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« Nokia Q2 Analysis - This is Textbook Comprehensively Failed Strategy in Numbers | Main | LG Q2 Results, makes strong play for 3rd biggest smartphone maker at this time »

July 24, 2013

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Comments

Winter

"to the same period 12 years before. "

Must be 12 months

Dipankar Mitra

I was surprised to see this
http://www.businessinsider.com/apple-q3-earnings-2013-7

"Apple delivered better than expected earnings results, giving the stock a little bump in after-hours trading.

It sold 31.1 million iPhones, which was well ahead of analyst expectations of 26 million units sold."

Well, people have different ways of looking at the results. Reminds me of the "Three blind men & the elephant" story :-D

Tester

Looks like the analysts were even more pessimistic about Apple.

But if the rumors floating around are true, Apple will indeed change their strategy. Let's see. I agree, though, that if they continue with business as usual (and more importantly, continue with 'one size fits all' devices) their position will weaken.

c.y.c.n.u.s

@Tomi

Do you still think cheap iphone will help Apple? Cheap ipad doesn't help apple!!!
People just started to notice that the competitor has eclipse Apple device.
Apple is the new Microsoft that want a win-lose solution with their partner.

@Tester

Apple has a great PR-team to sugar coat everything they say. If this was BB or Google, there will be more negative article from wall street

Tester

>> Apple has a great PR-team to sugar coat everything they say. If this was BB or Google, there will be more negative article from wall street

Yeah, tell me about it... ;)
They also have the advantage that the American tech press seems to be obsessed with Apple. When reading such stuff 90% of the Apple stories come from the US. It's not nearly this pervasive elsewhere in the world.

KPOM

Most other analysts were impressed that Apple managed to sell 31 million iPhones. The market was expecting 27 million. Remember, this is the quarter that Samsung released the S4. This quarter will likely have slower sales, but in Q4 we are likely to see the 5S and the rumored lower priced iPhone.

Boris

LG posted Q2 results - 12.1 million smartphones. Improved 112% YoY and 17% QoQ.

Profit is $54.77 million from $2.78 billion in sales. 2.7% fall quarter-over-quarter, but 34.5% more than in Q2 2012.

----

@ Tomi

AAPL actually sells three models: 5, 4S and 4 (I think 4 is only available in the USA, in Europe are available 5 and 4S).

I am not sure about mini model - iPad has mini variant and it only managed to canibalize sales of the flagship model (iPad 4) and now iPad is going down.

Louis

@KPOM: "Most other analysts were impressed that Apple managed to sell 31 million iPhones."

Tomi relies on a proprietary algorithm that mixes absolute numbers and percentages to fit a pre-defined narrative. That said, his conclusion seems to me finally quite relevant.

"And unless Apple splits its product line this year, the signs look very alarmingly that we will see the first year when Apple's iPhone market share in smartphones actually falls."

Apple needs a story for the prepaid world, since it's looking more and more like we are at "peak contracts" as well. If it doesn't want to pre-maturely wreck its postpaid business, then a split product line would make sense.

c.y.c.n.u.s

@Louis

So, do you have anything to add on how we should measure the success of Apple?
I really wanna know your algorithm that can beat Tomi algorithm.

From where I stand.
Tomi is right, Apple is starting to struggle right now. They're just pass the cliff.
(and so does BB, I wonder why Tomi can't see it).

But I disagree with Tomi about cheap iphone stuff.
When Apple on the rise (3 years ago), it really need the cheap iphone.
But the ipad mini (experiment cheapo) have show that apple user already change.
Apple right now attract the me-too user more than hardcore user.
and the me-too just wanna some apple badge and mostly aim for the cheap apple product.

John Phamlore

Tomi,

What price point do you suggest for a cheap(er) iPhone that would be that much more affordable for emerging markets and customers who can't afford the current iPhone? The rumors indicate something close to a price point of 450 USD for the cheaper iPhone, a price that seems to me to be nowhere sufficiently low to make much of a difference.

Furthermore, the rumored plastic iPhone's purpose might be more to simply end use of the obsoleted 30 pin connector on previous generations of the iPhone.

