MotoLozr, Apple and Nokia down: Koreans rise in 4th Quarter 2008 phone sales

We suggested Motorola would be suffering if they didn't turn their act around really fast. And we said that the Apple iPhone 3G was not going to sustain the level of sales they had for a full year - that Apple needs to learn about the enormously rapid sales cycles of mobile, and start to release more models per year (like RIM does with several models of the Blackberry).

So the numbers are out. Strategy Analytics offers final quarter numbers for 2008 as quoted by Bloomberg, and the headline news is that for the first time in many years, the fourth quarter of the year saw a decline in sales. Still, all of 2008 did not decline in mobile phone sales, but reached only 1.18 Billion units (when the industry expected over 1.2 billion for the year earlier in 2008). The handset market did grow, but only by 5% for the full year.

So who is ahead. Nokia obviously, but for the fourth quarter their market share has slipped somewhat down to 38%. Still by far the biggest handset maker more than twice the size if its nearest rival. That is Samsung, who has an 18% market share, also safe from number 3, at twice the sales in phone handsets shipped.

Then we get the first news. LG, which has been in fifth place, is now in third with 9%. So its not the Americans or Japanese or Swedes leading the handset busines, now the top three is solidly in the hands of Finland and South Korea. Fourth is SonyEricsson at 8% market share, which means that Motorola is now the MotoLozr, only a couple of years ago they were safely the second biggest phone maker, now they are at number 5 and falling drastically. Motorola's market share was 6%. RIM and Apple are hungrily looking at the target, hoping to hop past Moto next.

Talking about Apple. It is as I said in the summer, making one model will not sustain Apple, this industry moves too fast. This Christmas-sales season with the tough economy was really bad for Apple. In 2007 they grew sales from the July-September quarter to the October-December Christmas sales quarter. But this past year, they couldn't do that. The sales of the iPhone 3G actually fell from the third calendar quarter to the last quarter of the calendar year. Apple sold only 4.4 million iPhones and that translates to a 1.5% market share, so its not exactly the big growing success right now. What Apple really needs is to move up to a quarterly new phone model release cycle, to get past RIM perhaps and start to target Motorola. One new phone model per year, is not a sustainable market strategy. Imagine how out of date the iPhone 3G will be in a few months, nobody will want one as they start to anticipate the next iPhone for June 2009..

And of the smartphones? Nokia sells 8 million N-Series and 3 million E-Series (plus other smartphones too) in the fourth quarter, so they are safely biggest smartphone maker.

But the big news, MotoLozr. They are going down the toilet really fast. Shame..  Maybe they should book a workshop with Alan and me, about how to turn that company around, ha-ha..

Comments

[Adam]

The iPhone 3G was launched last July, at the very beginning of the third quarter. It wasn't possible to sustain that level of sales during the fourth quarter —reasonable assumption on your part— because there is a spurt of growth when a new model is introduced and then sales typically slow down. Add to that the fact that the economic environment was worst during the 4th quarter. Yet, Apple shouldn't be overly concerned about this. Analyst firms like Canalys, etc, measure sales compared to the year-ago quarter, not sequentially. And recognized revenue from iPhone sales was $1.25 billion this quarter, it showed a 417 per cent increase in revenue year-over-year and a 88 per cent unit growth.

Apple doesn't have a broad portfolio of models. I think that the line-up will expand eventually, but Apple will focus on a few handsets, they will never sell like 47 different handsets with 3 different operating systems, heterogeneous features sets, incomprehensible naming scheme, etc. The whole line would look like a confusing mess, a la Motorola. I guess that Apple won't release many models per year. How could the (imaginary) iPhone from october 2008 be any different from the iPhone released just 3 months earlier? It does not make sense to me. If they want to add new features after a few months, a firmware update will do the trick and keep the platform consistent.

Apple does not want to be the biggest phone maker. See the latest earnings call transcript when Tim Cook stated: "You know us. We're not going to play in the low end voice song business. That's not who we are. It's not why we're here. We'll let somebody else do that. Our objective is not to be the unit share leader in the cell phone industry. It's to build the world's best phones."

[Teemu Kurppa]

It's an interesting question that is the quarterly release cycle inherent in this business, i.e. something that a demand from customers create, or something that's created by the current device manufacturer - operator ecosystem.

However, one thing is sure - quarterly release cycle doesn't mean that there's quarterly innovation happening. From the software perspective - and most of the innovation in the mobile is software innovation at the moment - the difference between Nokia models released fall and spring can be nada. Building software innovation into an operation system is slow. Building software innovation as applications and web sites done by third parties, that's a different story.

I think Apple is playing a platform game at the moment, which is a wise move as there is not yet a dominating smart phone platform: S60 ecosystem is not working properly, Windows Mobile hasn't took off, Linux platforms aren't yet there.

Their iPod Touch strategy is a brilliant from this perspective, as it's supports platform strategy and can be sold outside of standard operator ecosystem. It's probably the first commercially successful secondary internet-capable mobile device, at least in the western world. iPod Touch sales are not separated in Apple's stats, but there were 4 million more iPods sold than predicted by analysts in Q4. AdMob's stats indicate that a lot of people got iPod Touch as a Christmas present (a plug: see my blog for the stats).

