All Quiet on Western Front - Smartphone battle update: RIM is NOT in trouble

Time to do update for the'Bloodbath' ie smartphones market war for 2010. I wrote the first major update for how 2010 was starting to form, after the Mobile World Congress: Dispatches from the Front Line. And I also wrote my scolding rant about who is rival to whom:Repeat after me, Rival to Blackberry is not iPhone. If you are new to the blog and want to understand the smartphone market and why this market does not obey normal 'free market' rules, I explained the smartphone market in great detail in this blog Smartphone Realism.

But yes, time to do update. RIM has reported its quarterly sales numbers for Dec-Feb quarter. We have some other tidbits of news as well for the past six weeks or so. I also am seeing lots of truly moronic incompetent analysis of the smartphone market as the US based pundits and 'experts' and analysts babble about Apple's CDMA 'Verizon' iPhone prospects, and the iPad impact, and now what they call 'disappointing' RIM performance.

I wonder how they will react when Apple reports Jan-Mar quarter market share for iPhone declined from the previous quarter at 17% for Christmas to about 12%-14% (or worse) for Jan-Mar Quarter?. I am sure the pundits will cheer and hail hallelujah, this is perfection (because no doubt, of all those billions of application downloads and the new iPad). Why do you think Apple launched the iPad a few weeks before its worst iPhone annual sales quarter is due? But I am getting ahead of myself.  Lets start with relevant news from the smartphone makers and see how they impact the 'bloodbath of 2010'

NOKIA no major news here. Plugging along as the undefeated world heavyweight champ with no scheduled title bouts on the horizon. Last quarter Nokia posted increased smartphone sales and more importantly, growth in its market share. Nokia related news recently, many analysts reported that the smartphone market is increasingly shifting to low-cost smartphones (big surprise, yeah, haha). They make the point that in the most advanced markets like in many European countries, the growth is all in the low end of smartphones. This we will see ever more in America as well. And who got us there? It was of course Nokia first to drive that shfit. Totally in line with what to expect from the grand master. My forecast holds for modest decline in its market share but still clear biggest maker of smartphones for Nokia this year.

RIM the Blackberry maker reported its quarterly sales for their quarter which ran December to February. Its in other words 1 month ahead of most others, or 2 months behind most others. The first quarter of the year is traditionally the worst sales month for all makers as smartphone sales decline sequentially about to about 90% of the level of quarterly sales reported in the previous Christmas quarter. The Christmas quarter is for obvious reasons the best quarter of any year in smartphone sales. These new RIM quarterly sales include the best month of the year with the 2 worst quarters. Interesting.. But certainly not a 'normal' last quarter of the year. For all those smartphone makers who report Jan-Mar quarters, I expect actual numerical decline in unit sales. A 10% drop (ie sales levels at 90% of the 4th quarter ie Oct-Dec sales) would mean the smartphone maker would roughly speaking hold its market share.

Anyway, RIM reported sequential increase from 10.1 to 10.5 million smartphones. It held its market share at 20% for the Oct-Dec quarter. But it means that when we factor in the Jan-Mar quarter after the major players have reported in by the end of April, RIM will end with between 21% and 22% of the market for this Jan-Mar quarter. Looking good. Very good. This is at a time when RIM should be feeling the full heat of the Motorola Droid and various HTC and Google and other rival Android handsets. And RIM managed to do this while increasing profits. Increased profits in a bloodbath? Thats pretty awesome.

We also received more info about RIM's strong markets. In Venezuela Telefonica says that Blackberry is used by about 10% of its subscribers. Compare that with Blackberry's best market, the USA, where it has about 11% of all subscribers. And Venezuela is obviously not a 'Western' wealthy nation, it is an emerging world country. Ten percent of all phones are Blackberries. RIM also holds a massive 37% of total Latin American smartphone market share, its second best market after North America.. RIM is seriously closing on Nokia which leads smartphones in LatAm. And we heard that RIM is putting up a factory in Brazil to make smartphones locally in that market. All speaks very well for continued growth there. RIM now reported that for the fourth quarter for the first time, nearly half of their revenue is generated outside of North America.

Other big markets for RIM are Indonesia, where there are over a million Blackberry users, and Blackberry is gaining rapidly popularity in India. And repeated stories come from Britain that Blackberry is winning over the youth of Europe. RIM itself reports that the youth market is its strong growth sector.

APPLE As I've warned readers, this is now the 'horrid quarter' for Apple iPhone. Not only will the global market for smartphones decline sequentially from the Christmas quarter, but for Apple, its market share pattern is such, that the market share will dive dramatically in the Jan-Mar quarter. It has averaged a 67% crash in market share for the January-March quarter, because as I have explained, Apple's product line has only one new phone per year, released in June. It is definiite, that in both absolute number unit sales of iPhones, and also in market share, Apple will see a sequential decline from the fourth calendar quarter of 2010. (they will not focus on that, they will probably announce 'annual' growth from the same quarter a year ago)

But as I said in the previous update, the news from Cupertino is far worse, the Christmas 2009 was first quarter ever in iPhone's short history that it did not grow market share sequentially for Christmas, and with all the new Android etc devices which hit Apple's primary target market segment square center, Apple is already on the ropes, and its Jan-Mar quarter will be brutal. What is even worse, there may have been a 'wait' attitude about the iPad hitting iPhone (and iPod Touch) sales. I don't know but that is also possible. If Apple reports iPhone numbers at 6.5 million units sold, - that would be around 12% or 14% market share, down from 17% last quarter. In my picture, that would be 'good news'. It can be far worse than that. My 6.5 million unit iPhone sales assumes only a drop to 75% level of Christmas quarter sales. It could be 67% (5.8M) or even less..

