Communities Dominate Brands

Smartphones Bloodbath Year 2, Q1: Now Nokia. Ouch, this is painful

Where Apple was perfection in its Q1 results, Nokia is the total opposite. Nokia results were aweful in almost every way. While the industry grew smartphone sales from Q4 of 2010 to Q1 of 2011, Nokia lost unit sales in smartphones, saw declining average sales prices, lost revenues, declined profits. However, we knew this would happen. My blog was not the first one, nor the only one to explain why the February 11 announcement of a two-year shift from Symbian (and MeeGo) to Microsoft as the operating system for Nokia's smartphones, would damage short-term Nokia smartphone sales. This whole year we will be seeing a decline in Nokia smartphone market shares, at least up to the quarter when the Microsoft powered smartphones arrive (possibly Q4 of 2011, more likely early 2012). We knew Nokia was going to have a rough time.

ITS WORSE THAN WE EXPECTED

The point is, this Q1 was even worse than expected. And before we even look at smartphones, lets glance at the other two thirds of Nokia's revenues, outside of smartphones. In the telecoms infrastructure unit, NokiaSiemens Networks, sales were down by 20% from just three months earlier. And the hard-earned tiny opeating profit earned by NSN for Q4 was lost, and now the unit is again reporting losses. Meanwhile Huawei, the Chinese telecoms giant has now passed NSN for second place in the brutal world of telecoms infrastructure competition (and is chasing Ericsson for the world leadership role).

And what of the second of the three legs? Nokia's 'dumbphone' business, where roughly a third of Nokia's revenue is generated? Compared to Q4, now in Q1 Nokia dumbphones unit sales are down by 12% to 84 million units. The average sales price is down by one Euro to 42. Total revenues yes, are obviously then also down, by 14% to 3.5 Billion Euro. And the ones growing in dumbphones? Samsung and major Chinese makers from ZTE to Huawei to G'Five.

If Nokia's top management focus this Spring is in a shift of platforms from Symbian/MeeGo to Microsoft, then what they'd hope is for the other sisters in the organization to have strong years to finance this transition. In this way both NSN and the dumbphones units are failing Nokia now when their contributions are direly needed.

SMARTPHONES FIASCO

So we get smartphone numbers. And its not pretty. The smartphone industry grew something like 5% from Q4 to Q1 (based on my preliminary numbers, we'll see more as the data comes in, but for comparison, in 2010 the same period grew 6% after the Christmas quarter into the January quarter). So if Nokia grew by about 5% in smartphone unit sales, that would only be 'holding steady' with the industry. But no, Nokia did not report smartphone unit sales 'growth'. No. They reported an actual decline in smartphone unit sales of 14%. Nokia invented the smartphone. While their market share was destined to decline from 100% (when you are the inventor, you start with 100% but as rivals come in, that is impossible to keep) and dropped below 50% about a decade after the first Nokia Communicator, Nokia actual unit sales of smartphones have grown from quarter to quarter, essentially forever. Even from Q3 to Q4, while Nokia's smartphone market share declined, their smartphone unit sales grew by 7% in just one quarter. Now from Q4 to Q1, even after the big Chinese new year's sales, Nokia total smartphone sales declined for the first time.

Note, the overall handset market grew, but smartphones grew much faster in the past 3 months. Nokia reported a decline in dumbphones of 12%, but it reported a bigger decline in its smartphones of 14%. The part of the industry which grew the strongest, saw the biggest actual decline in Nokia sales. I do not mean 'relative decline' as in market share loss. I mean real decline. Nokia was the best-selling smartphone in the world, and when that sector is the biggest growth area, Nokia doesn't manage a growth in it, Nokia sees not just a decline, its decline in it is even worse than the decline in Nokia dumbphones!

This is a massive disaster for Nokia. So its customers are suddenly saying, I hate your smartphones so much, I would rather buy a Nokia featurephone (a non-smartphone, a dumbphone) than a Nokia branded smartphone! This is a total reveral of how it had always been for Nokia, quarter after quarter, year after year, Nokia smartphones had higher demand than Nokia's (world-leading) brand in dumbphones. This was true until Stephen Elop took control.

And as the customers don't want the phones, even as Nokia released its long-delayed N8 in Q4 and its latest flagship, even more expensive E7 in Q1, and should have a very competitive duo of 'iPhone killers' in the large screen touch screen slim superphone space, and for Q4 Nokia did see an increase in its average sales price, that is now in crash-dive. The ASP came down 6% from 156 Euros to 147 Euros. The customers are buying 14% less Nokia branded smartphones in just 3 months, and when they buy some, are then paying 6% less for the smartphones! This while Nokia has released previously missing top-priced superphones to plug the hole in the top end of the price pyramid. What is wrong with this picture?

With lower prices and lower volumes, obviously total sales revenues are down drastically, by 19% in just three months, in the smartphones unit, generating 3.55 Billion Euros, just slightly more than the dumbphones unit. (for Q2 the dumbphones unit will earn more than smartphones, so Nokia is severely regressing now! All of its major rivals are pushing really hard to achieve the opposite, where smartphones could bring more income than dumbphones, but Nokia now is essentially walking away from all that profitable smartphone business, and will find from Q2 that more of their income comes from low-cost 'Africa-phones' with their modest profitability, than in the high-end smartphones sector. This from the inventor of the smartphone. This while the smartphone sector has its strongest growth ever. Sad.) And while Nokia doesn't break down its smartphones and dumbphones profitability by type, for all handsets, the operating profit crashed 32% in the past quarter. Obviously this is primarily driven by the disaster happening in smartphones.

