Musings From the Sidelines Observing the Bloodbath in Smartphones Nearing Q2 Final Results

We have already heard from 3 of the 4 big analyst houses, on their count of the total size of the smartphone market for Q2. I await for the last of the 4, then use their average as my 'official' number and will be doing the market shares and analysis of each brand as usual when we get it (hopefully tomorrow or very soon).

But a lot is happenin' in the smartphones space in this Year 2 of the Bloodbath. So some musings in no particular order about some of our brands in the news (or perhaps, not in the news, but could be/should be).

APPLE, WHAT HAPPENED

So, Apple became the biggest smartphone maker in Q2, by a big margin too. Nokia the previous number one (was 30% bigger than Apple in smartphones just one quarter before) has been crushed. The whole range of Nokia branded smartphones is now 20% smaller than Apple's iPhone. And yes, we cheer and celebrate. But lets dig a bit into the situation. Apple is proud of its huge annual growth rates in smartphone sales. But the industry itself has also experienced hypergrowth. Who noticed what happened to Apple in the past two years?

In Q3 of 2009 - two years ago this quarter, Apple's iPhone market share of smartphones was 17.4%. That had grown to a massive.... 17.6% by a year later, Q3 of 2010. And now in Q2 of 2011, the iPhone market share had managed to capture a total of.... 18.6% (note that is preliminary as we await the final analyst count). But still. So in the first two years, Apple iPhone rockets to the stage, takes market share in giant gobbles, and captures one out of every seven smartphones sold in the world. While iPhone's market share growth had not been linear (due to releasing only one iPhone model per year, so Apple always has a kind of 'ladder' shaped growth curve) in its first 8 quarters, Apple grew 17 points of market share. Over 2 market share points per quarter, if averaged over the first two years. And then it stalled. In the next two years, Apple has grown less than one and a half percentage points of market share - in TOTAL ! Apple averaged that every quarter-on-quarter, now it can't match that level of growth even in two full years.

To put it in another way, the global smartphone market grew by (about) 8% from Q1 to Q2. And Apple's iPhone grew 9% from Q1 to Q2. That is essentially the same as holding steady to the market growth. Motorola and SonyEricsson did just about the same, SE grew 8% and Moto 7% from Q1. I don't think Motorola and SonyEricsson followers are superbly giddy about how well their brands are managing the growth in this era of hypergrowth in smartphones. But Apple, of course Apple is Apple, so no matter what Steve Jobs does, that is always perfection..

And lets not forget, Apple is the most profitable tech company in the world while Moto and SE are perennially tinkering around making losses, so it is NOT a fair comparison. But we should be honest, and Apple is growing unit sales in smartphones yes, and it has the best loyalty and customer satisfaction, yes, but is it growing faster than the market? No. The iPhone huge growth engine stalled two years ago and since then, Apple has only held station.

SO ACTUALLY NOKIA FELL

So, when we look at the Q2 results, while yes, Apple sold more iPhones than Nokia, the reason that happened was that Nokia sales collapsed. This is like the Marathon runners, where one is clearly far behind the other, then the leading runner has a muscle cramp and stops. And then the number two guy continues on his own pace and eventually passes to take the lead. This was not really a victory that Apple 'fought' to achieve, it was Nokia abandoning the race. So Nokia gifted this win to Apple (and let Samsung past it as well)

ITS THE 5, STUPID

So its all about the iPhone 5. What makes the above so special, is that typically in Q2, when Apple has before launched the new iPhone model in late June, they sold about 3 million new iPhones in the dying days of June for the Q2 sales. This year we had none of that. So imagine if there was a new iPhone 5, we'd have had long lines at all Apple stores in June, and rather than Apple selling 20.3 million, they'd have sold maybe 23.3 million new iPhones in the quarter. And they'd have about 21% market share. This is what Apple is now abandoning with the delays to releasing the new iPhone 5. Apple REALLY needs to get the new iPhone model (some say it will be called the iPhone 4G or 4S) onto the market before the end of September, to get some serious growth now and capture the opportunity.

AND WHAT OF NANO

So also, there are rumors of the cheaper parallel new model, possibly smaller in form factor, that could be called a Nano iPhonem to be sold at roughly half-price of the iPhone (ie 300 dollars vs 600 dollars in unsubsidised price). That Nano model would do Apple very much good right now, as Nokia is struggling and the market is shifting to cheaper smartphones. Android smarpthones are now appearing in the sub 100 euro price bracket. I hope Apple gets its Nano act together, a Nano was not the right thing to do back in 2008 (as I wrote on this blog) but it is now desperately needed to expand the fight that Apple can do - and it would not cannibalize iPhone 5 sales if done right, and it would expand Apple's reach to lower-cost markets and consumers, and add a ton of more profit to Apple, and build first-time loyalty to the Apple religion, sorry, brand, into the future, in the Emerging World markets. A Nano buyer today is an iPhone 6 buyer late next year haha..

