I started to monitor the 'Bloodbath' in smartphones in year 2010, when it seemed like this space was really heating up. I had given many blog updates about mobile phones before, but from January of 2010, I've done deep analysis every quarter of the smartphone market and given my commentary on the various players and their strategic moves. (Long blog warning, this article runs about 10,000 words and very deep detailed numbers and facts)
MOST CONTESTED GLOBAL INDUSTRY
In 2010 I counted that among the Global Fortune 500 largest corporations on the planet, four years before, in 2006, only 6 brands were manufacturers of smartphones. By the start of year 2010 it had ballooned to more than 20. That was not just massive growth in the competition of smartphones in a very short time, but of any globally contested industry, it was the most competition we have ever seen among Fortune 500 sized companies. There have never been 20 car manufacturers or airplane makers or home electronics brands in the Global Fortune 500. Banks and oil companies are industries with more than 20 competitors, but they are not competing globally. Citibank and HSBC do offer banking services globally, but most of the banks listed in the Fortune 500 do not have offices in most countries. Same is true of petroleum. BP and Exxon do have gasoline service stations worldwide but many local giants like Pemex and Petronas do not. In smartphones, once Apple jumped in, the iPhone is sold in just about every country. The smartphone industry had become the hottest and most fiercely contested industry on the planet. And with massive rewards if you did it right - Apple is now the world's most valuable company by market capitalization, and most of its revenues and profits do not come from the Macintosh PC business or its iPod and iTunes music unit. More than half of Apple's revenues and profits come from - yes - its smartphone unit. Apple calls itself a mobile company.
I applied my business consulting training and analysis to the heated market in 2010, and suggested that the competition would become so intense, that some of the big brands would falter and exit the smartphones battles. Not everyone could make money in it. And so I called year 2010 the 'Year of the Bloodbath'. How right I ended up being. Former smartphone giant Palm died that year. Microsoft's highly anticipated Kin family of youth phones appeared onto the market, and in six weeks was killed off. Two big-name Smartphone industry CEOs were fired as their companies stumbled, Nokia and LG. Google's first attempt at a smartphone, the Nexus One, while highly regarded in the press, was not warmly welcomed by the carriers and Google soon pulled it from the market, but did return with later versions of the Nexus series.
After the carnage of the Year of the Bloodbath, I looked into 2011 and decided the carnage was not over, and called last year 'Year 2, Electric Boogaloo' of the smartphones Bloodbath. I felt there were too many rivals and many of the startegies were idiotic (almost all rivals attempting to copy-cat the iPhone). We saw the end of Motorola and HP. We saw the exit of Ericsson, a former giant mobile phone maker and early smartphone pioneer - finally throw in the towel after a ten-year partnership with Sony. Arguably this departure releases Sony to do what Sony does best. Time will tell.
That would qualify for a truly Bloodbath'ish year in smartphones, but we have not even mentioned Nokia. Nokia's new CEO Stephen Elop decided to take the growing smartphone sales of Nokia (which after he took over, also produced increasing profits) and demolish those. He took the growing sales of the world's most sold smartphone operating system, Symbian, with half a dozen partner manufacturers (mostly out of Japan) and the bestselling smartphone OS on five of the six inhabited continents, and by a massive margin, the world's most used smartphone OS by installed base - and announce its end and the termination of its migration path to MeeGo. Elop committed to 150 million more Symbian based smartphones (he has since reneged on that promise saying now that Nokia cannot deliver that amount). Never in the history of any 'platforms' based industry, has a market leader quit while it was ahead. Microsoft didn't abandon Windows when ahead. Sony didn't abandon PlayStation while ahead. The VHS alliance didn't abandon the VHS video recording standard when it was ahead of Sony's Betamax. The Blueray DVD platform didn't abandon its market when it was ahead. But Nokia took the Symbian platform - while it was towering over its rivals - and abandoned it last year. And Nokia decided to announce its replacement platform, MeeGo as stillborn. As we know, Nokia annouced it will migrate to Windows Phone.
Last year thus saw the announced deaths of two major platforms - Symbian what had led the industry from its beginning. And MeeGo the Nokia and Intel partnership that was to have replaced Symbian (which had several handset makers and PC makers already committed to it). We saw a couple of netbooks released on MeeGo by the tech partners including Fujitsu, and two smartphones by Nokia, the N9 which was sold, and the N950 which was only produced in tiny quantities for demonstrator purposes.
And the carnage still wasn't over. As HP had bought Palm, it had acquired WebOS and had initially intended to use WebOS as its platform across various portable technologies. HP's revised Palm and the WebOS platform were also killed last year.
But it wasn't all contraction in the industry. Many smaller or 'dumbphone' oriented phone makers were entering the smartphone space from the low-cost side, such as African Mi-Fone and India's Micromax. On the platform side, Intel replaced outgoing Nokia with Samsung to announce Tizen in 2011 as a smartphone OS we should see devices released this year. Some local/regional players like South Korea's Pantech, and Japan's Panasonic and Sharp, announced intentions to spread internationally and have showed early smartphones on that path.
YEAR 2012 IN SCALE
So lets look first, at the overall size and scale of this Smartphone Bloodbath Year 3: Digital Jamboree. What do we see? First lets talk scale. Last year the smartphone industry grew in units sold from 298 million units sold, to 486 million units sold. That was a growth rate of 63%. Understand how massive this number is. The growth rate, I mean. This industry which already sells more devices than the TV industry or the DVD players or videogaming consoles or digital cameras, still grew 68% in just one year. If you grow 68% in a decade, that is a nicely growing global industry. Smartphones grew 68% in one year!
And yes, last year for the first time, more smartphones were sold than all types of personal computers (Desktops, laptops, netbooks, and tablet PCs like the iPad) combined. And of the migration from dumbphones to smartphones, last year 30% of all new phones sold were smartphones (that was up to 33% by Q4 of 2011).
What kind of numbers will we reach this year? I am modeling (again, conservatively at the start of the year, this may be and likely will be revised during the year) that the overall growth rate will slow down. The growth rate was 73% in 2010, and 63% in 2011. I am thus pegging my first target saying smartphone growth this year will be 53% and we'll reach 745 million smartphones sold this year. That would be roughly 43% of all mobile phone handsets sold this year. (please note, last year I upgraded my forecast several times in the year, it is likely I will do so for this number too)
Now. How enormous is 745 million? Its twice the number of new TV sets sold globally. All those nice flat screen TVs we see in the home electronics stores. Its more than 5 times bigger than the total number of stand-alone digital cameras and camcorders sold worldwide. It is about twice the number of all portable computers (laptops, netbooks, tablet PCs). This year we will pass 1 Billion smartphones in use, and sometimes next year, there will be more smartphones in use than any type of personal computers in the world.
