Wireless Smartphone Strategies

The industry’s most comprehensive set of critical market statistics and qualitative analysis, tracking and reporting on smartphones.

May 28, 2010 02:05 tkang
Nokia has started a new market sizing exercise from the beginning of this year. With refreshing candor, they have increased the base market size over 10% for 2009 shrinking their own market share to 34% from the previous 38%.
  • Nokia announced their market share in Q1 2010 was 33%, which is probably the lowest number they’ve had in 5 years. Why would they play themselves down?
I think Nokia is accepting the hard truth that the market is bigger than we all were willing to admit. However, I don’t think that the Shanzhai (Chinese Grey Market) impact has been fully baked into many estimates.
  • Since 2007, numerous unknown small assembly factories have been springing up in China and rapidly growing. There are more than 500 companies now.
  • As urban areas in the Emerging Markets reached saturation the rural users were the next frontier but distribution, after sales support and driving down cost was a challenge. This market was successfully addressed by the so-called Shanzhai or Chinese Grey Market handsets as they evaded tax, regulatory requirements, IPR and any brand related issues giving them an advantage to the ‘I-don’t-care-about-quality-I-just-want-a-phone-that-doesn’t-look-too-cheap’ audience in the Emerging Markets.
If we look at the Chinese market it seems that foreign brands like Nokia killed the Local brands but in reality if we include the Chinese Grey Market, Local vendors have started to come back since 2007.
  • Nokia hunted down Local vendors between 2004 and 2005 but they’ve come back and without admitting that the Chinese grey market exists there’s no way you can compete with them.
clip_image002[6] Looking at the situation, I think history repeats itself. Starting from 2000, Local Chinese vendors rapidly took share from Motorola and at that time the R&D was provided by R&D houses in Korea packaging Texas Instrument basebands into modules.
  • Companies like Bellwave once exported $400M worth of GSM modules to China a year, this was the time TCL, Bird, Amoi were on the top 10 vendor list.
  • Now it’s Mediatek providing R&D expertise: the baseband and also assistance with the module packaging.
Our Wireless Device Strategies Team is preparing a report that explores the Chinese Grey Market in more depth as it is now more than 12% of the market, a market to keep track of. I think the handset market is bigger than Nokia thinks. Their market share in Q1 2010 should’ve been 31% including the total grey market.

April 29, 2010 06:04 tkang
Apple’s profit hit a spectacular 30% operating profit margin and this is probably one of the highest levels a hardware manufacturer has ever or will ever achieve. We’ve seen these ratios in the services and software industries but not in hardware. Below are Apple’s operating profit margins by quarter. Q1.2009 : 26% Q2.2009 : 27% Q3, Q4.2009, Q1.2010 : 30% (Revenues are growing 20~40% year on year) How did Apple pull this off and how can this be getting better every quarter now? Apple is an innovation company and they concentrate on delivering high quality products. This is the case of the Mac PC and many other products. The big disconnect is the price of these machines, they are good quality products but they also come with a high price tag which is a big obstacle for consumers. Without huge volumes there is less scale of economy and the cost can’t be driven down. But when it comes to mobile handsets there’s a different factor called operator subsidies. This is where the magic starts for Apple. The typical handset in the US cost about $150 in wholesale price and with the typical $50~$150 subsidy the handset was sold to end-users at about $90. The most expensive phones were around $350 at the time and these were sold at $199. Apple first introduced its iPhone at this price range but gradually raised the price of each new device. With the help of operator subsidy, the iPhone could be continuously sold at an acceptable price: $99~$199. As the iPhone broke the ceiling price of high end phones each year, operator subsidies increased. Apple is enjoying the fact they can deliver products with superior quality to more people at a moderate price point, at the expense of some one else. They didn’t have to push the price down to create demand. They even did the opposite: raise (wholesale) price, improve quality, increase profit. If your local car dealer starts giving away BMW 7 series at the price of a Honda, it’s hard to resist. Of course you have to buy gas at the designated gas station for the next 2 or 3 years but I’d do it. Steve Jobs said in 2004: “Apple's market share is bigger than BMW's or Mercedes' or Porsche's in the automotive market. What's wrong with being BMW or Mercedes”? Steve Jobs must be very happy now. He has finally found a way to sell his BMW like a Toyota or Ford without comprising quality, (wholesale) price, or even any profit. “Our belief was that if we kept putting great products in front of customers, they would continue to open their wallets.” - Steve Jobs, 2003Congratulations Mr. Jobs you’ve proven yourself right but you wouldn’t have made it without the operator subsidies.(Related report: Is Apple iPhone a Panacea for Operators? )

