Dispatches from the front line - War reporter checks in from smartphone battle zone

Nothing quiet on the Western Front..  Yes, we'll monitor the wars (I loved that joke someone said I think on Twitter, what if your son asks, Dad, what did you do in the big smartphone wars? haha)..  But yes, your frontline war correspondent, Tomi T Ahonen, from the sharpest view to both Barcelona MWC and the West Coast of the USA (ie sitting here comfortably on a public holiday in Hong Kong) is checking in. What are the latest salvoes in the battle? Who is outmaneouvering whom? The big World War in Smartphones of 2010. Situation report.

The big news today is Google's CEO Eric Schmidt throwing down the gauntlet and declaring Android handsets ship 60,000 units per day. Wow, thats 21.9 million smartphones per year. And last year third-bestelling smartphone brand Apple iPhone sold 25 million units. This is serious.

And the other big dispatch came from the Korean Front, Samsung explained they do indeed intend to shift their feature phones to smartphones on their Bada operating system, as their first Bada phone was announced at MWC. (just as I predicted)

Lets take a quick look at how these will impact the big race this year.

First, about the total market size. Assuming a reasonable growth rate of the existing smartphone base - 174 million smartphones were sold last year - would give roughly 200-205 million smartphones. But because of the Samsung Bada 'trick' of shifting their touch screen feature phones to smartphones, we need to add another 15-20 million smartphones to the 2010 total sales level. Expect the year to come out with roughly 220 million smartphones sold or roughly 18% of all mobile phones sold this year. Then lets examine how the latest NWC news adjust our expectations for the full year market shares in smartphones, by brand in order of size:

NOKIA - no change. No major announcements at MWC and as Nokia is only smartphone maker who fights in all three major segments - in high-end consumer smartphones (think iPhone), 'business' oriented but also youth-loved QWERTY smartphones (think Blackberry) and in low cost smartphones - and as I had already discounted the heated battle in the high-end consumer space, in my preview to the 'Bloodbath of 2010', Nokia stays pretty un-affected. Yes, a ton of Android phones will hit N-Series but we knew that. We expected it, so there is no change here. Nokia is still safely on track to hit 35%-38% market share.

RIM - some more encouraging tidbits keep rolling in. Botswana reported a similar surge in Blackberry appeal among the youth as we've seen from Indonesia to Venezuela. Talking of Indonesia, the Jakarta Globe newspaper reported that Blackberry outsells the iPhone at 25 to 1 in that country. But again, we expected RIM to grow modestly market share for this year. The evidence suggests that is happening, no change, expect Blackberry in the 22% - 25% market share range for the year.

APPLE - is in trouble. Since I posted my Bloodbath preview blog, the final phone shipment numbers came in, and the news was horrid for the iPhone. In the best-selling quarter of the year - Christmas sales - and now in 2009 that the iPhone was finally established in essentially every relevant market with China, South Korea etc added, the iPhone did not grow market share at all from the previous quarter. You remember Apple is the only smartphone maker with a peculiar sales pattern annually: big sales in Autumn after the new model is launched, leading up to its peak in the Christmas period; then poor sales in Spring after Chrismas. This was their one big chance for Apple and they blew it. I was not expecting Apple market share to stay flat for the Christmas season. That means its decline in the first calendar quarter of 2010 (January-March) will be far worse than expected. I would use the word devastating. And that pattern was already observed BEFORE this current, heated attack of the Androids.

Let me explain. Almost every major Android phone announced appears on first glance to be somewhat of an 'iPhone clone' and clearly not for example a 'Blackberry clone'. Most are touch screen flat 3 inch or bigger screen 'sexy' devices. Google Nexus One, devices like that. Meanwhile, Nokia now ships almost as many touch screen smartphones as Apple does, and Samsug's first Bada phone is a touch screen, and Window Mobile 7 (rebranded Windows Phone 7) is targeting the iPhone as is Nokia's new Maemo (again, rebranded and now co-developed with Intel, as MeeGo). So, if in 2007 you had a choice of perhaps 3 phones with big 3 inch touch screen, today you have about a hundred models (don't laugh, Android has announced 91 models already). That makes it far more difficult for one Apple iPhone 3GS - at the top end of the price range - and with now obsolescent features - to stand out and hold onto market share. I've told readers for a while already, that Apple has to abandon its one-phone-model-per-year strategy and expand to more models (like RIM did and Android is doing). That will happen soon, its inevitable.

So, I predicted that under best case scenario, Apple could hold onto its market share in smartphones. That has changed dramatically. Apple will certainly lose market share. Partly, because the peak Christmas performance for the iPhone sales was well below expectations. Partly because even more rivals have appeared aiming dead-square-center at Apple's turf. And this was before the Google announcement of just moments ago of shipping 60,000 smartphones per day.

I am now modelling Apple to lose market share in smartphones and hit something like 10%-13% for the full year 2010. Note that they will automatically do worse than that in the January-March quarter, possibly as low as 5%-8% and while that is not 'bad news' per se, it is typical to Apple's sales pattern, this is likely to spook many investors - especially in light of Google performance - and put a lot of pressure on the June launch of the next iPhone. Expect Apple to shift a lot of the discussion away from the performance of the iPhone and rather want to talk of iPod Touch, iPad and the billions downloaded at iTunes and App Store. Also, as the total smartphone market would grow by 25%, if the iPhone market share ends at 11% or less, it means Apple will actually see a decline in unit sales in real terms, where the market for smartphones itself grew by a quarter. Disasterous!