KUNG HEI FAT CHOI

So then in a most calculated move, Stephen Elop ensured his announcement of the Microsoft selection did not hurt the most important sales region of Nokia smartphones of Q1, one of the markets where Nokia's market share was the strongest - that of China. Like I reported here last year and Nokia itself verified in its 2010 quarterly results for Q1, there is a Chinese New Year's gift-giving season, which is akin to the Christmas sales in the Western world. Because China only launched 3G networks in 2009, we witnessed that surge in smartphone sales for the first time for Q1 of 2010. But it will now happen for many years to come. And Nokia knew this. So they did not want to jeopardize the Chinese surge in smartphone sales. That is why Elop did his announcement on February 11, he waited deliberately for Chinese sales to happen first. Pretty nasty, I think the Chinese customers might not reward Nokia for this with their next upgrades.

Nonetheless, we see the regional split of Nokia sales. The Chinese region grew sales by 9% (note, Apple, who had a huge Chinese gift last year, now reported 250% growth in Q1 of 2011). But yes. China was to be expected. What of the rest of the world? The Middle East bought as many Nokia phones in Q1 as in Q4, their sales were 'flat' (while the industry grew, so even here Nokia lost market share). But the rest? In Latin America unit sales down 14%. In Asia-Pacific down 13%. In what little Nokia had in North America, with the new North American CEO and all, unit sales down by another 50%. and Nokia's home market, Europe, down by 30%. This is disaster. Note that Europe and USA are the two biggest regions for smartphone sales and that is where Nokia saw its biggest losses. This is not just bad for Nokia, it is a massacre.

WHAT IF

And can we remove the China effect? We can do that for all handsets (Nokia doesn't give the breakdown by smartphones). Lets remove China sales, and see what happened to the rest of the regions. Without China included, Nokia sold 101.8 million phones in the remaining 5 regions in Q4. That is down to 84.6 million for Q1, ie a drop of 17.2 million units of handsets, or 17% drop in sales. That is just over one sixth of the total customer base. If Nokia lost that same number of unit sales each following quarter, there would be no customers left in... 18 months!

No wonder Nokia HQ was desperate to not touch the China sales. The results would be hysterical without the Chinese New Year.

But wait! This China effect was for all phones. The Nokia numbers are worse for smartphones than dumbphones. And the Elop Microsoft effect happened on 11 February, so the first sales day that Nokia's new smartphone strategy was known, was 12 February. In the three months, January-to-March 2011, out of the 90 days in the period, only 48 days (53%) were under the influence of Stephen Elop's announcement. If we factor in that time, and adjust it for the 90 day period, we have witnessed an actual decline 'rate' (outside of China, after Stephen Elop's Microsoft announcement) of a 32% drop! In one quarter! So if this rapid suicide-dive rate were to continue at the same pace, Nokia's total smartphone customer base could be totally extinguished - yes, wiped out - by the middle of Q4 of this year! A suicide-kamikazi move, but where your own pilot flies into your own aircraft carrier to sink it! Good job Stephen Elop! Who was it who set the platforms on fire?

HOW DOES IT COMPARE TO FORECAST?

Remember I did this forecast right after the Elop announcement in February? I projected each quarter how Nokia smartphone sales would decline, and what its market share would be by the end of the year 2011 (and which rivals would eat what parts of the Nokia voluntary loyal customer give-away bonanza). I forecasted that by the only model we had from before, Microsoft's similar announcement of ending the migration of its smartphone OS path, and what its market share would do in 4 quarters. I projected Nokia market shares, unit sales, average sales prices, and total revenues to be like this:

Quarter . . . Market Share . . . Unit Sales . . . .  ASP . . . . . Total Revenues of Smartphones
Q1 2011 . . 28% . . . . . . . . . .  29 M . . . . . . . . 146 Euro . . 4.3B Euro
Q2 2011 . . 21% . . . . . . . . . .  25 M . . . . . . . . 136 Euro . . 3.3B Euro
Q3 2011 . . 16% . . . . . . . . . .  21 M . . . . . . . . 126 Euro . . 2.6B Euro
Q4 2011. .  12% . . . . . . . . . .  17 M . . . . . . . . 116 Euro . . 2.0B Euro

I said clearly in my blog that it was my 'best case' scenario, as there was plenty of Nokia doom and gloom at the time (including my previous analysis of the decision and how it was made). But there were several competent analysts who came to the blog who said they felt I was being too harsh on Nokia, that while it would be bad, it wouldn't be quite that bad. Well, now we have the very first evaluation of those numbers. And yes, it is worse. I had expected Q1 best case to be and what it actuall was:

My projection Q1 . . 28% . . . . . . . . . .  29 M . . . . . . . . 146 Euro . . 4.3B Euro
Nokia actuals Q1 . . 24% . . . . . . . . . .  24 M . . . . . . . . 147 Euro . . 3.6B Euro

After the Elop announcement, Nokia market share in smartphones for Q1 fell enormously but is is 14% worse than I projected. Nokia unit sales in smartphones fell dramatically but are 17% worse than I projected, the average sales price declined severely but is less than 1% better than I projected. The total revenues of the smartphone unit crashed, yet are still 16% worse than I projected. And many experts said I was 'too pessimistic' in my scenario. And my scenario expects first Microsoft phones to arrive like the US cavalry to save the pilgrims, in Q4. And by that time, my original forecast projects Nokia smartphone market share to hit 12%. These first quarter numbers push that 'best case' scenario to single digits!

