So we are at the half point. Here is my 'report card' of the major brands, both in smartphone phone makers, and more importantly the smartphone operating systems for the mid-way of 2010. For those who do not know the US grading system, A is excellent, B is good, C is passing, D is poor and F is failing. The grades can be adjusted up or down a bit with a + (better) or - (worse). This blog is part of my bloodbath analysis of smartpone wars of 2010 and I am adding a series of strategy analysis for the major brands, in upcoming days.
MARKET IN GENERIC SENSE
The generic smartphone market grew 10% over the six months from the end of 2009. For any smartphone maker or operating system, just to keep up with the market growth, they had to grow 10%. The global market experienced very severe price wars in the Bloodbath in 2010. So for any smartphone makers that were able to remain profitable in that time, that shows they were managing their growth in line with the industry, during very hard competitive times. For dumbphone makers, the world's total phone market had migrated 15% of all phones to smartphone by Q4 of 2009. That is now 19%, so any dumbphone maker should have more than 19% of its total phone business migrated to smartphones to indicate being ahead of the market.
HANDSET MAKERS BY ORDER OF CURRENT MARKET SHARE
THE BIG 6 SMARTPHONE MAKERS
Nokia = B
Market share 41%
Was profitable both quarters
Has migrated 22%
Nokia grew smartphone unit sales faster than the market and picked up market share. They did that being profitable both quarters. This is textbook good performance. Their migration percentage is consistently above the industry. Nokia has been pushing smartphones into lower cost price brackets, where most rivals can't offer competition, with a 100 dollar 3G smartphone for India for example. In China Nokia offers several 3G smartphones on the Chinese proprietary 3G standard (TD-SCDMA) used by China Mobile, which helps keep Nokia the bestselling smartphone in the world's second biggest smartphone market with over 70% market share according to the latest numbers by Canalys. What hurt Nokia was the premium segment, where the N97 has suffered and now the N8 is delayed. Nokia is the bestselling smartphone in Europe, Asia, Latin America, Australia and Africa. Its only failing market continues to be the USA where carriers refuse to subsidise Nokia's premium phones and Nokia suffers the image of a bargain price brand.
RIM = B+
Market share 19%
Was profitable both quarters
(is pure smartphone maker)
RIM has grown Blackberry sales slightly ahead of the industry and its market share has been flat. RIM has generated profits both quarters. It is essentially keeping pace with the industry, but considering how many newcomers have joined the industry, this is good performance. RIM's grade is better because they have found a large range of new country markets in the youth segment where they have little compeition, mostly in the wealthier countries of the Emerging Markets. This isolates RIM from immediate heavy competition much like its enterprise solution isolates Blackberry from direct competition in the corporate space. RIM continues to be bestselling smartphone of the USA and has some isolated Latin American, African and Asian markets where it is also the leader.
Apple = C
Market share 14%
Was profitable both quarters
(is pure smartphone maker)
Apple is the only major smartphone maker to see decline in smartphone unit sales and thus severe drop in market share. As Apple made by far the best profits in the industry, they are now making the wrong choice, strategically for smartphone dominance, preferring short term profit maximization strategy vs reasonable profits but holding or growing market share. Apple has abandoned market share for the sake of profit. It is a suicidal strategy for the long term. Apple's release cycle of only one new iPhone model annually exposed its biggest weakness in July as the Death Grip antennagate hit the new iPhone 4. Now Apple's 'all eggs in one basket' strategy is suffering from one country to the next, as the US consumer watchdog Consumer Reports rated iPhone 4 as not recommended, and that has since been followed by similar condemnation by French and German consumer watchdogs. The iPhone 4 is selling well but Apple is under-performing now when it needs to make the best possible sales before the rivals bring newer phones to the market. Apple is not the leading smartphone in any country but is doing very well as a strong number 2 in the US, UK, French and Australian markets.
UPDATE AUGUST 5 2010 - I have added a thorough strategy analysis of Apple's iPhone.
