So one Quarter is done of 2010 for most of the biggest smartphone makers. We've already heard from two of the four biggest smartphone makers, RIM and HTC. Today we review the news from the remaining two of the big four - Apple and Nokia. We also have news from Apple's biggest distributor, AT&T. And we have the first indicator of the total smartphone market size, so we can do a preliminary view of Q1 market shares of those companies who have reported already.
So Apple first. The iPhone had a stellar quarter.It stunned all forecasters and analysts by breaking with the After-Christmas sales pattern for the iPhone (had been the same big drop decline sequentially after the Christmas Quarter both in 2008 and 2009). That pattern was so strong, that all Apple analysts projected it (including me) and still this Q1, Apple's biggest distributor, AT&T reported that very exact pattern in new iPhone activations in the USA. What was 3.1 million new iPhones for Christmas, turned into 2.7 million iPhones for the January quarter - a 14% drop in sales. Incidentially if the AT&T sales level decline would have held globally, my forecast of 7.4 million iPhone unit sales for Q1 would have been right on the money haha.
Conventional wisdom prior to April 2010 suggested Apple had a lopsided sales pattern, big sales from the launch of the new iPhone up to Christmas, and then very poor sales in the Spring quarter. First of all, we can safely say that Apple has proven this pattern to be busted. Now Apple can expect growth patterns in actual unit sales sequentially each subsequent quarter. This is truly excellent news for Cupertino.
Understand what I say and how muich this is now a change. I have been most critical of Apple in the past for not releasing more than one new phone model per year, arguing that it leads to a lopside sales pattern which is not good for Apple and its distributors. This latest data - if it also holds for next year obviously - would suggest Apple can indeed have a phone that generates sequential growth for four consecutive quarters, until the next phone model is released. Now - even if this were true, it does not invalidate the position, that 'more' iPhone sales could be generated with a product line of more models. But yes, understand, Apple does not need to do this. They are growing strongly, and are the most profitable handset maker with fierce brand loyalty. They are doing just fine ignoring the grumpy old man from the Communities Dominate blog haha.
Secondly Apple do know where its magical bonus million unit sales is. We can only speculate. We know its not in America where iPhone sales declined by 400,000. Its very likely not in the closely-watched traditional iPhone major markets like the UK, France, Japan etc. Where is it?
My analysis suggests most of the missing million is from China Lunar New Year gift-giving seasonal sales. China breaks very conveniently for Apple in that China does not give gifts for 'Western' Christmas in December, they give gifts for the Lunar New Year which this year was on February 14. (and yes yes yes, I know all about the red envelopes, please don't write that rubbish - it is a proven fact, verified by Chinese government statistics, that the time preceeding the Lunar New Year is the seasonal peak of consumer spending - as gifts. The Chinese do give also expensive luxury gifts for Lunar New Year, even as the red envelopes of cash are the predominant gift).
The lunar new year falls typically into late January or early February. That shifts the gift-giving sales of iPhones for China - the world's largest mobile telecoms market - remember China's mobile subscriber base is 2.5 times as big as the USA - from December quarter to January quarter. The USA, Europe and most 'Western' countries generate enough iPhone sales to drive a good Christmas for Apple. Now Lunar New Year gives Apple a bonus 'second Christmas' for the January quarter, the China Syndrome haha. Thank you Year of the Tiger. This is incredibly good news for Apple.
Anyway, my analysis is on the blog at this link. It is mere conjecture and a guess at this point, but many analysts are agreeing with me that this is a plausible explanation. We won't know for a fact until we hear China Unicom's numbers at some point, so we can see if the 'missing million' were indeed in China. But I am very confident that is where they are, and whether the new first quarter sales were in China or Europe or Africa for that matter, it helped Apple to a totally un-anticipated and stunningly powerful quarter of iPhone sales.
In terms of a running average. Last year Apple sold 24.5 million iPhones. Now their annual sales rate is already 30 million iPhones. That is awesome growth on an annual level. And we can expect a big bump again when the new iPhone model launches in June.
But we have a lot more news of the smartphone from Apple. First lets take that AT&T news. So 2.7 million iPhones were activated by AT&T in this Q1. You might think the news that AT&T activations are down from 3.1 million in Q4 to be bad news but it is not. It is very good news - for Apple. Out of all 8.75M iPhones that means AT&T (and thus the USA) currently accounts for only 31% of all iPhone sales. It was nearly half only about a year ago. This is GREAT news for Apple. Early on, the early iPhone models in particular the 2G, were not gaining strong traction outside of the USA. Apple could not become a global giant in smartphones if it only sold well in the US market. The US market is far too small for that in smartphones. But today Apple sells 69% of all iPhones outside of the USA. Already more than 2 out every 3 iPhones sold, is sold in the rest of the world. That is very promising news indeed. The iPhone, especially the 3GS model is becoming a global hit. For many weeks it was the bestselling phone - not smartphone, bestselling phone - of Japan for example.
