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« Repeat After Me: The Rival to the Blackberry is NOT the iPhone | Main | Microsoft Pink, Why is this Big News in smartphones? »

April 05, 2010


Romain Criton

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)



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.


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.


"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.


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


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 :-)


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.



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.


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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