Where will be the bulk of smartphone sales? While we all will no doubt admire the next iPhone out likely in June of this year, the big growth in smartphones is not at the top, where we have the Blackberry Bolds and HTC Titans and Samsung Galaxies and Sony Xperias. The big growth is at the bottom of the pyramid. Deloitte estimated that this year we will see 300 million new smartphones sold with a cost of 100 dollars or less (unsubsidised price - remember the unsubsidised price of the iPhone 4S is 660 dollars, not the 179 dollars you might see at a store, when you are forced to take a 2 year contract). Who sells 100 dollar smartphones? That market is heavily contested by mass market volume produces especially from China like Huawei, ZTE, Lenovo and G'Five. Samsung is contesting that market with its bada-powered smartphones. Google is rushing to make the Android OS competitive in the low cost space. Nokia's Windows Phone smartphones are not suited for this space, and Nokia is discontinuing the Symbian OS which worked well with low-specification phones. As Nokia's new Asha series of 'featurephones' are not true smartphones, Nokia may find its Asha soon uncompetitive against these low-cost smartphone rivals. But what is certain, is that the top end iPhones, Blackberries and premium smartphones like Samsung Galaxies are not able to contest this low end of the market. And that is where 40% of the market exists this year.
I had said that the harmonization of the smartphone market at the time of hypergrowth was a bad sign, where everybody tried to do their iPhone-clones. Now in 2011 we saw more diversification and even more signs of that in early 2012. Nokia's 808 PureView is perhaps the best example of this now, as a phone that is definitely not 'slick' and 'slim' but does offer that glorious 41 megapixel camera and all its camera-oriented goodies. But look at other smartphones, from large screen phones (HTC Titan, Nokia Lumia 900, Samsung Galaxy Note) to the smartphones with pico-projectors (Samsung Galaxy Beam and others) to smartphones with 3G glassless displays (from LG and others) to phones optimized for videogaming (Sony Xperia Play, and likely soon a 'true' Playstation Portable smartphone). And we've of course had the QWERTY oriented Blackberries and their countless clones.
This is good for the industry. This is an unprecedented opportunity for diversification and giving consumers what they need. Not everyone wants the slimmest phone with a minimalist specification set, like the iPhone. I have been saying that Apple leaves money on the table, if they just released a QWERTY slider version, they would increase iPhone sales by at least 30% maybe 50% and they could price the QWERTY variant above the price of the regular iPhone and make a ton more of profits. But of course Apple doesn't listen to anyone haha..
But that is the overall big picture of the industry. Now lets look at the major brands and what to expect for 2012, Year 3: Digital Jamboree. Oh, why call it Digital Jamboree? I think this is now starting the first year of consolidation and deeper partnering. Many of the weak rivals are out of the game (Palm, Motorola, HP, Ericsson) and some platforms have been culled (or their end announced) in the past few years (Windows Mobile, Palm/WebOS, Symbian, MeeGo, LiMo, Maemo, Moblin). We saw major pairings of major players last year: Google buying Motorola, Nokia joining Microsoft, Samsung and Intel partnering. Now we have a period we will see more of that dance and likely we see the camps solidifying, not unlike the big Boy Scout Jamborees we see every four years (I was a Boy Scout way back when in my youth, and attended the World Jamboree in Norway in 1975). So lets look at the brands in order of their size, starting first with handset manufacturers:
Apple took the crown last year as the world biggest smartphone maker. Just a year before, Apple had been half the size of Nokia the massive market leader. Now by Q4 Nokia's smartphone unit had fallen to almost half the size of Apple's iPhone by unit sales. Apple sold 24% of all smartphones worldwide in the Christmas quarter, and 19% for the full year. The iPhone 4S was delayed but continued Apple's incredible streak of hit smartphones where each year its new model outsold the previous model by a large margin. Can that continue? I think this year 2012 definitely yes. The iPhone 4S was in reality only a modest upgrade compared to the iPhone 4, and many analysts expected more tech brilliance out of the 4S. I said on this blog that the iPhone 4S was a last-minute redesign and thus somewhat a compromise due to Apple's over-reach with its intention to do the iPhone without a SIM card. We now see Apple in a battle with other handsets wanting to go from the microSIM to a nanoSIM. But apart from the SIM card, the iPhone 4 line is starting to fall behind on the screen size battle. The original iPhone 2G and even 3G were globally screen size leaders, with 3.5 inches, where most contemporary smartphones had 2.5 inch screens and the biggest rivals were at 3 inches in 2007 (excepting for some superpremium phones like the Nokia E90 Communicator with its 4 inch screen). Today we have many smartphones well past the 4 inch screen size, and the top dog is the Samsung Galaxy Note at 5.0 inches in screen size. Compared to the iPhone 4S, the Note screen is about twice as big, a massive competitive advantage when held at arm's length.
If Apple releases a new bigger screen iPhone, I expect it to be called the iPhone 5 (rather than iPhone 4GS or something like that). And a 3.5 inch screen on a flagship phone is now being obsolescent in 2012. Many other tech specs are hoped for or expected by fans, from WiMax '4G' to NFC to of course a higher spec camera.
No matter what Apple does, the next iPhone will be cool and desirable and people will once again wait in line to be the first to get it. Some things to look for with Apple. Is the next iPhone released in June or September. The sooner the better for Apple's world domination plans. And will there be a split in the product line. I have been advocating on this blog that Apple needs to introduce a low-cost 'entry level' model, what I call the iPhone Nano. I have said that releasing the Nano variant (and splitting the product line) would increase Apple's total unit sales by at least 50% and if done intelligently, a Nano variant would not eat into existing iPhone customer sales, but would open massive markets in the lower-cost countries where most phones are not subsidised and a 660 dollar price tag puts the iPhone 4S as much beyond the reach of the common consumer as a Rolls Royce or a corporate jet or a luxury yacht. But even in those markets, the newly affluent middle class could afford a 300 dollar (unsubsidised) Nano iPhone.
