How the high and mighty fall aside to give way to new blood!
Thats the perpetual script of the mobile phone industry… You miss the bus once – there isnt any catch up left to do. Industry marquees such as Nokia, Motorola, Blackberry, Sony, HTC have seen their growth and margins erode – caught unawares amidst scope and landscape changes. There seems to a pattern where each vendor reaches a peak share, though that peak varies greatly in value and then goes into a decline, which again varies from drastic to gradual.
The only ones who have bucked the trend so far is Samsung and Apple – though Apple is beginning to show weakness. However, if the industry trend were to continue Samsung would hit its decline within an year – give it a couple of years at maximum.
Android and Samsung gain, Apple and the iOS stumble, Microsoft gains and Blackberry looses – The story doesnot change in the Global Smartphone and Feature Phone markets. Gartner seonds the numbers provided by IDC – showcasing the nearly irrevocable rise and rise of Android at the expense of everyone else.
Apple seems to be caught between a rock and a hard place: go for market share with cheaper iPhone then risk losing premium status; stay premium then risk losing relevance. Apple’s performance outside the US market seems to be weakening. Samsung on the other hand appears to have succeeded in straddling the smartphone landscape.
Nokia’s smartphone numbers indicate it as the come back kid. In its Q2, 2013 report, Nokia reported a rise in Lumia shipments, to 7.4 million, and a drop in feature phone shipments, to 53.7 million. However a neagtive movement on the ASPs pegged it down. Currently, the 30% increment of sales in Lumia’s didnot offset the southward movement of ASPs. Nokia’s smartphone balance and its profitability has still not found a balance.
The Chinese foursome of Huawei, ZTE, Yulong and Lenovo are beginning to dominate the positions 4 to 7 in the smartphone and mobile phone charts indicating the growing strength in China and other Asian smartphone markets.
As smartphones massify and the markets move towards the lower end ASP points, it would be interesting to note how Samsung, Apple and Nokia play out and how the Chinese vendors pick pace. It will be critical for the smartphone makers to step up in the mid-tier and also be more aggressive in emerging markets. Innovation, after all cannot be limited to the high end.
Continued from earlier post- Tesla: That moment in history where a new frontier is breached
In terms of nerd magnetism, nothing on the road compares to the Model S, with the possible exception of the Google’s Self-Driving Car. The car has a touchscreen instead of the usual physical buttons on its dashboard controls. There’s the novelty of the electric drivetrain, and the 17-inch touchscreen lets the driver pull up massive, full-screen maps or open the sunroof with a finger swipe. The car alerts drivers when they’re near a charging station and can be programmed to recharge at home during cheaper, off-peak hours. The outside handles retract flush into the door when not in use. And, like any hot gadget these days, the car has apps. In an online forum, an owner in Illinois asks for a software update to the remote climate-control system so he can override a timed shutoff and keep his dog cool while going to lunch. Someone else has written an app that pairs Google Glass with a Model S, letting an owner who’s forgotten where he parked see the vehicle on a map while its headlights flash.
Even the flaws of the Model S seem to resonate with geeks. Early versions of the outside handles malfunctioned—they sometimes wouldn’t extend out of the door—and the windshield wipers seemed to have a mind of their own. Tesla fixed those and other problems with a software upgrade delivered via the car’s high-speed wireless connection. It’s part of being an early adopter.
Following Tesla’s lead, General Motors and Ford have started hiring software developers by the hundreds, in GM’s case quadrupling its technology department. Software is in many ways the heart of the new vehicle experience. From the powertrain to the warning chimes in the car, you’re using software to create an expressive and pleasing environment.
If there’s a secret to Tesla’s success, it’s been to outsource as little as possible. The company has insisted on doing just about everything it can in-house, which has helped it develop intellectual property and control costs. Tesla built the battery pack replacement feature into the Model S, for example, and then designed the robots that will do the work.Unlike every other major car company, Tesla has also kept its retail business in-house. It’s trying the Apple model of placing its own stores in high-end malls and shopping centers instead of relying on dealer franchises. Salespeople, who don’t receive commissions, help buyers configure their cars on giant touchscreens. The company has created an unusual financing program meant to assure buyers that their Tesla will retain its value when they sell it. If you buy a car through Tesla’s financing program, you get a guaranteed option to sell it back to the company at a price pegged to a comparable BMW, Mercedes, Audi, or Lexus. Should something go wrong with your car, Tesla will send a concierge with a new Model S loaner, repair your car, and return it. Tesla recommends the Model S be brought in once a year for servicing. The warranty is still valid if you don’t.
In many ways, Elon Musk’s Tesla S is akin to the leap of faith that Apple took with the iPhone. The Tesla S is leading the transition in the 100 year old of a Gasoline driven car to a performance vehicle powered by alternate and cleaner energy.
It is that moment in history – when something is born and a new frontier is disrupted. Tesla Motors and Elon Musk are re-scripting automobiles with the Tesla S.
