Formbook for Q2 - How to read the smartphone maker quarterly results over next two weeks

From Friday 15 July (SonyEricsson) to Friday 29 July (Samsung) we will get the Q2 results from the major smartphone makers whose quarters ended in June, meaning all the majors except for RIM and HTC which have already reported in June as their Q2 ended in May. While the smartphone market has been incredibly volatile and unpredictable the past few years, this Q2 seems the most mysterious, with so many of the smartphone makers rumored to be breaking with the recent past. So I thought I'd do a quick run-down of the big brands in smartphones to guide the reader into what numbers are 'good' and what are 'bad' in the context of this likely very surprising Q2.

And right off the top, I have to say that even the big number (Q2 total smartphone units sold) is uncertain. If the year is progressing on schedule towards what most major analysts suggest, to finish selling about 450 - 475 million smartphones (up from about 300 million last year) - then as Q1 was essentially flat compared to last year's Q4, we have to now pick up the rate of growth. And a good number to get us on the way would be that the Q2 total number should be about 10% more than Q1, or we should sell about 110 million smartphones. And that we won't even know until in August when the four big analyst houses (Gartner, Canalys, IDC and Strategy Analytics) give their counts - and I will use their average here as our total, from which I will be calculating the market shares.

But this is such a strange time. We know that RIM had a very bad quarter and not just their market share dropped, for the first time, their unit sales of Blackberries actually declined from the previous quarter. And RIM was the third biggest smartphone maker. When that big a player is losing sales, the others have to pick up the slack else we won't see growth in the quarter.

And while we do already know that the Android family of smartphones by many makers did grow, its likely that Apple (second biggest smartphone manufacturer) did not. So now when we factor in that the biggest smartphone maker last quarter and every quarter since the invention of the smartphone - Nokia - has had a disasterous quarter with a reseller boycott of Symbian phones - we have a huge hole to fill with RIM and Nokia definitely down, and Apple flat. So numbers 4, 5, 6 etc will have to work far harder just to bring the quarter to 'flat' sales, not to mention if we are to have anything like 10% growth from Q1.

But lets set the market share issue to one side. We do know the actual unit sales and we can at least examine what would be good or bad performance in the real numbers. As I said, I'll come back to the market shares in August. So lets examine each smartphone maker and each OS platform in order of who was biggest the last time we had all numbers, in April.

NOKIA

So, Nokia itself has said this whole year is now a wasted year for Nokia branded smartphones, the sales will definitely fall as the consumers wait for new Microsoft Windows Phone 7 powered Nokia smartphones. What Nokia did not foresee was the total collapse of Nokia smartphone sales (and the resulting reseller boycott). Nokia should have known, it was British computer maker Osborne who is associated with the tech marketing disaster called the 'Osborne Effect'. Maybe Nokia's new CEO hadn't paid attention to smaller and long-since-gone European PC makers haha.. But yes, for example consumer surveys of European smartphone adoption tell us that Nokia has lost two thirds of its smartphone market during essentially five months since the February 11 announcement. So we can expect dismal sales numbers from Nokia.

But who knows? This is a strange year, the Year of Bloodbath 2: Electric Boogaloo. So the form book tells us, Nokia should have sold about 24 million to 27 million smartphones in Q2 - to hold station and own about a 24% market share as it did in Q1. I want you to keep that number in mind, as Nokia reports its catastrophic Q2 results. Any normally competent and normally competitive, well managed company should roughly hold market share from one quarter to the next. Now it looks like Nokia has lost perhaps 10 million of those, could be more. Its possible Nokia has lost half its market in one quarter even. But we'll see. And obviously this is now a race of who does comparatively better, between Nokia, Apple and Samsung. One of them will be the biggest smarpthone maker this quarter. It has always been Nokia before. That may very well change now, so we are likely witnessing history being made. The last time we saw a change in the mobile handset (hardware) space in the leader, was when Nokia replaced Motorola as the world's biggest mobile phone manufactuer in 1998. And yes, remember Nokia is very likely going to continue still as the biggest mobile phone maker in Q2, but in the ever more important category of smartphones, its very likely they have lost that lead.

APPLE

Another very unpredictable number is that for Apple's iPhone. The iPhone had previously had a strong pattern that looked like a staircase, three quarters of nearly flat sales, then a huge jump. So when the new iPhone model was released in late June, the July-August quarter was the big jump. A small additional gain came usually from Christmas sales. Then a slight further climb came from January-March quarter Chinese New Year's gift-giving season. And as the old iPhone model sales would decline in the April-June quarter, Apple would then release the next iPhone in the last days of June, so the total quarter still had solid sales.