[kevin]

I have no idea if Apple plans to release more than one model a year (considering that models with different amounts of memory is really the same model), or if they will always discontinue the previous model with the new model release.

Regardless, it seems to me once a year is enough for hardware innovation for a smartphone if there also are 3 or 4 significant software releases during the year. The customization or "fashion" piece for those that desire it, is then mainly fed through software applications and accessories that one adds to it.

The question I have for you is what really drives the "industry to move so fast"? Is it really hardware innovation? Is it software innovation (since most mfrs don't update software on already released phones)? Is it to meet the customer desires for different fashions?

[Tomi T Ahonen]

Hi Adam, Teemu and kevin

Thank you for the comments. I'll address each invidually. I do want to point out, for all, that obviously my main thought was about Motorola suffering, and Apple was a side-story to the main blog entry, and all three of you were discussing the Apple side. I trust you all agree, that Motorola itself is in a tail-spin and very perilously risking the future of that brand in the mobile space..

Adam - "does not want to be the biggest phone maker" - yet Apple has been pursuing an aggressive growth rate for its launch - all analysts in early 2007 agreed that 10 million units in the first full year of sales was a serious attack to the mobile phone space, on par with RIM's Blackberry (based on their 2006 whole-year sales) who had been in the smartphones business for five years by then and considered a big success for a new-comer in the mobile phone manufacturer market.

Also Apple does seem to be loud about its successes, whether it was with the market shares of the iPod a few years ago, or last year when they suddenly claimed to be second-largest smartphone maker by sales volume in dollars, not by units of sales, etc. I do think Apple have strong interests in growing their market share, but are managing expectations.

But as to a 3 month release cycle of iPhones - that would mean they manage 4 phone models per year. Is this too complex in your mind? They already do that today with the iPod, with four iPod models sold today. Not confusing at all. I think this would be far healtier for Apple also with its phone line, rather than the rush of sales in the July-Sept quarter, and then decline decline decline next three quarters, to almost no sales in the April-June quarter, until the next new model is released. They would be far better off, if they had steady sales every quarter, than a huge spike in the summers, and then declines ever since.

Its just my view...

Teemu - about iPod Touch - yes totally agree. Brilliant strategy, capitalizing on the appeal of the iPhone and extending the sales of the iPod range and also providing a far larger addressable market to the Apps Store. I too wish they'd break down the iPod sales by type, so we'd know how many there are. I've seen some estimates that say for every iPhone there is 1.5 iPod Touches.

Kevin - I understand, and your reasoning seems very conventional and reasonable. Except that the phone industry does not work like that. The phone industry IS a fashion industry now (as first postulated by Nokia in 2002) and in the leading markets like Japan and South Korea, the heavy users buy two phones per year, totally harmonized with the fashion cycle - a Spring fashion and an Autumn fashion for phones. No matter how much some "reasonable" (often engineering-oriented) people may say that this is "unnecessary" - it is a fact. The global fashion industry drives that and it is often only very superficial changes in styles, colours, cuts, fabrics etc. And that same pattern has arrived for phones. There is an honest, hundreds of millions of phones per year subsegment of the market, that is driven by fashion, and in the leading countries - dozens of millions of consumers who totally think like this. That trend is spreading to Hong Kong, Milan, Paris, London, New York etc. Young adults, who do notice exactly which model of phone you have, and make judgements on your "fashion-sense" on how new or old your phone is, and is it in harmony with the rest of your outfit.

I am not for or against this trend, I just report it as I find it, and this is a fact in the phones business. For any manufacturer (like Apple) who only release one phone model per year, they fall behind in this cycle and lose vital sales. That is partly why RIM offers four models in their lineup, to be able to release one new model every quarter, to have one new phone at any given point in time. Obviously the big makers offer a new phone model every week or more.

Oh, kevin, you asked why the industry moves this fast? It is driven by the handset makers, not the mobile operators or the independent third-party developers. The operators would prefer that the consumers put their money on more services, not new phones. The developers would prefer a less-hectic rate of change. But the handset makers need an increasing sales cycle to grow the market, where phone-prices are dropping year on year, due to Moore's Law.

So the phone makers are behind this. Its in their interest.

Thank you all for writing

Tomi Ahonen :-)

[kevin]

Thanks for your insight. So now, will that fashion subsegment slow down given the recession? We'll see soon enough.

I think we all agree with you that Moto is rapidly becoming an also-ran; their 4Q results announced today just confirm it. The underlying rot probably began a long time ago and was just well hidden by their one big many model Razr success.

[Tomi T Ahonen]

Hi kevin

Yes, very good point. Fashion is typically hit very hard in recessions and that part of mobile is likely to be hit harder than the mobile industry in general.

I saw something from Japan about Softbank saying the replacement cycle is slowing down in Japan, but haven't yet seen any official numbers on it. But we can be seeing a global slowdown in particular on the fashion side of it.

And yeah, we agree on Moto. Sad though, would hope they could revive. Its the same market that created the Blackberry and the iPhone. Why can't Moto do something as spectacular with as big passion and customer loyalty..

Thanks for returning kevin

Tomi Ahonen :-)

[Dollar stores]

I think we all agree with you that Moto is rapidly becoming an also-ran; their 4Q results announced today just confirm it.

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