Whats common to – Steven Spielsberg, Steve Wozniak, Morgan Freeman, Will Smith, Demi Moore, Cameron Diaz, Ben Affleck, Seth Green, Craig Venter… and the list continues. These celebrities are backing Elon Musk’s Tesla S in a title fight for the Automobile future of the world. The R&D and Business teams at Tesla are out to prove the Tesla S’s superiority over any other Gasoline driven car –
1. They have announced a rapid expansion of its network of recharging stations
2. To reduce the entry cost, Tesla S is working on production of 2 cheaper models in the next 2 years
3. There’s also a leasing plan option that Tesla and Elon Musk is working upon.
In Tesla’s 10 years of existence, the company has suffered through embarrassing delays and leadership overhauls, verged on bankruptcy at least once, and been a favorite target of short sellers. In May it posted its first profitable quarter, with earnings of $11.2 million; sales for the first quarter rose 83 percent, to $562 million. Musk raised the 2013 sales estimate by a thousand vehicles to 21,000, an eightfold increase over 2012. A few weeks later, Tesla paid off a $465 million government loan early and then raised $1 billion from investors. The stock price has soared in the past six months, from $32 a share to $129.90 on July 15, before falling $18.21 in one day after Goldman Sachs published a skeptical report about the carmaker’s margins. Tesla has a market cap of about $13 billion, or about the size of Mazda Motor, which, according to a Bank of America Merrill Lynch estimate, will sell about 1.3 million vehicles globally in 2013.
Much to the naysayer’s chagrin and Elon Musk’s advantage – the Tesla S outdoes most of the commercial units of day in terms of performnace. The Model S does zero to 60 miles per hour in 4.2 seconds, has plenty of room (including a “frunk,” a second trunk under the hood), and gets the energy usage equivalent of 95 miles per gallon. Last November it became the first electric to win the Motor Trend Car of the Year award; in May, Consumer Reports gave the Model S its highest car rating ever—99 out of 100.
Tesla and Elon Musk are close to Apple and Jobs in 2007 – who took a leap of faith fundamentally redesigning the phone experience. The target is not to become the hottest car in Silicon Valley – The target is upending Ford, GM and the ExxonMobil.
Traditional Camera makers face tougher times in markets with higher smartphone penetration.
As smartphones with better cameras and increasingly sophisticated optics become the de-facto camera for consumers, camera majors such as Canon and Nikon are cutting their forecasts as camera markets entering long term declines. Consumers value the social networking aspect of smartphone cameras, which allow sharing of images immediately. Secondly the key is convergence and having to carry only one device and the convenience of a single terminal. In July 2013, Canon lowered its full year profit forecast by 16%. Nikon followed this by cutting profit forecasts, especially due to slow down in the digital camera segment.
Slowly and steadily, Cameras are getting sidelined as specialized devices that cater to specific types of users, such as professionals and advanced amateurs. Worldwide camera shipments fell 29 percent in the first five months of 2013, according to the Camera & Imaging Products Association in Tokyo. IDC mirrors this sentiment and forecasts that the global digital camera market is forecast to shrink 29 percent to 102 million units next year compared with 144 million in 2010. On the other hand, smartphone shipments are expected to rise about 32 percent to 928 million units as per market-research firm TrendForce. Samsung, Nokia, iPhone, Sony and the likes are beginning to take over the casual photography and the digital camera space.
Related: Connected Camera Begins!
As tablets continue to pound on Laptop and Netbook segments – and the Laptop/Netbook segment is at best projected to be stagnant if not decreasing in terms of y-o-y shipments it is difficult to harbor any significant optimism about Intel. Intel has been trying to migrate its business to the Handhelds given the impending fall of the Wintel Franchise. It is clearly trying to move away from the Wintel Monogamy to separate alliances with Android, Samsung (Tizen) apart from the Windows Phone platform. However, creating a platform with meaningful revenue stream to replace its Wintel franchise is a long shot – something it has not been able to do for a very long time.
Highlights of Intel’s Performance
Full-Year 2012 Key Financial Information and Business Unit Trends
Full-year revenue of $53.3 billion for FY2012
PC Client Group had revenue of $34.3 billion, down 3 percent from 2011.
Data Center Group had revenue of $10.7 billion, up 6 percent from 2011.
Other Intel architecture group had revenue of $4.4 billion, down 13 percent from 2011.
Gross margin of 58% not broken down by group.
I am listing out a few thoughts on the Intel prospects going forward-
1. Intel Versus Qualcomm: Qualcomm with its leadership of the mobile space is possibly Intel’s biggest competitor in the mobile space. What works for Qualcomm is its economies of scale – hence allowing it to price itself very suitably. Intel chips in its current state would be 5X costlier than Qualcomm.
2. Intel’s specialty was the Windows platform and its complete monopoly. I don’t think they can repeat the same success with Google’s Android because the spots are already taken.
