Mid-Year point for Nokia next, in Bloodbath Update. And they DID grow smartphone market share (again)

So next in line we have Nokia's quarterly results out today. And how did Nokia do? As always with this series of the 'Bloodbath' series of articles - remember we are looking at smartphone market shares in this discussion, not revenues or profits... 

Nokia reported 111 Million total phones sold (up 5% sequentially from Q1) giving Nokia a market share of all phones of 33%. This is down from Q1. The average price was flat at 39 Euros.

So is Nokia still shifting more of its customers to smarpthones? Sure it is. Once again, Nokia's market share in smartphones is better than its market share in dumbphones. Nokia sold 24 million smartphones in Q2, up 12% from Q1 and giving Nokia once again also growth in market share, pushing it to 41%

I do have to make a mention of this point, as so many clueless tech and business press reporters keep saying that 'Nokia is losing market share to Apple' or that 'Apple has been taking market share from Nokia'. Now lets examine the past 12 months. Here are the four quarters from Apple's peak market share in Q3 of 2009 and please compare and then go listen to the press.

Apple.....Q3 17%...Q4 16%...Q1 16%...Q2 14%
Nokia.....Q3 38%...Q4 39%...Q1 40%...Q2 41%

The popular myth for all of 2010 has been that somehow Nokia is losing smartphone market share to Apple. The truth is exactly the opposite. Apple is consistenly losing market share to Nokia. That is now four quarters and counting.|

(and yes yes yes, Apple gets 600 dollars per iPhone sold, Nokia gets about 200 dollars. Apple posted huge profits, Nokia posted modest profits. I know. As a corporation, Apple is currently vastly more profitable than Nokia, but this blog is NOT a financial analysis blog. This analysis is about market share, And Apple is losing, Nokia is winning the battle.)

Also Nokia is at the brink once again of so utterly dominating this field, that it is as big as the next 3 biggest smarpthone makers combined. Consider. Nokia's Q2 smarrtphone sales = 24.0M units. Then RIM + Apple + HTC = 24.1M units. That is market dominance. Sadly the only market where this is not true is the North American market, so US analysts tend not to see this in their home market, and they have to just believe  the reported numbers, that in Europe, Asia, Australia, Latin America and Africa - Nokia is the bestselling smartphone.

Meanwhile Nokia's Ovi store is up to 13,000 items of content and apps, and is generating 1.7 million downloads per day, which is a rate of about 620M per year.

Nokia also announced that the N8 has started shipping.

And two Nokia related news items. Motorola sold its networks division to NokiaSiemens Networks. And the financial press has been gossiping that Nokia CEO Olli-Pekka Kallasvuo may be replaced. But nothing confirmed.

So my quick comment? I suggested at the start of the year that the Bloodbath would be bloody, many rivals would rush in, and the big incumbent smartphone makers would have to yield some space to the newcomers like the Android smartphone makers. Nokia has been incredibly resilient and feisty. Since the start of the year even as Android grew from 5% in December to 24% global market share today. You would expect that to hit all major smartphone brands. Yet in the same period - Nokia grew from 39% to 41%. I think that is very good performence in the smartphones bloodbath. And this was clearly not something I had expected..

UPDATE JULY 23 - The market share analysis I have in the above is now independently verified by Strategy Analytics and Reuters has a good graphic which shows the market shares.

CLARIFYING COMMENT from Friday - I notice we have 32 commments added in one day, which is very much at this blog which is not a commercial blog (we have no advetising, I do this as a hobby only, purely out of my passion to share, and I do have a real-time job as a telecoms consultant that keeps me very busy). Many in those comments have been critical of me, that I don't discuss the financial side. So. To be very clear. This is not a financial analysis blog. Inspite of that, I have made clear mention here at the Nokia quarterly sales blog comment, that Nokia's profits are down; and I also mentioned in the corresponding Apple quarterly results blog that they had a phenomenally good quarter on their financial performance.

Why does this blog 'bother' with market share of smartphones? It is of interest to me, that is the only reason. I have been monitoring the smartphone market share for a decade - find any other published author or expert who has published such data in his books and blogs - as an individual analyst, not a market research analyst house like Gartner or IDC or Canalys whose job its to sell market analysis. I don't sell any smartphone market analysis reports. This is a hobby for me, and along with my personal motto - in a connected age sharing information is power - I post my obsevations on this blog. The financial performance is not of interest to me. I have a Finance MBA from St John's University in New York City, the second biggest private university in the USA and a huge MBA factory - and I worked on Wall Street early in my career. I couldn't care less about financial performance metrics. I find it utterly boring and nobody can force me to waste my time doing that as a hobby. Something I hated doing as a job. I like the mobile telecoms industry and I analyze that industry for the industry platform metrics - how many subscribers, how many unique users, how many multiple SIM cards, how many mobile phones, how many smartphones.

