Analysis of Smartphone Wars part 3 this week: the iPhone 4S

So this is part 3 of the 3 big news items over about ten days in the smartphone bloodbath. Part 1 was Intel's evolution of MeeGo now with Samsung and called Tizen. Part 2 was Nokia's surprising re-entry to smartphone operating systems with Meltemi. Now Part 3 is the long-awaited announcement of the fifth edition of the iPhone, called the iPhone 4S. (Updated and corrected)

WHATS NEW

Technically, many expected new tech like near field or '4G' ie WiMax and other such stuff. This 4S model is more of an upgrade to the iPhone 4 and not much of an expansion of what that was. Internally there is more power in the CPU and more memory and bigger battery, but outwardly the iPhone 4S is visually similar to the iPhone 4 and the only major technical aspect on the hardware is the upgrade of the camera. It is now up to 8 megapixels. Apple has also done some internal gimmicks to add to the capability of the camera even as the sensor is the same size as in the older iPhone, so the iPhone 4S is able to capture more light - making better pictures. The 4S also adds HD quality video capture and for the first time Apple finally adds video out (a feature we've had on premium cameraphones for five years..).

Its not the best camera on a phone, but arguably, the iPhone 4S has one of the best cameras of the 8 megapixel cameras available today (obviously in most markets there are cameras up to 12 mp resolutions, the Nokia N8 for example has not just 12 mp, it also has a bigger sensor, meaning it captures far more information and thus makes better pictures, especially in low light) and in Japan the top line cameraphones were up to 14 mp .. last year!

The only other major spec change is the dual radio ability, where the iPhone 4S will work on both CDMA networks and GSM networks. This is great news for international travellers on Verizon in the USA for example, whose normal CDMA standard phones were not able to roam in most countries of the world where GSM is the only standard. For us GSM users, this is no gain, we already had the whole world reach on GSM so CDMA adds literally no new countries for us. GSM networks now cover over 90% of all subscribers on the planet. But as the iPhone is also adding Sprint in the USA and KDDI in Japan onto the carriers/operators who offer the iPhone, these are both CDMA based networks so they will appreciate the world-phone ability of the 4S - and on CDMA networks, any heavily travelling business types may well want the iPhone 4S simply for this reason, so they don't need to carry that old GSM phone with them when they come to Europe for example.. But like I said, this only affects the CDMA side of the issue. An expensive component to add, to only serve needs of very few clients; perhaps the gains to Apple would have been far more (to all customers) if rather they would have put that investment into the WiMax radio or NFC radio rather than serving the few CDMA users haha.. But its an Apple choice and now the 4S is clearly the top phone for many on the CDMA networks..

On the software side we get Siri. So speech-recognition gets the 'Apple treatment'. We've had speech controls on mobile phones for much of the past decade, and its been clumsy and not highly used. There are places where speech recognition is very useful - when we cannot use our hands - so that is why the tech has been led by the automobile services related industries (mapping, navigation and in-car systems). And again, the Apple iPhone 4S development priorities may have once again been led by US based needs, rather than global needs. Most Americans do sit in cars to drive to work and back. The rest of the world is not like that, in the rest of the world, the majority sit in public transportation - and in some parts the use of a mobile phone voice services is strictly prohibited - like on all underground trains in Japan. So a service like Siri is very useful for those who drive their car (alone) to work like in the USA, but not very useful in many countries where talking on phones is frowned upon or even prohibited in public transport.

And in common uses? Often we are in a situation where we do want to use the phone but can't make noise - part of what makes SMS text messaging so powerful - so in a meeting or at the restaurant or sitting on the toilet or in the movies etc.. where Siri will not be usable. I am not saying it isn't going to be used - some will love it (car drivers especially) - and no doubt, Apple has made its voice controls far more user-friendly than any we've seen before. But again, compare to Google, who are working on improving the real time translation parts in Android - something that has far bigger gains to users than speech recognition on a mobile phone haha...

So on Siri, I think this is typical Apple hype element, it will wow and excite the North American fans of Apple, in the rest of the world the response will be more muted, and globally, its impact will probably be closer to Facetime (remember the video calling that was supposed to change the world) than the App Store haha.. But we'll see. I do think the speech recognition parts is one of the sci fi vision which seems compelling but in reality is not as useful. In most uses in most cases (at the office, about town, even families at home) the noisy part of speech are not convenient. It is a distraction to OTHERS.. So its best uses are when the user is alone, and that is increasingly not the case haha, most offices are now open plan 'cubicle farm' offices where you try to keep distracting noises to a minimum. 

