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February 16, 2010

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Rene

It could the iPhone sales numbers not also connect to the expectation of new models with the iPad launch in january? Most people expected from september that new phones will come out in the first quarter. For me the iPad is also the reason, why there will be no new iPhone presented before the end of the 2nd quarter. It will come in the 3rd quarter. The sales will go up again in the current quarter, because people postponed their buying because of their expectations of a new iphone.

Possible or?

KPOM

iPhone is starting to get a little long in the tooth, and is probably due for a fairly dramatic upgrade. The iPad offers some clues. First, it is likely to use an Apple chip (perhaps the A4 or a derivative), have an OLED screen, and sport an updated UI similar to that of the iPad. My guess is that Ahonen is right that the sales figures will drop like they usually have, but I think he underestimates the ability of Apple to dazzle with the next update. Also, if Apple breaks the exclusivity with AT&T at some point, it has a chance to expand its share in its home market. At the same time, I don't think Apple is gunning for Nokia's market position. This isn't like the music player market where one company can dominate. Apple doesn't like to play nice with carriers or go downmarket (they have exactly 0 computers that sell for less than $599). Maintaining 15-20% smartphone market share is probably all they really want. They are content to let Nokia give away 5800XMs. Google's announcement on Android shipments is probably their bigger concern. Google and RIM are gunning for the high-end where Apple likes to compete.

Alex Birkhead

In danger of being contrarian to a contrarian here, but Tomi are you sure your iPhone stats are really sounding the alarm for Apple, just yet!?

I also see them facing tough, growing competition, but not really expecting it to crystallise meaningfully for another 6-9 months, i.e. until Android gets a bit more mature, and this discounts the real possibility that iPhone 4 is a strong update and/or they wake up to some more industry realities (i.e. copying even more of RIM's gameplan, in terms of widening the product range, playing nicer with MNOs, and cracking the enterprise).

I had a fairly close look at Apple's Q4 stats, too, and saw annualised shipments hitting a record >25m (from <9m a year earlier) and ASP possibly rising (who really knows...). This gives them some serious critical mass, at Microsoft's cost.

The problem I have is that iPhone trend analysis/forecasting for iPhone is really difficult to get to grips with, exacerbated by its youth and those crazy annual product cycles, but I do see a growth profile that looks even more impressive than RIM's at a comparable stage in the latter's development (in shipment terms Apple grew in 12 months what RIM took around 18, albeit in a more bountiful smartphone market). Sure, momentum and sequential quarterly numbers could be troubling compared to the past, but trajectory is still up, and still narrowing the gap on RIM when measured over more than one quarter (and bear in mind that RIM until the last reported stellar quarter, looked like it might itself be stalling).

The next quarter could be a big tell for the iPhone: does it for the first time make a year with a declining quarter (despite lots of people now holding out for v4 and the iPad)? Is its RIM-expansion strategy playing through, i.e. opening up a sizeable market like the UK to 4 competing operators, and adding more sizeable markets (RIM's phase 3 is to chase the smaller markets). There were also hints of supply-chain problems last quarter, though reports were mixed.

I see Apple (and Android) potentially cracking the lucrative and historically inert enterprise market much faster than you expect. An extreme example is CEOs like Vodafone's Vittorio Colao having both BlackBerry and iPhone as default devices (and often more than one of each), with Symbian and WinMo not getting much love. Colao is also testing a LiMo Samsung 360 (dog-fooding, and seemingly with some unexpectedly frank/knowledgeable criticism) and a Nexus One Android.

Contrary to your view, I also see iPhone and Android being forced on corporate IT organisation pretty fast, both by senior execs (who ultimately call the shots) and the masses (who will buy and use their own, if not facilitated).

Apple also has another ace in its hand. It could probably, without significant real loss, halve average selling price of iPhones, which would be a very interesting test of price-elasticity of demand (and supply chain resilience!). I've always bemoaned Apple's hardware-shortcuts and under-spec, but it does give it a lot of margin to play with. The company also has a cash mountain to trump anyone except MS or Cisco. I had half-wondered whether letting UK discounter/MVNO Tesco offer the iPhone marked commencement of a serious price war, though that was not to be (yet). You're right about Apple's smoke and mirrors KPIs, but the iPod does show skill segmenting the market and cannily playing all price points. Apple-adulation might even pull investors along happily with such a margin-sapping strategy, in the belief that the iPhone could achieve volume leadership. (Personally, I would agree with your likely doubts that Apple has much chance of dominating, unless it releases many more models covering key segments, and whether it is even up to competing so broadly.)