If you find value in understanding whose smartphone platform has most market share - and this tends to be of interest to companies developing services and apps to smartphones, as well as to those component makers who provide components to smartphones - then there is no other blog currently that does this type of deep analysis of whose smartphone platform is performing how. Then you may find value on this blog. If you want to do financial analysis, this is not a financial analysis blog. Go somewhere else! 

I am not going to respond to any comments of any readers who mention financials as an issue. I was very clear in the original blog entry here, that this discussion is about market share, not about profits. So I will delete every comment posted here that went into the financial discussion even if that comment had any other 'valid' comments. I will - however - maintain all those comments and post them here, as a one extended history of what was said by others, so if you did post a comment, yours will not be 'eliminated'. But I will not respond to them. Go to UBS or Deutsche Bank or Citibank or whoever financial analyst you want, and have your financial argument there. I am not wasting my time on something - that I said openly this blog is not about. There are enough blog entries on this blog about the business of mobile telecoms - like just a day before my blog about Nokia CEO, where you can post about business performance including profits to your heart's desire. We have over 1,400 postings here and most of them deal with business and money. We also have over 4,400 comments posted on this blog, and you will find that I respond to every comment, in detail. But this blog series - the 'bloodbath' - has nothing to do with profits, and all to do with market share. Its my blog, my rules, and no financial discussion about it, this is about market share - to those who care.

Deleted comments are here after this link:

(Deleted comments will appear here shortly)

 

Comments July 22

Mark: 

Good analysis, Tomi.

Sadly, even though you've explicitly stated the topic is share and unit sales, you're going to be bombarded with posts about profits and revenue. Such is life.

Anyway, it's not bad - handset and services made $830 million profit - but it's clear that they have nothing to offer at the consumer high end... which given the N97 is a year old isn't really a surprise. The N8 may change this, we'll see.

OW:

Nokia has never created one single smartphone before. Their decline in profit absolutely Retorte that


Reda:

 

Wanted to comment on this post and the previous post (actually I was more compelled on the other one because I disagree on most of the points), but I’ll make a summary here as its newer although I appreciate there won’t be much “conversation” due to the number of comments and due to the fact that in past I noticed that if somebody disagree with your points you tend to show the apple-syndrome (one-way, highly directional communication). Anyway, most of the points I’m not making here have been said by others already.
So, you often say that this “blog is NOT a financial analysis blog. This analysis is about market share, And Apple is losing, Nokia is winning the battle”. But then “Nokia doesn't know how to sell itself to Wall Street. Not to match Apple's amazing PR spin machine and Steve Jobs's stage presense.”. I’m afraid you have to make up your mind, you either talk about it or don’t talk about it. You cannot just say when looking at nokia’s profits, “ah but here we are only talking about mobile market share” and then comment on wall street and their analysis when it suits you the most. I’m sure you know, wall street cares about profits not mobile market share. Companies issue profits warnings, as nokia did, not market share warning.
Second point, we are comparing apple with nokia mobile market share but then in OPK’s post, you say we cannot compare apple with nokia because they are from different niches. Then ok, you must be wrong in one of the posts (either in OPK’s Obituary or this post).
You say apple has changed the battleground and it’s winning with its new “marketing-hype” strategy but say it’s not OPK’s fault? Eh? If you start with the assumption that the marketing strategy is how you win nowadays, it’s only a logical conclusion that if you are not that kind of person you are in the wrong place and therefore should stand-down. Did OPK do that?
Regarding symbian and nokia’s strategy, I wanted to write a counterargument to a lot of what you said but I think facts (the haemorrhage of developers from the ecosystem) are a better counterargument and shows the flaws in your analysis.

Having said all this, it's your blog anyway and you write and say what you want ;-)

Sorry, cannot end or share a positive note at the moment. Perhaps my mood will change when I’ll see some real change in nokia


July 23

Leebase

I just don't get it. Nokia's profits fall -- and you think they are rocking the world because they have essentially flat market share?

Nokia is supposed to have everything vastly superior to the iphone -- and have the features years in advance -- but they can't sell their phones for good money while Apple can?

And not just in the US. All across the world people are buying Apple phones at premium prices. Are those folks just plain stupid? I though only American consumers are stupid? Why can't Nokia sell it's far superior phones at superior prices in the parts of the world where you don't have stupid Americans?

HTC and Samsung have no problem selling phones in the US -- why can't Nokia?

And by ANY measure you use -- it's clear that Nokia "smart phones" aren't being used like "computers that happen to be phones" in the way the iPhone and Android phones are being used. Not even CLOSE.