HTC = A
Market share 8%
Was profitable both quarters
(is pure smartphone maker)
HTC has executed perfectly. It grew unit sales far ahead of the market and major rivals, captured a lot of market share and made good profits both quarters. This is text book execution. HTC grade is boosted by excellent expansion of reach - adding China Mobile for example - and expanding the product range, with 6 new HTC models coming still during 2010. HTC has a strong presence in the North American and European markets.
Samsung = A-
Market share 5%
Was profitable both quarters
Has migrated 4%
Samsung has also executed excellently. Samsung grew unit sales at twice the rate of the industry and grabbed market share. It launched the low cost Wave smartphone on the Bada operating system and the Galaxy premium smartphone on Android. Bada passed 1 million sales in one month, the best new OS based launch of a smartphone since the iPhone 2G in 2007, far better than more visible new brand launches by major brands like Google, Microsoft and Lenovo. Meanwhile Galaxy has sold a million units in just three weeks across 30 markets. Now Galaxy is scheduled for massive global launches. Samsung's migration proportion is far below Nokia and Motorola, but this is mostly a matter of late focus on smartphones and Samsung is clearly addressing the matter now.
Motorola = C+
Market share 5%
Made loss Q1, made profit Q2
Has migrated 32%
Motorola grew unit sales at a very high rate and gained market share. But Motorola did this at the expense of profits, losing money in Q1, and except for a one-time payment, would have made a loss also in Q2. Motorola has burned most of its dumbphone market share, falling from 2nd biggest dumbphone maker in 2007 to 8th in 2010 but with that great cut in customers, its remaining customers see a migration rate of 32% to smartphones. This somewhat misleading statistic hides the fact that in the latest quarter, for every 1 customer moved to smartphones, Motorola lost 10 dumbphone customers. And even so, at that fire sale, Motorola has not been able to make its handsets profitably. Motorola has been retreating from the global markets and now only focuses on the North American, Latin American and Chinese markets. It is only barely the number 2 smartphone maker in China but nowhere else, not even its home market of the USA.
THE SMALL SMARTPHONE MAKERS
(I do not have accurate smartphone sales per maker per quarter, so we cannot give breadown by performance cateogry)
SonyEricsson = B
Made profit both quarters
SonyEricsson is moving along, under the radar of the biggest smartphone makers but continuing its smaller involvement in smartphones, and has been launching some Android handsets. That SonyEricsson returned to profits in Q1 and continued in profits in Q2 is a healthy sign. Now we'd need an added emphasis for the second half of 2010 to start to pull ahead of the rivals like LG, Lenovo etc. A rumored Playstation Portable compatible smartphone would be a big splash for the second half but recently those rumors have not been that strong as they were early in the year.
LG = C-
Made profit Q1, made loss Q2
LG seemed to be following in the footsteps of Samsung but after making a series of impressive Android announcements early in the year, LG has been underperforming in its smartphones launches. The big reason why the low grading, is that in Q1 LG was still making a profit in its handsets unit, but that went into losses in Q2. Now LG is deeply in trouble and has to sort its own phones business out.
Lenovo = C
Lenovo took a strong stand on the future of smartphones and the CEO has even said that in a few years, 80% of all Lenovo products will be smartphones. It launched the LePhone and Android based iPhone clone smartphone in China, but Lenovo has been struggling with higher than expected marketing costs, which hurt its profitability. Lenovo's LePhone goals seem modest for 2010, where they want to reach 1 million LePhones sold. Even so, as we hear no numbers after more than a quarter of sales, and as Lenovo complains of profitability issues with the handset unit, this is not an excellent entry into smartphones.
ZTE = C
ZTE is rolling out modestly priced Android based smartphones including some for the US and European markets. ZTE's home market is China where it is a strong dumbphone brand and has several smartphones. It is also expected to introduce low cost smartphones to several emerging market countries like in India, various African countries etc. So far ZTE has not been telling us much, which to me signals they are not yet performing well enough to discuss their numbers.
Toshiba = D
Toshiba has been in the process of merging with Fujitsu. We expected a push of the Toshiba-Fujitsu partnership to expand abroad, which has not happened (yet, at least to any meaningful degree). The Japanese market is too small for the two brands to achieve significant performance just in the Japanese smartphone sector.