Meanwhile Apple is firing on all cylinders on the smartphone war. The iPhone OS was updated to version 4 which added among other things, much-requested multitasking and folders. For those 'purists' who had thought the iPhone was inferior due to a deficient OS, the claimed 'faults' are being fixed progressively by Apple. Think about this - the iPhone is already accepted globally and keeps getting better. Its prospects look very very good. And we know there will be a new model of the iPhone for June .
Apple released the iPad and announced the iAd. Both serve well to further support the iPhone and the eco-system that is developing around the iPhone. Apple celebrates impressive milestones. The company has shipped its 50 millionth iPhone. The Apple iPhone App Store has shipped more than 4 billion cumulative applications. Meanwhile of what it calls its major markets, Apple says that only 3 countries remain where the iPhone is sold via an exclusive carrier/operator agreement - USA, Germany and Spain. And the data from France suggests that when the iPhone distribution is opened from one exclusive carrier to all carriers of that country, iPhone sales take off dramatically. There is gossip saying iPhone sales have doubled in France after this happened. The UK is the latest country where the main operators/carriers all offer the iPhone as Vodafone started to sell the iPhone this January. And there is the perennial rumor that Apple may end its AT&T exclusivity and even do a CDMA version of the iPhone so that Verizon could sell it. (When I wrote my first analysis of Apple's chances in the phone market, 3 days after the original iPhone 2G was first shown by Steve Jobs in January 2007, I said the exclusive deals can't last.)
And there was an analysis of Apple's revenues, that showed that 40% of Apple's total global revenue, over 5 Billion dollars in the past quarter - comes directly from the iPhone. Apple is growing rapidly into a major player of the mobile industry. By my consulting company's Ahonen Index of the 25 biggest companies in the mobile industry when measured by their mobile-related income only - Apple has grown so much it has now passed Motorola for 17th place on the top 25 chart. And more important than revenue, is profit. Apple is the most profitable mobile phone handset maker by a wide margin. It not just has the best profit-margin of the industry, it also makes the biggest total profits of the handset business. And just today we heard from South Korea that KT has activated half a million iPhones in that very advanced mobile market, to such a degree, that rival SK Telecom is rushing 4 smartphone models to battle iPhone. Its a hit product in Japan, in China, in South Korea.. The news is all good at Apple.
SO BLOODBATH IMPLICATIONS?
How does this fare for the 'smartphone bloodbath'. The smartphone bloodbath is not about individual companies growing strongly - as the whole smartphone market is growing strongly. And this blogsite is not a financial analysis site, we won't do technical analysis of which company is 'better' for whatever investment or Wall Street purposes. We look at the installed base of smartphones to serve the developers of mobile apps. We promised 2010 would be both the year of smartphones and a bloodbath in the market share. So market share is the only valid measure for those developers. ObviouslyPalm is no longer viable as a major platform for smartphone apps, etc. (Warning to Apple fans, the next part may sting a bit..).
Apple iPhone sales were flat from the Christmas quarter into the first quarter of the year. Now, Apple is one of the four biggest smartphone makers. What of the others? RIM and HTC have both reported not flat sales from the previous quarter, they reported growth in unit sales. RIM grew unit sales 4%. HTC grew unit sales 6%. Apple unit sales was flat. That means that RIM and HTC have both gained in relative terms vs Apple. A rising tide raises all boats. The total smartphone industry is growing very strongly, and Apple unit growth success, is partly due simply in being in the right place at the right time - almost any smartphone maker would do well right now (unless your name is Palm haha).
So we also have the first guidance on the overall market size of smartphones sold for Q1, which Nokia announced today with its quarterly results. Nokia says smartphone unit sales globally (this is all brands) were flat compared to Q4 of 2009, at 52.6 million units. (Note, this is preliminary, but the first such number. I will re-visit the number after all 3 major analysts, IDC, Gartner and Canalys have reported their smartphone numbers for Q1. Mostly they are all very consistent).
With the number we can calculate market shares for all smartphone makers as they report units sales for Q1. We know Apple's market share has obviously then also been flat, 17% from the same 17% in Q4, 2009, and 17% in Q3, 2009. While Apple is indeed growing unit sales, they are not capable of growing market share in this market environment. (do you seewhy I think Apple market share has peaked? This is now 3 consecutive quarters where Apple's market share has been flat. What is wrong?) We also see obviously that RIM's 10.5 M unit sales in Q1 gives a market share of 20% (up one market share point from Q4) and HTC sales of 3.5 M unit sales in Q1 gives HTC a market share of 7%, growth of one market share point.