Apple is now doing the full smoke-and-mirrors show, talking up the iPad (which will definitely not sell as many units as the iPhone did in its first year, so this is mostly hype and hope), talking up their iAd platform, and they will be doing tons of stories about iPhone App downloads and iPod Touch sales etc. And a lot of speculation about the next model (some call it iPhone HD) and whether we'll get a CDMA model for Verizon etc. They may well do some 'spectacular' announcement just before or around their quarterly results to distract from poor iPhone sales.

We do know that the next iPhone won't be sold until June. So its misery until then. Apple's wishes to crack the enterprise/corporate market (where they have less than 1% market share in enterprise smartphones, RIM's backyard) were dealt a bad blow when a survey by nCircle revealed iPhone is seen as most risky smartphone platform - by IT security professionals - with Google coming second. Yes, Apple won't be taking enterprise customers any time soon. And as I've said, Apple is completely dependent on the repeated success with their next iPhone model. Its become ever more obvious that Apple will lose market share for the full year.

HTC has been reporting very bullish numbers and market acceptance. While being very steady in market share the perennial little guy locked in fourth place and 5 percent market share when they peddled their Windows Mobile based smartphones, now with Google Android, HTC has come alive. They grew sales dramatically toward the end of the year and currently are looking at 35% to 40% growth in sequential numbers ! And by their fourth quarter they had hit the 6% market share level. If the trends would hold, that would put them in 7% range upside opportunity for the full year.

HTC CEO has been suggesting they'd become the third biggest smartphone maker. Brave words, but I don't see them having any statistical chance to do that this year,  Apple is too far ahead and RIM (and obviously Nokia) untouchables this year. What is worse, Samsung is already nipping on HTC's heels and will soon pass them with their Bada strategy. No, even if HTC manages to growth their market share to 7% - a very very good year for them, in the overall race, HTC would still drop back a slot, and be luckly to hold onto 5th biggest smartphone maker for the full year.

HTC said in its annual report that between 5.5M and 6M of its smartphones in 2009 were sold in the USA. This is both good news and bad news. It means HTC has taken 12% of the US smartphone market in 2009. But remembering that the US is the small market, Europe is bigger and the rest of the world outside of the US accounts for nearly 3 out of every 4 smartphones sold, HTC's non-US market share in smartphones is thus only 3%. They have their work cut out for them. Now, while many of the recetly popular HTC smartphones have not all launched in Europe yet, the European market has three big differences - it is far more mature, the customers have had smartphones for far longer - a third of Italians for example already have a smartphone according to ComScore stats (vs 18% of Americans in same survey). In Europe the carrires/mobile operators have far less influence on the decision of the purchase, compared with America. And in Europe HTC faces strongly entrenched phone makers Nokia, Samsung and SonyEricsson. Samsung and SonyEricsson both dp Android phones so HTC won't have that market to itself. And both Apple and RIM are in strong growth in Europe. Its battle will be tough to replicate US success that HTC had with the Android platform. SonyEricsson and Samsung are far more competent rivals than Motorola was in America for Android smartphones.

Still, Google's Nexus One is likely to see better success in Europe due to how Europe's phone market is not stiffled by the four big carriers/mobile operators of America. In Europe phones are sold far more often directly to consumers or through independent intermediaries like Carphone Warehouse, Europe's biggest phone retailer. I am projecting HTC to grow sales definitely, perhaps even grow market share with a target annual market share in the 6% - 7% range but falling from fourth place to fifth.

SAMSUNG keeps to its strategy of supporting every platform under the sun, so even though it launched Bada, Samsung has since also released Android and Windows Mobile based smartphones. This all helps Samsung cover all bases but it means that for Bada developers there is somewhat a lost opportunity here of 'why the other platforms' and it must be costing Samsung considerable development costs. I would expect that as Bada phones come to the market, we'll see most new announces on Bada. But still today, Samsung seems to support 4 different smartphone operating systems (fourth being Symbian). But since we last looked at the smartphone bloodbath, we now have Samsung's official target number. Interesting. They said they want 18 million smartphones this year. That would put them solidly in 4th place with about 8% to 9% market share for the full year.