My own biggest criticism of Apple is that it has truly isolated itself. Fine on the way up, but will anyone be there to help if it stumbles or worse? No-one truly has a vested interest in its success, as everyone is being fleeced and sidelined. Basic life lessons being ignored, imo, and Apple ought to be wise to this as it has nearly failed before. Bizarrely, it looks to be repeating old mistakes, but maybe learnt lessons of the past differently to how I see them. Even Adobe, on which Mac success and survival was built, is now getting the cold shoulder! Nokia, by comparison, is buddied up to Intel, Microsoft (strange bedfellows, but they share threats) and operators (love-hate, but a common heritage building and defending a profitable mobile industry). RIM wised up to having friends a while ago, too, and is now more asset than threat to operators, and has a deep hinterland of enterprise IT partnerships. Google also seems keen to keep MNOs on side, and willing to share some of its cake to do this. By contrast, you can't imagine Steve Jobs leaving even a crumb on the plate for anybody else...developers being the only exception (and Apps are the iPhone's secret sauce).

OT: did you see HTC apparently pitching for #3 spot in a much larger smartphone segment by 2013, when CEO Peter Chou predicts 50% of handset sales will be smartphone. Means overhauling at least two smartphone majors (which ones are they gunning for?), holding out on Chinese, Japanese, and S Korean players, and ramping shipments to perhaps 50-100m units (my estimate). Now that's ambition!

Tomi T Ahonen

Hi Rene, KPOM and Alex

Thank you for the comments. I will respond to each individually

Rene - interesting view, but when you say many expected a new model of the iPhone in the first quarter - I honestly monitor this industry passionately and globally, and have not seen any gossip in that direction. The most prestigious expert community, Forum Oxford, at the extreme 'pro' end of gossip - did not have one such suggestion in the lead up to Christmas nor since; meanwhile as far as I can see, and I tend to follow all relevant Twitterers on mobile - neither did Twitter at the consumner end of mobilists, feature any gossip of expectation of a new phone from Apple for the first Quarter. Yes, we all expected the iPad and it was a very well-known secret that this would be a tablet computer, it would not fit in our pockets haha..

But as to you expecting iPhone sales to 'go up' in this January-March quarter - I hear you and I admire your optimism. I can promise you, with the background of 13 years of public references explicitly on forecasting the mobile industry, that it will not happen. The two previous years show a powerful pattern of iPhone sales per year, it always falls in January because 1 - many buy iPhones as Christmas gifts, its that kind of more expensive, luxurious, sexy phone (and thus creates a 'spike' in the previous quarter sales); and 2 - because other makers release far more advanced phones every week and by January the iPhone from the previous June is obsolescent. I can promise you Rene, the iPhone will nont sell more units in January-March this year, as it did in October-December 2009. I promise you this.

KPOM - Apple's ability to dazzle? Well... The first iPhone 2G was cool but deficient. The second iPhone 3G fixed many of the major faults but was it really 'dazzling' to add 3G - a 5 year old technology? GPS, yes. The App Store, yes. But what else was hot and new and dazzling in the 3G edition of 2008? Not much. A bit more memory, a lower price, slightly slimmer case. Not much dazzle there. Meanwhile for example Nokia had in-built digital TV tuners in the N96 - thats dazzle for you. Samsung and LG had 12 megapixel cameras released outside of Korea in 2008. Thats dazzle. What of 2009 and 3GS. Video recording? Something practically all other megapixel cameraphones had had for five years. Not exactly dazzling. 3 megapixel camera? Half of new UK phones had a 3 megapixel camera - or better in 2009. Not dazzling. MMS compatibility? That is 7 years old technology.. I don't see Apple exactly dazzling anyone except American customers, press and analysts - who have not been exposed to modern high-end smartphones.