Guys? Do I know my sh*t? Who else told you how bad it would get immediately, and who else gave you the specific units, market shares, average sales prices and total revenues? And who else said that this being the best case scenario, the reality was likely even worse. Do please be prepared, Nokia year 2011 will be the Annus Horribilis like we have never seen in this industry. But now, with all that, lets go back to the quarterly results, for an interesting view to this quarterly performance. Check out what Stephen Elop wrote of the results: "Following a solid first quarter, we expect a more challenging second quarter."

WHAT?

A what first quarter? Stephen Elop sees his Networks unit go from profitable to loss-making, and losing its world second place standing to Chinese low-cost rival Huawei. Nokia sees its dumbphones unit reverse a unit sales growth into unit sales decline, lose market share, reverse a growth in average sales price to ASP decline, see total dumbphone revenues decline, and see an increasing operating profit turn into declining operating profit. And worst of all, in its premier smartphones unit for the first quarter ever, see a loss of actual smartphone unit sales, see a crash of market share, reverse its growth of average sales price into massive decline, see a huge shrinking of total revenues produced by this key business unit, and see the growth in operating profit turn once again into declining operating profit for smartphones!

And this new CEO Stephen Elop calls a 'solid' first quarter? I wonder what he'd have called Toyota's failing brakes quarter or BP's oil spill quarter or Rolls Royce's exploding Airbus A380 engine quarter? An 'unsettled' quarter perhaps? How bad does it need to be for the CEO to admit that his ship is trouble, if except for an opportunistic China gift-season, the rest of the company lost one sixth of its existing customer base, while the industry itself grew!

Even when Motorola did its massive market share harakiri suicide from the peak of the Razr hysteria, Moto only lost 6% to 8% of its customer base per quarter. That was our world record for destroying your own customer base in mobile phone handsets, Motorola devastated 3 out of every 4 existing customers in a four year period between 2006 and 2010, as it struggled to react to the iPhone, re-invent a new Razr hit phone, and finally abandoning those, it put all its eggs in an Android strategy where it now is listed as only the 4th best-selling Android brand globally while the company was split up and many parts of it were sold.

Nokia is not doing twice as bad as Motorola in its worst quarters, Nokia is right now doing about 4 times as badly, as Motorola in its darkest hours. And this the new brave honest American-style CEO calls a 'solid' first quarter? What business school did Stephen Elop go to? This sounds like "They will greet us as liberators" style Rumsfeld-Cheney'ian deliberate suspension of any tiniest thread of reality. When I said, that for any Nokia CEO to write the 'burning platforms' memo, I said he'd have to be a "delusional psycopath who willingly suspends reality". Come on? Stephen Elop called Q1 of Nokia 'solid'?

If he had said they had a 'troubled' Q1 or a 'difficult' Q1 or a 'disappointing' Q1 or even a 'patchy' Q1 then I'd be willing to say Elop is reasonably sound in his communications. I know he is not 'stupid'. Of course he knows the numbers, he knows the facts, he has smart management advising him. He is not delusional. But he IS communicating to the investors as if he was a lunatic in charge. A 'solid' quarter!!! Come on! Lets be honest here Stephen! This was a bloodbath quarter for Nokia, even with the China silver lining.

And now, all who follow Nokia, that wonderfully honest and open CEO, is saying "Following a solid first quarter, we expect a more challenging second quarter."

The second quarter will be worse than this past disasterous Q1. Stephen Elop himself warns us, however you rate Q1, now Q2 will be worse. That he promises us. And I am telling you, it keeps getting worse in Q3 (and Q4 and possibly beyond) until the Microsoft smartphones are sellingand even then, that launch quarter won't save Nokia, it will only start to slow the losses. If the new handsets are desirable, if the Nokia-loyal consumers like the new Microsoft look-and-feel which will appear at least unfamiliar. And assuming the first Microkia Nokisoft phones are bug-fee, and well tested and not rushed with problems like say what... the N97?

Nokia smartphones unit is in a death-spiral. It will go from making most of Nokia's profits, to loss-making by this summer. The market share will crash to single digits by year-end. And the overall loss-making of smartphones (with no signficiant help from NSN or the dumbphones units, both of which suffer from the smartphone unit troubles) will push all of Nokia corporation to generate a loss by the end of the year. This is an ever more obvious scenario the further we move into this year of the Bloodbath 2, Electric Boogaloo.

Thats my review of Nokia Q1. More Bloodbath Year 2 reviews coming soon. Remember, if you need all the stats and numbers on the handset market, I have released my TomiAhonen Phone Book with 98 tables and charts of all market shares, feature installed bases, form factors, operating systems, average prices etc, costing only 9.99 Euros. See more at TomiAhonen Phone Book.

First numbers of the first quarter in Bloodbath year 2: Apple reports stunning quarter

So its that time, the quarterly results are coming in. We have actually heard from HTC and RIM already (their quarter ended in February and reported in March) and SonyEricsson also posted results. But I have been very rushed, exceptional travel, and those were not that sensational results one way or another, I will cover them in compendium blog article next week. The first massive news, and a true salvo fired by a big gun of smartphones came when Apple reported two days ago.