The other sign to look for is a tech called TD-SCDMA. That is the exclusive 3G standard for China Mobile. If Apple starts testing a TD-SCDMA variant of the iPhone, the only client would be China Mobile (alone as big as all US carriers, AT&T, Sprint, Verizon, etc - added together - and that number still doubled). Currently China Mobile has millions of iPhone users while the iPhones do not operate on China Mobile's 3G network. If Apple did release a TD-SCDMA version, this would signal a huge jump in iPhone sales in China. Obviously Apple would not bother to do that, if they cannot get a contract with China Mobile to carry the iPhone.
The world's second largest mobile phone handset maker, Samsung, became last year the second largest smartphone maker too, for the first time ever. For one quarter (Q3) they were briefly the world's largest smartphone maker but for the full year, Apple took the crown. But as Samsung is growing far faster than Apple - Apple almost doubled but Samsung grew more than 3x last year - and as Samsung offers a far wider portfolio of smartphones from the top of the line (Galaxy Beam, Galaxy Note) to the ultra-low-cost basic smartphones running on bada, Samsung is certain to pass Apple for the global crown this year. I think Quarter-by-Quarter we may see a see-saw effect with these two brands battling for the quarterly lead, but for the year, Sammy is pretty set to become the top dog. And for the full year, they are likely to reach their decade-long ambition - to pass Nokia as the world's largest handset maker too. That might not happen for the full year sales, but is very likely to happen in Quarterly handset sales around Q4 or even Q3.
If I was to predict a direction, I think Samsung felt stung by Nokia's 808 PureView taking the crown for the Phone of the Event at the world's biggest mobile industry event, the Mobile World Congress in Barcelona a few weeks ago. Samsung has been an early pioneer in cameraphones and has done many high resolution cameras in the past. We might see Sammy do a top-line cameraphone but obviously running Android, and branded Galaxy. As Nokia seems reluctant to sell the 808 PureView everywhere (bizarrely, for example refusing to sell it in the USA, where Nokia wants a come-back and where the 808 PureView has been warmly received in the tech press) - as Samsung is the bestselling dumbphone of the USA, and the bestselling Android powered smartphone of that market, Samsung could just steal some of Nokia's thunder with this option. It would not be the first time Samsung took what Nokia madly threw away - witness stepping in for Nokia after MeeGo with Intel to develop Tizen.
For Nokia this is the year of proof for the Microsoft partnership, the Windows Phone OS and Nokia's Lumia line. I have reported that the early prodcuts in the Lumia line are surprisingly flawed and the next updates seem to be more bad news. I also reported that the Lumia sales are now encountering so many returns that the retail sales channel is revolting and refusing to sell Lumia even when asked for by name. But Nokia's new CEO Stephen Elop, the ex Microsoft guy, forges on and pushes Lumia into every channel he can. We hear that in the USA the Nokia-Microsoft partnership paid AT&T 25 million dollars so that AT&T would allow its own staff to use Lumia phones as company phones (but would need to hand in their iPhones or whatever Android/Blackberry phones they currently use, not an easy switch as the Lumia 900 is quite deficient in many ways). Same with China, Nokia and Microsoft seem to have been willing to invest heavily in breaking into the China market.
I am wary of the Lumia push, as the phone series itself is so deficient, and not suited for (non-American) consumers and markets. But we will see. I calculated that early evidence from UK statistics suggests that when Nokia tries to migrate from Symbian to Lumia, they cannot achieve 1 to 1 replacement, but bleed about 30% of their customer base in the transition. Maybe with better models later this year, Nokia can do better. But the early signs for Lumia are not strong, and as long as Nokia's CEO refuses to sell the N9 and N950 on MeeGo globally (the N9 is sold only in tiny or inconsequential remote markets; and its sister product, the N950 is not sold anywhere) there is no relief to the smartphones unit. Expect Nokia not only to bleed market share, but to see actual unit declines in smartphones this Spring. It may reverse if Nokia bring better Lumia devices to the market (or reverse its idiotic decisions on the MeeGo devices, N9, N950 and others in the pipeline).
Nokia is still producing new Symbian phones - witness the superphone 808 PureView which will end this year 2012 as the undisputed top dog cameraphone on the planet. Bear in mind, the camera feature is more important to buyers than the operating system or the apps. Why Nokia is not capitalizing on its global leadership in cameras with the Lumia series is beyond me (but it is greatly due to the crippled nature of Windows Phone and how unsuited it is for premium camera operations on a phone. Nokia itself has said that the Windows Phone environment cannot support the porting of the 808 PureView technology until 2013 at the earliest. Says something about the 'burning platforms' Symbian OS and how 'obsolete' it actually was not).
Nokia's low-cost smartphone strategy cannot be built with Windows Phone, even the lowest cost Lumia 610 will have an unsubsidised price of about 250 dollars. So Nokia will be abandoning much of the 300 million sub-100 dollar market to the rivals who are able to produce low-cost smartphones at Samsung, ZTE, Huawei etc and the ultra-low cost local rivals like Micromax and Spice in India, Mi-Fone in Africa, G'Five in China etc. Nokia was supposed to fight for this segment with the Symbian line until its low-cost Linux based Meltemi is finished. The madness of course is that as MeeGo was Linux based, and compatible with Nokia's Qt developer tools (as is Meltemi, Symbian, Maemo, and Nokia's featurephones OS, S40; plus Qt also is compatible with Android and Blackberry), the only OS that Nokia supports that is not compatible with Qt is.. Windows Phone! So the past of Nokia is Qt compatible, and the future of Nokia is Qt compatible, but Nokia's 'main' smartphone platform for 2012 is not Qt compatible. Something is wrong with this picture. But yes, we await Meltemi to launch its first low-cost smartphones. That might happen still this year. Elop has been good at pushing far more aggressive delivery times at Nokia.
So how Nokia in Year 3, Digital Jamboree? I think Nokia will certainly bleed market share and depending on how hard Elop pushes away from Symbian and MeeGo based smartphones to Lumia series, Nokia may see actual unit sales declines even, continuing this year. Nokia started the year 2011 with a 29% market share on January 1 with only Symbian based smartphones. It ended the year on December 31, after 2 Lumia handsets and one MeeGo handset had launched, and still with dozens of Symbian devices, with 12% market share. As I have written, this is a world record in destruction of a market-leading brand in a one-year perdiod, in any industry ever. For 2012 I think its pretty clear we see Nokia plunging into single-digit market share territory. A good year would have Nokia ending the year with 8% in Q4, a bad year would see Nokia with Lumia, and what maybe remains of Symbian and MeeGo devices, as low as 6% market share. 10% is to my mind impossible, considering the bad replacement ratio we now see with Lumia not replacing Symbian even 1 on 1, far less gaining market share in that transition.