Now there is an angle that apparently no one else has thought of, that a plastic iPhone might be a bit easier to customize chips inside for certain markets such as China Mobile. It's not the price that is keeping Apple off of China Mobile for official support. The real win-win would be for Apple to have a version of the iPhone using a Huawei LTE chipset inside. That would have the side benefit of blocking for a while the device's use in the United States where Apple does not really need a cheaper iPhone at all for the moment.

Hansu

I think there are 4 reasons for this first the phone and the design hasn't changed at all during the years sure ttwaeks here and there but nothing remarkable altough iOS 7 has a new look and feel does it change the things since it's coming to older iPhones. Second is that Apple only relases a new phone every 12 months or so and and that was fine 2 years ago but now Samsung, LG, Sony, Nokia, HTC and others bring out a new model every 6 monts so Apple is playing catch up on everything screen, specs, camera everything. The third reason is that the current global economy is in a pretty sorry state and the iPhone is a very expensive phone and during tough times people think twice about buying a 600+ USD phone even with subsidies and all that. The fourth and final reason is that Steve Jobs is gone the mojo the X factor is gone surrounding the iPhone t is no longer special.
The "cheap" iPhone will sell but it has the same problem as the Ipad mini it says to world that you couldn't afford the big daddy same as the Porsche Boxter brilliant car but everytime I see one I think hmm he didn't quite make it almost but doesn't have dough to buy a 911 he was close.

Sander van der Wal

I do not believe yet there is a Peak iPhone. Look at the first graph here: http://ben-evans.com/benedictevans/2013/7/24/apple-cyclicality. There is a clear cyclic trend for iPhone, on a rising base trend. Peak iPhone would happen if the next peak in the cyclic trend is ablut he same height as the last one. The base trend is decelerating, but no sign of it being flat already.

Louis

@cycnus: "So, do you have anything to add on how we should measure the success of Apple?"

This was probably a little advanced for you, so I will go slower. The issue is that market share and sales don't have the same units. They are both useful but can tell different stories. Here is a snippet from a table in an analysis I saw on the web recently:

"Q3 2010 . . 27.1 Million smartphones . . 34% market share . . 3.6B Euro Revenues . . +335M E profit *
Q4 2010 . . 28.6 Million smartphones . . 29% market share . . 4.4B Euro Revenues . . +548M E profit"

You might conclude that that analysis could have been summarized as "OH MAN, TANKING!!!". But actually, it was "STRENGTH TO STRENGTH, KICKASS!!!" that the author wanted us to see. How come? Even though that platform lost market share, it was making money.

My conclusion: when something very profitable loses a little market share but not users, one should look deeper.

@Sander: "The base trend is decelerating, but no sign of it being flat already."

The concavity is something that Tim Cook is worried about though. Up until now, Apple strategy has been pretty clear: sign a deal with the 2nd place carrier as a vehicle for selling postpaid contracts, then gobble up the premium market. Once everybody who will take a contract has one, you have to look for growth elsewhere.

This doesn't mean Apple is doomed, since its App market is very lucrative and its users not fleeing to Android, but it does mean that probably a broader lineup is warranted.

Also, if I wanted an Apple downside theory, I would speculate that they are in the midst of a hidden, yet epic, tech failure in displays. Apple keeps ramping up capital spending, and its processors/battery/flash are super solid and proprietary, but they can't quite get on the IGZO displays everybody is talking about...

Maybe this isn't happening, since I am wildly guessing, but that's where I'd look for the sign of collapse.

PoiFan

Several tech sites have pointed out that this quarters results by multiple vendors (Samsung, Apple, Blackberry, Nokia) suggest the top end of the smart phone market is saturated and action is moving down in value. While Tomi is loathe to admit Nokia can do anything even remotely correct, they do seem to have at least figured this trend out and have built out a portfolio of Lumia's across most of the price spectrum (though still no sub $100). It will be interesting to see how Apple responds to this changing market, especially if smart phones go from prestige objects to the phone equivalent of the "beige box" PC. Right now today's high end smart phones seem like a combination of cutting edge tech and jewelry.

grantb

I said it a long time ago now, but will repeat. Apple should be talking to Nokia about a partnership if not a buy out.

Nokia are still capable of making reasonable price phones such as the Asha and low end Lumia series, and were (and still are despite Elop?) strong in BRIC and emerging countries where an iPhone is far too expensive, and Apple as a brand is relatively weak. In other words, Nokia is a complementary partner for Apple.