As I've said, if they convert their touch screen feature phone line to Bada, they will outsell the iPhone overnight. This will definitely happen, the only question is timing. If Samsung says 18M this year, then the expect something like 19M to 20M this year, but because this is organic growth, each quarter expect bigger sales by Samsung, growing from under 3M sales per quarter now to over 6M per quarter by the fourth quarter 2010. Roughly speaking Samsung would be running well past HTC levels and approaching sales levels of Apple per quarter by Christmas 2010 (and then rocket past them in the first quarter of 2011 when Apple sales again decline in the first calendar quarter of 2011). Samsung on target for my forecast of strong growth in 2010.

MOTOROLA did not get the surge it had hoped for with the unfortunately short 'honeymoon' it had with the Motorola Droid/Milestone. I think it is turning now into the Motorola Turd/Millstone, adding to Motorola's massive operating losses but not bringing its market share back. Motorola is damaged by HTC and Google at the 'desired' end of the Android market, and ultra cheap Android makers like ZTE and Huawei on the price end as well as Samsung and LG at the feature-overpacked 'Asian' model end of Android devices. Remember as the market for smartphones expands, especially beyond wealthy Northern Europeans, Americans and some wealthy Asians, it is ever more driven by price. In its home market, both LG and Samsung are now bigger handset makers, so their Android strategies in North America will hit Moto hard. And in the rst of the world in the past year Moto fell from 3rd biggest to 6th biggest handset maker. It means Moto is behind LG, SonyEricsson and ZTE in the rest of the world by sales volume of all types of handsets - and these three are all 'pure' Android makers. Motorola won't be seeing a strong gain in its overall market share due to its Droid/Milestone, and within smartphones, won't reach 5th largest maker even for one quarter.

PALM reported it gave its staff extended New Year's leave in China. As I mentioned on Twitter, that was a harbinger of very bad news and it was. We heard their quarterly results. Ouch! Another loss-making quarter in a row, and now they have oversupply in inventory, meaning for the current quarter, Palm won't be able to sell even to meet demand, as there is excess inventory of Palm smartphones already with their retail channels, awaiting customers. The total sales are down, market share in tailspin. Nobody wants Palm. It is truly doing a death-dance in front of our eyes. 
 
SONYERICSSON rumors are growing stronger of a PlayStation Portable type of smartphone. A SonyEricsson executive all but promised that type of device before the end of the year. I think this is inevitable. Lets hope its a good phone too, so it won't be as daft a device as Nokia's N-Gage was. What is hurting SonyEricsson is the delay now. They need to get the buzz going and they should formally commit to the plan and announce it, to make the PSP phone the 'wait for the phone' device for the summer months. The longer it takes, the more other makers get to solidify their markets. And SonyEricsson smartphones tend to be irrelevant outside of Europe and Japan. So SonyEricsson really needs the European market or find its gobbled up by new smarpthones by Samsung, LG and HTC, as well as the European hunger for Apple and Blackberry (all while Nokia dominates in its home market). Other than the PSP phone, SonyEricsson is lauching new Android phones.

FUJITSU was very absent in the news. I had been expecting them to do some big announcements at least for the CTIA but nothing really anywhere. The Japanese IT giant and its biggest smartphone maker seems to have had second thoughts about the smartphone market. Perhaps we won't see a return of hte Japanese?

LG was making a lot of noises and announcements at the CTIA about their smartphone aspirations. Part of that may be 'me too' aspirations of the 'second' phone maker of South Korea, so as Samsung does big announcements, so too will LG need to do some. I am not yet convinced LG will become big in this space, but they are doing a lot of Android phones - they had 7 so far, so as Android goes, LG can well be part of that party, and do it possibly at lower cost. LG is America's most loved 'dumbphone' brand (Apple being most loved smartphone, by JD Power customer satisfaction survey). LG should be able to convert some of that love to smartphone market share in the US.

DELL is one of many newcomers to smartphones. We won't see their sales levels at anything worth mentioning yet in this quarter.

OPERATING SYSTEMS

SYMBIAN is steady, the world's biggest smartphone operating system biggest on all continents except North America where it is miniscule. Symbian will gain from Nokia's refining of Ovi and Ovi news have been trickling in that it gradually improves. Symbian as an open source foundation is also expected to evolve to more user-friendly and popular smartphone platforms from developer and user points-of-view vs closed smartphone operating systems like its two nearest rivals, RIM and Apple. Symbian is still almost half of hte market and Symbian phones sell as many as RIM, Apple, Android and WIndows Mobile put together. Nokia's (and Intel's) open source Linux based MeeGo is the future for Nokia's top end smartphones. Symbian will be rolled down to ever cheaper smartphones as the main battle will be in the lower price points, not the top end.

RIM is continuing the push of Blackberries beyond the enterprise market and in this quest is adding lots of consumer apps and especially social networking oriented solutions. RIM's operating system is on one out of every 5 smartphones sold in the world, and roughly half of those sold in the USA. Its global footprint is very sporadic, for example in Europe, Blackberries have 20% of the UK smartphone market but only 5% of the French market. As mentioned in the above, Blackberries have been far more successful in the emerging world markets and are particularly strong in Latin America (RIM's second best market after North America). Sometime this Spring-Summer we'll hear from RIM that they've shipped their 100 millionth cumulative Blackberry device. Not all are in use, obiously as this counts from 2001. Still its a big milestone to celebrate.

