Smartphone wars update mid June: iPhone 4 sales stumbles, Nokia profit warning, Microsoft OS confusion

So lets do another update in the smartphone wars. I wrote the first full quarter analysis after all Q1 numbers had come in. Now beyond that, lets look at who was in the news the past few weeks

APPLE iPHONE SALES PROBLEMS

Apple announced its magnificent iPhone 4. A great iPhone update for all loyal iPhone users, a certain hit among Apple loyalists, but not the global hit superphone it needed to be to recover Apple's growth. Now its certain, Apple's market share has indeed peaked and we'll see gradual market share decline for this year 2010 compared to 2009. For Americans, the iPhone 4 was exciting, but outside of America where more advanced smartphones have been available for a long time, the rest of the 5 big announcements were quite ho-hum (second camera, HD video record, LED flash etc) but the 'retina display' does raise the race in screen resolution. iPhone 4 will be visibly more amazing display compared to any older iPhones - and currently will outperform probably all other 3.5 inch screens. The issue then becomes, what if you compare a super-sharp Apple 3.5 inch screen against a less sharp 4.5 inch screen from a rival. My gut says size will trump sharpness, but obviously both will have their supporters and Apple is reshaping the game in screen resolution here. Quite typical Apple, they redefine the game haha..

As we've already heard (and reported on this blog) that in Q1 Google Android phones outsold the iPhone in its best market - the US market - and now in Q2, Android phones have shot past Apple in global sales too. But the iPhone was particularly hard hit this Q2 because of that 'stolen' iPhone prototype which got a lot of attention, and even Apple admitted its publicity was hurting iPhone sales in Q2. Now we have sales problems with AT&T, which was overwhelmed by 600,000 iPhone sales and had to stop taking pre-orders.

The great news at Apple is that the iPhone 4 is generating very strong sales - better sales than any other iPhone release in the first week so far - but... but... this is mostly replacement sales to existing iPhone 2G and early iPhone 3G users who have come up to their renewal period. It is not a lot of new sales. And as wel had the severe decline in Q2 sales of old iPhones, the last week of June sales of iPhone 4 will not be enough to get Apple significant growth in smartphones this quarter. Expect iPhone unit sales to be roughly flat, perhaps a slight growth level - but market share definitely down.

Then there was that bizarre stat reported by an AT&T exec, who claimed 40% of iPhones were sold to enterprise customers on their network. That was immediately attacked by most who understand this industry and I said on Twitter that it is so bewildering and out of the blue, inconceivable stat, that we have to wait for it to be repeated by some other sources. The revealing fact is, that since May 29, we have not heard anyone from AT&T nor from Apple repeat that stat. It must have been a misprint, or misquote or just error by that executive. Had it been true, that would have been very alarming info for Blackberry and less so also for Windows Mobile and Nokia E-Series.

On the platform side, iPad passed 2M sales in two months - a better start than the original iPhone 2G - and the cumulative iDevice (iPhone + iPod Touch + iPad) shipments to pass 100M in June said Apple (exactly the timing as I predicted). Note thats not installed base, as it includes early shipments of iPhone 2G etc early devices that are no longer in use. But still a big milestone.

Meanwhile, the App Store reality was finally revealed that the cumulative 5 billion app downloads had generated a puny 1.43 Billlion dollars over two years, ie all paid apps for the iPhone in 2009 was even worse than the Morgan Stanley estimate - we now know 2009 total sales of iPhone apps was only 715 million dollars and obviously Apple kept 215 million of that, so developers got only 500 million dollars. Like I've calculated, if you're a lucky developer to have 'average' income, it would take you ten years to recoup your investment. Of all downloads, its not the conventional wisdom that 30% are paid, the reality is that only 15% are paid and 85% are free apps. And we learned separately that 25% of all downloaded apps to iPhones have been deleted (and learned earlier that most apps are not used past a month). The App Store is exposed as a myth, facing now a dot com style bubble.

NOKIA PROFIT WARNING

Meanwhile the giant of smartphones - Nokia which just in its smartphones, outsells iPhone and RIM and HTC combined - issued a profit warning. They said they still expected their overall unit sales to be flat, but due to increased competition and especially in smartphones, the Nokia profits will be less than previously guided. Note, among dumbphone makers - Nokia's main business is dumbphones not smartphones - Nokia is far and above the most profitable, with Motorola making losses, and LG and SonyEricsson on razor-thin profits and Samsung already complaining of shrinking profits earlier. If its a 'bloodbath' and the total number of smartphone competitors among the Global Fortune 500 giant corporations had trippled in only two years from 8 to 23 - yes, we will see price pressure for all players including Nokia. Expect many more of the major smartphone makers echo the same tune - that sales is up, but profits have shrunk due to severe competitiveness of this space.

Then other Nokia news, the N8 is getting early very strong reviews, on the superphone comparison of 5 top phones, on Engagdget, N8 came first, with iPhone 4 second. This won't give Nokia any meaningful US success, obviously, as the carriers aren't supporting the N8 with subsidies, but in the rest of the world where 93% of mobile phone subscribers live, Nokia may do very well when the N8 starts to ship. Though its delays will be very damaging as all rivals release ever stronger phones.