With all that, I do expect the 2010 edition of the iPhone to be significantly better than the 2009 version. At the least it will likely have a 5 megapixel camera (still lame at that price point next summer when 8 and 12 is going to be the going rate) and at least LED flash. If they want to go big, they might add WiMax, that would be awesome, but costly in parts, size and battery life. I don't see them doing a digital TV tuner because they'd need to do at least 4 versions, DVB-H Europe and most of the world, 1Seg for Japan, DMB for South Korea and MediaFlo for the US. What else? A faster CPU and more memory yeah, but thats not dazzle (and come on, Apple, we need a memory chip slot already, come on)

As you know, I keep urging them to do a real QWERTY model with a slider or folding keyboard. I doubt that will be the 2010 edition, but maybe when they expand their product line. THAT would be an awesome iPhone.

Will the Apple fans love the new iPhone in 2010 - of course they will. But can Apple make a 'leap' in its design with something that 40 global rivals - several of them with research budgets in mobile far bigger than Apple's - haven't seen? I doubt that. Note that for real industry-shattering impact, Apple only introduced one, the multi-touch screen - and adapted one, the App Store - in the past 3 years. All other contributions of the iPhone have been well established long before they emerged on the iPhone.

Its getting ever harder for Apple to come up with the one big hit of the summer. They had 3 good years, one of these summers they will inevitably disappoint. It might be already now in 2010. I hope not - and when they finally expand their product range, and very likely introduce a QWERTY model as one new version - that is when they take their next market share leap, not before. Now they are losing market share (on annual basis) until they expand, regardless of how hot the next June 2010 iPhone will be. They can't get to 14% no matter what kind of superphone they have in stock (unless their big surprise is two new models haha in June - but I don't expect that)

Oh, by the way - Nokia is certainly hungry to also fight for the high end. That is where the N93, E90, N95, N96, N97, N900 have all been targeted at. Maemo/MeeGo is also clear sign they intend to fight there as well. Nokia have not managed to get it quite right recently since the N95. Many of the Android devices are considerably cheaper than the iPhone whereas Nokia has had many phones costing far more than the iPhone (which have almost never been sold in the USA). I am pretty sure there are a couple of 'iPhone killers' and 'Nokia Superphones' in the pipeline just to re-establish the 'high ground' back to Nokia... Just because Nokia decided not to play in the yelling match which is MWC in Barcelona, and nobody gets significant media attention due to the clutter - does not mean Nokia isn't developing new phones and will announce them at regular intervals..

Alex - Good stuff, but you seem not to be aware, that Apple ALWAYS has a declining quarter of total sales, not just market share, in the January-March quarter of the year. Thats not something that I am now suddenly projecting, it is an established pattern and there are many good reasons for it, mostly the ones I mentioned in the above. Understand that Apple faces many returns specifically in the January quarter when parents buy iPhones for kids who don't like them (can't text through the clothing ie cheat in class, can't do that with a touch screen phone, kids want either QWERTYs or T9 Keypads, not touch screens), which are then exchanged at the store for Blackberries.. etc.

January is bad month for Apple always (and great quarter for Blackberry, as their quarterly reporting goes from December to February, so Christmas sales hit the 'first quarter of the year' rather than last for them. Blackberry's sales numbers will be bigger this year when the numbers come out, bigger than what analysts expected, because for the first time ever, Blackberries were Christmas presents for teenagers - previously as business phones only, there was not the Christmas sales pattern to BB.

Then you say enterprise. Again, this is a total pipe-dream. Have you heard what level of numbers Apple now brags about in their quarterly results? About 1 percent of all iPhones are used by business/enterprise users. Yes, some VP may demand to have his iPhone covered by the company, but no way will the company purchasing ok ten thousand iPhones to their employees. Its not a business phone, the Blackberry is. And the Blackberry has totally different level of secure enterprise solutions - even Nokia is not that secure. NATO has certified only the Blackberry as secure. The US President - probably the single most hacked destination - is using it. No, the iPhone will not make significant inroads to enterprises, except obviously in media and advertising related industries where typically also Macs were the defacto standard for PCs. That is what, one half of one percent of the GDP of the planet, haha..

The price cut is the next obvious strategy and expect that this spring, long before June, as the damage in the market share appears. Yes, they have a lot of 'air' in their price currently and can drop it a lot while still making profits. It won't make an obsolescent phone any better however, and rivals will have the same option to some degree. But yes, this is a necessary route for Apple this year, so their ASP won't be in the 550-600 dollar range, no way, has to come down for them to hold onto something like 10% market share. We agree. But it won't save them, only lessen the damage.