APPLE OS/X is the strange fish among 'smartphone operating systems' because it is the only one with major added market out of non-phone devices. When it comes to considering smartphones, we cannot consider the iPod Touch or iPad in the race, they are not phones. But the iPod Touch and iPad both offer a significantly greater reach to the operating system. So any developer should know that the Touch market is about two thirds as big as the iPhone market, and already at the end of the year, while iPhone had 43 million cumulative sales, when adding iPod Touch the number hits 75 million. Now from April we see iPad sales adding to those numbers as well. The iPhone 'and compatible' devices platform will pass 100 million cumulative sales by the summer of 2010. Also bear in mind, not all of those are in active use. Morgan Stanley reported the iPhone and iPod Touch have a 2 year replacement cycle, so we're of course seeing older iPhone 2G and 3G models and early Touch models being replaced by newer models. I am modelling the installed base of iPhone to be at 80% for end of year 2009 so out of 43 M iPhone smartphones ever made, 34 M were in use. Nonetheless it is fair to count the cumulative sales and we'll be hearing from Apple during the summer months that their cumulative shipments of iPhone compatible devices will pass 100 million sales.

GOOGLE ANDROID has been in strong growth in America, and now about to see similar growth in Europe. Several factors drive Android's rapid growth. It is a new OS, built recently for smartphones, rather than the Windows Mobile, Symbian, RIM (and Palm) OS's that trace roots to a decade ago. Android is open source. Android is not closed like Apple's iPhone OS. So when major handset makers wanted to pick OS platforms to develop new desirable handsets, numbers 2, 3, 4, 5, 6 and 8 of the top 10 biggest handset makers have all launched Android phones, and numbers 3, 4, 5, 6 and 8 have essentially all now focused all development on Android. Note these top 10 makers do not include the world's biggest Android manufacturing phone maker, HTC, but when counted together, currently Samsung (2nd biggest handset maker), LG (3rd), SonyEricsson (4th) and Motorola (6th) outsell HTC in total Android devices shipped.

Android is only in the early stages of a strong growth year. Many of the exciting phones that have been announced have not yet been released. Many of the phones that have been released, have only been done so in a few key markets like the USA or UK etc. So as the Android 'invasion' gets to full steam around June of this year, we should see Android in anywhere from 12% to even 20% of all smartphones sold. It does, however, also introduce that perennial pain of smartphone OS platforms - fragmentation. We are seeing a lot of diversity already now in Android devices as the platform is only about a year old in commercial terms.

WINDOWS MOBILE is putting on a brave face. They promise Windows Phone 7 to be on time and then they try to hide from any facts about WinMo until then. WinMo is bleeding market share from quarter to quarter and that pattern holds with all news from Microsoft and its smartphone makers. Microsoft OS's are still losing market share quarter-to-quarter and no light is in that tunnel, at least until the fourth quarter of the year, if even then.

BADA is not yet selling in meaningful numbers

LIMO Other Linux Mobile phones tend to be relevant in Japan only and in very modest numbers elsewhere.

PALM is toast.

There is the update to smartphone US market shares. During April we will hear the big handset makers report on their sales, and we'll also hear the big market analysts report on the quarterly results of the market share battle. It is getting brutal with so many new makers and so many of the legacy major players adding focus to smartphones. I would say two things - on the one hand, we'll see more variety and 'excitement' in that way, but more than that, we'll see a lot of damage to profits and very many smartphone makers to struggle as the bloodbath moves into spring sales. Is an interesting time to be monitoring the race. Stay tuned.

Comments

[Romain Criton]

@Baron95
Tomi says that Nokia is the undefeated WORLD champion, and you reply with US numbers... Repeat after me: US != World

Also when you say that "Apple can give the iPhone away [...] because they make a ton of money from iTunes and iPhone apps"
Let the numbers talk:
iPhone total units sold in last quarter of 2009 (1st quarter of fiscal year for Apple): 8.7 M
Estimated cost for the 3GS (source iSupply): $178
That gives us about $1.5 Bn of costs for iPhones sold over the quarter.
Now let's compare that to:
- $1.2 Bn: that's the TOTAL iTunes Music Store revenue over the same period, so this includes not only music & video sales from iPhone owners, but also those from all iPod owners
- $225 M: that's the estimated TOTAL App Store revenue for Apple (i.e. including iPod Touch) based on the infamous GigaOM article that estimated the App Store revenue, and whose optimistic figues even drew Tomi's attention (and ire)

Now please explain to me how Apple could afford to give the iPhone away when it costs them more to build the products than the sum of the TOTAL ITMS + App Store revenue.

I think you really get Apple's business model wrong: their service offering (iTMS, App Store) is a driver to sell hardware, not the other way around (i.e. contrary to game console business model)

Sources:
http://gigaom.com/2010/01/12/the-apple-app-store-economy/
http://images.apple.com/pr/pdf/q110data_sum.pdf

[kevin]

Romain: Altho Baron95 used a poor example with US numbers for Nokia, when he says Apple could give the phone away, he meant it could be sold by carriers to consumers for free. The carriers would still pay Apple a subsidy that more than covers the phone development and production costs.