I recently brought a Nokia 520, not for the OS, but because it was the cheapest 4" smartphone with reasonable quality (there are cheaper Android 'landfill' devices, but not well supported). Apple could keep the 'Apple iPhone' as a premium brand, in particular for the US market, and even include technology like the 1020 camera in a future super iPhone to compete with the S4 and its successors. Meanwhile something sell something like the Asha/Lumia 520 line under the Nokia brand. Future Nokia's might run iOS under this deal, but could be any other lightweight OS. Apply do this right now with the iPod Nano not running iOS despite being part of same iPod product line that do run iOS is. They could use something like Symbian with links into iTunes for media content.

Bonus for this deal would be acquiring mapping and patents from Nokia, and pretty much killing potential competition from MS and WP8.

Robert Atkins

In the comparing apples-to-cabbages mode, I am pretty sure that Mercedes & BMW don't lose sleep because they don't have the market share of the Ford Focus or the Toyota Corolla(#1 & #2 in the world market). Both of those are good, decent autos that appeal to many drivers, get them where they need to go. They just aren't a Benz or a Beemer.

I doubt if Apple will lose much sleep over latest Q results. There are new phones & tablets in the works, and price be damned, Apple will sell a bushels of them, and be profitable doing so. They will continue to sell gobs of iPhone4s's and 5's at free/cheaper price points on contract or pay-as-you-go to bring in more new users. And they may still be planning a 'world phone', like the Focus, that fits overseas markets, but will not be sold in the states. Speculation... .

Apple may never have the mass-market penetration of Samsung or the old Nokia, but they don't need that to succeed, or survive. Looking forward to Tomi's analysis after 2013 sales are final for all OEMs. Curious to see how market reacts to Tizen, and the Jolla mobile.

AndThisWillBeToo

I was about to quote our own Baron95 for Tizen & Sailfish, but the comment seems to be gone. However it was roughly:
"For Tizen, Sailfish, Firefox & Ubuntu - please! I'd be damned if ANY of those registers to any statistics this year."

c.y.c.n.u.s

@Louis

I agree with you that analyst can use any metric to strengthen their opinion, but Tomi is using the right metric. If apple were in denial that playing with statistic they will be in Blackberry situation very soon.

@Robert Atkins

Car is not the same as dumbphone (a phone without ecosystem), not smartphone.
Car... Just like dumbphone. In which high percentage of nokia dumphone will not make it a competitive advantage against the rival.

But Smartphone is like HD-DVD vs. BlueRay
The success of BlueRay means the dead of HD-DVD.

Sander van der Wal

@Louis

My take on this that I am more interested in the doings of the ecosystems than in a subset of the devices. And secondly, I assume everybody now has some kind of agenda and cannot be trusted to deliver reliable information, instead of PR. And it will get worse by the time the market is saturating.

Tomi T Ahonen

Hi all, great comments, keep them coming

Many ask about how the iPhone Nano strategy could work, or would it work. Here is how I would summarize it. First, it is a smartphone strategy overall, not just Nano strategy. So to start with, the 'flagship' iPhone would need to differentiate, and go even more upstream - like the Audi A8 series was developed from the Audi 200 (in USA sold as Audi 5000) but the model was increasingly upgraded to ever more luxury and performance including the S8 version (you'll remember it featured in the movie Ronin for example)

So before we consider the iPhone Nano, we'll take the current iPhone 5, and upgrade that to even bigger better as, lets call it the iPhone 5S. Jump up the camera to 13mp or 16mp, boost the screen size to 4.5 inches or more, and add some cool bells and whistles like NFC.

Then don't touch the current iPhone 5. But take the previous iPhone, the 4S, and re-dress that into the iPhone Nano. Do the specs (hardware) almost exactly like 4S. As that will be 2 years old technology, the hardware will cost now less than half what it cost in 2011 (according to Moore's law, IT tech prices halve in 18 months - but remember, this is not the same for example for batteries). Roughly speaking, you can redesign the iPhone 4S and use cheaper parts and sell the redesigned 4S Nano for about half what it cost in 2011, and still make the same profit margin.