If Elop is fired and/or the Microsoft strategy is abandoned, and/or MeeGo wildely promoted with both N9 and N950 and/or Symbian 'reinstated' via the 808 PureView and also low-cost Symbian sub-100 dollar smartphones - any of these could resurrect Nokia to profits and a return to growth. I have said to not be surprised, if Elop is packaged with the Lumia division and sold to Microsoft, where Nokia and Microsoft might part ways this year. If you look at past Microsoft partnerships, most of them have had their falling-out periods, often very quickly after the truth of Microsoft's intentions has become clear to the 'victim' in the partnership (I am thinking of say Sendo, LG, Motorola etc)
Blackberry was seemingly in deep trouble early last year, as it tried to push the tablet PC and simultaneously cut its staff especially in marketing and sales. That has however stabilized and by Q4 RIM was back to growing again. For the full year RIM only grew 9% but in Q4 the Blackberry maker grew 33%. The good news at RIM is the return to growth. The bad news is that RIM is almost immune from being able to grow at the rate of the industry. The reason is that RIM was 'too successful' in the two biggest early-adopter market segments for smartphones - business/enterprise users, and the youth segment. They are now pretty well saturated for smartphones and the main business for RIM is to try to replace those handsets (and neither of them will replace their Blackberries at the global average replacement cycle). So Blackberry now is seeing 'anemic' growth when compared to rivals like Apple and Samsung.
The problem is worse with the iconic Blackberry form factor. The inbuilt full QWERTY keypad is a key to the addictiveness of the Blackberry form factor to all who do heavy messaging from emails to SMS to Blackberry messenger to Facebook to Twitter to other instant messengers like Whatsapp. Five years ago when the iPhone emerged, a Blackberry Bold style handset with its 2.5 inch screen was a reasonable substitute to the 'huge' iPhone display, where the buyer would need to weigh now big a screen they wanted, and whether they wanted a tactile 'real' keyboard or only a touch-screen keyboard. But today if you place the same Blackberry Bold style flagship phone from RIM against the Samsung Galaxy Note with its gargantuan 5 inch screen, the Blackberry screen looks like a postage stamp and today this form factor is on its way out among smartphones. It is replaced in smartphones by touch-screen slider-QWERTY hybrids, which address both the needs of a large screen and touch screen, as well as the full QWERTY - and as the keyboard is a slider, it fits length-wise, not width-wise, so the keys are much larger and easier to type on than the squeezed QWERTY on the Blackberry. On the low-cost end, Blackberries are challenged by far cheaper featurephones with similar QWERTY keyboards on Blackberry clones that in some markets are called 'Chinaberries' coming from the hundreds of low-cost handset manufacturers situated here in the Shenzhen region just outside of Hong Kong in China.
RIM will be in the news a lot for 'disappointing' numbers quarter in and quarter out. It will come out with its new operating system version which may help things, but this industry is not about handset design as much as it is about handset sales. The sales and marketing of Blackberry has suffered time and again with carrier concerns about Blackberry messenger eating into SMS text messaging revenues especially among heavy users. And in some markets (China, Japan, Korea) the Blackberry brand is not a significant player. The news that Blackberry will be supported by the Qt developer tools by Nokia had the potential to boost Blackberry and even possibly bring a long-term merging path for these two giant makers, but now that Nokia is not pushing the Qt environment (being incompatible with Windows Phone), that has turned into a mirage also for RIM.
HTC was once the bestselling Windows Mobile smartphone maker - it was the launch customer for WinMo and stayed as its bestselling phone brand until 2010. HTC was also once the bestselling Android provider until replaced by Samsung in 2011. Today HTC seems a bit adrift. It seemed to have found a new direction with the Titan series and especially the early specs on the Titan 2, which raised the stakes in the megapixel races with its 16 mp camera, but that lead was short-lived, with now Nokia's 808 PureView breaking through the stratosphere in megapixels jumping to 41 mp. And the Titan 2 has failed in side-by-side comparisons of the camera against slightly lesser megapixel count sensors like the Nokia N8 with its 12 mp camera, due to other factors like sensor size, the quality of the optics etc. I should note that for mobile handset buyers, still today, latest data from 2011 said that twice as many consumers used their camera feature on their phone, than downloaded apps on their phones - these numbers are consistent globally including in the USA - and thus, if a major handset maker has a great camera, it can address a far larger audience than a maker who has the best app store. So the HTC move seemed very smart. Maybe it was an early attempt and HTC will do better with the Titan 3 or whatever comes next. But HTC was strongly growing in 2010, it stumbled somewhat in 2011. It did grow for the full year faster than the industry - 81% but by Q4 HTC saw a severe decline in sales of 28%. The near term future for HTC is uncertain, can it recover or is there something systematically wrong with the company. 2012 will tell.
That was the big 5 smartphone makers who together control 70% of the world's smartphone market and where each had a market share in 2011 of between 19% (Apple) and 9% (HTC). The rest of the rivals are not really contenders, they are the pretenders, the largest of which had only about 5% market share sizes (Sony and LG) and down from there. But lets take a few to consider of the pretenders class
Sony is finally rid of the Ericsson part of the partnership. This is no doubt good in some ways and bad in others. What Sony did get, over the past ten years, is the best possible good will and reputation that Ericsson had managed to build on its side of the telecoms brand, in particular any synergies from Ericsson the world's largest telecoms networking infrastructure provider. Sony had given some of its consumer electronics brands to the SonyEricsson partnership to exploit - Walkman for musicphones and Cybershot for cameraphones but a big source of pain had been that the Playstation brand, Sony's strongest brand of the 2000s decade had not been given to the handset partnership. The nearest thing was the SonyEricsson Xperia Play but that was not a pure Playstation compatible device. It was a crippled little sister to the Playstation Portable. Now that Ericsson is gone, expect Sony to give its smartphones a big push, including using the Playstation brand. Also don't forget Sony is a huge player in the content side of digital media from movies to music. Meanwhile Sony has a vast array of consumer electronics where it can leverage the Sony synergies, starting with TVs that are becoming more intelligent and connected and internet-enabled.