The stories in the press are on par with Apple's overall success - not only celebrating the biggest profits in tech (by a mile) but now they've passed Nokia in revenues for the quarter, becoming legitimately considered the biggest telecoms equipment vendor/handset maker in the world. The pundits are falling over themselves to note every point - even where that point is not strictly merited (that Apple managed to double iPhone sales in just one year would be astonishing in almost any other 100 Billion dollar industry - except that the smartphone market almost doubled itself, just last year. And Apple was nowhere near the strongest growing company over the past 12 months). And then on Bloomberg I saw two pundits blabber on the completely predictable but utterly false claims that 'Apple invented the smartphone' and 'Apple invented the app store' etc. Well, who told you first (back in 2007) when I wrote my essay of the two eras in mobile telecoms, the era Before the iPhone, and the era After the iPhone. I warned you that the history books would end up crediting Apple for much that actually went before it...

So, on this blog we focus, as we always do, on the real facts and the real numbers. The relevant numbers. We are not a blog about investing or financial analysis, so we totally ignore share prices and market evaluations. We only note whether some rivals are profitable or not - an unprofitable competitor is soon a dead competitor witness Palm last year haha - as on this blog we look at the market shares especially on the major platforms. That is of interest to primary readers of this blog, those who want to make money in mobile as a service provider, application developer, etc.

And with that, a bit of context. I am modelling Q1 to have grown about 5% from Q4, so am estimating the January-March quarter sold 104 million smartphones globally. A year ago the same period the growth rate was 6%, so that is roughly reasonable. We have also heard from some major players that their numbers have grown from Q4 (Android, Apple, RIM) while others report flat sales (SonyEricsson) or decline (HTC and just now Nokia yesterday). And thus, until we have more data to recalibrate that number, if you are in the smartphones races in Q1 of 2011 and you grew by 5% you actually weren't doing anything 'good' - you were simply keeping up with the industry growth rate.

APPLE SETS THE BAR, VERY VERY HIGH

And onto Apple. What a quarter! The numbers: from 16.2 Million iPhones in the Christmas quarter, they now sold 18.65 Million. That is a growth rate of 15% in one quarter (equivalent to 75% annual growth rate, when compounded). Even with the smartphone market growing at 5%, Apple boosted that with another 10%. Very very strong growth! In terms of market share, this is a new peak for Apple, they are now at 18% market share for the quarter.

And immediately the earned added accolades. The iPhone is the most expensive mass market smartphone. As a 'line' of smartphones (with only one model) vs any of its Top 10 rivals, Apple's average price is by far the highest, almost twice that of most rivals and over three times that of the biggest smartphone maker, Nokia. So if a market expands - and one would expect that means the more wealthy potential customers have already bought one, and it is ever less wealthy buyers who join the market - you would expect low-cost devices to run away with the market shares. The guy making the most expensive device should not be able to grow the fastest...

VZ FX

And while yes, there was some budding price war steps by say AT&T to protect its customers from departing to Verizon etc, then overall, Apple has held a very strong line on its pricing. This astonishing growth rate - yes three times the rate of the industry growth - was done 'fair and square' without gimmicks of any kind. Not even the 'White iPhone'..  (can you imagine how many millions more iPhones Apple could sell if it really wanted to, if it spread its product line, or at least did a couple of colors haha)

Where was it? Well, we know 2.2 million were new customers activated over at Verizon. And against most pundits who predicted AT&T would suffer devastatingly because of the VZ iPhone, the numbers are in from both carriers. AT&T activated 3.6 million new iPhones. (who told you? Remember my projection of full year 2011 unit sales split AT&T vs Verizon was 15M vs 10M - and these Q1 numbers are almost dead-on for that result haha..)

But note, 2.2 million won't cover the growth for Apple. And regular readers of this blog know well where the big Apple bonanza for iPhones is nowadays in Q1. Like I said in my Bloodbath 2 Preview, expect Apple to do well in Q1 because of the Chinese New Year and its gift-giving. Now we have heard Apple's Tim Cook say in public that yes, China was exceptionally strong in Q1.. (I am once again finally vindicated, even after all those who came here to post angry comments at me, haha - and to my loyal readers, you guys know, most of the stuff I write here is 'reporting' stuff that others do, others say, others invent. It is rare for me to have the privilege of honestly 'scooping' a story. While often I have the honor of celebrating innovations and inventions you may not have heard of, those are never my discoveries. They were already in the news by the time I heard of them, or at least talked about at conferences, etc. This was a rare honest 'scoop' where I was literally the world's first to discover that phenomenon. If you read this blog in April 2010, you were among the first thousand or two thousand people in the world to discover the real reason why Apple's Q1 of 2010 was so astonishingly above all estimates. And with that, you would also not have been surprised by this 'amazingly' strong Q1 now in 2011 - like most 'analysts' and pundits clearly were, who expected far worse iPhone sales in Q1. It is cool to discover something like that, and now with blogging (and Twitter), it is possible for me to share when I occasionally make one such discovery..)

And to belabor that USA point further, lets be very clear with the math.. Verizon iPhones did sell 2.2 million units. AT&T did sell 3.6 million units. Add them together, we're at 5.8 million for total USA sales of iPhones. Now lets go back to last year, same time. AT&T alone sold 2.7 million iPhones in Q1 - and that was 31% of all iPhones sold worldwide. Now out of this year Q1, Apple's 18.65 million iPhones. Have a guess what percentage is 5.8 million total USA sales? YES. 31% !!!!!

What Verizon iPhones did, for the most part, were simply to fulfill the natural US market demand for iPhones, not grow it. AT&T was totally on track to sell about 5.8 million iPhones, based on Q3 2010 projections (until the Verizon iPhone was confirmed). Apple did not grow the US market with the CDMA version. They allocated the market more evenly between AT&T and VZ. But that level of sales - 5.8 million - is very close to what AT&T would have done all by itself if there was no Verizon iPhone. The math is crystal-clear on this.

