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January 27, 2014

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AndThisWillBeToo

According to IDC Apple grew its market share _of_all_phones_ from 7.8% in 2012 to 8.4% in 2013. That removes the question of "is this cheap Android feature phone or smartphone? and "is full touch feature phone with browser actually a smartphone?". Smartphones are fast replacing feature phones but that does not convert feature phone users to smartphone users.
In few years Apple is getting "bitten in the ass" as a consequence.

KPOM

@Winter, the percentage of iPhones sold outside the US increased in Q4. Tim Cook said that sales in North America were down Ciscal Q1-14 vs Q1-13, partly because they screwed up and ordered too many 5c and not enough 5s, and also because carriers like AT&T and Verizon stopped giving away early upgrade subsidies. That was offset by the NTT DoCoMo rollout and pulling up the China launch date.

@RottenApple, yes, that's certainly how the market is interpreting things (i.e. that the smartphone market has reach saturation). With growth on the low-end, companies have three options. They can cut costs like crazy to compete in the low end, they can fight for the slower growing high end, or they can go do something else entirely. It doesn't seem wise for Apple to go low-end. They have never successfully launched a low-end product in their corporate history, and they don't have the infrastructure to be all things to all people like Samsung. Samsung's own below-expectation results show that there is a limitation to that strategy, as well.

The iPod shuffle comes closest to being a "low-end" product, but even it was priced significantly higher than its competition. Apple has so far chosen to maintain its high ASPs (they were within a few dollars in Q1-14 vs. Q1-13). They already make up a majority of the high-end, and while there is certainly room for taking more there (e.g. with a larger iPhone), there is a lot of pressure on them to enter a new product category entirely. Wearables makes the most sense, as they are the kinds of things that people replace regularly, or have multiple items. Bringing on an executive from a luxury fashion retailer shows the direction they would head in, and it isn't the low end.

KPOM

@RottenApple, a Ford Fiesta gets you from Point A to Point B just as well as a BMW 7-series. No matter where technology takes the low-end phone, there should be a significant market for the high end for some time to come.

What comes next is anyone's guess, and it isn't clear that Samsung, Apple, or Google for that matter are more in tune with what we'll be using in 2024 any more than it was clear in 2004 what we'd be using today. But what does seem clear is that Tomi Ahonen's one-size-fits-all race to the bottom strategy doesn't work. Just a few short years ago, Nokia was in the same position Samsung is in now, with a tightly vertically integrated global operation capable of making a margin at all ends of the market. What did them in wasn't Stephen Elop (though he certainly hastened the inevitable), but the fact that they got blindsided by Apple, and unlike Samsung didn't embrace Android. Not having a viable solution at the high end did them in, and all the supposed advantage of the "installed base" at the low end meant nothing, as it collapsed almost as quickly. Samsung seems to be a smarter company than Nokia and is certainly a faster follower, but it could get blindsided as well.

As for Apple, a big part of me thinks that the reason they are rebuffing Carl Icahn and hoarding cash is that Tim Cook realizes that he or his successor will need some of that cash eventually to be able to pour into finding the next big thing that will reignite the money machine. To his credit, he hasn't panicked and done an overpriced and/or ill-advised acquisition (Google paying $3.2 billion for Nest looks like such a deal), but a good strategic fit is still within the realm of possibility.

Huber

@KPOM: >>a Ford Fiesta gets you from Point A to Point B just as well as a BMW 7-series

ROFLOL! Have you ever driven a BMW 7? It is much _better_ than a Fiesta and has much more features.

The iPhone on the other hand is inferiour to any Android phone with its restricted walled garden OS - hell, you cannot even send an Email with an MP3-file as attachment!

Such comparisons always make me laugh - the last iPhone which was superior to the competition was the iPhone 4. Since then, it's all downhill.

Baron--9-5

A lot of the questions, being posed here as to how many iPhones were sold in the US (less than 1/3) ve overseas, the fact that the ASP increased to $636 reflecting a marked choice of the 5S, etc were all posted on the other thread (the Nokia thread), since that was active when the Apple earnings release came up.

If you look at the iPhone market share of total mobile phones sold it is a straight up line, and went up again this quarter, and is not approaching 9%. That is an astounding fact. The most expensive phone having 9% unit share. It is like Ferrari having 9% unit share of the entire car market or Rolex having 9% unit share of the entire watch market. It is unprecedented.

The iPhone is growing slower than the "smartphone" market - however you define it - but it is growing slightly faster than the overall mobile phone market.

