Ronnie05's Blog

Is Apple reliving Nokia? (Part II)

Posted in Mobile Devices and Company Updates by Manas Ganguly on May 4, 2013

This is the second part of a two part blog on Apple reliving the mistakes that Nokia made 4-5 years back. Read Part I here.

Both Nokia (2007) and Apple (2012-13) were trying to time and control consumer preferences in terms of the features and the screen. Conversely, that was akin to letting the competition in thrugh the back door. Instead of creating the future by out-innovating on the feature roadmap – Both the companies were possibly trying to amass the cost benefits from standardized feature formats.

Tim Cook’s comment on this issue, “Our competitors have made some significant tradeoffs in many of these areas to ship a larger display. We would not ship a larger display iPhone while these tradeoffs exist. Some customers value large screen size. Others value other factors such as resolution, color quality, white balance, reflectivity, power consumption, compatibility of apps, and portability.”

The strongest parallel is how both companies started fighting the consumer preference for larger displays at the peak of their profitability… and then dug in as margins began eroding rapidly. Sample this: Phablets as a segment are already likely to make up more than 15% of smartphone market in 2013 – And Apple chooses to give this market a miss. At the peak of its prowess, Nokia executives talked about the performance trade-offs of big-screen phones: power consumption troubles plaguing big-screen phones; surveys showing that most consumers prefer smaller models. On and on and on, an endless stream of justifications and carefully constructed defenses, lecturing consumers about what they should want to buy. Do you see the pattern?

Apple already has a well learnt lesson – the iPad Mini which was sacrilegious in terms of Steve Jobs’ definition of a tablet is the one that is holding the fort for Apple against the medium/low cost Androids.

AppleHas Apple hit the peak or is it a seasonal variation?

Secondly, Apple’s smartphone market shares now seem to be on the wane with Androids from Samsung doing the pincer attack – both from the top end and the economy smartphones. As smartphone penetration moves from early adopters to mass-market and laggard consumer segments, the smartphone as a product will be less dependent on technical superiority, and more dependent on reliability and value – and it is Apple’s market to loose. (The gainers will mostly be the ZTE, Huawei and Alcatels of the world). As reported by Juniper, Samsung’s smartphone volumes are 2X that of Apple’s. AllianceBernstein predicts that Apple’s market share in smart phones will fall to about 12% this quarter, compared to 23% in the same quarter of 2012. Further, the firm predicts that Apple’s market share may fall into single digits next quarter. IDC’s Q1 market shares also show Apple slowing down on its growth trajectory (YoY).

Apple needs to look at the next evolution of iPhone – the mid level low cost iPhone. The iPhone 5S is already confirmed to be only an incremental over the iPhone5 – and is not going to incite mass hysteria as iPhones normally have done. A low cost iPhone could also be critical for Apple especially because ABI estimates the low cost smartphone market will more than triple, in devices sold, between now and 2018 whereas the mid-range will grow at only (roughly) 50%.

For the present, Apple and Tim Cook look to be in a denial state – which is further going to bleed Apple. The high margin strategy is a great things for share holders – but then market presence and numbers is quite another thing. For the love of Apple, I hope it doesn’t going the Nokia way.

Addendum: Just read that Apple may finally be looking at iPhone low cost model and saw a couple of photos as well. Will this turn the tide or is the initiative lost already

Addendum 2: A further validation of loss of Apple’s grip in the smartphones segment is Apple’s declining profit share of the global smartphone industry. Between Q1,2012 and Q1, 2013, Apple’s profit shares of the global smartphone industry declined from 74% to 57%.

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