And that pattern is now broken. For the first time since Apple gave us the original iPhone in 2007, we have a June/July with no new iPhone to buy. A-ha, you may say, therefore iPhone sales must be down in Q2 by something like 3 million from Q1. Yes, that sounds reasonable except for two rather big wrinkles in the equation. First, there is the 'Verizon' iPhone, ie the CDMA version. The CDMA version was released during Q1, so this will be the first full quarter that the CDMA version is sold. That should help boost some sales. And then there is the White iPhone. That is rumored to have generated a lot of interest, in particular in China, the world's biggest telecoms market and strongly growing smartphone market.

Apple sold 18.7 million iPhones in Q1. They should now be selling between 18 and 20 million iPhones to roughly hold steady in keeping about 18% market share. Its quite plausible that the iPhone sales number is down from that, and many analysts are suggesting iPhone sales in the 17 million range. It is equally plausible that Apple is benefitting from Nokia's troubles, is doing particularly well in America with Verizon and in China with White, and they could be having another record quarter. We just don't know. But I did break the story that the iPhone has sold more than Nokia's smarpthones, so if that now turns out to be true, then definitely Nokia would have lost its crown.

SAMSUNG

But even if Apple has sold more smartphones than Nokia, its not a guarantee that Apple is now the biggest. There is a strongly circulated rumor of Samsung having a spectacular quarter and the number they are suggesting is 19 million. That would leapfrog Sammy past both Apple and Nokia into first place, and Nomura were the first analyst house to actually call it for Samsung some weeks ago.

But if trying to guess how Apple or Nokia did, its far worse for Samsung. First of all, Samsung is not releasing a lot of detail about their different smartphones on the platforms they support (Android, bada, Windows Mobile and Windows Phone). Secondly, while Samsung is in the total mobile phone market the biggest handset maker of North America and of Europe, in smartphones their US and European presence has traditionally been modest. Their successes are more hidden in Asia, Africa, the Middle East etc for which we don't get as much public data.

But to show how wild that 19 million number is, consider Samsung in Q1. They sold .. only .. 12.6 million smartphones in Q1. They weren't even the third biggest smartphone maker (RIM was, Sammy was 4th). And Samsung arrived in Q1 with a huge jump from Q4 sales - 20% growth, the biggest of any of the major manufacturers in that quarter. So if Samsung was really performing 'perfectly' in Q1 and doing 20% growth, and we'd now plot another 20% growth for them, that would only bring their number to 15.1 million units. And yet the gossip talks of a massive 19 million number. 19 million would mean that Samsung grew 51% unit sales in a 3 month period! Wow! That would be epic.

The form book suggests Samsung would 'need to' sell about 13-14 million smartphones now in Q2 to hold steady and maintain market share. That would be an acceptable performance. Any numbers above it is good, any numbers below it bad. And now the expectation is that Samsung has had a stellar quarter. We'll see in about two weeks when they reveal their Q2 performance.

SONYERICSSON, LG, MOTOROLA

Then we have the three smaller player in the top 6, who all are stuggling not just with the market shares but also in the ability to generate profits. SonyEricsson sold 4.9 million smartphones in Q1. They'd need to do about 5 to 5.5 million now in Q2 to hold steady.

LG number was 4.7 million so we could say they'd need between 4.7 and 5.2 million.

Motorola saw a decline in unit sales into Q1, and sold 4.1 million smartphones. So they should be aiming for roughly betwen 4 and 4.5 million unit sales of smarpthones in Q2, just to keep abreast of the market.

SYMBIAN

So then the operating systems. We already know Android's activation number (500,000 daily) so we know roughly the quarterly sales and growth level for Android. And we know Blackberry's number. But the rest we need to discover. And again in order or their size, lets start with who was the biggest, Symbian. Symbian sold 25.7 million total smartphones (remember Nokia is not alone, there are several other makers, especially in Japan who make/made Symbian phones). So Symbian's target number would be between about 26 and 29 million. And yes, especially after the Nokia announcement of Microsoft partnership on February 11, we heard that NTT DoCoMo would rapidly shift their focus away from Symbian and onto Android, we should see a rapid decline also in Japanese Symbian sales. So yes, if Nokia collapsed and the rest of Symbian is declining too, its quite possible the are down to about half their previous market share. It woudl be a world record in destruction of market share by any multi-vendor platform in any technology, ever.

iOS

Then we have Apple's number. As Apple doesn't licence iOS to others, the iPhone unit sales is also the market share for iOS in smartphones (and we need to remember, while in smartphones we cannot count iPads and iPod Touch devices into the totals of smartphone sales - it would be as wrong as adding motorcycle sales into the totals of car sales - the iOS total installed base is of course very relevant to app developers, so they should always remember to count the iPads and iPod Touch devices into their totals, just like now with Android, the various Android tablets need to be added etc.