Sony is firmly in the Android camp but does some lip-service also in the Microsoft family. It used to support Windows Mobile and has some commitments to launch Windows Phone smartphones but those are likely to be very few and far inbetween, just enough to prevent Microsoft from starting to sue Sony in the courts (like Microsoft already did to Motorola after it quit the Microsoft family for good). Sony has stated that this year 2012 it will finish its migration from dumbphones to smartphones, becoming the first of the legacy dumbphone makers to complete that transition. I should also point out, that the past SonyEricsson has suffered from generating a loss several times in the past quarters, perhaps with Sony's leadership now and clear focus, it can return to healthy profits and become a viable strong contender in the industry once again. I would say Sony is the strongest of the pretenders if it gets its act together, that could climb into the contenders class in a year or two.
LG was the world's third largest handset maker at the start of last year but suffered throughout the year and downgraded its targets and goals. LG was hoping to ride a similar Android-powered rise as its cross-town rival Samsung, but LG has been a pale shadow of what Sammy has been able to do in mobile. Earlier, if you remember, LG bet big on a Microsoft-powered 'strategic partnership' about three years ago which went totally sour. After the Microsoft-powered smartphone dud turned profit-making LG handsets unit into loss-making, LG abandoned that path and shifted to primarily providing Android smartphones (with a smattering of other platforms supported) and climbed to borderline profitability after two years of hard struggle, and abandoning large swaths of its market share globally (yet another warning to Nokia, some have said that as the Microsoft Lumia adventure goes nowhere fast, Nokia's future is increasingly destined to join Android but now as a wounded giant rather than the proud leader it would have been a year ago).
LG was trying to use the 3D glassless displays and 3D stereoscopic cameras as its gimmick to differentiate and capture success. That has not panned out at least so far. We need to give LG another year to play with this strategy, as the 3D television technology is still in the early adopter level globally. LG might be poised to capture a good strong trend, or it may be that on phones 3D will never amount to much. A time of anxious analysis at LG this year.
The largest of the new Chinese handset makers in the smartphones space. Huawei's cross-town rival ZTE is bigger in dumbphones, Huawei is bigger in smartphones. Both companies seem to copy-cat everything the rival does, so they provide just about any mobile telecoms tech from networking infrastructure to 3G data dongles and modems. Huawei is growing strongly especially in the low-cost smartphone segment on basic Android powered handsets and aims for the Emerging World markets like India, Africa, Indonesia and obviously its home market of China. Huawei is pretty certain to capture a nice slice of the 300 million size sub 100 dollar low price end of the smartphone market this year and here is where we will see Huawei mostly competing.
So Google bought Motorola last year. Will Google hold onto Moto this year, time will tell. I felt that Google's main aim with the Moto purchase was to secure a strong patent portfolio to defend itself in the increasingly hostile patents wars. The family of Android vendors was not pleased that Google now became a handset manufacturer itself, especially Samsung has been clearly signalling its diminishing love of the Android environment, both pushing its own bada and in 2011 announcing it will replace Nokia with the Intel developments in smartphone OS that became now known as Tizen. I think Google itself will minimize the smartphone emphasis of Motorola, focusing strongly on returning the Motorola loss-making handset unit into profit-making, finishing the transition from dumbphones to smartphones, and being happy with a smaller market share but healthy unit. And Google might spin off the handsets side of Motorola in a year or two, after it is healthy, 100% smartphones and profitable. Google could also push the emphasis of the tablets side of the Motorola unit, so as to not compete very directly against most Android smartphone makers.
Don't expect Motorola to grow in a meaningful way this year, but rather, to stabilize and become profitable. I think Google will continue with its strategy of producing Nexus smartphones that are built by the Android makers, so that is another way that Google can try to keep its partners happy. But the brand that seven years ago sold more than one out of every 5 mobile phone handsets in the world - powered by the hugely popular Razr, is now gone and last year Motorola was a total bit-player of smartphones, with a market share of under 4% and falling. It was down to 3% by Q4.
Then we have the truly little fish, whose market share is 2% or less in smartphones. I will only discuss this briefly as a group. This includes former big smartphone brands like Panasonic, Sharp, Fujitsu and Kyocera; includes big dumbphone makers who also make some smartphones like ZTE, Mi-Fone, Micromax; includes PC makers like Lenovo, Acer and Dell; and the obscure other maker like Pantech the 3rd mobile phone handset maker of South Korea (behind far better known Samsung and LG), or such smaller brands as INQ of the Hutchison group better known in mobile telecoms for the 3G brand Three in many European and Asian markets. Someone from this group can climb into the contenders during the year. Others may find it too expensive to fight for this market and quit. I would place more promise on the small makers who focus on the Emerging World markets than those who focus on the more affluent markets but you never know. Being the 3rd or 4th bestselling phone brand of a significant market alone is good enough to keep you in business, so you don't need to be a global hit to be able to survive and plot your cunning plans for world domination.
So then the battle for the operating systems in the Smartphone Bloodbath, Year 3 Digital Jamboree. What do we see here? Over the last two or three years have set in motion the end of several of the big platforms and now we see more clarity of where the end-game is going to be fought. It will be a race with six major rivals or groupings. Lets look at them by size
Android has reached the point where it is selling roughly half of all new smartphones worldwide. The rocket-ship like rise in its market share growth has slowed and now is only growing by smaller gains per quarter, as is likely when you approach the half-point of any industry with several rivals. Google has on paper a phenomenal army of its Android supporters - of the ten biggest smartphone makers, seven produce Android smartphones today and each of the last 3 in the Top 10 are supporting a different OS, meaning Android is now the giant big bad wolf, that faces three little pigs to face off against, so to speak. But that is the optimist's view. The glass-is-half-empty view says that Android's strongest partner, Samsung, is not fully committed and could easily move half of its total smartphone production to its other platforms in just one year; and several other Android rivals have stated a willingness to support other platforms including HTC to Windows Phone and Huawei to the now-deceased MeeGo (and thus could go to Tizen). Android is not built on a solid foundation, but it was built very fast. Google is now adding many supporting elements, not the least of which is the various initiatives around Google Money.