So yes, the real growth was the China New Year's gift-giving, as articulated by Tim Cook in the Apple quarterly results call.

Now, with all that happy back-slapping of my previous blog postings, haha.. I obviously have gotten it also wrong with Apple, time and again. I keep saying 'the iPhone is too expensive' and keep forecasting that Apple sales have to suffer in comparison to rivals (and keep arguing also for cheaper iPhone models, like they do with the iPods, Macs etc) but Apple keeps making a fool of me with this point. Their appeal is far far stronger than what my 20 year career in tech and an MBA/econometric training would allow to believe. Apple seems to deliberately set out to destroy the price theory of marketing (from economics theory of supply and demand) by which if you lower your price, you sell more, and if you raise your price, you sell less. Most economic thinking and most businesses are founded on this principle. Apple is consistently proving it need not be true (if your brand is gold plated latinum, to borrow a Ferengi measure of wealth)

So in addition to stellar Mac sales and fantastic revenues and profits and the unmet demand of iPads - I am not a tablet PC expert but can you imagine how demoralizing that is to the 100 or so makers of announced tablets this year.. Apple could not satisfy iPad demand, haha.. I'd hate to be a competitor to Apple. Please Apple don't ever get into mobile industry consulting and punditry, ok? And yes that if including not just Mac and iPads but smartphones as 'real computers' - as all major PC makers now accept (and adding the Touch), Apple is now the world's biggest computer maker too - this was a perfect 10 out of 10 quarter for Apple's iconic 'jesusphone' (ok, now I have officially used that term, for the first time ever, haha)

If Apple manages to average growing 15% for the remaining 3 quarters (likely to be far less in the next quarter but then to have a monster 3rd quarter if the new iPhone is out around June/July) - Apple would end the year selling ..exactly 28 million iPhones in a quarter. And would you know it.. (I love it when the math comes so elegantly together) ... that is exaftly what Nokia sold smartphones in Q4 of 2010. Apple are certain to pass Nokia this year and take the mantle for the worlds' biggest smartphone maker. This year! In barely more than 4 years from launch! Who knew? Not me! I was vehemently against that ever being conceivable, not plausible, far less likely for Apple iPhones to ever outsell Nokia smartphones (as long as the iPhone did only one model, and had such a high price)... I have said countless times here on this blog, that was utter hogwash. Never in a million years. Haha, so what do I know.

HOW SUSTAINABLE FOR 2011

Now, a little bit of realism still into all this Apple-hysteria. Any brand can have a hit quarter, a hit product and it can go sour real fast (anyone recall a hit phone called the Razr by some company called Motorola who was recently broken up because it was so badly loss-making?). There are rumors of the iPhone 5 or whatever should be the 'summer of 2011' iPhone model, of possibly being delayed. That would be a bad sign, and represent a huge loss to Apple's rivals in this year of the Nokia-Microsoft 50 million smartphone customer give-away bonanza. Apple has to be in that race, as more than with any other brand, Apple relies on its loyalty, and Apple cannot stumble this year, not in 2011. That kind of utter strategic market share give-away blunder by a market leader (I am talking of Nokia blunder, not Apple obviously) doesn't happen in most executives' lifetimes in most industries. This is the once-in-a-century moment for Apple (and RIM, Samsung, HTC etc)

Of those gains. The CDMA iPhone (Verizon iPhone) is obviously now in the normal mix of phones for Apple. What Apple needs is to quickly roll out deals with other major CDMA carriers in the world, KDDI Japan, China Telecom, Reliance India, etc. But this was, as I explained, a marginal play for Apple and I argued that for all the effort it took, it would have been close to as much R&D effort as to do the 'Nano' iPhone that I have often advocated here - which would have grown iPhone sales by at least 50%, possivbly as much as 100% (while commanding a similar, if not better, profit margin as the current iPhone). So Apple's "Verizon" effect is not sustainable iPhone growth on a global market. Most of the world is on GSM and even in those countries where CDMA still exists (most countries that had it, have already extinguished CDMA completely) it is not with the biggest carrier.

The China effect comes once per year, ie in Q1. That came and went. It will not sustain Apple in Q2. We will now see an even more pronounced drop in iPhone 4 sales in Q2, and Apple desperately needs the next iPhone 5 launched by late June, to rescue some respectable Q2 sales numbers. It is most likely going to mean a sequential decline in unit sales from Q1 to Q2, modest if we have the new iPhone by the last week of June, but dramatic crash of unit sales (down from 18.6 million to perhaps 10-12 million even) if the iPhone 5 is delayed into July.

The 'White iPhone' has been confirmed by some Apple sources. I think if it is now the iPhone 4 model (the one-year-old model) then I think it is a slap in the face of loyal Apple customers, it is almost a sign of being stupid, for making the ultimate dumb purchase, buying the white iPhone only weeks before the next iPhone is released, haha. I don't mean it would be stupid for Apple fans to buy it, I do think that many Apple fans and loyalists who know the new iPhone 5 is due, if the White iPhone is the last gasp for the dying iPhone 4 model, it could well be thus tainted, as the "moron's iPhone". It should have been released for Christmas or latest when the Verizon iPhone came out. Now is a bad time to launch it. I am afraid, that it could even gain a reputation of a 'mark of stupidity' where future white iPhones could carry the same stigma. This is not the best time to do color-tinkering, and definitely not in lieu (or seen to be in lieu) of a new June iPhone 5 model.

HERE TOMI GOES AGAIN..