With a current ASP of over $600 for iPhone (compared to $311 for Blackberry), it is estimated that Apple has 60% margins. Given that the average iPhone sells for $200 to consumers, Apple could afford to charge the carrier $200 less (so the iPhone would be free to the consumer) and still make a profit equal to or better than many other smartphone manufacturers.

[kevin]

Tomi: I see Apple improving, not getting worse. Unlike most of the other vendors who already had global distribution, Apple was just starting out - so launches had a great impact.

In 4Q07, iPhones sold = 2.3m. In 1Q08, iPhones sold= 1.7m. 26% qoq decline. 33% market share decline (using IDC numbers). (Remember in 1Q08, iPhone was sold in only 4 countries - US, UK, France, and Germany - having launched in the latter 3 in 4Q07 - and it was a radically different type of phone, but without 3G. There were no new countries added in 1Q08.)

Then in 4Q08, iPhones sold = 4.4m. In 1Q09, iPhones sold= 3.8m. 14% qoq decline. 17% market share decline (using IDC numbers) (In 4Q08, iPhone launched in over 30 countries, incl Brazil, South Africa and Turkey, but in 1Q09, launched in only Saudi Arabia, UAE in Feb; in Indonesia, Malaysia near end of Mar.)

Not that it matters much, but I think you also underestimate the number of iPhones still in use when you say 34m of the 43m are still in use (as of Dec 31 2009). Apple sold 6.1m iPhone 2G (original iPhone) from June 2007 through June 2008. So even if you assume all of those phones are not being used (and I know some are still being used), you're also assuming that 3m 3G models (or 15% of all the 3G model units sold) which are less than 2 years old have also been turned off. Granted that many 3G users upgraded to 3GS, those 3G models were passed on (with or without phone contract) or sold for good money on eBay.

[kevin]

"the Christmas 2009 was first quarter ever in iPhone's short history that it did not grow market share sequentially for Christmas"

That is also wrong. According to IDC numbers, iPhone market share in 3Q08 was 16.6% but only 11.2% in 4Q08. So 2009's decline from 17.1% to 16% was a better performance. I don't have the Canalys numbers but I can't see them having 2008 being a sequential market share gain when Apple dropped in units from 6.9m to 4.4m.

Not sure why you have so many errors when it comes to Apple.

[Sami]

Kevin: agree with the iPhones-in-use numbers; I think the vast majority of iPhones are still in use, even many of the original versions. Many no longer with their first owners, but the total life cycle of the device is not as short as Tomi's numbers would suggest.

Tomi: thanks for the roundup. While, by looking at the numbers, it's hard to dispute Nokia as the "undefeated world heavyweight champ", I fear their current position as the champion rests more on momentum and the move towards "democratizing the smartphone" as they put it than on leading-edge product innovation.

Nokia has not come up with compelling high-end devices for a worryingly long period of time and are clearly behind in the mobile processing power race. Now, I'm not saying CPU power automagically translates into a better user experience, but it is an indication of something that the supposed flagship, N97, has a CPU capable of approx 600-700 Dhrystone MIPS whereas the 1GHz Snapdragon in several other phones does around 2100 DMIPS - or over three times more than N97's 434MHz ARM11.

Just like Apple desperately needs to come up with a good device this year to keep up to speed with the rivals, so does Nokia. You can only run so long on brand goodwill and aging portfolio.

Also Tomi, as a sidenote just because I know how much you love accurate, unbiased reporting, did you know Apple now "controls 89% of the developers' mindshare"? ;P

(See http://brainstormtech.blogs.fortune.cnn.com/2010/04/02/apple-now-controls-89-of-mobile-developers-mindshare/)

[Tomi T Ahonen]

Hi Baron95, Romain, kevin (3 times) and Sami

Thank you all for the comments. And I will respond to each individually, but let me make one comment overall. This is not an 'Nokia vs Apple' blog posting. I am disappointed that so many of the comments are only about Apple or Nokia. This blog article is part of a series of blogs that is a review of the smartphones market, where the majority of the action currently is about Blackberry and HTC (whose numbers have been released) and we are awaiting Nokia and Apple and Samsung etc numbers. This is part of a series of blog articles, and in this edition the big 'news' were about HTC and RIM (and some Samsung). Not Apple - its 'news' was in February in the previous update nor Nokia which has no significant 'news' in this space since I wrote my big 2010 preview - Nokia are still totally on target.

With that, to comments individually

Baron95 - as Romain kindly already pointed out to you, this blog is about the world market, not the US market. The USA accounts for one quarter of the world's market for smartphones. If you want to count the largest market, and use the 'by revenue' measure to claim US is bigger than Europe - that would be very close as Europe is also Apple's second biggest market and Nokia sells far more expensive smartphones in Europe than in the USA, but I do not have that breakdown by region. But that is obviuosly not the normal way to count market size, the market size for cars, for airplanes, for television sets, for personal computers - and for mobile phones and for smartphones - is measured by units sold. For units sold, Europe is far bigger than the USA as a market. Europe is bigger than all of North America actually.