April 29, 2010 06:04 tkang
Apple’s profit hit a spectacular 30% operating profit margin and this is probably one of the highest levels a hardware manufacturer has ever or will ever achieve. We’ve seen these ratios in the services and software industries but not in hardware. Below are Apple’s operating profit margins by quarter. Q1.2009 : 26% Q2.2009 : 27% Q3, Q4.2009, Q1.2010 : 30% (Revenues are growing 20~40% year on year) How did Apple pull this off and how can this be getting better every quarter now? Apple is an innovation company and they concentrate on delivering high quality products. This is the case of the Mac PC and many other products. The big disconnect is the price of these machines, they are good quality products but they also come with a high price tag which is a big obstacle for consumers. Without huge volumes there is less scale of economy and the cost can’t be driven down. But when it comes to mobile handsets there’s a different factor called operator subsidies. This is where the magic starts for Apple. The typical handset in the US cost about $150 in wholesale price and with the typical $50~$150 subsidy the handset was sold to end-users at about $90. The most expensive phones were around $350 at the time and these were sold at $199. Apple first introduced its iPhone at this price range but gradually raised the price of each new device. With the help of operator subsidy, the iPhone could be continuously sold at an acceptable price: $99~$199. As the iPhone broke the ceiling price of high end phones each year, operator subsidies increased. Apple is enjoying the fact they can deliver products with superior quality to more people at a moderate price point, at the expense of some one else. They didn’t have to push the price down to create demand. They even did the opposite: raise (wholesale) price, improve quality, increase profit. If your local car dealer starts giving away BMW 7 series at the price of a Honda, it’s hard to resist. Of course you have to buy gas at the designated gas station for the next 2 or 3 years but I’d do it. Steve Jobs said in 2004: “Apple's market share is bigger than BMW's or Mercedes' or Porsche's in the automotive market. What's wrong with being BMW or Mercedes”? Steve Jobs must be very happy now. He has finally found a way to sell his BMW like a Toyota or Ford without comprising quality, (wholesale) price, or even any profit. “Our belief was that if we kept putting great products in front of customers, they would continue to open their wallets.” - Steve Jobs, 2003Congratulations Mr. Jobs you’ve proven yourself right but you wouldn’t have made it without the operator subsidies.(Related report: Is Apple iPhone a Panacea for Operators? )

January 19, 2010 03:01 tkang
At the end of last year Samsung suddenly announced ‘Bada’, their own smartphone platform. Although there are claims that its just vaporware, sorry to say its not making much hype like most vaporware should do. After two months we are still waiting for the real thing. Now we all know what a smartphone O/S is, but what’s a smartphone platform? In the official Bada site, it actually says that the kernel layer can be either Linux or real-time OS (feature phone OS) depending on the configuration. This shows that there will be a shared experience between feature phones and smartphones. So it may not be  inventing a new experience with a new O/S. Confusing nonetheless, I’d say. Why all the mystique and vagueness? In my view the vagueness and uncertainty reflect Samsung’s agony with smartphones. Let me summarize the situation Samsung is in right now. The Situation: - Samsung’s handset ASP had always been 10~30% higher than the industry average but since 2008 they’ve been 10% lower. - Samsung’s operating margin’s are jumping between the 5% and 10% line and it used to be the 10% and 20% line before. - As the No.2 manufacturer of handsets worldwide with 20% market share, Samsung only grasps 3% of the smartphone market. So it all began with the smartphone hype in recent years. Smartphones have been haunting Samsung over the last 2~3 years and even further back when they were experimenting with Palm, Linux and Blackberry (yes, even Blackberry). Samsung’s Bada is a reactive response rather than a proactive or creative move. So it will end up constantly changing as time goes by. I’d say the current facts all point to a direction which is clear though. Samsung’s Bada will be forced to become an upgrade to its legacy feature phones. Whether Samsung intends Bada to become such an upgraded feature phone experience or not, I’m not sure but that’s the only niche that is available in this market right now. As you can see in the chart below there still is a gap between the so-called smartphones and feature phones and with the beginning of the Jet, Samsung has been attempting to bridge that gap. Whether the Bada will be good enough to enter the ranks of smartphones or it will just blur the lines between smartphones and feature phones we’ll have to see the actual product. image Many other feature phone centric vendors will realize that they don’t have much options for the future and this type of feature phone upgrading will be seen again. I think we’ll have to come up with a new definition called the ‘Smart Feature Phone’ or the ‘Simple-minded Smartphone’ soon this year. - Tom Kang

January 19, 2010 03:01 tkang
At the end of last year Samsung suddenly announced ‘Bada’, their own smartphone platform. Although there are claims that its just vaporware, sorry to say its not making much hype like most vaporware should do. After two months we are still waiting for the real thing. Now we all know what a smartphone O/S is, but what’s a smartphone platform? In the official Bada site, it actually says that the kernel layer can be either Linux or real-time OS (feature phone OS) depending on the configuration. This shows that there will be a shared experience between feature phones and smartphones. So it may not be  inventing a new experience with a new O/S. Confusing nonetheless, I’d say. Why all the mystique and vagueness? In my view the vagueness and uncertainty reflect Samsung’s agony with smartphones. Let me summarize the situation Samsung is in right now. The Situation: - Samsung’s handset ASP had always been 10~30% higher than the industry average but since 2008 they’ve been 10% lower. - Samsung’s operating margin’s are jumping between the 5% and 10% line and it used to be the 10% and 20% line before. - As the No.2 manufacturer of handsets worldwide with 20% market share, Samsung only grasps 3% of the smartphone market. So it all began with the smartphone hype in recent years. Smartphones have been haunting Samsung over the last 2~3 years and even further back when they were experimenting with Palm, Linux and Blackberry (yes, even Blackberry). Samsung’s Bada is a reactive response rather than a proactive or creative move. So it will end up constantly changing as time goes by. I’d say the current facts all point to a direction which is clear though. Samsung’s Bada will be forced to become an upgrade to its legacy feature phones. Whether Samsung intends Bada to become such an upgraded feature phone experience or not, I’m not sure but that’s the only niche that is available in this market right now. As you can see in the chart below there still is a gap between the so-called smartphones and feature phones and with the beginning of the Jet, Samsung has been attempting to bridge that gap. Whether the Bada will be good enough to enter the ranks of smartphones or it will just blur the lines between smartphones and feature phones we’ll have to see the actual product. image Many other feature phone centric vendors will realize that they don’t have much options for the future and this type of feature phone upgrading will be seen again. I think we’ll have to come up with a new definition called the ‘Smart Feature Phone’ or the ‘Simple-minded Smartphone’ soon this year. - Tom Kang