Sharp = D+
Sharp was another Japanese company we expected to make a bigger splash into the global phone market. They have made some tentative moves but the big step for the Spring was Microsoft's Kin phones (that were manufactured by Sharp) but as Microsoft ended that project, it killed a lot of projected Sharp sales outside of Japan. Like Toshiba, Sharp cannot get enough smartphone sales only out of Japan to be a meaningful player in the market and will soon be overtaken by HTC that has a bigger global strategy. But Sharp has announced it will be releasing the world's first smartphone that offers 3D video without custom glasses, to be launched before the end of the year. So Sharp's near future looks a bit better.
HP = D+
Hewlett Packard bought Palm. It started right off the bat with very confusing statements from the CEO about why they wanted Palm. So far HP has been very ineffective in turning what many thought was one of the best smartphone handsets, and one of the best operating systems, into any significant market gains. HP may be taking a long time to evaluate its acquisition, but this market is moving very fast and HP is abandoning very significant quarterly sales now, while their phone is still competitive. Soon it will be outdated so HP needs to move in the second half.
Google = F
Google pulled the plug on Nexus One. It clearly failed in the market (even though many analysts think this is good for Google, so as not to have a rival smartphone against its handset partners). The strategy to end the Nexus One is a good one, but as a phone, it failed the market. Hence the failure earns them an F for the smartphone (see also below for Android grading).
Microsoft = F
Microsoft also ended its smartphone project. I would say Microsoft earns an F- grade, (F Minus) if that was possible, because this was spectacularly badly handled as a short-lived phone project and totally bumbled launch and sudden termination. Many analysts (including me) felt that the Kin was a good prospect for the youth segment if priced correctly, ie Microsoft should have given it a second chance with renewed pricing, and its prospects in Europe looked good, but Microsoft simply pulled the plug. Microsoft has failed in the phone market (see also Windows Mobile and Phone 7 in operating systems grades below).
Palm = F
Palm ended existing as a phone maker after mroe than a decade and the last 3 years of consistently loss-making quarters. It was mercifully sold to HP and we may yet see the true merits of the work by the Palm engineers, now that HP owns the company.
SMARTPHONE OPERATING SYSTEMS BY ORDER OF MARKET SHARE
TOP 5 BIG OPERATING SYSTEMS
Symbian = B
Symbian is now the oldest remaining smartphone OS (its roots are more than a decade old) and it is showing its age. There is a lot of fragmentation and the system is hard to learn and takes long to master and development times are long and many of the Symbian partners have been abandoning the platform. Yet the system is being updated and new smartphones are released on it regularly. The Symbian partnership was disolved and now Symbian is run by a Foundation and the system is fully open source. Symbian is Nokia's main OS, also supported by SonyEricsson, Samsung and mainly through the interests of NTT DoCoMo in Japan, most Japanese smartphone makers like Sharp are making Symbian devices. Symbian keeps plugging away as the biggest OS and has passed the 300,000 smartphones produced per day level (27 million per Q2). So for the full half-year, Symbian grew at the same rate as the market maintaining market share.
Android = A+
Google's Android had a perfect half year. It now has all of its main handset partners already with Android phones in the market including HTC, Motorola, Samsung, SonyEricsson, LG and ZTE among the big handset makers, and many other tech companies like Lenovo. Android is a fully open source Linux based cutting edge OS. Yet inspite of its freshness, the Android OS is also going through rapid evolutions and upgrades, at the fastest pace of any OS out there. Android passed the iPhone globally in market share in Q1 and passed RIM in Q2 becoming the second biggest smartphone OS on the planet and the one growing by far the fastest. Its still less than half the size of Symbian but has risen to become the primary challenger for Symbian. Google experienced considerable resistance from handset partners and from carriers/operators when it launched its Nexus One phone, which Google has since terminated.