You say 'application development velocity' - an interesting argument. I grant you that apps can be relevant, but we should then examine their relative size. The TOTAL global size of app store type apps, is between 1B and 2B dollars annually. The total 'any type of app' including business apps etc - is 5B dollars. But mobile phones sell roughly speaking worth 150 Billion dollars annually. Roughly a third of that revenue is smartphones and the rest 'dumbphones' ie non-smartphone types of handsets. The app market is curretnly creating a lot of buzz by enthusiasts and pundits, but is puny compared to the overall handset market sise. If you want to say Apple gains out of its 'application development velocity' then I would say that FAR more important to their smartphone market success globally, is for Samsung, Nokia and LG - the fact that they have a 'dumbphone development velocity' by which they can gain huge revenues from a few smartphones at the top of the range, and then sell featurephones to those who aspire to own a smartphone but cannot afford one - each of Nokia, LG and Samsung sold more touch screen phones, adding their dumbphones - than Apple sold iPhones in 2009. Apps are not significant (yet, but they can become significant in a few years). Dumbphones are.

Baron95 you are clearly thinking this blog is somehow 'anti Apple' and 'pro Nokia'. You say for example that "You say, smartphone trend is to go down in price, in a desperate attempt to justify your silly assertion that Nokia is undisputed". Baron95 - did you not read the blog? I said that Nokia's market share is headed down this year! And the average price trend in smartphones is down, that is a fact, it is reported by all major analysts of the smartphone space. It is not something I somehow invented.

Baron95 - then on Apple's 99 dollar (and 199 dollar) end user "price" in the USA is market foolishness. The real price of Apple's iPhone range is 600 dollars, as said by Apple CTO in Apple's quarterly results. What happens in America is that the consumer is tricked into paying a small up-front price and the rest of the cost of the iPhone is hidden in monthly payments for 2 years. This is not the way iPhones are sold in all markets. In countries like Italy, Australia and China the consumer pays the full price. So your argument is again only US specific. This is not a blog about the US market for smartphones, it is about the world market for smartphones.

On your claim that Apple could afford to give away the iPhone with the money it makes on iTunes and App Store - the fault of that logic was covered well by Romain.

On 'Nokia being marginalized' - if you mean Nokia being marginalized 'in the US market' then that is indeed true. But consider, those brands who focused their market success on the US, vs the world - Motorola, Palm, Microsoft - they have all suffered massive decline in market share (Motorola was once world's largest handset maker, Microsoft once second largest smartphone OS and Palm once world's second largest smarpthone maker). Motorola and Palm have reported continued operating losses quarter after quarter, for several years running. But their rivals who have focused on world market - Nokia, Samsung, LG, Symbian, RIM and Apple - have all thrived. Note that both Apple and RIM suffered when they stayed focused on the US market, and only when both changed their PRODUCT and their sales channel strategies, more copying Nokia - did they manage to gain overseas market success. Today 60% of Apple iPhones and nearly half of Blackberries are sold outside of the North American market. The deadly path to becoming 'General Motors' in your analogy is not to follow Nokia to the world market - they are profitable - but to follow Palm or Motorola and focus on the US market.

But most of all, Baron95, this is NOT a posting about 'Apple vs Nokia'. I gave warning that Apple will be reporting bad numbers - and make it clear this is NOT a sign of bad nwes. Would I want to do that if I was somehow 'against' Apple? If I was against Apple I'd be talking up Apple growth in the Christmas quarter sales, and then wait until the numbers came out in late April and make a big noise about the 'disaster' quarter they were now having? Same for Nokia, current short-term trend is very strong for Nokia - they GREW their market share (and sales) very strongly in the fourth quarter of 2009. Their current trend is up. It would be very reasonable to suggest Nokia is still growing. I am not saying that. I take the whole global world picture in view, who competes against whom, and where, and see that in the global picture, Nokia will take hits this year. Not because of Apple - Apple's primary rival this year is Android and HTC, with Nokia's N-Series only one of its rivals. Nokia's primary rival continues to be Samsung for world domination, and in smartphones, continues to be RIM. This blog is not about Nokia v Apple. This article and its follow-ups are about all smartphones, globally. I would hope you could understand that, Baron95.

