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« Smartphone Stats: Full Year 2017 Top 10, OS Installed Base and Everything Else You Ever Wanted | Main

May 23, 2018

Comments

Jim Glue

As for hardware gear - Android is so fragmented that economies of scale are actually on the iPhone's side.

Any chip put into an iPhone is going to be bought in vast quantities more than chips that go into the thousands of Android models.

Far from lacking in manufacturing support...Apple buys up capacity in advance for any components Apple sees as vital and likely to be scarce. Nobody else, not even Samsung, can begin to purchase particular components in the volume Apple does. Andy Rubin said that there was no way he could have built the Essential phone with a ceramic chasis if he had to produce at the scale of the iPhone.

Nobody can out bid Apple because nobody can spread their costs over as many units as Apple can.

And it's not "elite economics" it's just "economics".

Winter

"As for hardware gear - Android is so fragmented that economies of scale are actually on the iPhone's side."

You are talking about ecosystems, sort of, but you do not seem to understand them. You might learn a lot from this classic:

Predators and prey: a new ecology of competition
https://www.researchgate.net/profile/James_Moore29/publication/13172133_Predators_and_Prey_A_New_Ecology_of_Competition

One of the central messages of this paper is that to survive, an industrial ecosystem must out-innovate the competition. It must be willing to make radical changes to keep up with the changes in customer needs and technological change. Apple seems to have lost that ability or willingness

How Apple loses the ecosystem wars:
Does the iPhone still matter? Huawei, not Apple, now drives the mobile conversation
https://www.zdnet.com/article/does-the-iphone-still-matter-huawei-not-apple-now-drives-the-mobile-conversation/

Note that the morose attempt to destroy ZTE by the USA has send a clear signal to all non-American companies: Keep clear of US suppliers!

I expect Chinese companies to put full throttle on any plans to buy Chinese Only. That will only strengthen Chinese dominance in the mobile and computer markets.

Tester

@Winter:

"Does the iPhone still matter? Huawei, not Apple, now drives the mobile conversation"

I particularly love the following paragraph:

"Yeah, remove key functionality instead of a complete redesign. That's a recipe for success. I know another very large West Coast technology company that tried that a few years ago and learned a lesson the hard way. It ended up replacing its CEO. He's doing an awesome job."

Which perfectly mirrors my feelings about Tim Cook. This is a guy who only cares about money. The customer is a distant second and the developer is an inconvenient necessity. We'll see how this ends up. As a developer I can confidently state that developing for Apple is no fun - there's too much red tape and way too many obstacles being thrown in on occasion.

chithanh

I posted Eric S. Raymonds article about OODA loops a couple of times here. The ability of the Android ecosystem to out-innovate Apple has been obvious for a while now, and we see that almost no mobile technology is Apple-first any longer. We see everything on Android first.

http://esr.ibiblio.org/?p=2975

Apple however is not going to die. They are just becoming irrelevant for mobile.

About ZTE and how the Chinese came to realize that they are still very dependent on Western technology, there is one interesting article here:

https://www.nytimes.com/2018/06/10/technology/china-technology-zte-sputnik-moment.html

You can bet now that the previous efforts to become independent from foreign technology imports (Loongson, Shenwei, etc.) are going to be driven much harder. Also I expect a national mobile operating system (Android app compatible) within 1-2 years.

Winter

"Also I expect a national mobile operating system (Android app compatible) within 1-2 years."

China is very, very interested in Linux. Linus even has given talks in China:
https://www.linux.com/blog/event/lc3-china/20176/6/linus-torvalds-explains-how-linux-still-surprises-and-motivates-him

A forked Android with Chinese only services has probably been in the works for quite some time.

Winter

And the Chinese will make their own chips:

China Plans $47 Billion Fund to Boost Its Semiconductor Industry
Fund would be used to improve China’s ability to design and manufacture advanced microprocessors
https://www.wsj.com/articles/china-plans-47-billion-fund-to-boost-its-semiconductor-industry-1525434907

Jim Glue

Nice. Chinese companies run everybody out of business selling phones at a loss...while their own innovation is paid for by the Chinese government. Yay Android

Per "wertigon" Ekström

@Jim:

Price isn't the *only* factor you know. Else the iPhone would stand no chance as it has been one of the most expensive alternatives ever since 2007.

Price wars will happen - but there will always be companies that manage just fine without lowering prices, and those companies are the ones that will prosper tomorrow.

It's a solved problem, basically.

https://hbr.org/2000/03/how-to-fight-a-price-war

Wayneborean


Ah, yes, Trump’s Tariffs. Man is the USA going to get hurt by this.

chithanh

@Winter
> China is very, very interested in Linux

That the Chinese mobile OS will be Linux based is a given I think. That it will be a fork of Android I am less sure, because the statutes of the OHA dictate that members may only release Android code that passes compatibility testing. This would at least make it more difficult to be active in both China and overseas markets.

> And the Chinese will make their own chips

Last time there was a microprocessor embargo enacted against China it was in April 2015 for supercomputer chips (as it was feared that China would use supercomputers for nuclear weapons simulation). In June 2016, China presented the Sunway TaihuLight as the world's fastest supercomputer based on domestic technology.