Now, what does this mean? First, obviously Apple is not doing as well in market share gain as HTC and RIM. But this is not 'bad news'. Remember Apple's new model coming in June. Apple can be very confident its next April-June quarter is better than its previous January-March quarter. So this is like a triathalon racer. If you know your worst part is the swimming, and after the swim you are still close to the leaders, but then you get your best events, bicycle and running - you have a good change to win. Apple's worst quarter of any year, is its Q1 (inspite of this Q1 not dropping from Christmas, I would suggest in 2010, Apple will do better in Q2 because of the new iPhone, then better in Q3 because they have 3 months to sell the new model, and then better yet in Q4 because of Christmas). Apple is well poised to do well this year, as this quarter was flat in sales and market share.
"Tomi you hate Apple". No I don't. I report the facts. And this series of blogs is not about who makes the best smartphone or who has the biggest developer community or the best user interface or the most loyal customers. The point of the 'bloodbath' series this year 2010 is to follow the market share battle. And in market share, you have to outperform your competition. It is not good enough to have a stellar growth quarter, if all of your peers also had stellar growth quarters. Google Android for example reported a growth of 100% in the first quarter of 2010 vs the Christmas quarter of 2009. Apple managed to match its unit sales from the previous quarter. Google Android smartphones doubled sales in the same period! In a race of market share, you have to outperform your rivals. Now, to be fair, Google Android gets its growth by using 34 smartphone models made by 14 manufacturers - where 6 of the manufacturers are so big global telecoms giants that each sells more phones than Apple. So its hardly 'fair' when Apple is alone with one model per year. But if you want to compare smartphone operating system platforms, the growth rate of Google Android is far stronger than Apple's OS/X ie iPhone operating system right now, inspite of all the fantastic news of Apple's magnificent first quarter.
But the big gorilla is of course Nokia. How did the Espoo-based phone-making juggernaut do this past quarter?
Nokia results are in. Nokia's main handset sales (mostly 'dumbphones') are sequentially down just as the total handset market is down after Christmas. Nokia sold 108.7 million total phones. We don't look at that here in the smartphone bloodbath. How did Nokia do in smartphones? Well, Nokia smartphones... ...grew.... ...unit sales 3% from Q4 in 2009. Nokia sold 21.5 million smartphones - yes, Nokia alone sold smartphones just slightly less than RIM and Apple and HTC combined. Nokia grew unit sales this past quarter. Very strong performance (and obviously better than Apple which was only flat) but not as strong growth as RIM or HTC.
Incidentially, where was Nokia's biggest growth for Q1? In China.. In fact, Nokia says in its quarterly results that it was due to Chinese New Year that China sales were so strong. (maybe I did find the missing million iPhones, what do you think? but back to Nokia).
Nokia has been shifting its balance of smartphones out of its total phones, a year ago 12% of all Nokia phones sold worldwide were smartphones, today 20% of Nokia's phones are smartphones. Nokia has been aggressively pushing the smartphone OS to its mid-range and lower range products. This is obviously taking advantage of Nokia's vast product portfolio and its production scale and supplier relationships.
How is Nokia's market share? It is up by one point to 41%. Remember this builds on Nokia's market share growth it also had from Q3 to Q4 last year. Where Apple iPhone market share is flat-flat-flat, Nokia grows-grows.. currently Nokia is on a roll in smartphones.
Nokia's average sales price of its smartphones is 205 dollars (vs 600 dollars over at Apple and a little over half that at RIM). Nokia has the scale and production ability to sell really cheap smartphones.
On the software side, Ovi store is rapidly ramping up. It is operational in 19 countries, has nearly 10,000 items of content and apps, and is now selling at the rate of half a billion downloads per year. The Ovi maps app has been downloaded to 10 million Nokia smartphones.
Other Nokia-related news give indications of the near future in the smatphone wars. Nokia announced 3 new low-cost QWERTY youthphones for SMS texting and social networking. These were timed almost exactly to the same time as Microsoft's two Kin QWERTY phones.