Android's big growth obstacle in 2012 is that the rest of the field is mostly weeded out, the weaklings are gone and who remain tend to be stronger players with long-term interests. If we say Apple will do about 20% of the market in 2012, and say Blackberry does 10%, and the Nokia-Microsoft mess of Symbian, Windows Phone, Windows Mobile and MeeGo - to have a combined about 10% this year, then we have blocked out 40% and if Android walks into 2012 with 50%, there is maybe 10% to fight for. And biggest in that ring is Samsung with bada/Tizen which took 2% last year - its first full year and twice what Microsoft's Windows Phone did in the same period, also its first full year, but Windows Phone had HTC, Samsung, Nokia and others selling its phones. bada did it alone with Samsung.
So the upside potential for Android is somewhere under 60% for 2012 and it could end that we see the ceiling at 50% if Samsung shifts strongly away from Android. The big Nokia give-away from Symbian has already happened so there is not much to take from there and the Palm give-away has already finished and the Windows Mobile market give-away has about 1% left to go. I think we are seeing this year a settling of the 'natural' state of Android into the 50% to 60% range where it is likely to be relatively stable for some years go come.
The second bestselling smartphone OS last year was Apple's iOS. Remember, I am only counting smartphones, so if you want the full iOS ecosystem, it is bigger when we add iPads and iPod Touch devices. But I only count smartphones for this market, as smartphone sales are drastically bigger than tablet PCs or media players etc. And the other platforms like Android have tablets too. I will analyze the full ecosystem battle later in this blog
Apple's iPhone has shown a stunning ability to reach past supposed ceilings of where its price would be a limit. Last year selling 93 million iPhones, Apple took 19% of the smartphone market but when we count all mobile phone handsets (1.6 Billion sold last year) that was only 6% of the global handset market, and that percentage is well in line with the historical market share of what the Macintosh PC has been doing over its 28 year history. Apple is an aspirational luxury brand, make no mistake about it. While in the premium phone 'smartphone' category Apple can near one in five smartphones sold, in all mobile phones, where the iPhone costs more than 10 times the average price of a mobile phone handset worldwide - it is simply too expensive. I have said for several years, that the iPhone cannot grow its market share in meaningful ways anymore. I have been proven wrong, but I say it again. If Apple only release one new superphone priced iPhone this year, they have a natural limit of what they can do with such an expensive device. If they grow, it will be in very slight increments, a percent or two. Far more likely - remember the Deloitte projection of four out of ten smartphones sold this year will cost under 100 dollars (unsubsidised price) - the 660 dollar iPhone (unsubsidised price) will hit a market share ceiling due to being overpriced. As to an ecosystem, for developers of say smartphone apps and games, the iPhone installed base reaches one in six smartphones used worldwide. In installed base it is now third behind Symbian and Android, having overtaken the Blackberry installed base.
Nokia's Symbian started the year as the world's bestselling smartphone OS and had half a dozen significant smartphone manufacturers as its partners like Fujitsu, Sharp, Panasonic etc. After Stephen Elop created his communication disaster with the Elop Effect, Symbian sales crashed. Today it is the third bestselling smartphone OS and at Q4 of 2011 managed only 11% market share. It should be noted, that even 11 months after the infamous 'Burning Platforms' memo and more than a year of Windows Phone sales, Symbian alone on Nokia still outsold all Windows Phone smartphones made by HTC, Samsung, LG and yes, Nokia itself - by what? By 10 to 1. So don't think Symbian is going to go down quietly. Just looking at the spectacular 808 PureView and its monster camera technology, Symbian shows abilities that Windows Phone won't be able to replicate for at least another year. But yes, Elop did announce the death of Symbian and we see it now going.
This is very likely the swan song year for Symbian, we will probably see the very last Symbian based smartphone launched this year and then it will be over. Nokia never reached the 150 million more Symbian devices as promised by Elop. And this year we should see a strong ramp-down of the Symbian devices, with the intention of a 1 to 1 replacement by Nokia's Lumia line of Windows Phone based smartphones. Like I wrote in the above, the early evidence suggests that won't happen. But in any case, we should see Symbian's current 11% market share dwindling down to about 2% or so by the Christmas quarter, when no new Symbian models are released and only older Symbian models are still being moved off the shelves, at severe discounts. It is sad, as still today, by installed base Symbian is the world's most used smartphone and even in Q4, was the bestselling smartphone OS on each of the three most populous, of the six inhabited continents. I feel like Symbian is being killed while it still had a lot to give, come on, just look at the 808 PureView for example or other recent Nokia flagships like the E7.
The only difference to this scenario is if Elop is fired and/or the Windows Phone 'only' strategy is abandoned. I have said long before Elop came to town that Symbian is not viable for the future of Nokia, it has to go, but that as Nokia migrates away from Symbian, Symbian is still very well suited to low cost smartphones, those under 100 dollar devices with low specs. Windows Phone is not viable in that segment (at least not yet). So if Nokia had a clear change of leadership and/or smartphone strategy, the Symbian OS might live on at the lower end (and arguably its partner OS, MeeGo at the high end).
The Blackberry OS was the fourth bestselling smartphone OS last year and its market share is gradually eroding while the smartphone sales are modestly growing. As Blackberry is not licenced to other manufacturers and RIM itself has had horribly bad luck in trying to expand the platform to other devices (epic failure with its tablet PCs), the Blackberry OS is the weakest of the ones with big footprints. For the installed base, the Blackberry smartphone does still reach over 100 million devices potentially, but many of those are enterprise/business smartphones which have limits and restrictions how they can be used, so this potential is severely limited in reality, as a far smaller addressable market on the consumer side of Blackberry at perhaps half that number.
That was the big bad wolf and the three little pigs, Android, vs iPhone, Symbian and Blackberry. Then what else is in the forest? Some ants. Lets start with the biggest, the killer ant:
Samsung's bada is the fifth biggest smartphone OS by new sales and this year will become the fifth biggest by installed base, passing the size of the dwindling installed base of outgoing Windows Mobile. bada devices captured a 2% market share in Q4 of last year and have grown steadily and outsold for example the Windows Phone OS across all its makers by more than 2 to 1, even after Nokia jumped into the Windows Phone market. bada is so far only a Samsung-supported OS, but it is said to be developed into the Tizen path, which has other handset makers also committed to it. We should see the first Tizen smartphones launched by Samsung during 2012 and we should learn more about the converging development paths of these two operating systems then. In any way, when Microsoft talks about 'Windows Phone is the Third Ecosystem' please note that it is not even the 5th ecosystem by any measures, bada is. Microsoft's operating systems come in at 6th and 7th today.
