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« Formbook for Q2 - How to read the smartphone maker quarterly results over next two weeks | Main | Apple 20.3M iPhones in Q2. WOW. Throws gauntlet to Nokia and Samsung: stakes claim at biggest smartphone maker status »

July 15, 2011

Comments

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. I haven’t deducted the number of smartphones sold and number of smartphone users from the 2010 totals in order to give more specific dumbphone numbers.

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 million new smartphone users in 2010

An 18 month replacement cycle equals annual sales of 66% of the total number of users. It also means that a Symbian boycott will cause the Ovi store to lose more than 2/3 of its customers per year. But since Symbian use is up we know that is not happening.

500 million smartphone users in 2010 minus the 129.1 million new users of 2010 gives us 370.9 million smartphone 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 smartphone 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 less than 18 months 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

When sales to the non-existing customers are not achieved; you will also evaluate your people incorrectly causing you to fire and promote the wrong ones.

harry in singapore

I really hope that all these fast growth figures from Android handsets will put a lot of pressure on Nokia's Window Mobile, that they priced their first handset very low to attract users. And justify it by saying that they will make money from the eco-system. It is a win-win for consumers, MS and Nokia. Can you imagine paying the same price for a smart phone as the refrigerator you have at home with lots of parts and metal?

Time for phones to become more commodity and cheap prices.

Matthew Artero

@harry in singapore

By that logic maybe we can get free televisions and cable and satelite service because the ecosystem of advertising can pay for it.

Maybe we can get free refrigerators sponsored by farmers and food processors.

At the most I think you can expect some free and discounted aps. But that's already being done with the idea that advertising will pay for it or the user will upgrade to a paid version.

It already costs the ap store to make those free aps available. They make their money back on the phone. If the phone is given below cost they won't make their money back before it is time to give another phone. With each discounted phone to the same user the company goes deeper in debt.

svensson

As far as I am informed Sweden is the biggest market for Sony Ericsson. That is because swedes buy their phones out of loyalty and maybe there are sentimental reasons. So to translate: small country = small market = small sales.

I stopped buying their overpriced toys long time ago when Nokia came back in the game with better cameras.

Tomi T Ahonen

To all - I've just been removing a lot of spam from the blog, we should be reasonably clean up to today (And no doubt, more spam will come)

To this thread: Hi Matthew, harry and svensson

Matthew - please, you knew I was travelling and you knew I would get to all comments eventually. Was it really necessary to post that same comment so many times on threads where it is not relevant? I am talking of the replacement cycle? You knew Matthew I would get to you as soon as I was back with some time to do replies, and that I'd do them in sequence.

So in response: the method of mathematics you use to calculate replacement cycle is appropriate for such industries where the installed base number is relatively stable, ie there is modest-to-no growth, such as the PC market or the TV market today. But that methodology is not appropriate for any indsutry where the market is growing strongly where the installed base is growing strongly. It will miscalculate the replacement cycle if you use this year's installed base and the same year's new sales. You need to go back in time, take the installed base as it was say 2 years ago, and see how long it took to replace those. That is why there is such a discrepancy. I see it all the time. The actual replacement cycle has been rather steady near 18 months for mobile phones (and faster for premium phones such as smartphones) for a long time now. The economic downturn lengthened it a little bit, but it has already come down again to below 18 months. In many markets its far faster as here in Hong Kong (and Singapore, South Korea etc) where it is about 12 months and the world leader is the UAE where the replacement cylce for smartphones is 4 months.

Now, Matthew, please lets not pollute this blog with copies of that same posting, ok? If you want to have a reasonable discussion about it, we can happily have it here on one thread, not all over the blog, ok? Thats not fair to the other readers who expect the comments to relate to the blog posting, not a personal agenda by one of my readers? Fair?

harry - good point but it looks like the first models from Nokia will be at the most expensive end. The 'sneak peek' phone that Stephen Elop showed was a clone of the N9, so expect it to be a very expensive premium phone, not a cheap phone, alas.