Clearly Nokia agrees with Tomi that the epitome of smartphone use is being able to text with the phone in your pocket. Texting -- THAT'S where the money is at.

Course -- any old dumb phone with a keyboard can text...and the average dumb phone owner uses just about as many apps as Nokias smart phone users use.

Blood bath. That's the whole controversy. It's not controversial to state that Apple will never sell the most phones of any type. But to paint the company that is the MOST PROFITABLE, is showing fantastic yoy growth -- sells every phone it can make -- is the most desired phone in the world -- sold at the highest price -- and claim that it's days are over and it's a victim of the 2010 bloodbath -- is ludicrous.

To paint Nokia with no answer for the last year to the iPhone or Android as king of smart phones? Ridiculous.

If NOKIA thought they were doing well they wouldn't be replacing their CEO.

Android as a platform -- that's the real story of the year. There's no way that Apple selling a single model of phone is going to outsell Android which is made by 20 some phone companies.

Truth to tell, though, in a year or so those manufacturers are going to look on Nokia with envy wondering how Nokia managed to make even the slim margins it does. Android is going to be the best thing ever to happen to companies that don't want to make any money in phones. Me too. Me too. Buy my Android phone which is just like every body else's -- I'll make them cheaper. No -- I'll make them cheaper. No me. No ME!

While Apple will blood bath itself all the way to the bank.


HCE

 

@wansai

What is so difficult to understand about "This is a marketshare blog"? Yes sometimes he mentions financials but they are miniscule
to the focus which is marketshare. ...... The discussion is about losing and winning marketshare, and you guys are trying to change
the subject for which the blog simply was never meant to be. get over it.

Why do I talk about financials? Because, in this case, it is intimately connected to market share. Any market share won by constantly dropping your prices and lowering your profits is not sustainable. If Nokia had somehow managed to find a niche where they were able to maintain a certain level of profitability while growing or maintaining market share, you could make a case that profits are irrelevant to this discussion. That, however, is not the case here. Nokia's profits have been falling, the average selling price of its phones has been dropping. All that this strategy does for them is to buy them is time to get their mobile platform of the future finished up. They still have the task of making that platform a success. If they do not, their prices and profits will continue to drop and they'll reach a point where they cannot drop them any further - at which point they will either lose market share or lose money or both.

NOTE - any of thse people are very welcome to post their 'market share relevant' comments again and I will respond to those.

Comments

[Enyibinakata let me know]

Sam,

So what do you expect from smartphones that Nokia ones lack. Is it 3G, Wifi, email, html browser, multi tasking OS, full bluetooth support, GPS with free navigation, SD card, app install, just what ? Please enlighten me. Dont forget that Symbian has always had copy and paste, multitasking, ring tone customisation, widgets, multitasking, secondary video camera etc etc most of which is now being heralded by Apple as innovation.

Top news Skype now multitasks in IPhone; aupports folders, copy and paste ads and now facetime revolution and all other such nonsense. Apple continues to rake in profits by ripping of its users even with a phone that fails woefully in its primary function. How long before the gullible realise that the bumper clad emperor is truly naked ?

yeah yeah 24 million smartphones and rising means gettting killed. Whatever dictionary are you using, iFanboi-tionary ?.

:o)

[Mark]

@Sam

You have to be trolling. No-one can really be that ignorant.

But just in case you are...

"why is their share of what smart phones are used for so tiny?"

It isn't...

"Why is their share of mobile web views practically non-existant?"

http://metrics.smaato.com/june10

Woops.

"Why are their device downloads minuscule?"

They aren't. 1.7 million native downloads a day, over 400 million from GetJar alone and god knows how many from other repositories.

"These are smart phones; these are the type of things they are specifically used for."

Indeed. Which is what they're used for. Thanks for making that point.

[kevin]

Sam,
By feature set, as defined by the bean-counters (Gartner, IDC, Canalys, etc), Nokia smartphones are "smartphones." The bean-counters haven't yet made a capacitance touch-screen or large display (3.2" or greater) a requirement for a smartphone.

But you are absolutely correct that those who measure web site visits, and app or content downloads, see very little Symbian or BB participation. Why is this?

Two obvious possibilities:
1. The user experience for those tasks on these phones are abysmal so very few are willing to struggle through and use it. Screens too small, purchasing too difficult (too much friction), games not fun (missing sensors that make them better), too many buttons to push.
2. People buy these QWERTY-keyboard smartphones mainly for SMS and MMS, including camera/video, use. For that purpose, they are great.