BADA

So, after Android, Symbian, iOS and Blackberry OS, who is the best biggest? Its not Microsoft's new Windows Phone 7. Its not Microsoft's older Windows Mobile either. Its not Palm ie WebOS that is now owned by HP. Who is fifth biggest? Its Samsung's bada OS. They are pretty cagey about their numbers but they had roughly 3.5 million sales in Q1. For Q2 to hold steady, they should have between 3.5 million and 4 million sales. They are likely to have far more than that..

WINDOWS MOBILE

And while Microsoft desperately tries to kill of WinMo, good ole Windows Mobile still soldiers on, and annoyingly for MS, WinMo still outsold WP7 in Q1, with about 1.8 million sales. It now should be ramping down but if they do between 1.8 and 2.0 million sales, Windows Mobile would still be holding its place in the competition, while being a tiny player obviously.

WINDOWS PHONE 7

So then Microsoft's newest mobile OS, WP7. We just heard from Steve Ballmer that the sales of WP7 have been tiny. I reported earlier here about the reseller boycott that hit Microsoft because Microsoft bougyht Skype. That is likely hurting WP7 even more. But the number to look for is 1.6 million. If MS sold between 1.6 and 1.8 million smartphones using WP7 operating system, then they'd be doing about the same as the industry overall in holding position.

Thats the form guide. I will examine the actual results as they come in and dig deeper.

PS - as a small personal plug. This blog tries to give you as much of the data, stats and research that is in the public domain, that I am able to find. I also provide regularly exclusive output of research and analysis done by my consultancy, TomiAhonen Consulting, about the mobile industry including the handsets. If this blog is not enough, and you'd really want more info about the handset business, like market shares over time, like installed bases of phones by features (how many cameraphones, how many smartphones, how many have WiFi or Bluetooth or Java etc) or by brands or by form factors (QWERTY, Touch Screen etc) or to see such information spread by regions etc; but you can't justify spending a couple of thousand dollars on one of those 'expensive' reports, then I have just the thing for you. Consider downloading the TomiAhonen Phone Book 2010 for 171 pages, 98 charts and tables for a mere 9.99 Euros as an ebook download, and best of all, its formated to fit your smartphone screen so you can easily read it on your Android, iPhone, Blackberry or whatever phone you have in your pocket (or on a Kindle, iPad etc tablet or other ebook reader). See more here [TomiAhonen Phone Book 2010]

Comments

[virgil]

No comment about HTC? :)
They grew unit sales by about 20% from Q1, and they grew 6% from Q4 to Q1.
Can we extrapolate to Samsung? If their execution is similar, they grew 20% from Q4 to Q1, means they may grow approx 60% from Q1 to Q2. Could Samsung actually get 20M units sold (*)?

(*) assuming they did 12.6M in Q1; the number I found is 10.6M units, which means that they may do 17M in Q2.

Huge numbers, to be sure; but as you say, Nokia&RIM made important missteps, so not entirely unrealistic to see them.

[vvaz]

19-20 for Samsung is a little stretching but IMO 17-18 is quite believable. From my observations looks like real killer for Samsung wasn't Galaxy S2 (its flagship) but Galaxy Ace. S2 was chosen by more experienced users who just wanted to get top of the tops model and previously used Samsung and/or Android but Ace was chosen by people who wanted to test one of flavors or their combination. Unfortunately Samsung is touting only S2 sales. My guess: 15-16mln + Ace sales.

[PERUS]

I don't care about Tomi's prediction (he'll be mostly wrong anyway).
I just want my new iPhone5 and can't wait to get one hahaha!

[Matthew Artero]

Now that we know Microsoft is collecting license fees from Android phones, we also know it is in Microsoft's interest to kill both Symbian and Meego so Android can get a bigger share of the market.

If a Windows OS does not make it in the market but Android does, Microsoft still wins. By killing Symbian and Meego, Microsoft has turned its consolation prize into a first place prize.

Google/Android can have the brand recognition but all one really needs is the patents. Those patents make Microsoft the true owner of the technology. Therefore when we say Android is number one we are saying Microsoft is number one.

We are not being entirely honest when we say Microsoft is not doing well in mobile. Microsoft is now receiving license fees from the number one OS and it decimated two of its biggest threats, Symbian and Meego.

Microsoft makes back every penny it gave Nokia whether Nokia succeeds with a Microsoft OS or not. Not bad for a company people claim doesn’t know what it’s doing.

It went from the bottom to number one at the cost of one patent infringement law suit and one partnership deal, and it didn't have to deal with the headaches of marketing and carrier relationships to do it. It also has no customer service to worry about as it collects those patent license fees.

The conspiracy theory is no longer theory. Microsoft is already profiting from its partnership with Nokia even if they never sell a single phone together.

[Tomi T Ahonen]

Hi all

Great comments, thanks! I am rushed this morning but will return to provide responses to you all, as most of you already know with many regular readers there in the comments.