Romain - thanks! very good comments. And you make a great point about the role of iTunes and App Store - yes these help drive hardware sales. Yes, Apple makes a little bit of extra income from the software/servies side, but they are still a device maker, not a software house by the majority of their revenues, safely so for many years to come. And I think the new iPad is a perfect example again of how they try to use the App Store apps portofolio to sell a new device, something that their traditional PC rivals like Dell, HP, Toshiba, Acer, Lenovo etc cannot do. Very clever by Apple.

kevin - several comments. Thanks. First on the end-user price. You kevin seem to be still looking at it from the US market angle. Yes, in some markets the iPhone is subsidised and thus the end-user pays only 100 dollars or 200 dollars or gets even the iPhone for 'free'. That is always then a contract where the full 600 dollar price is covered in the annual sales. Apple gets its price in every case. And most of the world sells phones the 'normal' way to most of the customers. Three fourths of the world's customers are on 'prepaid' accounts, where there are no handset subsidies for expensive phones, and of the remaining quarter who are on contracts, about half are business/enterprise clients - who as we know use Blackberries - and of the rest, there still are many countries where customers have monthly paid accounts but pay full price for the phones like in Italy, Belgium and Finland for example. So we see lots of countries where the customers pay the full 600 dollar price for their iPhones, they have no option for less in fact. (These are also according to Apple their worst markets, Apple struggles in those markets where customers pay full price upfront, not hidden in a monthly fee for 2 years. Nokia's best markets are those where customers pay full price for the handset upfront, and the carrier/operator does not factor in the decision for the handsets. That should say something about which brand has a sustainable market vs being 'desirable' in a Ferrari sort of way, "if money was no object, I'd like a Ferrari, but I buy a Ford."

Then kevin you quote the quarterly numbers and compare quarter-on-quarter sales developments past the Christmas quarter. We agree. I don't see your point. You clearly are providing evidence that Apple has its annual sales cycle where after Christmas their sales crash. We agree.

On the numbers in use - that actually is my 'global estimate' based on AT&T actual reported numbers in the USA. So yes, its actually based on real facts on the iPhone's biggest market and its biggest carrier. As of third quarter 2009, 20% of all iPhones ever activated by AT&T had already been replaced. Sorry, the numbers are there but I have not seen them yet reported for the rest of the world, that is why its a rough number. Two other important relevant points - first, this number will decline of course over time. The average replacement cycle for phones globally is 17 months. The USA used to have a longer replacement cycle than the world average but like so many of US related numbers in mobile, the USA is catching up to mid-country levels of the Industrialized World, and the US cycle is shrinking. Secondly, iPhones suffer from the second hand market opportunity where say Nokia in most markets is not SIM-locked, so used Nokias are resold to poorer people within that market or shipped to Emerging World markets where used N-Series and E-Series are very desired phones. In many countries like Indonesia (and here in Hong Kong) the consumers have phone cases to keep the case of the phone and its screen in pristine condition - to maintain a good resale value. If you buy a 300 dollar smartphone, and you expect to sell it in 18 months for 120 dollars, that changes the equation quite a lot from paying 300 dollars and throwing it away. Or from getting it for free but paying viciously high monthly fees for your account.

But yes, kevin - your main point is that you see Apple gaining. I don't dispute that. On an annual level, Apple has done a tremendous job and they've entered the top 10 biggest mobile phone manufacturers (barely) in only 3 years. A truly excellent result. I agree with you that Apple has grown - but I point out, that has to be measured on an annual level. The Apple January quarter is always bad, so we can't measure them for this quarter now. We also cannot measure them in isolation for the summer quarter when the next iPhone is released. The Apple iPhone market success is a 'see-saw' which goes up and down very much within one year. It can only be accurately measured in cycles that run a full 12 months. By that measure, yes, Apple did grow and is growing strongly. But it means, that currently we have no real knowhow into how they are doing vis-a-vis their rivals. For all other major smartphone makers - Nokia, RIM, HTC, Samsung etc - we get quarterly new phone models and they all compete in a 'normal race' where we can make judgements quarterly. Apple does not. So Apple can only be measured once per year.

And I am saying that all the competition that comes from new Android phones and much of the main competition from most of the other Top 10 biggest phone makers, excluding Nokia, Samsung and RIM - is hitting Apple. SonyEricsson's PSP phone would be a gaming phone - arguably that is what the iPhone is (most of its apps are games). Motorola's Droid/Milestone is an 'iPhone rival'. Google's Nexus Onen is an iPhone rival. etc. Even Nokia, Samsung and RIM offer touch screen phones for the consumer space adding pressure to Apple's market share, where their main thrust of competitionn is elsewhere (Nokia low cost smartphones and QWERTY business phones, Samsung low cost smartphoes, RIM QWERTY business phones).

We have a massive Android thrust right now from Motorola, LG, SonyEricsson, ZTE, Huwawei, HTC etc. Almost all of these are considered by consumers as potential rivals to an iPhone. But where Apple often has a single carrier/operator selling it like in the USA and Japan, LG, Motorola, SonyEricsson are all offered by essentially each of the over 600 carriers/mobile operators of the world. ZTE, Huawei and HTC are sold by more carriers combined, than Apple has in its distribution chain. Obviously ZTE and Huawei sell more phones than Apple (including dumbphones). Plus we have all sorts of dark horses like day Dell and Acer the PC makers who are coming out with Android phones.

As most of the Android phones are consumer-oriented phones, usually with touch screens and usually not with QWERTY screens, they go very directly head-to-head against Apple iPhone but not against Blackberry or most Nokia or Samsung smartphones. Thus the player currently 'most vulnerable' by the Android surge is Apple. And the 'problem' for anyone analyzing the market, is that we won't have credible annualized data until after December 2010 numbers are in.