I've long said that smartphones are splitting into 2 categories - those with a large capacitance touchscreen and those without. Canalys has begun tracking 3 smartphone categories - keypad, keyboard (physical), and touchscreen. I'm not sure how they categorize phones with both keyboard and touchscreen. And I think they include both kinds of touchscreen under the touchscreen category. Whatever. The touchscreen category jumped from 34.4% in 1Q09 to 59.1% in 1Q10, unsurprisingly taking share from the keypad category. Keyboard declined slightly from 28.4% to 27.3%.

[Timo Koola]

Just quickly coming back to these download numbers. Anyway you roll them these numbers are mindnumbingly bad and Nokia justly deserves "not to get credit for being respectable number three".

I'll assume that there are 400 million devices that support downloads (Symbian/S40/Maemo) in Nokia ecosystem. So we can expect:

* Average user to download 1,5 apps a year from Ovi store
* Average user to have downloaded one app from GetJar
* Average Ovi content item to be downloaded 130 times a day, 47000 times a year. (If we had more data, we could probably open up expected numbers for paid apps vs. free stuff vs. themes/videos other content, but that is unlikely to make the numbers more exciting for paid app developers)

I start to see why Tomi doesn't like app stores :) From these numbers I'd say that average Nokia user just doesn't care about apps (I'd say that most Nokia users are not "appstore smartphone" people).

One could argue that the potential crowd is smaller than 400 million (I am pretty sure it is), but that doesn't make the ecosystem any more enticing for the developer. One could argue that some users are better and more likely to buy apps - most of us from revenues/profit camp do - but if you think shipped unit is a shipped unit well every phone out there is as good prospect for developer as any other phone.

[wansai]

Goodness can you guys get some perspective? I have been coming here for years and Tomi ALWAYS writes about marketshare. This blog is about marketshare and you guys are saying he shouldn't writes about it or to insinuate he becomes a financial analyst.

Whar is so difficult to understand about "This is a marketshare blog"? Yes sometimes he mentions financials but they are miniscule to the focus which is marketshare.

We get it. You're happy your favorite company made lot of money. That,by no means, means this blog should become a fincial analys blog. The discussion is about losing and winning marketshare, and you guys are trying to change the subject for which the blog simply was never meant to be. get over it.

[Less the Best]

My friend bought his first smartphone, Samsung Galaxy S two weeks ago. Week after his purchase he was sure that:

- Nokia totally sucks
- Symbian is outdated
- N8 is coming too late
- Nokia should make a Android phone
- Nokia's strategy sucks

His overall logic was something this:
UI sucks = OS sucks = Software strategy sucks = Company's strategy sucks

Hey, let's all be a little analysts!!

[Travis]

HCE,

I actually find Apple's annual approach to iPhone updating quite refreshing and I seriously doubt they'll abandon it.

For one, it cuts back on the "omg my phone's old news 5 seconds after release" phenomenon so common among other platforms (*cough* Android *cough*). We know there'll be a new iPhone in a year, we know that what we're buying won't be superseded for 12 months or so, we have a predictable upgrade timeline and a reasonably-predictable obsolescence track.

For example, I just bought an iPhone 4. I don't expect to replace it until the iPhone 6. Sure, there'll be some hot new latest and greatest stuff coming out with the 5, but I can be reasonably certain that there'll be a software update to provide the 4 with some of the upgraded functionality. By the time the 6 is around, it'll be time for a new generation of hardware.

"Processor speed bumps" — that's exactly the sort of essentially meaningless changes that Apple is rightfully shying away from. Is the end user really going to notice a bump from, say, 800 MHz (as rumored for the iPhone 4) to 900 MHz? We're talking about upgrading not for any significant hardware improvement, but merely for the sake of pretending there's something different. These aren't the Pentium wars and almost nobody cares about processor speed anymore.

"Discount" isn't a word Apple uses.

Where I will agree with you is the multiple form factor idea. The question is, can they make the iPhone user experience work on different sizes, as they did with the iPod?

[Tomi T Ahonen]

Hi everybody!

First - I will be responding to everybody, please keep the discussion going.

Secondly - please do not even MENTION financials else I will be deleting your comment. Don't RESPOND to others talking about any financial matters. Limit your discussion to the market share issues. I am sick and tired of wasting my time, and those of my readers where I was CLEAR that topic is not part of the bloodbath market share analysis.

Tomi Ahonen :-)

[Arief]

i don't know about financial. but in my country (indonesia), where no subsidized phone exist (even iphone/blackberry is sold with retail price). rich people use blackberry, poor people use chinese qwerty phone (or nokia c3, but it just sold recently) and almost every store don't have many item of nokia phone.
that was 2009, today everybody start asking about 'what is android?' and nokia phone is not considered as a first choice anymore.

that must mean something to nokia...