WHATS WITH SAMSUNG

So, we had two analyst houses (IDC and Strategy Analytics) count 19 million Samsung branded smarpthones for Q2, but Canalys only gave Samsung 17 million, only edging Nokia there. And Sammy itself is being tight-lipped about their total sales. It makes me queasy. If they have honestly passed Nokia ie sold more than 16.7 million Samsung branded smartphones, surely Samsung should be celebrating this and kicking their dear rival of a decade-long battle, while its down. Why all the silence from Seoul? And how is bada doing? My calculations said we passed bada installed base at 10 million many moons ago, but no word from Samsung. The stats say Samsung grew 51% in just one quarter in smartphones. That is a monster quarter. But why no official word. I am a bit suspicious of those instances where the company won't commit to a number. It may well be less than the 19 million we heard. It might even be less than the 17 million. I wish they'd give us a number..

WHATS WITH MICROSOFT

But if Samsung has some news that might not be quite as good as we expect, Microsoft is having news that is worse than we expect. Microsoft partners sold 1.6 million Windows Phone based smartphones last quarter. Canalys now pegs the number down, to under 1.5 million - so Microsoft is truly losing not just market share, but losing actual unit sales, with its new wonder-platform. It may still be that even in Q2, Windows Mobile their obsolete platform outsells Windows Phone.

TWO HUNGRY CHINESE

And then we are likely going to see a switcheroo happenin' in the Electric Boogaloo. Two long-term veteran top 10 smartphone brands, Sharp and Fujitsu out of Japan, are likely to be dumped by two young and hungry Chinese brands, ZTE and Huawei. Huawei recently upgraded their 2011 smartphone sales target from 15 million to 20 million total units, that would put them safely bigger than Sharp or Fujitsu now.. ZTE is not far behind.

HTC TALKS THIRTEEN

And HTC tends to be very solid on its short-term guidance. They sold 12.2 million smartphones in Q2 and their guidance is now that they expect to sell about 13 million in Q3. Thats RIM right there, as their target, we will see a nice race to who ends up bigger in Q3. I think the trajectories are clear, HTC will certainly pass RIM but will it be in Q3 or not until Q4. It will probably be close.

AND NOKIA FALLS BELOW BOTH?

And meanwhile, the Nokia crash continues. In Q3 they will fall to below 12% market share, and HTC will definitely pass Nokia, the question is, how badly will RIM do, whether Nokia falls to only 4th biggest or will Nokia fall below RIM into 5th biggest smartphone maker by Q3. How quickly can we grow accustomed to thinking of Nokia as having under 12% market share in smartphones? Thats like what Palm had (well before the iPhone haha)

THE TROUBLED GIANT

And the Nokianews keeps getting worse and worse. Today Standard & Poors downgraded Nokia share price to BBB, a level two notches above junk status. And S&P gives a negative outlook to Nokia as well. And their thinking still assumes only modest loss in market share and some profits to be earned this year (dream on, that won't happen. Nokia will be giving us a profit warning shortly, all the signs say their business is worse in Q3 than it was in Q2 when the handset unit made its first loss ever).

Meanwhile Nokia is trying to be in the news with some other news. They bravely announced today that they are scrapping the current naming scheme as too complex and difficult for customers to understand. So what does Nokia think? It thinks them numbericals they be good, but them alphabeticals they be bad. Apparently if an E-series phone for 'Enterprise' is too complex to understand compared to say the N-series as Nokia's top consumer phones or X-series for entertainment phones, now we'll only get numbers. The first new phone, the Nokia 500 is launched with this principle.

And the news from all corners is bad for Nokia. Just today German newsmagazine Handelsblatt reports that Nokia, previously dominating Europe's biggest smartphone market of Germany, has fallen to fourth place there, as HTC has passed Nokia now also in Germany. The sales boycott of Nokia Symbian phones is strangling Nokia..

WE LIKES THEM NUMBERS. NUMBERS IS NOT CONFUSING

And yes. We on this blog celebrated when Nokia's new Chief Marketing Officer, Keith Pardy, came from Coca Cola, a genuine consumer marketing brand, and one of his first decisions was to change the cryptic Nokia naming scheme and introduce real names for Nokia phones. Unfortunately, Keith is no longer with the company. And now the engineers have taken over the asylum. If a 'name' has too many of them complex alphabeticalisms, then yes, a pure numbers-oriented naming scheme fits nicely with them engineering brains. Smart move Sherlock, going EXACTLY the opposite way of what the top consumer brand marketing guy told you to do. And is it just me, Stephen Elop is destroying everything he can find of Nokia heritage of any kind. So the N8 and N9 were flagship phones. No more. Next expect a 903 or an 872 or whatever number they come up with. I'm sure it makes sense in the first dozen phones but three years later, are you really going to remember and fondly recall your Nokia 781, or wait, was it the 872, or the 767 or the 794. And all this while Rome burns, eh? I am reminded of the phrase rearranging deck chairs while the Titanic sinks.

Well, its one way to be sure the Nokia PR people cannot even accidentially be promoting Nokia's hottest phone, the N9 (or its highly desirable cousin, the N950) but rather to further underline how obsolete they are, they even have the old-fashioned Nokia names. Stephen Elop is certainly an evil genius, he'd make a Bond villain proud for his psycopathical obsession with destroying Nokia.

Thats whats on my mind today. I will return with the smartphones market share analysis, all the numbers and rankings and my grades for the different brands in how they did in Q2 of 2011. Stay tuned.. 

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