WILL IT SELL

Its an iPhone !  Of course it will sell !  There will be lines around the corner when it goes on sale 14 October. Apple is headed for a record Q4 (Christmas Quarter, Oct-Dec, as distinct from Apple's 'fiscal' quarterly calendar). And this 4S will help push Apple also to a record Q1 (Jan-Mar) quarter because of the Chinese New Year's gift-giving. The Google survey of 30 leading countries found that China was fourth in the world in the adoption of smartphones (behind Singapore, Australia and Hong Kong) well ahead of all leading smartphone adoption countries of Europe (led by Netherlands) and North America (led by USA). So where we in the West celebrate our annual gift-giving for Christmas and many will give out iPhones - the Chinese do it in the Chinese New Year celebrations which fall into the January-February time frame every year. Expect two monster quarters coming from Apple, driving sales of this new iPhone 4S - and as Apple still sells the iPhone 4 and iPhone 3GS - these two models have components that are now very cheap to manufacture - the profitability of Apple is also very secure (not counting the benefits across to the iPad, iPod and Mac lines at Apple)

The news from most markets the past year has been all good for the iPhone. The iPhone became the bestselling smartphone of Australia, as its second country after the USA where it has become the bestseller. It is also selling very well in some European countries like France and Italy and for an individual phone model - not counting the brand - the iPhone 4 was the bestselling individual smartphone handset model of Finland very recently haha, home of Nokia! This current Q3 (July-Sept quarter) is likely to be 'flat' in sales for Apple because the iPhone 4S was delayed to mid-October shipping date but if so, that is only a blip, the Q4 sales will be certainly record-breaking for Apple.

WHY DELAY

And we've heard plenty of speculation about why the 15 week delay. Normally Apple announces its new iPhone in the Spring and releases it a few days before the end of June, so the big 'many millions sold' numbers get added to the Q2 (April-June) quarter sales as that is traditionally Apple's weakest quarter for iPhone sales. There was a new iPhone ready to ship that was to ship at the last week of June. We do not know if that was the iPhone 5 or a previous version of this iPhone 4S, but what we do know, is that Apple was very proud of its tech innovation for that phone, of making it a mobile phone without the need of a SIM card, so it was to be using a 'virtual' SIM card - and Apple intended to then let the phones roam to different networks with this ability. The carriers revolted and said no way. The SIM card is the only control the carriers have on their customers and were not going to have Apple suddenly shift customers from one network to another, in volumes of masses, millions per country, to then negotiate best prices for Apple customers and then push various Apple-exclusive deals and abilities etc. Just like Apple likes to do with iTunes and the App Store etc, being the ruthless dictator taking full control of that world (.. arguably for end-user best interest, but inevitably stepping on the toes of the established players, like the music industry with iTunes or the mobile operators/carriers with the App Store).

This was definitely Apple's desire and widely reported during the Spring that Apple intended to put a virtual SIM into the new iPhone. And I was here on this blog, saying that it won't happen. The carriers will block that attempt, they will not let go of the SIM card. But I also warned, that if Apple had designed no SIM card receptacle for the new iPhone, that it would have to redesign the iPhone and that might take a delay of a quarter to accomplish.

I might not know much about smartphones or app stores or ecosystems, but I do know my operators/carriers. Thats what my consulting work has supported for long before I started this consultancy ten years ago - and by now, I have personally provided consulting services to over 90 mobile operators/carriers including the company that started the mobile industry and obviously what we'd now call the world's first 1G operator, NTT of Japan (now NTT DoCoMo), the company that launched 2G the digital age in mobile, Elisa of Finland; the company that launched 3G (NTT DoCoMo again) and if you count WiMax as 4G (I don't, I am a tech purist), then yes, the company that launched 4G was KT of South Korea, also a reference customer of mine. And if you don't like the innovators, but prefer to think big in mobile, I have provided consultancy to 15 of the 20 biggest mobile operator/carrier groups of the planet; 7 of the top 20 have even said in public that they have worked with me (Axiata, China Mobile, Orange, MTS, Telenor, TeliaSonera, Vodafone). So when I say on this blog 'this is what operators/carriers think' - I speak of experience and intimate internal knowledge, from my regular consulting exposure to the senior management with those companies. That knowhow is VERY rare. Trust me on this. And we see now, clearly, it was a reason why the iPhone was delayed.

We see the iPhone 4S does not have a standard SIM card slot. It has the same microSIM as the iPhone 4.When did Apple decide to do this change? Not last year when they started to design the next iPhone after the iPhone 4 design was completed. No. The change came this spring after the carriers/operators said 'no way.' See PC World story about it in May. And at that time Apple rushed to the standardizing bodies a new specification for ETSI to create an even smaller SIM than the standard microSIM. Clearly Apple was not prepared to fit any kind of SIM card to the new iPhone.