[Tomi T Ahonen]

Ok, lets start with the comments in this thread.

Thank you for the vivid discussion here, please do keep it coming.

Hi Eric, Timo, Szabolcs, cygnus, Ian, Alex, Anders and Phil

Eric - no, this is not a financial analysis blog, I have not discussed the quarterly results of the major players in mobile generally at any previous quarters either and am not about to discuss them now. I discuss some exceptional situations - like when Motorola was deeply in trouble - or now when rumors are out that Nokia is considering a new CEO. But no, I do not follow the quarterly results with quarterly financial analysis. I couldn't be bothered. I do mention when we discuss there market share numbers whether a given player is profitable or not - SonyEricsson last quarter climbing back into the black for example, but I don't want this blog to get into the part about P/E ratios etc..

Timo and Szabolcs - thanks. I have to go check and correct the blog about N8

cygnus - thanks and I feel the same way. There are even times I read something now from the British journalists, like FT or Economist or BBC who used to be solid on mobile, who are starting to falter too. Not often, but its so disappointing when that happens.

Ian - good question. Financial performance is VERY valid measure of an company's performance. This is not a blog about Apple or about Nokia or about analyzing financial performances of tech companies. This is a blog about the future of the digital converged media and services space, with obviously an emphasis on mobile. For anyone who is not a phone handset maker, but who has a business or professional interest in the available platforms on phones - how many cameraphones or how many support web browsing or how many have Bluetooth or how many support Java - or how many are smartphones - the individual companies do NOT matter, the platforms DO matter. So, that is why market share matters to this blog and in this series of blog articles. I hope that was clear. Remember back to Betamax vs VHS. It didn't matter how profitable one of the VCR manufacturers was, it mattered which platform had the market share and therefore, where to launch your movies..

Alex - I hear you. But that is a very parochial view to the world. This is blog with a global view. I am a Finn, I live in Hong Kong, I write in English. Our readership comes as much from Africa and Brazil as from Finland or Britain etc.. And for someone in India who has no hope of owning an iPhone, the lowest cost basic Nokia smartphone is a great way to get to the web and to have a pocket computer.

Anders - the 24% number is the number of my consulting company TomiAhonen Consulting. If you think my numbers are off, you have the right to think so. If you go by my track record for industry stats the past 12 years, I am usually very accurate. You don't have to accept that number... Others will come out with the Android number within a month if you don't want mine now.

Jan - the numbers you quote are from BEFORE Apple reached its peak. So of course they were growing. Apple's peak was Q3 of 2009. Since then - four quarters now - they have been in decline. What is far worse for Apple, in those 4 quarters, of the 3 big rivals Apple has, Nokia and HTC have grown every quarter, and RIM has been flat. Apple has literally lost market share the past 12 months against all of its rivals. And this was before Antennagate now.

Phil - wonderful graphic thank you! Tells the real story, perfectly

More replies coming soon

Tomi Ahonen :-)

[John Swan]

I get a laugh at all these self-proclaimed experts saying what a samrtphone is or isn't. Because if you ask any programmer or electronics engineer the first 2 iPhones aren't smartphones since you can do very little with it w/o Apple's say-so. Only in the last 2 generations did it get to copy features that are 5-years old in other real smartphones, and they hail it, typical Apple, as "breakthrough innvoations". And since most of these marketing experts posting here are obviously not programmers nor engineers, let me give you a little lesson. In Symbian, it's the S40 that is the UI for feature phones/"dumbphones". S60 is in fact the smartphone UI. SymbianOS is the OS. Don't confuse UI with OS. These people are the dream Apple target market: no technical knowledge, and assuming that everything is better if it's in a touchscreen. God forbid that happens with cameras, esp. DSLRs, or for game console controllers. "Look ma, I can't operate the controller without looking at it" LULZ. Hardware buttons are always better, more tactile, more usable, reliable, faster, unless Apple's RDF can conjure some compelling reason why it's not. So far, they haven't.

[Tomi T Ahonen]

Hi kevin, Jody, Timo, Mark, Timuke, vvaz, Sam and Enybinakata

(its far past midnight for me, please forgive me for being brief)

kevin - you are completely correct in that Nokia is currently losing in the top end of the smartphone wars and its gains are at the bottom of the pyramid. As I've said on this blog many times, the war at the top will be bloodiest (witness Google Nexus One and Microsoft Kin both failing, all 3 were very expensive phones). Nokia 'escapes' most of the heat going to low prices points where most can't follow. But the margins are thinner there. About Ovi - also App store downloads include ebooks - thats content, not a 'proper app' and a ringing tone is far more an app than an MP3 song sold by iTunes. The ringing tone will change the operation of your phone. But obviously ringing tones are very VERY simple apps haha

Jopy - thanks, agreed

Timo - good point and yes by current users Ovi massively underperforms. Ovi is also newer than App Store so its ramp-up is at far earlier stage - and its growing very strongly - and Nokia is working with the carriers not against them, so it takes more time to get them onboard. If you count Ovi use by those carriers/operators and countries where it has launched, the ratio is far better already and improving all the time. I think Timo you would concede that over time, say 5 years from now, all app stores will be cookie-cutter copies of each other and offer 90% of the same content. The differences will be very minimal, like comparing supermarkets in the real world, each sells Pepsi AND Coke..