When you add the market that counts - smart mobile devices (iPhone, iPad, iPodTouch) - Apple has an even larger share.

But all this is un-important. Market share is a lazy person's counting game. But I get it, that is the focus of this blog and Tomi's.

Apple needs to focus on two things - and they are.
1 - They need to launch a larger screen phone - coming this September - that will fit within a similar volume as the 5s. That is the major advantage Samsung has over Apple. People that prefer 5" class devices are excluded from buying Apple.
2 - Increase distribution. Today, still less than 1/2 of mobile operators officially distribute the iPhone. DoCoMo (already on line), China Mobile, Reliance, Megafon, Vimplecom, etc are coming on line in Q1.

That is why I keep on saying that it is Q4/2014 that will see the natural Apple vs Samsung share. So far the indications are that, whenever Apple is distributed by all the operators in a market (see US, Japan, Australian, UK, etc) the iPhone market share is in the 17%-50%+. I believe that larger screens will bump those by about 5% points in advanced economies.

Until then, iPhone growth will be simply be by increased distribution. So China, Russia, India, South America, Central/Eastern Europe will be the Q1-Q3 growth areas.

Come Q4 the advanced markets will surge with the large scene iPhones.

In the meantime, Apple earnings are stuck in the $14/share/quarter range. So the stock will not move up markedly from where it is.

WonTheLottery

@Baron95
Let's look at the change in iPhone market share in some 'advanced economies' comparing Q4 2013 with Q4 2012.

Australia -3.3%
France -3.4%
Germany -4.4%
Italy -10.3%
UK -2.5%
USA -5.8%

It will be interesting to see when Apple release their phablets how well they sell. Can Apple maintain the fiction that they are the innovators and Samsung are the copycats when they keep slavishly copying Samsung's designs?

We all remember how Steve Jobs said: "the 10-inch screen size is the minimum size required to create great tablet apps.” and we all remember how sales of the iPad mini quickly overtook the sales of the iPad (maxi?) once Apple relented and copied the smaller, neater Android tablets.

Can Apple keep producing lower functioning clones of their competitors products and maintain the 'we are the innovators' story line or will this move further erode the perceived 'coolness' of the iPhone?


Huawei are the dark horses for 2014, their products are damn good and very keenly priced too.

Baron--9-5

@Won the Lottery

Who says Apple will release phablets. They will release 4.8" phones.

And you can re-do the market share above as a % of total phones sold in those countries, and you will see that the share continues to increase modestly (abt 1% point).

And either way, what is the point? Apple, by definition started with 100% of the tablet unit market share, which would inevitably decline.

Similarly it started with 100% of the modern, full browsing internet smartphone market - despite some wanting to claim that email devices (aka blackberry) and two-button menu driven devices (aka Symbian) were smartphones.

Similarly Apple had 100% of the graphical user interface PC market when it launched the McIntosh.

Similarly Apple had virtually 100% of the ultralight/ultrathin flash laptop market when it launched the MacBook Air.

Apple has ALWAYS been in this position - i.e. launching a new category starting with 100% market share, then dropping to the 5% level. The only thing new here is that with iPod/iPad/iPhone it has staying above 15% for such a long time.

Maggan

I'm a bit confused about how to look at the numbers.

Apple's marketshare of smartphones is down, which is bad.

But Apple's marketshare of all mobile phones is up. Isn't that good?

/M

Sander van der Wal

This is getting more and more pointless. The race is about mobile OS'es and ecosystems, and mobile phones are just one of many mobile devices being powered by a mobile OS.

Consider this, tablets can have a SIM, and are therefore a kind of phone. Thing is, it doesn't do voice, which makes it a non-voice phone.

So, counting the voice-enabled subset of phones did make sense in the previous decades, when voice was the main function of a phone. Nowadays, voice is one of the many functions, not the biggest, and dwindling.

But still, it is the sole criterium on which mobile devices are judged to be relevant to a company's succes in business?

winter

@Sander van der Wal
Anything to deny that Android is cleaning out the slate. Android is on more than half of the tablets.

But here are the numbers for tablets:
http://i.co.uk/2014/01/24/tablet-sales-below-pcs-in-q4-2013/

Apple at ~30%

"Digitimes reckon the white box constituent of the total was 33.8% of the total which is virtually all of the Other category. Android they report at 51.2% of the total and Windows 3.9%."