Now, add something cool that the 4S didn't have, like a good camera - say 12mp - not as good as on the new flagship. And add something the 4S didn't have like NFC now. This makes it a 'new' iPhone, not just a reduced-size 4S. Add some memory of course. Then dress it in plastic skin and make it a bit bulkier than the current models. So it is visibly different. Just like the Porsche Boxter someone mentioned, yes its visibly different from the 911. It has to be, to show us its the cheaper 'popular' model rather than the flagship. I would push the new flagship price from about the 650 US dollars its today, to about 800 dollars before subsidised price. That would push it probably into 249 or even 299 US dollars on US carriers with 2 year contract. iPhone fanatics will not blink an eye, they will buy it anyway.

Then offer the new iPhone Nano at about half that, or 400 dollars without subsidy and say 129 or 149 US dollars with 2 year contract.

Release the iPhones in 6 month intervals, so they don't both come at the same time for Christmas. Ideally, I would say do the cheaper Nano model launch for Christmas and Chinese gift-giving - many would give the cheaper model as Christmas gifts to kids, spouces etc. And then do the real super-phone flagship release in the Spring for about March release to create big buzz for Apple in the Spring periods. Then Apple would see two spikes of big sales, Q2 (April-June) and Q4 (Oct-Dec) and a residual good period out of China in Q1 (Jan-Mar).

Of course if Apple agrees to break Job's plan and split the product line, then perhaps they could humor us also with a QWERTY slider-variant iPhone that everyone addicted to messaging would die for... But I'm not holding my breath on that hope..

Tomi Ahonen :-)

Hansu

@ Tomi Apple can do whatever they like and still count on the fact that there will be a massive que infront of the apple store during launch no matter if it's running outdated hardware or or software people will still buy no matter what tech review sites and media has to say about it. A cheaper iphonbe is like the Boxter a cheaper version of the original icon a great product in it's own right but will allways be in the shadow of its bigger brother and has the stigma of being second best for people who couldn't afford the Original.

PoiFan

@Robert Atkins. I think where the car analogy falls apart is in terms of apps. If Apple handset marketshare falls below a certain amount, Apple may still be highly profitable, but may start to lose developer support. This would start somewhat of a reverse incumbancy effect and further push down marketshare. I don't believe this is imminent, but it wouldn't take much for Android to become the platform to build first for apps. Apple probably gets outsized treatment from developers today because so many startups are in the US and the US has an abnormal iPhone marketshare.

Tester

Actually, according to my boss, in Europe Android has already passed iOS in revenue. I can't verify that claim, though, but he's very insistent not to prioritize iOS anymore for new projects.

banyantree

http://blogs.marketwatch.com/thetell/2013/07/25/apple-ceo-cook-may-not-subscribe-to-peak-smartphone-theory-but-citi-analysts-do/

Louis

@lee: "Still, in no realistic scenario is either iOS or Android going wanting for viable commercial support."

You aren't going to convince anybody here, since they think (and have always thought) that Apple's main challenge is inferior products and a user base running to Android. (I infer this from the many comments suggesting that Apple can't compete with the Galaxy S series---when in fact, the iPhone sells much better in the same segment.)

If Apple has a problem, it is that more people want in to its platform than can afford the current pricing/distribution structure.

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    Tomi Ahonen is a bestselling author whose twelve books on mobile have already been referenced in over 100 books by his peers. Rated the most influential expert in mobile by Forbes in December 2011, Tomi speaks regularly at conferences doing about 20 public speakerships annually. With over 250 public speaking engagements, Tomi been seen by a cumulative audience of over 100,000 people on all six inhabited continents. The former Nokia executive has run a consulting practise on digital convergence, interactive media, engagement marketing, high tech and next generation mobile. Tomi is currently based out of Hong Kong but supports Fortune 500 sized companies across the globe. His reference client list includes Axiata, Bank of America, BBC, BNP Paribas, China Mobile, Emap, Ericsson, Google, Hewlett-Packard, HSBC, IBM, Intel, LG, MTS, Nokia, NTT DoCoMo, Ogilvy, Orange, RIM, Sanomamedia, Telenor, TeliaSonera, Three, Tigo, Vodafone, etc. To see his full bio and his books, visit www.tomiahonen.com Tomi Ahonen lectures at Oxford University's short courses on next generation mobile and digital convergence. Follow him on Twitter as @tomiahonen. Tomi also has a Facebook and Linked In page under his own name. He is available for consulting, speaking engagements and as expert witness, please write to tomi (at) tomiahonen (dot) com

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