Nokia also released the world's cheapest touch screen 3G smartphone (with technical specs very similar to iPhone 3G - and Apple fans, please don't write, I am not claiming its as good as an iPhone, I said technical specs, its still only a Nokia with Symbian, not an iPhone), with a real cost of under 99 dollars which is already selling in India. (And a note to those American readers who might think - but the iPhone 3G sells for 99 dollars here in the USA on AT&T. No, that is an illusion. Apple's iPhone 3G which is marketed on a 99 dollar price on AT&T is not that cheap. AT&T pays Apple its near 600 dollar price, and hides the rest of that cost in its 2 year contract with the AT&T customer. The iPhone 3G is a near-600 dollar phone. If you were able to buy an iPhone 3G without a contract, its street price would be nearly 600 dollars. What Nokia now offers is a touch screen Symbian 3G smartphone with honestly a street price of 99 dollars. For most 'normal' customers who don't understand the finer points of a premium phone, if two touch-screen 3G smartphones sit side-by-side, and one is 6 times more expensive, it gets almost impossible to make that sale..).
Two observations - firstly these are evidence of strong Nokia push of smartphones down the price points, and secondly they show how Nokia fights in all markets including the QWERTY models vs Blackberry and touch screens vs iPhone but is able to undercut both rivals with far cheaper models.
On the MeeGo smartphone operating system, both Nokia and Intel are working hard to expand the developer and manufacturer support for this open source Linux based smartphone OS. As it currently only powers the Nokia N900, it obviously is off the radar in terms of reach, but it also has Nokia's commitment to be its smartphone platform of the future. In a few years when most Nokia premium and mid-range smartphones use MeeGo, it will be the world's second-most used smartphone platform behind only Symbian.
Oh, and one more thing, just today Nokia announced a global across-the-board price cut of 10% of all its models, dumbphones and smartphones (this is normal, major makers do such announcements usually a couple of times per year). This only acccelerates the price war (did I say 'bloodbath'?). Nokia knows it is quite profitable and many of its rivals are on very slim margins or making losses. Obviously Nokia's main rival is not Apple or RIM, Nokia's main business is dumbphones where it fights against phone-making giants like Samsung, LG, ZTE, SonyEricsson and Motorola. SonyEricsson just turned barely profitable after 7 straight quarters of making losses. Moto last reported losses (has not reported Q1 yet) and LG is rumored to be slim in handset profits for now (has not reported yet). Many of Nokia's rivals are vulnerable. Nokia is using its size and scale to squeeze all rivals. This means more pressure in the 'bloodbath'. Remember making losses already took Palm out.
WHO IS LOSING MARKET SHARE?
Well, if we know Nokia grew market share, RIM grew market share, Apple was flat and HTC grew market share - everyone cannot grow. Who is losing? We are starting to have some insights into that too. Obviously Palm lost market share but they are too small to count for the growth of Nokia + RIM + HTC of 1.3 million smartphone handsets. Palm sold under a million per quarter last year. Someone else has to be bleeding.
We can assume Samsung is at least flat in sales (due to their very bullish statements) and more likely are growing sales. So who lost? Perhaps Moto will give us bad news. Just mathematically they can't sell 2 million Android phones from what we know of HTC and the other Android makers. More likely under 1 million. Remember SonyEricsson would not confirm whether they sold 2 million smartphones? They may be doing worse than they would admit, could be 1 million even. As Android based smartphones doubled in unit sales from Q4, there isn't much left. Windows Mobile is the obvious culprit, likely to show further decline in sales. LG might not be meaningful. But where smartphones had many 'second tier' makers, it is increasingly becoming a race of a few major players and then the really tiny ones. We have the big 4 now, and likely Samsung to join that group during this year. But then its the Top 5, very very difficult for others - like a Dell for example or Microsoft - to jump in.
So Palm. We know now Palm is on the chopping block. Its possible that some Asian PC maker like Lenovo or Asian handset maker like HTC might buy it.
On HTC, reports are in that HTC is thinking of possibly developing its own OS if they end up not buying Palm. As I said, we know now HTC's market share Q1 is 7% (up from 6% in Q4)
RIM is finding ever more youth passion users, the latest news is that the Blackberry is rapidly gaining in South Korea - the home of blogging and citizen journalism. Blackberry's market share in Q1 is 20%
Then LG is showing a growing interest in smartphones. There is some gossip LG may want to bid for Palm.
Samsung big news is that they have already upgraded their target of smartphone sales from 18 million in 2010 (that would be 250% growth from the 7 million smartphones they sold in 2009) now to the new target of 24 million (upping their target by a third! in just the first quarter of the year). This is very very VERY bullish from the world's second-largest handset maker.
Microsoft said it is now ready to become a 'proper' phone maker and not just supply the operating system. Microsoft released its 'Pink' series of youth and female client oriented 'Kin' phones for the texting and social networking target customers with QWERTY keyboards. This bodes well for Microsoft and is of course bad news for Blackberry. But their sales numbers won't even start to show until Q2.
Ok, more to come as we hear from more makers now for Q1 results. I will be doing the wrap-up for all makers at the end of April when all the data is in.