SAMSUNG - I am now modelling Samsung definitely to become fourth-largest smartphone maker in 2010, after their Bada strategy was more explained at MWC. As I said in my Bloodbath preview, Samsung is the only maker who can 'jump' their market share, due to a convenient shift of a vast volume of feature phone touchscreen phones - they outsell Apple in touchscreen (non-smart)phones already - so as their strategy does, as I predicted, involve migrating feature phones to Bada, this means they can easily hit 'Apple-like' sales volumes for Bada. I am not expecting them to pass Apple for the full year of sales this year but they definitely will in 2011, because Samsung sell far cheaper smartphones than Apple; Samsung has a vast array of devices ie they have a broad portfolio of smartphones; and as always in mobile - Samsung has the distribution channel advantage, far more mobile operator/carrier relationships than Apple. Note not all Samsung smartphones are Bada devices, they also sell Symbian, Android, Windows Mobile etc smartphones..

I am projecting Samsung to hit 7% to 10% in market share for the full year. Note that as they only now announced Bada, their early volume will be light, this will pick up strongly in the second half, exhibiting dramatic growth rates from quarter to quarter to quarter this year.

HTC - The Taiwanese smartphone player is gaining from Google's Nexus One branding and Google's big marketing push. At the same time HTC has already released 6 Android handsets under its own brand and has announced 13 more ! They also ship older Windows Mobile smartphones and just announced they'll have their first Windows Phone 7 based smartphone released before the end of the year.

HTC are on an upswing, but facing ever harder competition by many hungry brands, especially within the Android family (Motorola, Huawei, Dell, LG etc). I'm projecting HTC to grow slightly market share (and as the total smartphone market expands dramatically this year, it means large growth in total volume for HTC). I'd say between 5 - 7% for HTC

FUJITSU - Then we have not seen much from Fujitsu yet, about their international expansion plans in smartphones, beyond Japan. Their domestic Japan market is not enough to keep their global market share. I was expecting MWC announcements and haven't seen any (so far). So am downgrading their prognosis to a range of 3% - 4% market share.

MOTOROLA - is hearing the funeral march already. Motorola's gamble with Android looked good for a little while but now is vanishing up in smoke. All those other Android handsets will devastate Motorola's chances. The Huaweis and ZTEs will be cheaper, the LGs and Samsungs will have better feature-sets and value, and the Googles and HTCs will have better brand appeal. Moto is squeezed on all sides, and is losing this battle. I expect their market share in smartphones to be in the 2% range at the end of the year (and in all mobile phones to fall to 7th place, behind both ZTE and RIM in total handsets sold for the year)

SONYERICSSON - Has has some cool phones announced and several Android ones announced. I don't see them gaining major share but are solid for the roughly 2% size.

PALM - is a footnote of mobile phone history, technically in existence still for what, days? Their announcement that they sent their Chinese factory workers for extended New Years leave for 2 weeks instead of one, suggests Palm is not selling. I see them in deep despair, and won't hit one percent of smartphones sold.

OTHERS - We have many other brands. There are over 30 phone makers who already are announced for Google Android phones - 93 models announced so far. There are Huawei and ZTE of China, Acer and Dell the PC makers, old near-forgotten brands like Alcatel and Philips etc. And Google's own brand with Nexus One.

Plus the other six Japanese makers with their eclectic mix of Linux, Symbian etc phones. None of these will pass 1% in market share by my estimates.

So three will gain - Samsung, RIM and HTC. Apple will lose a lot, Nokia a bit, and Moto will not revive its fortunes with sudden smartphone success, neither will SonyEricsson.

OPERATING SYSTEMS

Nokia's Symbian will continue to shrink gradually, still sell well in the 40% range of all smartphones as the clear leader. Nokia's new MeeGo (ex Maemo) will not register meaningful numbers in 2010. 

RIM will sit in second place at well above 20% market share that is growing at a healthy pace.

The fight for third place will be intense, with Google Android the likely one to come out on top, a bit above the 10% level. Apple iPhone OS/X and Samsung Bada running neck to neck with Android. Remember Samsung supports 4 separate OS's so all Samsung sales will not be Bada this year.

Note that currently Samsung has 6 of the Android devices that ship globally, but Samsung has short product cycles, they are quick to shift to Bada when they want to, and they'll want to hit their target of tripling their smartphone sales this year as their CEO stated as their goal. So some of the current hot success of Android will shift later in the year when Samsung moves more to Bada (and also if Windows Phone 7 launches on time HTC will see a shift from Android to Windows Phone 7).

Specifically of the 60,000 Android phones sold per day or the current 21.9 million level, I am modelling for the full year (with the above assumptions of shifts) that of all Android phones, HTC will sell 31%, Motorola 16%, Samsung 14%, LG 12%, SonyEricsson 8%, Huawei 5%, Google 4%, ZTE 3% and all other 22 Android manufacturers to total 7% of all Android phones sold. I am basing my model on brand availability globally, on nuber of models and their expected release dates. I have made no consideration of actual phone model features or prices. So this is very rough but I believe reasonably valid, for the levels of what to expect for 2010 for now. 

The big loser in operating systems is Microsoft and Windows Mobile. I don't see them holding more than 4% or so of market share this year. They are betting the farm on Windows Phone 7, and clearly Google is now teasing them with the 60,000 phones per day announcement, and trying behind the scenes to convince as many smartphone makers as possible to abandon Windows and go fully Android. 

Obviously Palm is toast.

Thats how I see it now middle of February, as the MWC congress is going on and there are still many announcements to be made. If you want to see my full analysis of this year in smartphones, read Bloodbath in 2010. And if you want to understand why this market is not 'fair' and 'open' and 'normal rules' of marketing and sales do not apply, read my blog what it takes to win in smartphones. If you need the full market situation for the year 2009, see this blog Tomi analyzes full market shares 2009. And if you want a smartphone-sized eBook/mBook with all the mobile industry stats and facts, check out the TomiAhonen Almanac 2010.

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