Mark - thanks for the directed comments !

Timuke - thanks for those experiences

kevin - I am astonished if Apple said that in the conference call (am not doubting you). According to published reports their criminal complaint when the prototype iPhone 4 was 'stolen' was that iPhone 3GS sales had been hurt. Now they say 90% better sales. I wonder if they don't get a visit by that same District Attorney who they forced to run a bogus raid (where all charges were later dropped). Very bizarre by Apple. I am afraid that story is still not over..

Sam - you haven't been reading Admob stats and thinking its the whole truth, have you? Admob is one ad network. Smaato collects the data from 40 ad networks including Admbo and by Smaato stats the world's most used platform for web surfing is by a WIDE margin Symbian. Sorry. Facts.

Enyibianaka - Thanks for the directed comments

Thanks all!

Tomi Ahonen :-)

[kevin]

Tomi, thanks for responding; I know this blog is your hobby so I am grateful. I am also grateful for the mostly civil and intelligent discourse I find here. Altho a few like to toss out "fanboy" and other ad hominem attacks, it's better here than on most other tech blogs.

I'm an AAPL shareholder - investor not day-trader. I'm been seeking to buy other mobile/carrier stocks but I haven't found a compelling reason to buy any even though I believe mobile will be very big and Apple can't be the only player reaping profits. I'm also a software engineer (full-time job) and developer (hobby). But my primary interest here is to get early insight on what factors might cause mobile industry companies to succeed or fail. So your overviews of the industry are very informative.

Tomi, I understand you're not a financial analyst, and I don't need or want you to be. I think market share is important in terms of deciding to develop for a platform, BUT market share is a past performance indicator, not a future performance indicator.

We all know many examples of disastrous rot having set in at many dominant market share leaders long before they started to lose market share (like MOT, IBM, DELL, etc). Fire sales obviously increase unit sales and hide impending disaster. That's why profit and margins are important in understanding market share, especially for NOK and RIMM, the two incumbents. RIMM has increased unit sales due to selling lots of BOGO free, and lots of cheaper BB Curves - why is this happening? NOK said on its conference call that its margin dropped "due to faster price erosion than product material cost erosion especially in our Smartphone portfolio." which means they were forced to lower prices before their production costs had decreased, not because they found a way to make much cheaper high-end smartphones (as Mark asserted). NOK also said its lower ASP was due to "shift towards lower price Smartphones as well as price pressure particularly in certain high end Smartphones." "Price pressure" is a euphemism for units not selling so cut prices to move units. So increased units and higher market share is hiding that.

Market share trends are just a starting point for analysis. Understanding what underlies changes in market share is more important. For example, Apple's numbers are clearly seasonal due to its obvious once-a-year model releases in selected markets. Other companies may have this pattern as well (I suspect it's somewhat true for RIMM).

Finally, market share numbers are also very easy to manipulate in commentary (but not in spreadsheets or charts that have ALL the data). The Strategy Analytics/ Thomsonreuters graphic you linked to actually shows Apple growing market share from a year ago (Q210 vs. Q209), while Nokia, RIM, and Others have been flat or declined. Of course, relative to Q3 or Q4, the story is different as you've pointed out. But the main point is I'VE ALREADY SEEN THIS APPLE DECLINE PATTERN BEFORE, one year ago, so it doesn't surprise or mean to me what it seems to mean to you.

As for specific responses, first, seekingalpha.com provides conference call transcripts, though the Nokia ones aren't done very well.
-The criminal case against Gizmodo is still active; Gizmodo's equipment was returned by the DA due to Gizmodo cooperation in promising to provide and not destroy emails/files (i.e., evidence).
-Apple's criminal complaint did not say that sales had dropped; it said that "sales could drop" as a potential harm to Apple. Nothing bizarre; typical legalese.
-Conference call comments can be investigated/audited, so most companies don't lie outright; almost all companies choose to just not say anything intelligent (which is easy to do). So I believe the 90% yoy growth thru June 7th is a valid number.

I hope you don't delete this comment. I'm not criticizing you for not providing financial analysis; I'm just saying that additional info is important to understand market share data. Again, Tomi, thanks for providing data and the insights you have.