3. The low end growth in volumes will be typically driven in low price markets such as India, SE Asia. In this segment, there are pretty strong guerillas such as MTK, Allwinner and even Qualcomm has a spot of bother targeting these segments
• The problem with these markets is that none of them seems to offer the kind of margins that Intel has become accustomed to–even *if* Intel is successful in those markets
4. Either in terms of competing with Qualcomm or finding new markets, If Intel was to beat the market by considerably pricing itself lower (assuming very high volumes) – it would impact its profit margins dearly.
5. Intel has been innovating at the high end of the market. Thus, the cleverness that has gone into Intel’s current generation of high-end processors is simply stunning, but the market that benefits from that cleverness, and the margin that goes with it, is disappearing.
6. The only saving grace to this equation could be Microsoft – but the platform had its share of problems with Windows 8 and I am not sure if Windows Blue can reverse the tide.
7. Intel’s share of the server markets is also under threat with the ARM architecture and Atom like low margin chips being purported to be lopping off a big chunk of the server markets in near future. The driver is the cost of electricity and of cooling data centers. (Low power rules)
8. The third of Intel’s strengths – high-reliability enterprise computing and high-end analytics for business or national security applications is also moving the IBM way. IBM doesnot make any profits on its processors – its makes it dough from the services.
Finally, from cumulative experience of high end technology industry – any incumbent Goliath who missed one technology cycle – cannot by any means play catch up unless it re-invents the whole industry yet again. Intel doesnot have to look too far – beyond Microsoft – to learn missing out a technology cycle and losing the plot.
The Apple board is concerned about its “dry spell” in producing innovative products. Apple has been missing in action for a while – October 23rd, 2012 was the last time, Apple launched the iPad mini. Ever since then the Cupertino giant has been largely missing in action. Twitter and Blogospehere – which was alive and abuzz disecting Apple’s latest launch or new launch have largely falled silent and one gets to read more about Cook versus Jobs comparison which is reminiscent of Apple’s Phoenix tale.
This post is to put Apple’s profiling Apple’s share of problems.
1. iPhone and iPad both played a significant role in its growth since 2009. However there is slowdown in Apple sales and prices have gone southwards for a while now. In other words, loss of momentum. Apple seems to be not only losing its pricing power but also its sales growth despite the lower prices.
2. Going by Apple’s own statement- the loss in pricing premium and numbers is not just a temporary loss-
“The Company expects its gross margin percentage to be lower in 2013 than experienced in 2012, and the Company anticipates gross margin to be between 36% and 37% during the fourth quarter of 2013. The lower gross margin expected in 2013 is largely due to anticipation of a higher mix of new and innovative products with flat or reduced pricing that have higher cost structures and deliver greater value to customers and anticipated component cost and other cost increases.”
Financials Q3, 2013 (page 30)
3. The decline in numbers can also hurt the iTunes, software and services, and accessories segments.
4. More importantly, the loss in momentum is showing on its technology leadership – and top of the mind recalls. Apple is suddenly a “has been” from “aspirational” and “ahead of the curve”
5. There have been fiascos such as the Apple Maps which have robbed the sheen and the Halo. Apple was never accussed of being a “half baked device/service”
While it is understood that Apple needs to target the China and the SE Asia markets with its low cost iPhone – iPhone 5C which should take on the mid range Androids and Windows Phones – this would translate in reduction of the overall margins. At the same time, Samsung Galaxy SIII has taken over as the Smartphone tops – disrupting iPhone’s positioning in consumer mind as the best smartphone.
Canaccord genuity in its Q2, 2013 Smartphone value share reinforces the change in guard in the smartphone segment. Samsung seems to be riding on its multi-product Android portfolio to fork into Apple’s pie.
Apple has 53% of industry profits (as against 71% last year) and Samsung has 50% (was 37% last year). Samsung keeps gaining quarter on quarter and Apple keeps loosing. While Samsung and Apple generated $5.2 billion and $4.6 billion, respectively, in handset profits in the second quarter, according to research firm Strategy Analytics. By comparison, the mobile division of LG Electronics Inc., the No. 3 smartphone maker, had a $54 million operating profit with a 5.3% share in the latest quarter.The duopoly stands in stark contrast to the long list of companies jostling to establish themselves as a formidable player, including Nokia Corp., BlackBerry Ltd., Sony and LG. Even fast-growing Chinese manufacturers such as Lenovo Group Ltd., ZTE Corp. and Huawei Technologies Co.—all major brands in the burgeoning Chinese market—have yet to prove that they can deliver consistent profits in smartphones.
Will a combination of iPhone 5S + iPhone 5C (Low end Apple iphone) be able to turn it around for Apple? Samsung currently seems to have awesome momentum and might end of taking the No.1 position in Smartphone profits by Q4, 2013.
What doesnot change is that the rest are truely “laid to rest”. From a consumer perspective, this duopoly can be damaging in terms of choices. Device Makers may start throwing in the towel – What with no profits and cash burns. NEC Japan is quitting business.
HTC has reported a 83% drop in profits.