So let's see what will be the situation in July 2019.

@Jim Glue
Chinese Android vendors will run on very slim margins. However they don't have money to burn, so if you buy a phone in China domestic market, rest assured that a small profit was made.

Jim Glue

Hi Per,

Which Android companies do you think are going to survive the price wars?

Hi Chithanh...why should we "rest assured" that the Chinese aren't running their smartphone businesses at a loss? Xiaomi has already stated they don't make money on their phones. Lenovo's Motorola unit has run at a loss for years. Not sure about Lenovo's own brand business.

HTC, Sony and LG are no slouches when it comes to manufacturing. None of them have been able to sustain a profitable Android handset business and we are counting the days for each of them to just drop out. They aren't Chinese, but it's the price points the Chinese are selling at that's destroying the profitability of the Android market.

50 Billion investments by the Chinese government in chips alleviates my concern about Qualcom's ability to maintain innovation at the high end as sales volumes at that end continue to collapse.

Of course, for phones sold in the US...the Chinese chips may be a non-starter for Android phones.

But these are concerns that are going to take years to play out.

Tomi hasn't put out his official numbers yet, but I'm going with the iPhone has gained share with very tepid growth due to Android's sales slump. I have a feeling we are going to be in that same pattern for a year or more.

Clearly Android is going to get all of the next billion "new to smartphone customers". I just think that transition is getting slower and slower as Android has vanquished every non-iPhone platform and is only going to grow from the very poorest phone owners trading up from feature phones. Not sure there is infrastructure to take much advantage of the smartphones available or affordable to this customer base.

I'm open to other theories of why Android growth has stalled at this time.

chithanh

@Jim Glue

> Which Android companies do you think are going to survive the price wars?

It doesn't matter for Android. If one company folds, then others will immediately capture its market.

If you look at the Android Fragmentation Report (sadly last published in 2015) you will see that the number of unique Android brands is growing, ie. there are more Android vendors appearing than disappearing.

https://opensignal.com/reports/2015/08/android-fragmentation/

> why should we "rest assured" that the Chinese aren't running their smartphone businesses at a loss? Xiaomi has already stated they don't make money on their phones. Lenovo's Motorola unit has run at a loss for years. Not sure about Lenovo's own brand business.

Lenovo inherited Western company and cost structure with the Motorola purchase. About Xiaomi I don't know that they are making a loss, I think they sell at cost. But even if there is a loss at Xiaomi, the purpose is selling other profitable stuff along their phones: accessories, lifestyle/household items, e-scooters and the like. I am pretty sure that the Yi, Roborock, Mijia, etc. are sold at a profit and the smartphone brand plays an important role in their sales.

But the in the Chinese domestic market there is a multitude of small white-box Android vendors who are little known outside China. They all operate at a profit or quickly go away. And they are even not represented by the big analyst house data, who typically count only urban sales.

Jim Glue

Hi Chithanh:

Loss or zero profit - you have a major market leader selling their phones for nothing. Even if Xiaomi successfully monetizes services...how does anybody else get buy with a mark up against a large, well funded competitor giving away their product at cost?

And it DOES matter to "Android". We aren't speaking of "will Android exist", but "in what form will Android exist". Will it be in the form of a handful of "assemblers" with no support, no warranties to speak of, no repairs...and no innovation.

You have to have margin to finance innovation. You need margin to fund warranties, support lines and the like.

Imagine HMD only selling Nokia 6 class and lower because no one will buy the Nokia 8. There might not even BE a Nokia 8 because the margin to invest in pushing chip technology isn't there...and so few sell that the "innovation tax" is spread over too few sales such that it becomes financially infeasible.

I really believe that Google sees this possible future and that's WHY they are following Apple's playbook with the Pixel line. Google is going to take over more and more of the hardware just like Apple does.

But will Google give away their hardware innovations for free?

After all these years Qualcomm has not been able to out innovate Apple at chips. They seem to be a half cycle behind at best. But their premium chips sales have to be going down, not up. Even companies that have a flagship phone with top Qualcom chip....those are not the models they are selling the most of.

Ask HMD. Their Nokia 3 is their top selling model by far.

Per "wertigon" Ekström

@Jim:

Like Chithanh said, doesn't matter. I would say, look to the middle of the pack or growing right now e.g. Huawei, Nokia, BBK. Samsung could go either way, but that will take a while if they go south. Huawei might challenge Samsung in time, and Nokia might be able to make their way back to 10% or so of the market.

I do, however, hope the Chinese pick up the slack and provide some real Android competition, based on a more traditional GNU/Linux OS that is not as tied down as Android. Though realistically, we will probably get a more locked down Android clone with the Chinese...

Jim Glue

Define growing? Selling $200 phones? The ASP of Android is down around $206. The entire Android market has already reached maturity. One grows at the expense of another. Based on what? Selling ever cheaper phones.

You think the $400-$500 “flagship spec for less” phones are the end of the erosion? No. What these phones are doing to Samsung’s premium phones (and let’s face it, Samsung was the only one selling top end Android phones in mass amounts).