Microsoft's Windows Phone is a year and a half old now, and after its launch quarter when it splashed onto the scene with Microsoft handing out millions of free devices, and the OS briefly held a 2% market share at launch, it fell ever since. By Q3 of 2011 the Windows Phone market share was nearing one half of one percent (yes, 0.5%) and only when Nokia's Lumia smartphones were launched with Nokia's biggest marketing push ever, did the Windows Phone sales recover, barely, to 1% market share in Q4 of 2011. Note that when you look at various industry analyst reports, they report now a 'Microsoft' market share in smartphones, which adds both Windows Phone and the incompatible older Windows Mobile OS. I do not fall for that trickery, the operating systems are incompatibile and should be counted separately. But Microsoft doesn't like that, as it highlights how badly Windows Phone is failing in the market.
And before we look at this year's potential, let me make one more point. Samsung, HTC, LG and others have been providing Microsoft based smartphones for years. They should know how to do it well. Samsung and LG are the bestselling dumbphone brands in the USA, Microsoft's best market, so they should be able to really do well in the US market with Microsoft powered smartphones. Both are doing well in smartphones in the USA, using Android. And HTC is one of the USA's bestselling smartphone brands, again on both Android and the various Microsoft platforms. If you want a 'dream team' of handset makers to support your Windows Phone platform in Microsoft's strongest market, the USA, then the group of Samsung, LG and HTC is it (not Nokia, which has failed in the US market recently). How was this trio doing in the USA? Saw failing Windows Phone sales all year. How did they do worldwide? Without counting Nokia Lumia smartphones, Windows Phone smartphones saw falling smartphone unit in four consecutive quarters! This while the industry grew 63% last year! Please do not delude yourself into thinking that the Windows Phone 'ecosystem' with Samsung, HTC and LG joining Nokia is strong. The Windows Phone OS would have died last year, were it not for the last minute savior seen in Nokia. And in its first quarter of sales, the poorly performing Lumia series for Nokia became the bestselling Windows Phone brand in the world. Nokia did not need Microsoft to survive; it was the other way: Microsoft desperately needed Nokia to survive.
So what of this year? Yes. First, its pretty clear, come what may, Windows Phone will see growth. Not just unit growth, but market share gains. Its not much to shout about if you start from under 1% but at least its something. I said earlier that the shift was supposed to be about 1 to 1 as Nokia ramps down Symbian and replaces it with Lumia. If so, Nokia could have shifted about 12% market share at the start of the year, 90% Symbian and 10% Windows Phone to about the same market share but opposite proportion by Q4, ie 90% Windows Phone and 10% remaining Symbian (I am obviously not including MeeGo in this simplified model). Now we know from the facts, that this will not happen. Nokia will still bleed sales as it tries to force undesirable Lumia smartphones to its loyal customers. Lets say that by Q4 the total combined market is half, so 6% and 5% of that is Windows Phone and 1% is remaining Symbian. If so, Windows Phone on Nokia brand could get something like 4% of the global smartphone market this year - about 30 million smartphone handsets - and if we add another 2% by the other handset makers - which would still be more than doubling their current sales - and say Windows Phone has a total 2012 annual market share across all Windows Phone family smartphone manufacturers of 6%, that is about 45 million devices for the year. Pretty pathetic actually. But that is the kind of levels we should aim for for Windows Phone (remember, for Nokia there will be more smartphone sales from the ramping down of Symbian and what few millions of N9 and other MeeGo devices are perhaps sold as well).
For the full year MeeGo did not even register in the one percent range, but MeeGo only launched in the last quarter of 2011 with only one handset model actually sold, the N9 (even as its sister model, the N950 with QWERTY slider was also manufactured by Nokia in small numbers). Nokia refused to give the exact count of MeeGo powered N9 sales but in every country it did launch, it had very warm reviews, some actually calling it better than the iPhone! We calculated from Nokia's Q4 results that after we remove the Symbian sales and the Windows Phone sales, MeeGo sold about 1.75 million units worldwide in the few countries it launched in Q4. In the same period, the two Lumia smartphones sold at lower prices in more affluent countries that were Nokia's strongest markets - and flopped, selling only 600,000 units. So one MeeGo device, the N9, outsold both Lumia smartphones by 3 to 1, even as Nokia's CEO refuses to give the N9 and MeeGo any marketing support. This is a still-born OS that is likely to die quietly in 2012. The sad truth is, that if Nokia bothered to launch the N9 in those markets where the Lumia is now failing, and only sold at the same level - so Nokia would do about 3.5 million N9 unit sales in total - as its a very high priced smartphone, made in Nokia's own factories to Nokia standard components (the Lumia is not made in Nokia factories and does not use Nokia standard componets) and while the Lumia incurs a royalty payment to Microsoft, MeeGo based smartphones incur no royalty payments - Nokia would generate so much profit just from N9 sales globally, that Nokia corporation would return to profitability. But Elop feels his ego is more important than the profits of his company. So like I said, I expect MeeGo to be killed and buried this year. What a rotten end to a true winner that actually beat Microsoft when launched on the identical Nokia smartphone brand and on touch screen phones of near identical appearance. Also what a powerful last vindication of the MeeGo development team.
(Please note, Nokia seems to have 2 new MeeGo devices under development as reported on 28 March at the Netbook News site. This gives considerable lease-of-life to MeeGo and if these devices come to the market during 2012, would be strong boost for Nokia. Also, this news to me even more strongly underlines the necessity for Nokia now to market the N9 and N950 globally in every market, while they are hot and desirable, since Nokia is clearly continuing also with MeeGo. Why on earth, when a CEO has a hit product on his hands, he would refuse to sell it, especially if this product could turn the loss-making smartphone unit into profit-generating once again)
Microsoft's Windows Mobile still refuses to die. It is used in some business/enterprise markets, sold in very small numbers by Samsung, HTC and others, in numbers of far less than 1 million in total last year. Microsoft is now terminating the app store for WinMo etc, but stubbnornly this thorn in Microsoft's side continues to sell in small numbers.