But much as I know how many times I have been found to have been wrong saying so, I will keep saying it, until I am proven right. The time will come, when one iPhone model, costing (without subsidy of 2 year contract) about 600 dollars - is FAR too expensive for a mass market phone. Come on, about a quarter of the planet's population lives on less than that as their total income - per year!

Soon half of all mobile phones sold (1.4B market size) will be smartphones. At that time it will be 700 million smartphones sold per year (probably next year by the way). There is no way, no F'ing way, that 700 million people annually, can afford a premium smartphone costing more than a DVD player, more than most flat screen TVs and about on par with the cost of a new PC. We will hit a point, and that will come withing months, not years, where the 600 dollar market for super-premium smartphones will be saturated, and Apple will find it sells remarkably well in that part of the market which has stopped growing. This will mean iPhone sales growth will stall.

And I love Apple. I do want Apple to be the beacon for this industry throughout this decade, and for that, we all know it in our bones, they have to come out with a cheaper 'nano' model of the iPhone. And again, because of the once-in-a-consultant's-career situation - of moronic Nokia-Microsoft 'lets hand all our most profitable customers to our rivals on a platter' lunacy - this chance comes only once, in the year 2011. The longer Apple waits with its Nano, the more it loses those customers to Samsung, HTC, RIM, SonyEricsson, ZTE, Huawei, Sharp, Motorola, etc etc etc.

Apple has had a magnificent Q1. Now Q2 will be less glamorous, even more so when contrasted with spectacular Q1. Remember, a drop in Q2 sales for the iPhone is 'normal' as the old model is shortly to be replaced. That is not "bad news". The new iPhone 5 (whatever it will be called iPhone 4G or whatever) will of course be the hit of the month and following quarter, whenever it is launched, and will sell far more than the current line did. What we need for Apple to turn Q1 of 2011, into a world-beating full-year 2011, is that split of the iPhone product line, and introduce two new models including their Nano iPhone, hopefully already this summer. Then Apple will be utterly unbeatable and will grow faster than 15% per quarter and end this year selling over 100 million iPhones...

So there, a bit rambling, I am sorry, I am rushing these as I have been travelling heavily, so I don't have the usual amount of time to edit it down. But I know there are readers and followers who want to see my thinking. Apple? 10 out of 10. Perfect score. As good as one can possibly imagine and perfect start for Q1 of Bloodbath Year 2, Electric Boogaloo. More analysis coming shortly, Nokia is next..

Some Milestones We Will See This Year in Mobile Statistics

(I have been very heavily travelling and speaking, so its been a while since had a chance to blog, but have many items want to blog about, so hoping to do several articles over next weeks)

Statistical Milestones Coming in 2011. Its that time of year now, early Spring. We have the final numbers for the previous year which I blogged about and its time to cast an eye into the next months, to see what kind of milestones we will hit during this calendar year, and what the industry will look like towards the end of the year.

7B PEOPLE

And while I love my stats in the mobile industry, this year planet earth will take the limelight, as we will hear the planet's population passes 7 Billion people alive. It was 6.9 Billion last year. So the really big number we need to prepare for this year is 7B.

5.8B MOBILE SUBS

So lets move to the big mobile and tech numbers. If you think 5.2 Billion active mobile phone accounts was an impressive number at the end of last year, think again. We are already past 5.3 Billion and we are fast headed to the number of 5.8 Billion at the end of this year. That means a (nominal) mobile phone subscription penetration rate of 82.9% per capita for Planet Earth. What can I say about that number? Mobile dwarfs any other media or technology, even radio was passed several years ago. We are past most comparisons haha, like only 4.2 Billion people use a toothbrush etc. So lets use comparative stats. How's this. Mobile phone accounts at the end of the year will be 5 times as big as the total number of fixed landline phones! And some smart people argued way back when, that it was 'impossible' for mobile phone accounts to ever bypass fixed landline accounts haha..

Incidentially, I am projecting the 6B active mobile phone subscription number to be passed in the Spring of 2012, and that the planet's penetration rate will exceed 100% per capita by.. late 2014. Yes, less than 3 years and we'll have more mobile phone accounts in the world than all people alive, from babies to grandparents.

3.9B UNIQUES

So that number obviously includes those customers who have more than one phone or account. What of the number of unique mobile phone owners on the planet, actual people who have at least one mobile phone subscription and at least one phone? That number will near 4 Billion this year, I project we'll end the year at a bit over 3.9 Billion unique mobile phone owners/users on the planet, for a real penetration rate of 55.7%. Considering much of Africa lives on less than $1 per day, and that the planet is past 50% real unique owners of mobile phone accounts, this is a massive number too.

4.6B PHONES IN USE

So then what of the true count of mobile phones in use globally? That number sits between the number of uniques, and the total subscriptions. Every unique owner has to have at least one phone, but not all who have multiple accounts, will bother with a phone for each account. In most countries the prepaid SIM card allows for many accounts to be easily managed on different networks, while using just one phone. Increasingly in the Emerging World markets, phone makers now offer dual SIM or even triple SIM phones. My projection has the world with 4.6 Billion actual mobile phone handsets in use by the end of the year. Against the total planet's population, it is 67% per capita. Compared to personal computers, its more than 3x as many, against TV sets, about 2.5 times as many. And obviously while most of the phones today are not 'smartphones' they are quite advanced computer-like devices. Like we could read in my 2010 TomiAhonen Phone Book on all the stats about the phone industry, over 96% of all phones in use worldwide have at least a basic browser, more than 94% have a color screen, 77% have a camera, 68% have a memory card slot and 59% can do basic apps via Java or Brew. Its very easy to think of such capabilities as being a 'modest' pocket computer, even where they are not true smartphones (at the end of last year, only 17% of the installed base of phones worldwide were smartphones).

