore fee to the government for supporting 4G VoLTE on its universal services licence. VoLTE was the final piece that would complete Reliance Jio’s portfolio of services. However is that really a disruptor as it is purported to be?
Voice Telephony on LTE is made possible through apps such as Skype. However, with prohibitive CAPEX on full carpet area coverage – Data connectivity in a wide carpet area will be patchy at best. It means no voice calls when driving or outside city limits.
The 2,300 MHz spectrum, is one of the worst when it comes to creating a large area network. Compared to a GSM/HSPA 900 MHz; LTE on 2300MHz requires exponentially higher number of towers in one shot. Voice is not profitable enough, to support such high infrastructure costs.
Thirdly, Voice requires a better quality of experience. A data subscriber rarely notices fluctuations in speed, but a user in a moving vehicle will expect the same call quality throughout. Thus, for data services can afford lower initial investments and expand incrementally afterward, but for voice telephony, all investments are needed up front.
The one way VoLTE might make commercial sense is if Reliance acquires or partners with an existing mobile operator, such that its current 2G or 3G network becomes the fallback network that will carry voice calls or data when 4G airwaves aren’t around. That appears to be the only way Voice can happen for Reliance Jio. (Or alternatively, a tie up with Reliance (Anil Ambani) could provide Mukesh Ambani the where with all to su[pport voicee services).
Thus VoLTE under the current understanding is not the disruption as many earlier thought it to be.
For many of the marketers out there – there is not a great case for Tablets and Smartphones together. Most of them view tablets as a passing fad. This equation is perhaps complicated by the announcement of Phablets as a hybrid form and use factor! However, is Tablet really a fad?
A recent report published by the Adobe Digital Index is an eye opener. For February 2013, Tablets are attributed to be driving more traffic to websites than smartphones. The report is based on 100 billion visits to more than 1,000 websites worldwide over the last year – hence this isnt a fluke that you had blow over. Adobe attributes this shift in web browsing patterns primarily to the device’s form factor, which lends itself to leisurely (and more comfortable) browsing than smaller touch devices.
Listing down a key points on how and why Tablets are not a fad. They are here for good-
1. Frankly, with both WiFi Tablets and Entry-level Smartphones penetrating the $50 price point – the screen size is a big enabler for tablets.
2. As WiFi hotspot roll outs gather momentum – Tablets will push more and more of data.
3. So while Smartphone gathers numbers in the low end – it is the larger screen size devices (3.5″ – 4.0″ – 5″ – 7″- 9.7″) which will posssibly drive higher data consumption.
4. The customer at the economy end of connected devices ($50-$100) tends to use his device as a media machine – again for the $50-70 price – a tablet provides greater value than a 2.8″-3.5″ smartphone given the profusion of pirated content.
5. Tablets are also driving penetration across segments such as education, insurance for the large screen internet access advantage
6. For the Phablet space – this is a sub-category branching out into becoming a category by itself – but its numbers will take some building up – and the pricing still is $200 & above.
7. With tablet growth rates still well above smartphone growth rates, expect this gap to widen
8. Traditionally because of the higher screen size the engagement time on tablets has been higher than the smartphones as well.
Interestingly enough, in mature economies, Tablets have found yet another niche. Tablets are increasingly being used shopping activities.Adobe found that 13.5% of all online sales were transacted via tablets during the recent holiday season. Furthermore, as of January 2012, researchers found that consumers using tablets spent 54 percent more time per online order than their counterparts on smartphones, and 19 percent more than desktop/laptop users.
Thus the key take away from the Adobe report is this – tablets and smartphones are two different animals. Based on consumer use cases, one does not replace the other because mobile device owners are using tablets and smartphones to accomplish different tasks. This has implications on the way e-commerce companies as well as media companies and online content distributors would play up to serve the user. So this really gets into single device – multi use cases scenarios – all of is still building.
Thus i come back to my initial point – Marketers who are apprehensive of the scale and scope of tablets and are unable to fix “proper” answers to tablets, need to understand, there is no single answer… and the answers too are evolving at a fast clip! The risk that they run in trying to perfect the business cases and create understanding is that they could be left out of the markets. Proposition here is possibly not a case of inspiration but of evolution!