RIM = B
RIM's Blackberry OS grow at the rate of the market roughly speaking, so its a B level performance. The platform suffers in that no other makers are providing Blackberry handsets. But at least RIM is keeping up wtih the heated pace of the smartphone industry growth, by expanding from enterprise customers to the consumer market. The OS is proprieatry and controlled by RIM. There OS needs are quite differernt in business and consumer, so RIM has been working hard on its multitouch touch screen interrface that is now being released. RIM has been gaining the favors of many carriers/operators for the lowest data loads for equivalent mobile web browsing of any smartphones, but its integrated and encrypted data handling has then been having some turbulence with some national regulators like in the UAE and India, where the local governments want to have access to Blackberry user messages and data traffic.
Apple iOS = C
Apple's iPhone iOS suffers from the same problems as the Blackberry in that only one handset maker makes its smartphones but Apple clearly has also lost unit sales and market share in the past half year, so that is why the grade is a C. The OS is proprietary, tightly controlled by Apple and is the least compatible with the rest of the industry, to the degree of carrying on a public fight with Adobe Flash, which powers most videos on YouTube (ie the iPhone is the only major smartphone today that cannot show Flash based videos). The operating system itself, and the iOS supporting familly of devices by Apple help to build its reach beyond just the iPhone, as does its App Store but this is still a poor grade for achieving market decline with what after all is technically the best OS and related eco-system out there.
Windows Mobile = D
The major smartphone OS that has suffered catastrophic losses in this half year is Microsoft's Windows Mobile which shrunk by a third while the industry grew by a tenth. The partners were abandoning WinMo most visibly HTC which last year said they won't even bother to release any smartphones on the final WinMo version (6.5) - bearing in mind HTC has sold more than half of all Windows Mobile smartphones ever made - and similarly Motorola already shifted away from WinMo to Android. The partners and developers were further confused by the Kin phones announcements by Microsoft and then their rapid end (which were not strictly compatible with WinMo either). The OS is being wound down and replaced by Phone 7.
SMALLER OPERATING SYSTEMS
(for these again I don't have regular quarterly numbers, so we cannot give more details on performance)
Linux Mobile = D
Part of what was the Linux family has morphed into Android and MeeGo, so what is left tends to be proprietary Japanese smartphones/feature phones. The family is shrinking in size and importance.
Bada = A-
Samsung's Bada did a remarkable launch, reporting more than a million Samsung Wave phones sold using hte Bada OS, in Q2. This is the most impressive new OS launch since the iPhone in 2007. The growth is strong and Samsung is rapidly rolling Bada out to all major markets as its low cost offer with Android based Galaxy smartphones as Samsung's premium product. The big problem Bada has is that it does not have other phone makers signed up to support the platform, but there is time for Samsung to recruit some. The OS is literally one quarter old so far. The start has been most impressive.
Palm WebOS = D-
HP bought Palm but didn't then do anything significant with it. What was once cutting edge, is becoming duller by the day and HP seems very confused what it wants out of Palm. Is it a business solution or a consumer offering. So far HP's stewardship of Palm has been bordering on failure. And this is the hottest time in smartphones, there is no time to waste now.
Phone 7 = B-
Microsoft's Phone 7 transition from Windows Mobile was clumsy and left many developers out in the cold. Meanwhile the brief Kin project confused matters. And in the migration of the family from the outdated Windows Mobile platform to the modern Phone 7, has lost Microsoft at least one of its biggest traditional supporters, Motorola. So the Phone 7 family is surprisingly weak, led by Samsung (who has clearly bigger interests in its own OS of Bada), HTC and LG, and then non-phone makers like PC vendor Dell. We have not seen any Phone 7 smartphones yet, but the first will be launched before the end of the year.
MeeGo (and ex Maemo) = B
Nokia's transition project from the old Symbian platform to the cutting edge Linux based open source MeeGo, developed together with Intel (and based in part on Nokia's previous Linux based OS project Maemo) is still in n development. A long set of developer partners was announced but none were major phone makers (apart from Nokia) and included for example some car manufacturers who want to use MeeGo for their in-car IT/entertainment systems. The first MeeGo phones are not expected until in 2011.
Thats it, my grades for the major brands in the smartphones bloodbath of 2010, at the half-year mark. I will return with a few strategy blogs about a few of our main players.
UPDATE AUGUST 5, 2010 - I have now added the first strategy analysis: Apple iPhone.