WonTheLottery

@Baron95
>>And either way, what is the point? Apple, by definition started with 100% of the tablet unit market share, which would inevitably decline.

No they didn't, you're as ignorant on tablets as you are on smartphones.

Let's ignore Nokia's and Samsung's mobile internet devices because you'll no doubt claim they don't count.

So:
Archos were making internet enabled touch screen tablets back in 2007, they had the Opera web browser and Adobe Flash support.
Smart Devices were making the SmartQ range of touch screen tablets back in 2009, they originally ran Ubuntu and later swapped to Android.
Apple released their first iPad on 3rd April 2010.

E.Casais

"Consider this, tablets can have a SIM, and are therefore a kind of phone. "

But most tablets do not have a SIM card, which makes the categorization of mobile devices based on old criteria even more complicated. I agree it is time to review classifications and refresh the relevant criteria.

foo

Tomi,

A small correction:

> If you want to be a market leader you have to play the market leader game like a market leader.
> If you want to be a niche player - which is what Apple is -

Apple is *not* a niche player, at least not according to the textbook.

According to Michael Porter [1], there are three major strategies:

- Cost leadership
- Differentiation
- Niche

Apple plays the *differentiation* game, which allows them to charge much higher values than Samsung.

Samsung is gaining market share because they play the cost leadership game.

Of course, Samsung is making inroads in differentiation, with their top of line smartphones. But that doesn't make Apple a niche player, not yet.

[1] http://en.wikipedia.org/wiki/Porter's_generic_strategies

KPOM

@foo, that's a valid point, but not one that Tomi recognizes. As far as he's concerned, Apple would be better off selling iPhones for $10 if it got them 75% market share. And even though iPads are part of the same "community"/ecosystem and many have SIM cards, they don't "count" since that would skew the numbers in their favor as they still have a plurality of that market after 3.5 years. All the doom and gloom about Apple's dependence on subsidies ignores that fact. iPad is unsubsidized, even in the US. Yet it has a plurality of the market in a year where Apple actually RAISED the selling price of the 2nd iPad mini quite considerably.

@WonTheLottery, Microsoft had "tablets" long before Nokia or Samsung. And it's a stretch to call the Nokia Internet tablets of 2006 in the same category as the iPad or Kindle Fire. For all intents and purposes, Apple invented the category of the modern tablet (thin, multi-touch device running a mobile-oriented OS with a healthy app ecosystem). Apparently it was in development before the iPhone, when Apple realized they could shrink it, add a cellular radio, and have a killer phone, and decided to release the iPhone first. Whether it was genius, luck, or a little of both, they figured out how to crack the nut that Microsoft and the others were unsuccessful in doing for 10 years prior. The iPhone's ecosystem made iPad credible, and as was the case with phones, Google was a successful follower.

Winter

@KPOM
"iPad is unsubsidized, even in the US. Yet it has a plurality of the market in a year where Apple actually RAISED the selling price of the 2nd iPad mini quite considerably. "

It seems extremely unlikely that more iPads than Android tablets were sold worldwide in 4Q 2013.

WonTheLottery

@KPOM
Goodness, you've had to add a lot of additional criteria to what defines a tablet in order to be able to claim Apple invented it, haven't you?

Here's a picture of the SmartQ 7 from 2009: http://www.pocketables.com/2009/05/smartq-7-internet-tablet-mid-revealed.html

It's really quite slim and tablety looking but hey, it's not really a tablet because Apple hadn't invented them yet.


Then there's this video of the original LG Prada: http://www.youtube.com/watch?v=5aLOGUQouUI

Surely the upload date must be wrong... a full size capacitive touch screen, the four docked icons at the bottom... how did that happen? Apple hadn't changed the world with that design yet!

Per "wertigon" Ekström

@Foo: No, Apple isn't a niche player yet. But it's the way they are headed in the smartphone/tablet arena, same as the PC market.

Now don't get me wrong. Apple does make a healthy profit and you do not need to own the entire market - only enough to be profitable. That is a valid strategy, but, unfortunately, virtually all tech industries have heavy network effects. Why isn't the Mac at 25%, or 30% market share on Desktop PC market? Because Windows has incredible network- and lock-in effects that virtually makes everyone forced to use it, whether they want it or not. 90% of devs are using Windows, 90% of apps are Win-only.

Now imagine in a few years when Apple market share is down to 8%. Why should someone make an Apple iOS app when they can corner 92% of the market with an Android-app? Apple will sooner or later need to let go of their app store monopoly on iOS products. But that's still 5-10 years off...