Matthew (in reply to harry) - you probably didn't know it but that model has been tried, but the economics don't work out because those who are most attracted to the free device are the ones with least available disposable income, so the advertisers soon don't want to sponsor the devices anymore. The trials tend to have ended in failure.

svensson - Sweden is the best market for SonyEricsson yes, if measured as the market share ie percentage of all phones sold in that country. But by largest market in absolute sales, Japan used to be the biggest but now I believe China has overtaken Japan.

Thank you all for posting. Keep the comments coming

Tomi Ahonen :-)

svensson

Thanx for replying Tomi, now I know a little more... :-)

George

Great article! Thanks for making sense of the numbers, looking forward to the rest of the manufacturers to publish.

Unfortunately there is little disclosed information about the number of Gmail accounts and how Android affects the expansion of Google's mail platform, which locks customers further into the Google ecosystem and automatically makes users subject to targeted advertisement.

Tomi, do we know how Android's rapid growth drives the adoption of Gmail as a mail platform? With 200 million Android devices activated 2011, one could think it's just a matter of time for Gmail to overtake Hotmail and Yahoo rather soon and become the world's biggest mail client (Wikipedia only has 2010 numbers indicating Windows Live Hotmail as world's largest web-based email service with nearly 364 million users, second and is Yahoo! Mail with 280 million and Gmail comes in third with 191 million).

darwinphish


Mathew, There is a clear flaw in your logic re: replacement sales. If the replacement rate is every 2 years than in 2010, users were replacing phones bought in 2008, but you show no 2008 numbers. There were about 140m smart phone sales in 2008, which is LESS than the difference between total 2010 sales and 2010 new users (about 170m).

Tomi T Ahonen

Matthew!

That was totally uncalled-for. I have removed your comment. If you can't stick to being polite, you will not be allowed to post and I'll remove your previous comments too.

If you have an issue with one of my sources - you go and argue AT THEIR BLOG not mine. I report here all sources I think are reasonable. If you come back and accuse me of using false stats - that you know fully well are very widely reported and accepted as facts - then you are barking at the wrong tree and I will delete all your comments. Stick to the issue here, I will of course let you participate in our discussions but don't start that BS accusing me of using a suspect statistic when that stat has been widely quoted and accepted by the industry. Are we clear?

And as you seemed to want to confuse the point with 24 months and 18 months. This is ONE way to count replacement cycle. You go to a given point in time, recently in the past - I used arbitrarily 24 months because I know the replacement cycle is less than that. We go to June of 2009. 24 months ago. Then we take the full population of smartphones. Then we count time AHEAD FROM THAT POINT using every month of that months' new sales, until we have replaced the installed base that existed on June 2009. That is replacement cycle. You go do the math, you get a replacement cycle that is between 16 and 17 months.

That is the proper way to do it. You can also 'cheat' by using the way you mentioned, using this year's installed base and this year's new sales. That gives an approximation of the replacement cycle but unless there is no change in the installed base at all, it is not accurate. And the more the installed base is stable (TV population for example is not growing strongly and the PC population or the automobile population is reasonably stable over short periods of time) then you get an approximation of the replacement cycle.

If the industry features very high growth (or decline) - then that model undercounts (overcounts) replacements, it prolongs (reduces) the replacement cycle. I am sorry if this was too basic but you seemed to be confused in your response.

If you Matthew want to discuss sensibly with me on this blog, this issue or any other, you are free to do so. If you come back with hostile comments, I will be deleting all of your comments and your privileges are revoked from this blog. I have no patience for people who troll for useless bickering. I have a real job and life, this blog is a hobby I do for my friends and fans, I have no advertising on this blog, there are no registrations and no fees. I get no money out of the 'fun' of you being abusive to me and wasting my time (and that of my readers). Many who read this blog find it has a lot of info that is hard to find elsewhere. If you do not find value on this blog, please Matthew do not come back.

Thank you

Tomi Ahonen

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konut projeleri

The bad news is that SonyEricsson dropped back to generating a loss in Q2. So this puppy is not yet a healthy one. Growing sales while making losses is no way to remain economically viable in the long term haha..

traverten eskitme

I will from now on, always when anyone new approaches me about consulting, I will honestly send everybody to this blog first. Go read Mike Myatt first,

bitkisel tedavi

So this puppy is not yet a healthy one. Growing sales while making losses is no way to remain economically viable in the long term haha..

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