I do make the point that Apple's December 2009 quarter saw bad market success, where they did not gain market share. This was the first quarter when significant numbers of Android phones were on the market by more than one player. We now know that HTC has had its best quarter ever in that same period growing their market share. So where consumers did like an 'iPhone-style' smartphone form factor, they seemed to be voting with their dollars and shifting alarmingly away from Apple and to HTC for that quarter. We don't have Motorola, LG, Samsung, ZTE, SonyEricsson etc numbers for specifially Android sales (yet) but expect when the big analyst houses report first quarter 2010 sales, the total Android sales to be bigger than HTC in total. And my hypothesis, based in early Dec-quarter numbers, is that Apple will be most hurt by Android. But as I have said, we won't know for a fact until the end of 2010. Along the way, we can only take tidbits of factoids, to try to piece up the picture, in an incomplete way for sure.

Sami - the iPhone numbers in use were based on AT&T so same reply as to kevin. And soon the numbers will be mirroring all phone makers who've been in busines for many years, like RIM or Nokia.

And Sami you too? (Et tu, Brute? haha). You know this is not an Apple v Nokia blog article. The big news this time was all about HTC, RIM and some Samsung (and the ever worse misery of Palm). On Nokia, yes you can argue they have an aging portfolio, but they have been revitalizing their low end, where the big market is. They have the occasional high end device. But the times of a new Nokia top end smartphone every week is gone, as being not efficient. We'll be seeing less high end smartphones from Nokia, and they no doubt hope to thus make sure their next top phones are less flawed than the N97 which Anssi Vanjoki has admitted was not as good as it should have been (but also, like is Nokia's philosophy, has been severely upgraded and updated since)

Haha on developer mindshare. Yes, makes sense, the majority of IT developers are from the USA, thus influenced by the US market and there Apple ruled long before the iPhone haha. No surprise. I am doing my bit to teach the market that there is more to the world than Apple iPhone Apps haha.

Thank you all for writing

Tomi Ahonen :-)

[kevin]

You basically ignored my points, which were:

1. Since Apple was small and starting out, launching in new countries mattered greatly in affecting quarterly results, so the 67% during its first year was likely an outlier. You choose to ignore that.

2. You were wrong about the Christmas quarter being the first sequential market share drop. I quoted your statement and showed that you were wrong. But somehow you choose to not see it.

As for the new material in your response:

3. Please cite a reference for where AT&T said 20% of its iPhones had been replaced. I've not seen that in any SEC filing, quarterly materials, or conference call transcripts.

4. I definitely agree that it's about annual results for Apple, but you're the one making dire statements about quarterly results, both 4Q09 and your forecast for 1Q10. Who is looking at the wrong thing?

5. I don't know why you say that I think this is about Nokia vs. Apple, since I never mentioned Nokia. Baron95 might, but not me. I only commented because your post included further comments on Apple. I already commented on your other post about RIM.

6. The Sony PSPphone has had zero impact on Apple's 4Q09 or 1Q10. We can talk about it when it's launched.

7. Those Android phones largely had an impact in the US. You rip into Baron95 about focusing on US, but then you do so yourself. In the US, it matters greatly that iPhone is only on AT&T as most people who are going to switch have already done so. Android phones are the best thing for those who won't switch. Verizon/Motorola spent $100 million in advertising and still had to offer a free Eris with every Droid within weeks of launch. All that, and Verizon/Motorola still probably sold less than 2m Droids in 4Q09. And a total of 4.6m Androids (Canalys) from all Android vendors sold to 180m potential subscribers (not incl AT&T) in all of North America in 2009.

8. Google Nexus One is estimated to have sold 150k in 1Q10 - for comparison, twice as many iPads were sold on launch day. If that's competition, then bring it on.

9. At least in the US where I live and see what's happening, in the consumer market, Android touch/keyboard phones compete very much against every smartphone that requires a 2-year contracted data plan across all four major US carriers. Which means not only does Android compete against iPhone, but also against RIMM and the invisible Nokia. It might not be true in prepaid countries, but it is very much so in the US. (To be clear, I think Google and Nokia are the biggest threats to Apple due to their ability to be cheaper to a consumer or carrier than the iPhone. So I'm not discounting Android but it's nowhere as dire as you make it sound.)

Finally, you should consider new blogging software so that it's easier to quote and respond to your specific statements.

Whatever.

[kevin]

Tomi, Steve Jobs announced today that Apple has sold over 50m iPhones, which means Q1 was approximately 7.5m units sold, which is way more than your 6.5m estimate. Apple again doubled year-over-year, and was no worse than last year's decline quarter-over-quarter.

And it did this against what you claimed as, quote, "all the new Android etc devices which hit Apple's primary target market segment square center" and what you proclaimed as, quote, "Apple is already on the ropes." All that and it didn't seem to make much of a dent.

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And it did this against what you claimed as, quote, "all the new Android etc devices which hit Apple's primary target market segment square center" and what you proclaimed as, quote, "Apple is already on the ropes." All that and it didn't seem to make much of a dent.

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