And then we have the Intel-Samsung partnershp with Tizen. While most of Tizen's steps have happened below the radar, there is vast potential for this OS to become the real 'third ecosystem.' Consider who are on the Tizen Board: Samsung and Intel, obviously, but also Japanese smartphone makers Panasonic, NEC and Casio. And then there is that 'tiny' player Huawei from China. Yes, that Huawei which has already passed LG and Motorola in smartphone sales per quarter, and is now chasing Sony and HTC. This is not an idle partnership. But wait, then there are the carriers! What? Yes, NTT DoCoMo, Orange, Telefonica and Vodafone are also on the Tizen Board. Just how big is that? These four carrier/operator groups control one sixth of the global mobile market from the telecoms subscriber side, and with 960 million subscribers, are a massive force in the industry. They include 3 of the 6 biggest operator/carrier groups globally. If they end up saying they will specify Tizen as their preferred OS - like NTT DoCoMo had done with Symbian in the past - its a near guarantee of Tizen commercial success. Understand, these four together are more than nine times as big as AT&T of the USA for example.
The keys are when do we see first handsets, will there be serious commitment from the other handset makers, not just Samsung, and how will Sammy itself migrate and grow the bada evolution to Tizen. But this may well end up being the masterstroke by Samsung, snatching MeeGo/Intel partnership from Nokia and turning it into the legitimate 3rd ecosystem while Windows Phone lingers in 6th or 7th place..
I will also add a few thoughts about the broad picture when we add other devices, not just smartphones, and the other significant elements of an ecosystem. We go again in size, from the biggest
WINDOWS 7 / WINDOWS 8 - 300 million new sales, 1.1 Billion installed base
If we look at the big picture ecosystem, currently the biggest is Windows, from the PC side. They sell something like 250 million PCs, and when we add the Windows Mobile and Windows Phone smartphones, we can add a couple of million to that, but they get lost in the rounding-off error. Windows/Microsoft has an installed base on PCs roughly in the 1 Billion range globally. To that you can also add Xbox 360 which sells in the couple of dozens of millions per year, and has something like 75 million perhaps in the installed base (I am not bothering now to research that number, its for big picture scale only, that it is smaller than PC number but bigger than smartphone number for Microsoft). The developers like the Windows world (to a degree) and Windows 8 seems sure to be another global near-monopoly on the PC side. There should be lots of tablets coming also in the Win 8 stage. Note, that this ecosystem is severely skewed to the PC (and Xbox) side, its smartphone side is trivial and is likely to get lost in the shuffle. Microsoft's ecosystem is the most tightly controlled and least open. Microsoft is also most greedy in various licenses and most prone to sue anyone they feel doesn't play exactly by their rules. No wonder Microsoft is called the Evil Empire and for example its ten-year legacy in mobile is littered with ruined partnerships and lawsuits.
QT - (450 or) 800 million new sales, (1.0 or) 1.4 Billion installed base
Qt could already be the biggest ecosystem, it will be that shortly. I am simply not up to date on the development and support of Qt, as I am no longer a programmer and really can't care about that level of the technical detail. The point is, that as the Qt developer tools enviroment is being developed and evolved, it either supports today, or will support soon, most of Nokia's devices, from current smartphones on Symbian, MeeGo, Maemo, to Nokia featurephones on S40, to future low-cost smartphone on Meltemi. Qt does not support Windows Phone. Qt can also be used to develop apps for Android and Blackberry and soon even more (mostly Linux based) smartphone operating systems. Qt compatible sales just on the Nokia brand run about 450 million devices per year, and if we add in Android and Blackberry, that unit sales jumps to about 800 million new devices sold per year !!! The current installed base just on Nokia brand on Qt runs about 1 billion devices and runs well past 1.4 Billion when we add Android and Blackberry to the total. The Qt environment (as the tool is finalized) will be clearly the biggest ecosystem on the basis of installed base, and in new sales, it totally dwarfs the only other big rival, Microsoft's Windows. This is very legitimately the 'first ecosystem' not only in smartphones but in all digital technology platforms. And thats before we see any tablets on any of the supported platforms haha..
Note that the Nokia ecosystem obviously includes the now unbranded Ovi store (ie Nokia store) which is the bestselling app store on five of the six inhabited continents and supports 130 languages and has carrier billing (the most powerful revenue-generating method of paying for mobile apps, so that you don't need a credit card) in over 50 countries. Nokia has traditionally been the most open ecosystem not just using open source principles but also very broadly inviting real competitors as co-developers, from the broad original Symbian partnership to what was the MeeGo partnership with half a dozen handset manufacturers (several of whom have since shifted to Tizen)
iOS - 250 million new sales, 350 million installed base
The Apple iOS ecosystem includes primarily the three iOS platforms, iPhone, iPad and the iPod Touch. But we can consider the Apple community to also include the Macintosh part of the Apple world, so we get to total annual sales in the rough scale of about 250 million (and this year that may grow massively to say 400 million) and an installed base of 350 million which will probably double this year. Apple is expanding into more areas like TV and it also has the iPod/iTunes business in the digital world to add to this arsenal. Apple's control of its ecosystem is legendary or infamous depending on your viewpoint but clearly the iOS ecosystem is very much at the end of 'closed', not open.
ANDROID - 250 million new sales, 275 million installed base
The Android ecosystem is very new but growing very strongly. Most of it is centered on smartphones but increasingly there are tablets and other devices too. By current sales, Android smartphones account for just about half of all smartphones sold, so as the migration continues of the handset industry from dumbphones to smartphones, Android is very well poised to capitalize. Android is quite open but not the most open of the open systems. As I've written, if Samsung decides to migrate its Galaxy series away from Android, being the bestselling Android manufacturer currently, that would be a big blow to the Android family but not a fatal one. Google has enormous online assets it can use such as search, Gmail, advertising, mapping etc.
BLACKBERRY - 60 million new sales, 120 million installed base
The smallest of the big ecosystems worth considering here is Blackberry, which does sell about 60 million smartphones and tablets, and has about a 120 million installed base. Blackberry is limited to RIM and is struggling to grow even within its market and suffering as it tries to push tablets. Blackberry's strongest asset from the services side is Blackberry Messenger (BBM).
So that is how I see the Smartphone Bloodbath Year 3, Digital Jamboree. What do you think? How will this market evolve this year? Is it yet another year of deaths, or perhaps a year we see more partnering and collaboration and mergers.
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