I totally agree with you that Apple has already been burning many bridges, starting with the early insistance of sharing in traffic revenues, then going back on exclusive deals etc. Not happy campers, many Apple partners.

As to HTC, haha, yeah, they are so small, they have to make a big noise haha. Again the market dynamics are such that they won't get to number 3 in a couple of years - specifically with Samsung now doing its Bada trick. They will be battling the iPhone for fourth place yes and HTC will definitely grow this year in absolute volume of sales, likely also market share somewhat. But if HTC catches Apple in two or three years, its more because Apple stumbled than because HTC was better haha.. The three big dogs in the game are Nokia, RIM and soon Samsung. Together they will sell 3 out of every 4 smartphones for years to come...

Thank you all for writing

Tomi Ahonen :-)

KPOM

Tomi, Apple dazzled the way they normally do. None of their devices in any segment ever win spec contests. Instead, they dazzle because they are easy to use. The iPhone is the Lotus Elise of the smartphone market. Sure other cars have faster engines, fancier interiors, and more features, but the Elise wins the cool argument by being simple, and doing what it does very well.

Taking a look at the iPhone, the browser software is remarkably intuitive, and was the first phone that had a browser that actually made it easy to view real websites. Sure, other phones could do it before, but the pinch-and-zoom was such a "why didn't anyone think of this before" feature, and it still is top-notch. It lacks Flash, but that's by choice. Compare the iPhone browser to the one on the N97 and there really is no comparison. As for the features that iPhone lacks or was slow to add, again, I think it was a realization of what their target market would actually use. It isn't that MMS is a technical marvel. It's an afterthought, and not one that Apple saw as necessary to devote time to until the product matured. It was a wise decision, as I don't think it really cost them any sales. The N900, a Nokia high-end phone, no less, lacks MMS support.

You mention a laundry list of high-end Nokia phones and all that they are capable of, but did anyone really use the N96's digital TV feature? It took so long before there was even an EU standard, much less anything resembling a global standard. I'm reminded of the old Apple ad about the "most powerful computer" being the one that people actually used. The dazzle isn't technical, it's practical. Apple has a way of making things practical.

As much as you deride apps, they basically succeeded in doing what Nokia tried to do for years with N-Gage and Ovi. Sure enough, even Ovi has the look and feel of the App store. I suspect that the next killer application for the iPhone will be video calling. Again, it's something that phones today are capable of, but not something that's been particularly popular outside of Asia. I suspect AT&T is the holdup here, since their lousy network won't yet hold up to the stress in Apple's home market. I really don't think Apple wants to play Nokia's game. They probably are content with a certain volume at a higher ASP, and I can't see them giving away phones to maintain market share. They are content to let Nokia et. al build the $100 phones for cheaper markets. Sure, Nokia can claim to sell the most "touchscreen" phones, but at what cost?

On the "practical" front, Nokia and Google are on to something with GPS and free navigation, and I think Apple may eventually be forced to follow suit. That's a legitimate practical innovation that both companies deserve credit for. But beyond that, I don't really see much practical innovation from those companies. Google is a notorious last-mover, and Nokia has been playing catch-up for several years, which its large market position has allowed it to do. Note I said practical innovation, not technical innovation. My concern with Nokia is that they will rest on their laurels once they have a few more good quarters, and allow the cycle to repeat itself. Let's face it. They have a history of getting something almost right and then milking it for everything it is worth.

Nokia is great at adding Swiss Army knife features phones that do a lot of things OK but nothing really great. The N95, for instance, had lousy GPS software, took forever to lock, took way too long in between photos (though the quality was excellent), and had a browser that showed websites OK, but was hard to use. I know. I had two of them. The N85 literally fell apart, and the N97 shipped with too slow a processor and had too little RAM. S60v5 felt like something that could have shipped in early 2008, not July 2009. It's as if Nokia spent the entire time from the N95's release until now rehashing the N95 and not doing a very good job of it. Again, I know from personal experience. Using your example of cameras, apart from specialty phones like the N82/N86, the camera quality got worse over time. My N97 took pictures no better in quality than what the N95 did, and probably worse. iPhone 3GS' 3MP camera seemed to do a better job, actually. By the time Symbian^3 and Symbian^4 devices actually start shipping, Nokia will have basically given the market 4 years of the N95 and variants of it. I don't count S60v5 as much more than a touch version of S60v3. It looks, feels, and operates so much like what one might have imagined the N95 would have if it had a touchscreen.