[Matthew Artero]

Tomi I'm glad you focus on market share and not financials. People here have already forgotten the Walmart example. Walmart goes for a smaller profit margin but it doesn't stop them from putting a lot of smaller competitors out of business.

Market share is everything. Market share is what allows you to buy materials and manufacture at lower costs than your competitors.

Kevin’s point that Nokia had to drop their prices in advance of the costs coming down is meaningless. That’s always the case. The cost of materials always follow the retail prices up and down.

Kevin’s examples of companies that had large market share and fell from grace don’t fit the example of the current bloodbath in smartphones. We see crucial mistakes made by the companies in his examples that Nokia is not making and in fact Nokia is refusing to make.

Those low end smart phones by Nokia are not static. They go through upgrades also and Nokia is better able than anyone else to offer those at that price. No one will make more money than Nokia selling at that price.

Compare to the automobile industry. We use to laugh at the Japanese cars and how quickly they rusted. We use to say the same negative things and worse about Japanese cars that people are now saying about Nokia. But the Toyota Camry was the best selling car in its class in the USA for several years now.

The ability for lower priced goods to adopt higher quality and more features while remaining a lower priced product grows. The ability for high end goods to increase their price does not grow as fast. Each year the features of each become more similar.

It used to be that you couldn’t get a low priced car with automatic transmission, or power windows, and don’t even waste your time dreaming about an air conditioner. Now that’s all standard even in a low priced car.

Eventually these high end features of the more expensive smartphones will become standard and when that happens it will be the manufacturers with the most market share who will survive. We’ve seen it in every industry, take your pick; cars, PCs, notebooks, etc. They all use to have more competitors than they do today.

24 fortune 500 companies making smartphones, are you kidding me? What other manufacturing industry supports that many competitors? The bloodbath will continue and out of necessity may evolve to include computer manufacturers. Maybe we’ll see some mergers.

I think the folks at Nokia know what they are doing. It’s wrong to sacrifice market share in order to chase profits. Market share is what saves you in the end. Sure Nokia has not made the same investment that Apple has in high end products, but it also has a market share that cost money to maintain. A bird in the hand is worth two in the bush. Always spend money maintaining what you have before you spend it elsewhere.

Apple did not create the opportunity to have a successful iPhone. That opportunity was created by the existing manufacturers who due to financial reasons did not pursue that opportunity leaving it open for others. Apple had its war chest from its successes with the iPod and iTunes store to fund its ability to seize the opportunity that was left open. Apple did not become the financial powerhouse it is today until after the iPod and after it got into entertainment; probably a result of Steve Jobs sitting on the boards of entertainment companies.

If the old manufacturers made a mistake it was failing to see that a company like Apple with an online music store would see phones that played music as a threat. Some people don’t want to carry around a music player and a phone when they can have it all in one. To answer that threat Apple had to get in the game.

Today one can by a USB thumb drive with a hundred megs of memory cheaper than a one meg thumb drive when they were new on the market. The day will come when the expensive features of the iPhone are available on cheaper phones and Apple will have to decide if it wants profits or does it want to be a serious contender.

Surely when that day comes, some of its share holders are going to want Apple to scrap the iPhone or a portion of its market share, so they can reap the profits of the iTunes store rather than use those profits to support the iPhone.

The battle for market share is a battle between the war chests of the competitors. All this talk about Apple being more profitable is nonsense. You have to spend it to gain market share and then it is no longer profit.

If you like your profits, that’s fine, celebrate the fact that you have them. But don’t pretend that profits automatically lead to market domination. How much does 1% of the smartphone market cost; at the high end phones or the low end phones? When you know the real costs of capturing that 1% of the high end or low end, then you know the real value of your profits.

My suggestion to Kevin concerning his Apple stock would be to remember what Apple’s profits were like before it got into entertainment. Keep an eye on the low end smartphones for a clue as to when to sell high.

In seeing how communities dominate, we are seeing more and more musical artists launch their careers themselves using social websites. Perhaps Apple already saw the writing on the wall and that’s the reason for its push into the iPad. If music profits decline in the iTunes store, at least they can still sell movies.

Nokia shareholders that are complaining the loudest right now are those that have pressing financial considerations and need to sell. Those that can afford to wait until the bloodbath is over are less likely to complain.

If you need to sell your Nokia stock you want them to enter the high end smartphone war and then you will sell during the hype, before the results of how well or how poor they did in the market are revealed. But if you don’t need to sell your stock you don’t want Nokia spending money on the high end war at the expense of losing the existing low end market share. Perhaps Nokia is best served by diversifying its capabilities into other industries.