So if we just use last year's number for the installed base, and multiply by this year's total of handsets, the world will have more than 3.5 Billion cameraphones in use at the end of this year - for a planet of 7 Billion people. Yes, literally there will be a camera (and phone and in most cases videocamera too) for half of the population. Like I've been saying for a while now, for 9 out of 10 people worldwide, who have ever taken a picture, the only type of camera they have ever used, is a cameraphone. The Nikon or Canon that you may carry in your travel gear, is for the wealthy portion of the planet. Most cannot afford a stand-alone camera, and will use the cameraphone instead.

Oh, and one more stat. Last year 71% of all phones in use had a 'real' web browser, that was HTML compatible (the rest of the basic browsers were WAP compatible). What is 71% of 4.6 Billion phones? 3.3 Billion. Yes, the number of phones with a 'real browser' is almost 3 times as big, as the total connected number of all personal computers of any kind, that are connected to the web, including desktops, laptops, netbooks and iPads.. Three times as big. So is your website already mobile enabled?

700M SECOND PHONES

A mind-numbing stat is the second phone stat. At the end of this year, globally 18% of all people who have a mobile phone account, walk around not just with two or more accounts, but carrying 2 mobile phones in their pockets! Thats 700 million 'second phones' in use! It is a massive number. Note that is is more than all portable personal computers of any kind (laptops, netbooks, tablets). Its almost as big as the total number of smartphones (and many smartphone owners walk around with 2 smartphones, ie one Blackberry the other an iPhone etc). My joke that the youth can simulteously carry on two SMS conversations holding a phone in each hand, is more and more reality. Note that these are not second subscriptions used for 'data' connections with a 3G data dongle for the laptop - that would be a third subscription, if you also walk around with 2 phones. Three active, paid mobile phone subscriptions upon a person on a normal day, walking about town. Astonishing, isn't it. Thats not necessarily the 'mass market' consumer (yet) but is typical of those working in the high tech and media industries already today, and university students of course...

ONLY 39% ARE SINGLE SIM

And then another bewildering stat, that stems from the above. As the planet proceeds to more accounts per person, especially with the proliferation of prepaid accounts, we will end the year, where less than four out of ten mobile phone customers, in fact 39%, will be of the kind who can survive with only one account (and only one phone). Yes by the end of the year, 61% of us will find it useful to own more than one mobile phone subscription. And some still say this industry is 'near saturation' haha. How clueless they are.

NOKIA AND SAMSUNG

Then two gargatuan sized consumer electronics giants. First lets start with Nokia. By the end of the year, there will be 1.8 Billion Nokia branded phones in use worldwide. A Nokia phone for 27% of the total planet's population alive. No consumer brand has ever ever ever been as widely spread as Nokia is today. This is the first time in the planet's history, that one brand has an active user base of more than a quarter of the total population of our world. Yes, Nokia is suffering this year with its smartphones strategy but as a consumer electronics brand, it utterly dwarfs such traditional giants as Sony, Panasonic, Philips etc. Oh, and Nokia will pass a production milestone of 3.5 Billion phones manufactured in its history, so again, if we count all phones with a Nokia logo, including countless millions no longer in use - there would be a Nokia phone for half of the planet's population alive.

But then what of number 2? Samsung has started to motivate its staff that their target is to overthrow Nokia and become number 1. Samsung has been growing its market share quite strongly recently. It is not beyond feasibility, that they might end the year with about 23% market share for the full year 2011. Then counting back over the past few years, the total installed base of Samsung branded mobile phones in use would pass 1 Billion. If that doesn't happen this year, it will happen next year. Consider Timex, who sold a little over 1 Billion of its wristwatches. They did it over a 50 year span, and at no point in time, was there a Timex ticking on a Billion wrists. Or Sharp, who invented the electonic desk calculator. Counting all Sharp branded pocket calculators and desktop calculators they ever manufactured, they recently celebrated their 1 Billion milestone. But never 1 Billion used at the same time. Any other tech? Only measured in the hundeds of millions if we look at things like the Sony Walkman. But Samsung will shortly have 1 Billion active users of their mobile phones. Quite a milestone indeed.

4.5B WILL USE SMS

If we project SMS user base growth to this year, using last year's growth rate, we'd be near 4.8 Billion or even 4.9 Billion. But the reality of human kind is now factoring into SMS. We are at the limits of literacy. In Europe 85% of mobile phone subscribers are active users of SMS, in some Asian countries like China its at 90%, so the organic growth is nearing its limits. Even the laggards, USA and Canada are catching up, the USA is already past 74% in active users. And then we go to places like Africa, Sri Lanka, Bangladesh, Pakistan, India, etc and we do find that SMS is used by the literate parts of the population, and growth is slowing as we approach national illiteracy levels. I do project SMS user growth, but this is the first year that I am seriously reducing my projection to far less than the historical average, simply because of literacy reasons. SMS growth will come to an end during this decade and the first signs of the growth slowing down, will finally (probably) be seen this year. And if not, nobody would be happier than me to be wrong on this, haha. But I am now projecting we'll hit about 4.5 Billion active users of SMS, the most widely used data application on the planet, obviously.