Earendil Star

Astro bla bla bla... yawn!

Meanwhile, in other news, Google is selling Motorola Mobility to Lenovo...

Chinese companies are growing... also in the US...

S V E

China-based Lenovo getting into Android smartphones in a big way spells trouble for other Android mfgs (esp. Samsung). That was a very brave move for Google to take a $10B haircut. They now are a truly neutral 3rd party OS provider. I wonder how this will affect the tenaciousness with which Google will defend Android from patent royalty claims.

E.Casais

"Chinese companies are growing"

What did I write a couple of Tomi articles earlier?

quote
My contention: China is the player to observe because it will have the most impact in the medium term -- in _every_ area of the mobile space.
end quote

quote
Upcoming Chinese manufacturers will compete directly with the low to mid-range devices which are the specialty of Nokia, Motorola and Samsung.
end quote

By gobbling Motorola, Lenovo is now doing exactly what I predicted -- attacking the whole low-end to mid-range market. True, I was not at all expecting Google to get rid of Motorola so soon, and to a Chinese vendor to boot.

The next big screen iPhone, Samsung phablet or Lumia iteration are interesting, but only rehash a well-known scenario.

China is where the exciting action takes place.

Baron--9-5

Here is the Google/Android Math:

1 - Buy Patents for Protection - bid for Nortel, loses. Desperately pay $12.5B for Moto (sold video unit - $2.15B to Arris and now Mobile devices for $3B to Lenovo). Net Bill $7.35B

2 - Buy Android, nurse it for 8 years and counting - conservatively - $8.65B

So Google has invested $16B on Android.

On the plus side, Google gets to count all the profit from Ads it displayed on Android - minus all the ads it would have displayed anyway, minus all the ads that it would display but no longer does because anti-Android action (e.g. Apple Maps). Google has been making less than $1.5B/year in Mobile ad profits, which only now increased. How much of that would they also get without Android? $1B? So $500M/year net increase. So that is maybe $2.5B in increased profit - being generous.

So up to now, Google spent $16B on Android and gained maybe $2.5B. That is a NEGATIVE 84% ROI.

(P.S. assuming the Lenovo deal goes as anticipated)

So Vatar

ad SVE:

Although Google takes a haircut on the Motorola thing it is nowhere close to $10B:

Google purchased Motorola for $12.5B, but sold off the set-top division for about $2.5B. Also, Motorola had $3B cash on hand when Google bought it. And they get about $3B from Lenovo and keep most of the patents (value $1-2B???). Yes, Motorola incurred some losses during Google's tenure (about $1.5B).

So Google took a haircut of about $4B total (+/-). Does not seem like a good investment, did not look like a good investment then, but also not as bad as $10B down the drain.

I wonder if Microsoft finds a way to back out of the Nokia deal? This might bankrupt the whole Nokia if they cannot get rid of their money pit after the devastating reign of Mr. Flop.

Baron--9-5

This is a ridiculous conversation. Apple a niche player in smartphones?!!!!

Seriously?!!! The #2 vendor of smartphones in the world is a niche player? LOL

So Sony, LG, HTC, etc are what? Micro-niche players? LOL

The things we read in this forum - cracks me up.

Apple is in a unique position. A category of one. A premium vendor who is also the #2 volume leader.

Apple is the equivalent of Ferrari (premium) selling 1/2 as many cars as Toyota (#1 by volume). Unique.

And Apple has proven that there are no shortage of applications for Mac, with only 4% of the PC market. And it has proven that there will never be any shortage of iOS market given that iOS has about 25% of the smart mobile connected device market (iPhone, iPhone, iPodTouch) - six times higher iOS share than Mac OS share.

Why?

Because every developer knows that Apple consumers (buying a Mac BookAir or iPad) is 1,000 times move valuable than a user buying a cheap PC or a cheap Android.

Apple's iOS share can go from 25% to 2.5% and they still will attract developers and content providers.

Baron--9-5

@WonTheLotteryButIsStillBitter "Goodness, you've had to add a lot of additional criteria to what defines a tablet in order to be able to claim Apple invented it, haven't you?"

Why argue. Go out on the street and ask 10 random people. Who launched the first tablet. Report back the results. If the majority with an opinion say anything other than Apple, you win.

Want to bet some Bitcoins on the result?

DarwinPhish

I wonder what BMW's marketshare of wheeled vehicles is. I bet it drops evrytime a bicycle is sold.

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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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