The Ovi store is ramping up pretty much as expected. It reported 1.7 million apps downloaded daily ie an annual level of 620,000. Is still a far cry from Apple at about 3 Billion downloads per year, but Ovi is now catching up on GetJar to race for the second biggest app store. Ovi reports 12 apps per active Ovi user (vs about 35 per iPhone user)

MICROSOFT

In the previous quarter we had the shocking news that Microsoft was shifting from only providing OS software, to becoming a real handset maker with its Kin phones. Now the first Kin phones are shipping. Steve Ballmer the CEO has finally taken mobile seriously, taking the mobile unit under his personal supervision. But then the crazyness comes. If you thought Nokia was confusing with two operating systems (Symbian and MeeGo), what of Microsoft? It is supporting Windows Mobile 6.5, plus Microsoft Phone 7 for new touch screen superphones - which is not compatible with past apps, plus its Kin phones are on neither of those (ie Kin has a third OS, a kind of hybrid). And now we hear Microsoft will support a FOURTH operating system, optimized for business/enterprise users. How badly does Microsoft want to punish its developers? This makes no sense whatsoever.

Meanwhile the news from the analysts is not good either. IDC forecast that Microsoft would land in 5th place among smartphone makers with 32 million smartphones sold in 2011. Thats behind Apple at 35M+., behind Android at 36M+ and RIM at 40M+ and Nokia at 70M+ today. Even if Microsoft somehow executed perfectly, it is not even going to catch up with the top 4 in the next 18 months. Not looking good, they left their 'serious' attack at smartphones very very late. I think there could well be Samsung Bada also there ahead of Microsoft by the end of 2011, dropping them to 6th place, and we could see big moves by the world's biggest IT company HP with Palm.. Maybe MS at 7th place? HP is nearly twice the size of Microsoft in global revenues..

RIM MORE MARKETS

And even more weird RIM stories of enormous adoption. Now Thailand is added to the list of countries where best-selling smartphones are Blackberries. We saw for example that the iPhone celebrated 90,000 unit sales in South Africa, while on the Vodacom network alone, there were over 1 million Blackberries..We await RIM quarterly numbers due 24 June, expect sequential growth and very likely market share growth.

ANDROID

The Android juggernaut is gathering ever more speed. Currently their annual sales rate is at 36 million units with 21 manufacturers offering 62 smartphone models worldwide. That is still ramping up, so expect Android to keep growing. As an operating system in current sales, they are already in third place ahead of Microsft and Apple, chasing RIM/Blackberry, but Nokia/Symbian is still far on the horizon. Some analysts suggest by end of next year Android will be in second place and challenge Symbian. We have to see, I think the Android sales growth speed will start to slow down as the main ramp-ups have been completed by the likes of LG, ZTE, Huawei, Lenovo etc - and remember the strongest Android 'supporter' Samsung will shift sales from Android to Bada starting at the end of this year. But clearly Android is the strongest growing player in the smartphone wars, led by HTC.

SAMSUNG BULLISH

Samsung continues to be bullish. They again upgraded another of their targets. Earlier Samsung said their target was 8 million Bada based smartphones sold in 2010, now that has been upped to 10 million. But remember what I said about Samsung Q1, I am not very satisfied that Samsung did not report a smartphone unit sales number, meaning it was probably under their initial expectation. For the US market, Samsung's Galaxy is expected to be a big splash in Q3.

On the screen race, Samsung introduces Super Amoled screens - which seem sharper and more bright than anything else out there. As Samsung factory produces these screens, it will be a competitive advantage for Samsung's touch screen large screen phones - an interesting twist compared to Retina Display screen on iPhone 4.

ZTE US & EUROPE SMARTPHONES

ZTE the world's fourth biggest dumbphone maker has announced it will target the US market for smartphones at the lower end of the price range. And on the European market is now on Orange networks, one of Europe's big footprint (owned by France Telecom) also at low price end smartphones. ZTE does it on Android. Adds to the price pressures (see Nokia) and the bloodiness of the bloodbath.

LENOVO

Then we have some concrete blood out of bloodbath. Lenovo in its quarterly results, reported their total profits were down to half what was expected. The reason according to Lenovo? The far higher than expected costs of entering the smartphone wars. Expect this theme to be repeated at Dell, HP, Acer etc - we are in a price war and all will bleed.. (and when will it hit Apple?) 

HP STUMBLES

And HP has some strange messages, wiht their CEO saying in public that they didn't acquire Palm to fight in smartphones. That was quickly walked back, yes of course they also wanted Palm for smartphones (in addition to its patent portfolio). This kind of confusion is not what Palm developers wanted to hear as the first major statement by HP CEO, as they ponder should they continue with Palm or go for example join Android..

HUAWEI TO EUROPE

Huawei world's 9th biggest dumbphone maker is following ZTE to Europe with low cost smartphones on Android. More price pressure in world's most lucrative (and largest) smartphone market with highest-cost smartphones. Will hit Nokia profits even more, as well as SonyEricsson's intentions to migrate featurephone users to smartphones.

TOSHIBA & FUJITSU MERGE

The Japanese domestic phone makers, Toshiba and Fujitsu will merge their operations. They need to move abroad really fast, as the Japanese domestic phone market is not growing enough to sustain these companies. 

YAHOO THROWS HAT IN GAME

Now its 24 of the Fortune Global 500 corporations, as Yahoo announces it will offer branded smartphones. The Yahoo smartphones will be manufactured by French Alcatel-Lucent and probably will run Android. Is this 'Google Envy' over at Yahoo haha? 

Thats quick news past few weeks in smartphones. Next scheduled news RIM and HTC second quarter results. We may learn RIM passing 100 million cumulative Blackberries shipped shortly. And as in this volatile and dynamic smartphones bloodbath, expect many more surprises.

For anyone wanting all the facts and data on the mobile industry, please see the TomiAhonen Almanac 2010.

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