[John Swan]

What seasonal excuse? Last yr., Apple's market share rose from Q1 to Q2 to Q3 before lowering in Q4, this year, Q2 went down from Q1.

http://graphics.thomsonreuters.com/F/07/GLB_SMPHN0710.gif

[HCE]

@John Swan

Last year you had 9 days of new iPhone sales in Q2, this year you had only 3 days. Also there was the whole Gizmodo episode which announced to all the world that a new iPhone was coming - that would have cost them some sales. Finally, this year's Q1 was an unusually strong quarter (Tomi thinks it was because of gift giving associated with Chinese new year). Regardless, the general pattern for iPhone sales is strong Q3 and Q4 (because a new model has just been introduced) followed by relatively weak Q1 and Q2 (because now people are waiting for the next model).

- HCE

[HCE]

@Matthew Artero

I cannot answer your point properly without an in-depth discussion of financials which I won't do since I do not want Tomi to delete my post.

Let me try and do it another way, then. What you are basically saying is that smartphones will one day become commodities. In that case, everyone is in trouble. Smartphones become like dumbphones are today - with people hardly aware of what brand of phones they own. Profit margins become wafer-thin - with no prospect of their ever going up again. Believe me, none of the smartphone companies (Nokia included) want this to happen.

And what happens to Apple if this scenario should occur? Well the smartphone business gets put on the back burner (like the iPod business has been) and they go on to the next big thing. Over the past decade-plus they have had an unerring ability to figure out what that next big thing is. At some point they will slip up and their stock will go down. Their profits will drop and they won't be investors darlings anymore. Yes, that could happen.

However, that isn't the only possible scenario. It is also probable that there is an enduring niche for high-end smartphones - the BMWs and Mercedes-Benzes of the smartphone world. If such a niche endures, I can bet you that every smartphone vendor (yes, including Nokia) will want to have a strong presence here because this is where the big profits are.

Apple will keep trying to make sure that the iPhone is a big player in this niche and will ignore pretty much every other niche in the mobile phone market. Nokia is currently failing in this space and this is why investors are down on them and this is why they are firing their CEO. Their biggest efforts are in making a comeback here and becoming a major player once again.

If we look at the above two scenarios, the second is the one that all smartphone vendors want. What will actually happen? Frankly, no one can tell but I am pretty confident in saying that for the next 2-3 years or so (maybe as many as 5 years), smartphones will not get commoditized. The majority of cell phones in the world will continue to be dumb phones and the niche of high-end smartphones will endure.

- HCE

[rh]

Thanks for taking back control of your blog. I read it regularly. Recently, I had decided not to read the comments anymore because of the off-topic criticism. I can go to an internet forum if I wanted to read technology fans argue about brands.

[Guillaume B]

@Matthew: Great comment; I absolutely agree that marketshare has a great importance for the moment that goes far beyond the short term. With the finicky nature of trends and aestetic appeal, the high-end market is a slippery one to keep a hold on. What is in one day can suddenly be out the next. Even the best marketing and PR at Apple is starting to fumble, and the vultures are already circling, ready to dive in. The technology press is already more critical of them since the Antennagate, and Android is starting to take more and more of the spotlight.

The low-end market is comparatively easy to retain, it's pure economics and less marketing magic; source your parts cheap, sell your products cheap, get a good supply and distribution chain, put them on as many carriers as possible. This is the game Nokia is good at, and if they don't put the effort in fighting off their rivals HTC, ZTE, Huawei and Samsung (especially Samsung!), it could find itself with no base from which to retake the high-end from.

So for now, lowering their profits to strangle the asian manufacturers out of the picture seems like a sound business plan. The others will have to lower their profit margins to follow as well, and it'll be who can wait it out the longest who will win. Nokia has the ressources in bank to win that.

[Tomi T Ahonen]

I have deleted again many comments that were trying to argue why financials are of interest. They are NOT part of this discussion - which is ONLY about the market share in the bloodbath. I am no longer bothering to copy those to the blog, if you're dumb enough to still try to talk about financials after I warned you, your comment deserves to be deleted. I am not interested.

I have acknowledged in the blog that Nokia profits are down and I acknowledged in the related Apple posting that Apple's profits were up. Both companies make profits, therefore both companies are healthy and can support their smartphone strategy (vs a perennially unprofitable company like Palm which died). I could not care less in the 'market share' discussion whether someone on Wall Street is 'disappointed' in Nokia's profits this quarter. Go cry about Motorola losses if you want to talk financials. Nokia's handset business is healthy. Its profits are down, it is not making losses.

There will be no discussion about the financial considerations here please limit your discussion to the MARKET SHARE

Thank you. Directed comments coming next.