kevin

Tomi,

I agree that Apple will sell less iPhones on a sequential quarter-over-quarter basis, but they will sell more on year-over-year basis. They only sold 3.8m in Jan-Mar 09, so it's not a high bar to hurdle. But I disagree that Apple is "losing market share (on annual basis)." To deal with Apple's one-time-per-year phone release, let's look at trailing 12-month totals. Beginning with 2Q08, Apple's iPhone units sold over 12 months are 5.8m, 11.6m, 13.8m, 15.8m, 20.3m, 20.8m, and 25.1m. In smartphone market share (using IDC data), Apple iPhone was approx 4.2%, 7.8%, 9.1%, 10.3%, 12.8%, 13%, and 14.4%. That's gaining share every quarter.

I think Apple will hit at least 16% in 2010 (and that's with just a single new model and no QWERTY keyboard). Why do I say this? Because hardware-based features aren't enough, responsiveness and ease-of-using those hardware features, coupled with overall size and battery life balance, lead to customer satisfaction. Much of this is driven by software and total system integration. Phones have had WAP browsers, "real" browsers, apps, and 3G long before iPhone, yet the data usage explosion didn't occur until the phone became responsive and easy-to-use (think of things like number of clicks, information density, content resolution). Read some of Edward Tufte's work on interfaces and usage. Also see http://www.lukew.com/ff/entry.asp?1002 for a brief taste.

There are actually some aspects of webOS, Android, and the not-yet-released Windows Phone 7 Series that arguably exceed the iPhone in terms of integration (which leads to ease-of-use). So iPhone OS 4.0 is just as important as the next iPhone model.

Now you keep saying that iPhone dazzles only Americans. I don't actually care who it dazzles, but in terms of interest as tracked by Google Trends, you'll find that worldwide iPhone is almost as popular a search item as Nokia. It's been gaining every year since 2007 and now trails by just 0.11 (0.89 to 1 on a worldwide basis). So it's not just the US; it's lots of other countries.

kevin

You also keep bringing up "Apple fans." Before iPod, Apple fans numbered in the low millions, maybe 10-15m at most who were using Mac OS X. For the two years when iPod was Mac-only, Apple sold a total of 1.3m iPods to those 15m? "Apple fans." When iTunes/iPod became Windows usable, it had 2x sales in the next quarter, and almost 14x sales a year later. It sold to non-Apple fans. Most iPod users are still Windows users, so I don't think there are 200m "Apple fans."

iPhone has now sold 42m units. Many of them have since become Apple fans, but they weren't before they bought the iPhone. The simple truth is the iPhone is selling to lots of people who were not Apple fans, and you deceive yourself if you don't think that's happening.

cycnus

Hi Tomi,

It's me again, and it's gonna be about Samsung Bada again. :)

First, I'm gonna say that I don't think Bada would fit into an OS definition. It should be categorize into a graphical platform on top (one or various) OS. Just like LG S-Class user interface or HTC sense UI on top android/windows or Sony-Erricson UI on top symbian/android/Windows. ???(or maybe)?? What samsung does is making something like QT by Trooltech (now by Nokia) or Sun Java to make it compatible across bada platform.

It's really a disappointment for me that Samsung called this an OS, as this make Samsung looks good on paper but make samsung looks clueless in this industry.

Anyway, I don't think Samsung make the wrong decision, as I said in the past that making an OS is very different than making an UI / skin. But I'm really dissapointed in Samsung by bluffing it skin in the name of OS.

shame on samsung!!!


refurbished computers

I guess the mobile phone and the personal computer market converging and that because millions of people have their first Internet experience on a phone, this somehow suggests that Nokia should jump into the laptop game.

Less the Best

Hi Tomi,

There is tricky question on Mobile Industry Review:

http://www.mobileindustryreview.com/2010/02/help_smartphone_os_marketshare_for_2009_europe_vs_usa.html


You don't happen to have answer?

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I think that makes it far more difficult for one Apple iPhone 3GS at the top end of the price range and with now obsolescent features to stand out and hold onto market share.

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Android handsets ship 60,000 units per day. Wow, thats 21.9 million smartphones per year. And last year third-bestelling smartphone brand Apple iPhone sold 25 million units. This is serious.

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