Also for the regular readers, dont' worry about the spam, unfortunately a side-effect of our 'popularity' haha is that the spambots get busy. I'll be deleting the spam comments, don't worry about those, its just some tedious work to remove them as I have to make sure not to accidentially delete any of your real comments haha...

Keep the discussion going here and in the other topics, I'll return a bit later.

Tomi Ahonen :-)

[Christian Maurice]

550 000 activations per day for Android now!!! Android is probably eating all the Symbian marketshare now!!! Poor Nokia, Elop is a joke!!!

[Matthew Artero]

The smartphone replacement cycle is 2 years 1 month and 2 weeks; not 18 months or less. A replacement cycle of less than 18 months gives us about 100 million in non-existent smartphone sales for this year. The dumbphone replacement cycle is over a year greater than the smartphone replacement cycle. The dumbphone cycle is greater than 3 years 3 months.

2010 reported:
1. About 500 million smartphone users.
2. About 302.6 million smartphone sales.
3. An increase of 74.4% of the 173.5 million smartphones sold in 2009
4. 129.1 new smartphone users in 2010

An 18 month replacement cycle equals annual sales of 66% of the total number of users.

500 million users in 2010 minus the 129.1 million new users of 2010 gives us 370.9 million users for 2009.

If the replacement cycle is 18 months then 244.8 million of the 302.6 million in sales is to existing users, leaving only 57.8 million units for new smartphone users.

But 129.1 million new smartphone users were reported in 2010. This leaves only 173.5 million sales to the previously existing 370.9 million users.

That’s a replacement cycle of 46.7%. That means 74.18 million more smartphones would have to have been sold last year to achieve an 18 month replacement cycle.

For 2011 with its 500 million existing users from last year, that’s an additional 96.5 million in non-existing sales; about a third of last year’s sales. If a company believes the replacement cycle is 18 months or less then they also believe there are an additional 100 million customers to fight for where none actually exist.

The belief in too short a replacement cycle could lead to disastrous results for a company. They will purchase more materials and parts than they can sell. They will manufacture more than they can sell. They will advertise to non-existing customers. They will make deals with carriers based on false growth projections.

If you believe your market share is going to be 20% of this non-existing 100 million. Then you are going to gear up for an additional 20 million in sales you are never going to achieve.

You will have to wait an additional 7.5 months for the next 100 million users to replace their phones. During that time your competitors will have come out with new products while your warehouses are filled with your old product.

[Matthew Artero]

A replacement rate of 18 months or less means that a Symbian boycott will cause the Ovi store to lose more than two thirds of its customers each year.

[Christian Maurice]

Only 16 days between the 500,000 activation per day announcement and the 550,000 activation per day announcement for Android!!! they say the sales increase by 4,4% per week. The dive of Symbian marketshare will continue into the 3rd quarter. At the end of the year, Symbian will probably be near death... Transition will be a hard time for Nokia... The Osborne effect and Gerald Ratner(stupid public memo). Sad for Nokia, it will probably become a classic in MBA and business school.

The choice of Windows Phone 7 is not the problem but what Elop has done, a disaster!!! Shame on the Nokia board!!!

[Matthew Artero]

@LeeBase

In the second paragraph of Tomi's post he states "...most major analysts suggest, to finish selling about 450 - 475 million smartphones (up from about 300 million last year)...."

That's an obvious decline from the 74.4% increase that was claimed last year. They are expecting an increase of 50% to 58% this year.

[Matthew Artero]

@Christian Maurice

There are two types of market share; number of sales and number of users. The replacement rate for smartphones is over two years and for cheaper phones it is over three years.

The dive in market share of sales can potentially fall all the way to zero in a single quarter. The dive in users which is another giveaway continues for years.

[Christian Maurice]

Yes I know but the dive of number of sales is not a good news at all. It was a stupid move by Stephen Elop and now the only solution is discount of Nokia Symbian smartphone. And I'm not sure it will work... And the complete transition will not be complete before end of 2012...

[Erin]

Sony Ericsson sold 7.6 million, but had a net loss of $70.5 million due to the disruptions in Japan...from your numbers it sounds like they did quite well but they posted a significant loss??

[Matthew Artero]

@Erin

To sell 7 million units and lose $70 million dollars only requires losing $10 per phone. It sounds like a plausible scenario.

[Christian Maurice]

And Apple sold 20,3 millions of handset without the Iphone 5 launch!!! What will be the number for q3 2011 with Iphone 5 launch and Q4 2011. Some crazy number probably!!!

[konteyner]

So I thought I'd do a quick run-down of the big brands in smartphones to guide the reader into what numbers are 'good' and what are 'bad' in the context of this likely very surprising

[bitkisel tedavi]

So this puppy is not yet a healthy one. Growing sales while making losses is no

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