No, the same argument is going to destroy the $400-$500 Phone. Why buy one of those when a $300 Phone is good enough. You’ll see. Or you MIGHT see. Certainly more likely than iPhone sales collapsing or developers abandoning the most profitable ecosystem.

Google and Samsung might get their mojo back. It’s just going to be very tough to compete against cheap Android by selling expensive Android

chithanh

@Jim Glue
> .how does anybody else get buy with a mark up against a large, well funded competitor giving away their product at cost?

> And it DOES matter to "Android". We aren't speaking of "will Android exist", but "in what form will Android exist". Will it be in the form of a handful of "assemblers" with no support, no warranties to speak of, no repairs...and no innovation.

Clearly you still have misconceptions about how the Android ecosystem works. Innovation and trends are what drives smartphone sales. It is a shark tank, and only those who can keep up will survive, and only those who drive innovation will make more than slim profit. So yes, innovation is there, and stronger than in any other tech ecosystem, because it is a necessity to survive. Companies who don't provide adequate customer experience will see their market share taken away by others who do.

This is what delivers unbeatable value to Android users, and the very slim profits of most actors are testament to that.

> You have to have margin to finance innovation. You need margin to fund warranties, support lines and the like.

Margin and profit are two very different things.
If you followed Tomi's blog for a while, at some point he discovered that Nokia did sell Windows Phones at negative margin. Which means that Nokia had to spend more to get someone to buy that phone, than the income from the sale. This is another level of bad, and I am pretty sure that no Android vendor produces phones that sell at negative margins.

> The entire Android market has already reached maturity. One grows at the expense of another. Based on what? Selling ever cheaper phones.

Nope. Once Android reaches cheaper price points, it will reach customers who could not yet afford a smartphone. Get off your first-world centric perspective. Tomi has a multi-year prediction running that by 2020, we will see a phone that matches 2010's high end models, but selling for $10.

Currently we are a bit short of that due to continuously high DRAM and Flash memory prices, so if the memory market doesn't relax then Tomi's prediction might be off by a year or so.

Jim Glue

Finally, some numbers about the used phone market: https://www.counterpointresearch.com/surprising-growth-used-smartphones/

In 2017 140M refurbished phones were sold. Even more used phones were sold as not all are refurbished. No number was given for total used sales.

Refurbed phone sales grew 13% vs 3% of new phone growth.

Used phone sales are cited as one of the reasons new phone sales are down.

Samsung and Apple control near 75% of refurbed sales. Apple leads Samsung signicantly...but no numbers given. That’s over 50M sales of refurbed iPhones (and that’s only giving Apple 50% of the 75%)

This is how Apple’s install base is near 50% larger than its percentage of new sales (14% vs 20%).

And while neither Samsung or Apple is making money on the 2nd hand hardware sale...Apple is making great money on services sold to its install base.

Huge numbers share...larger numbers implied but not disclosed.

Winter

@Jim
"And it DOES matter to "Android". We aren't speaking of "will Android exist", but "in what form will Android exist". Will it be in the form of a handful of "assemblers" with no support, no warranties to speak of, no repairs...and no innovation."

This is the old howler "What if competition wipes out all producers? No one will make the product anymore". If consumers want service, they will happily pay for it. Apple is a clear example of this principle. There is also a whole market of high price Android phones to prove it.

An introductory course in economics might be enlightening and prevent you from making you look ignorant. Or read "An Inquiry into the Nature and Causes of the Wealth of Nations" by Adam Smith. This 1776 book explains it all in very readable English. The first part lays out this question and really is a good read.

You can get it at the Gutenberg Project:
http://www.gutenberg.org/ebooks/3300

A condensed version is available here:
https://static1.squarespace.com/static/56eddde762cd9413e151ac92/t/56fbaba840261dc6fac3ceb6/1459334065124/Condensed_Wealth_of_Nations_ASI.pdf

Per "wertigon" Ekström

@Winter:

Also a good read is John Nash, who expanded on Smiths theories. See:

https://en.wikipedia.org/wiki/Nash_equilibrium

Tester

@Winter:

"This is the old howler "What if competition wipes out all producers? No one will make the product anymore"."

Yeah, that's just ludicrous. Even assuming that competition wipes out most producers, at some point the market will inevitably consolidate and regenerate itself, because market pressure will lower as more competitors fold. Of course this will also lead to new competitors entering the market and filling the holes. It happened countless times in the past and will happen countless times in the future.
I really don't get it why all those "iEconomists" don't get such fundamental things. Then again, I haven't seen much knowledge of how the economy works from people who only ogle at the profits a single company makes.
On the other hand, a monopolistic market, dominsted by a single company, lives and dies by that company's decisions. If they stumble it will hit the market hard. Which ultimately means, assuming that smartphones last forever, that the likelihood of Android folding is magnitudes lower than Apple folding. To make Android fail it wouldn't be enough for Samsung to stumble. Others would fill that gap quickly. It doesn't even matter if Google stumbled, because the core OS is open source and someone would take over. Meanwhile, if Apple made a catastrophic mistake, nobody could step in and save their ass. iOS would take a hit, and depending on how hard that is, might sink it or just damage it. It'd be a classic case of "single point of failure".

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