But on that SMS, it is increasingly now being 'discovered' by traditional media brands and I see SMS adoption in all sorts of industries from game shows on TV (Deal or No Deal in America earned 56 million dollars out of SMS votes last year, so its no longer just 'American Idol' who know how to use SMS in American TV) to Top 40 style pop music hit shows, that receive tens of thousands of SMS votes to suggest which song is the most popular radio hit of the week. The same goes for SMS in advertising, just last week New Media Age of the UK reported, that after a decade of using SMS (and MMS) in advertising, such major UK advertisers as Domino's Pizza and Coca Cola are still increasing their use of SMS! Domino's went so far as to call SMS on par with the most effective ad platforms and by far the fastest. So don't think for one moment that the use of SMS as a media channel will slow down any time soon (do you have SMS central to your mobile strategy)

MMS PASSES 2.4 B

And the second most widely used data platform is not the internet, it is not Facebook or Twitter or YouTube or Google etc. It is MMS, not just 'picture messaging' but literally MMS stands for Multimedia Messaging Service. Multimedia. Not just pictures, but also sounds, also video clips and also longer texts than 160 characters of SMS. I am teaching in my media and advertising workshops that MMS is the media brand's dream, the ultimate interactive multimedia - media - platform. Better even than SMS! And its user base keeps expanding. We passed 2 Billion active users last year, we will hit 2.4 Billion active users by the end of this year. Note its that humongous, MMS is twice the size of global email, it is nearly 4 times as big as Facebook. And the media love it. The US TV show Pretty Little Liars experimented with MMS last year, got 12% of its audience to sign up for weekly updates including a preview of the next episode, sent via MMS. This as an 'experiment' by ABC the broadcast network. In Asia MMS revenues already exceed SMS revenues and in many markets like China, MMS is a standard staple in the media landscape. In Europe, its a patchy world, in Norway at one extreme, 84% of the phone users already use MMS, but in other countries like Germany, its in very low numbers still. My media contacts tell me that the USA now leads Europe in the use of MMS by media brands, and I am not surprised. The Americans are fast to smell money, and MMS is all about the money! Like I keep saying, Mobile is the Magical Money-Making Machine!

M-NEWS, mAD

So then a couple of media related stats. The world is loving mobile as a news channel, it is the news brands who struggle to capitalize on it. But m-news is growing by leaps and bounds. By the end of the year we will have 2.5 Billion consumers who are actively receiving news on their phones - most of those will be paid news, most of the news will be on SMS and MMS, not via smartphone apps (yet). But note, already this summer we will pass the point where a third of the planet consumes news on a phone. Not a 'third of mobile phone owners' - I mean literally, a third of the planet. I teach to Western audiences that mobile is the 7th mass medium, but in the Emerging World mobile is not the seventh, not the fifth, third or second. Its not even the first medium, for many media consumers in the less affluent countries, mobile is the only mass medium! You want to know the cricket score in India, odds are you will find it on your phone, not via a newspaper, TV, radio or the internet..

And where there is media, there is advertising. Mobile advertising is in silly growth stage right now. Every major credible media and advertising exec is falling over each other to give ever more bullish forecasts about how much advertising and marketing will transit phones this year. I am projecting the total number of mobile phone users who will receive ads on their phones will hit 3.7 Billion people. By the summer, we'll be at the point, where half of the planet's population will have seen ads on their phones. This is twice the reach of ads on TV and 7 times more than the daily circulation of all newspapers. I have no numbers of the use of advertising on radio (not all countries and all radio networks have advertising) but the total number of radio receivers worldwide is 3.9 Billion and certainly not all of them will be used to receive ads. So if you're an ad-man, you need to become a mAd-man (or woman..). I think its apropos that the heart of the advertising industry is Madison Avenue of Manhattan, as the ad industry now is migrating to the mAd industry.

TANTALIZINGLY CLOSE TO 1 TRILLION

The mobile industry is already a Trillion-dollar industry (it is the newest Trillion-dollar sized ie 'giant' industry on the planet, and the one to reach that massive milestone the fastest, meaning mobile is literally the fastest-growing giant industry in the economic history of mankind, pretty cool, eh?). But that number today includes services, handsets, and networks (and accessories, apps etc). The 'services' part of mobile - our voice calls, SMS text messages, mobile internet access, etc - even when we remove the costs of the handsets and network infrastructure, is shortly going to be worth one Trillion dollars. Wow. Massive massive massive. I think we will not hit that level this year, we will fall a couple of Billion dollars short of the big T, but it will be tantalizingly close to a Trillion. And some analysts may actually call it at a Trillion this year haha.. I think we'll pass that next year, but we have to see. That time is very near.

MOBILE VAS $100B

So then the messaging services will approach $190 Billion in service revenues this year, will pass 200 Billion dollars next year. But the 'non-messaging' premium data services will hit a massive milestone this year, passing 100 Billion dollars in total value. That is like three times Hollywood or almost as big as global radio, and yes, far bigger already than the size of content revenues (including advertising) on the internet.

MORE INFO

Thats the preview of big numbers coming for 2011. For those who need more numbers, and the 'real' numbers of today, rather than the projected numbers of tomorrow, remember my two resources for you. The latest annual edition of my Almanac, the TomiAhonen Almanac 2011 has all the latest stats for the total mobile industry effective January 1, 2011. It has 94 tables and charts. And for those who are specifically intersted in the handset market, last year I released the first edition of my Phone Book, a statisical review of smartphones, dumbphones, featurephones, installed bases, market shares etc relating to handset market. Both eBooks are formated for small screen and cost only 9.99 Euros. Take a look at TomiAhonen Almanac 2011 and TomiAhonen Phone Book 2010 for more.