Understand, first, that Apple submitted the new microSIM standard in May of 2011, tells us it was not part of the intended design of the iPhone 4S. It is a last-minute change. We had heard from Apple they wanted to do a virtual SIM and from operators they didn't want it. We see now who won (the operators/carriers ALWAYS win in this kind of tugs-of-war. Apple learned a very valuable lesson here now, something Nokia learned in 2003-2004 with the N-Gage).

And what does it mean for the actual phone? It means that Apple had to redesign the phone to fit something 'rather large' into the casing (by large, I mean the housing to accept the microSIM card and its electronics to connect to the rest of the phone, in the context of the very slim design of the iPhone 4). That means something ELSE had to be DISCARDED. That Apple had to fit the microSIM on a last-minute change, means that Apple had to toss something else of the same size out of the new iPhone. I am not a radio engineer and not a handset designer, I can't make an educated guess how big the space was and what it may have had, but we did hear plenty of rumors that the new iPhone would have NFC or WiMax - perhaps one of those components was sacrificed to get enough space to fit the microSIM card slot and its connectivity inside the iPhone casing.

It is also possible that a new iPhone 5 had been designed with a bigger screen, different form factor etc, but that design could not conveniently be redesigned in time to fit the microSIM slot, as it would have been designed to run on the virtual SIM. And this change meant that Apple felt they don't have enough time to redesign the new iPhone 5, and rather they redesigned the existing iPhone 4 as we can see, it has near identical shape and size, and mostly similar sized components - including the same size sensor for its camera even as the megapixel count was increased - and the newer CPU and bigger memory would be in line with Moore's Law so they should not take any more space. Some expert phone engineer will no doubt take apart the iPhone 4S and see if it was internally mostly the same or not, comparing to the iPhone 4. Again, I am not even competent enough to try that haha, not to mention, I don't have two iPhones to use for such exploration haha..

We did hear from several sources during the Spring that Apple was trialing several phone form factors in coming to last decisions about the new iPhone. Those decisions were made secondary with the panic about the mistake about the virtual SIM card. This is definitely the only reason why the iPhone was delayed. Apple would have desperately wanted to sell the new iPhone from June, not from October. And the specs we see now on the iPhone 4S? They were more impressive in June than now.. 

And for those with a sentimental disposition, some will be collecting Apple devices, and this iPhone 4S will be obviously the last Apple gadget of the Steve Jobs era, and I would think for collectors the two iPhones they'd want to have is the original 2G iPhone and this last 4S iPhone. Some will buy it for its 'collector value'..

SO THE IMPACT TO BLOODBATH?

What is impact. We all knew the new iPhone was coming. There was gossip it would be a superduper phone, which this is not. This is a very modest marginal upgrade to the iPhone 4. As it looks almost identical, it is not a strong incentive for existing iPhone 4 owners to buy to replace. The very passionate Apple loyalists will of course replace their iPhone 4 with this. And those iPhone 3GS and 3G owners whose contracts have run out, will find this very compelling as an upgrade now, especially the camera now and video recording is so much an improvement from the 3 series of iPhones. For Apple, this is a reliable warrior into the battle but not a game-changer.

The rest of the competition can breathe out now, and sigh in relief. No killer-phone from Apple. Obviously this will be well loved but the competition can live with this. Rival manufacturers have plenty of phones that are similar in form factor but feature higher specs in some areas, from bigger screens to better cameras to more radio elements to QWERTY slider keyboards to pico projectors to 3D displays etc. The other big worry was that Apple would finally split its product line and introduce two new iPhones, a high end model and an entry-level lower-price model. That didn't happen either, so this is particularly good news for Samsung bada and the low-end of Android phones (and would have been good news for Nokia too, were it not for the Elop Effect).

Biggest winners are Samsung and HTC, who have highly popular phones on similar form factors but with more bells and whistles, as Android keeps shrinking the gap to iOS in user interface. This hurts what remains of loyal Nokia users who have rated the Carl Zeiss optics and Nokia camera highly as well as those of SonyEricsson's Cybershot side of Xperia phones. This also opens a bigger door for the new Blackberry touch screen smartphones (because Apple did not move the goal posts) and helps the launch of Windows Phone 7 based phones, again, where Apple did not change the game.

I have heard several times in the past few months, of random noises of unhappiness among Apple users, someone who doesn't feel the next smartphone needs to be an Apple, or that they find some Apple quirks as annoying (no microSD memory card, no replacable battery etc). I think this is natural as the global user base of iPhone keeps growing - the early buyers are super Apple fanatics, and as more are recruited into the family, the less passionate ones come over, and there will be some buyers' remorse where someone misses a feature on a previous phone like QWERTY etc..  But we are nearing the limits in the Industrialized World of where this one form factor iPhone can go (at this high price). I know I have been saying that for two years now, but I do believe it, and even as Apple surprises me with still finding more of a global market, the limits are out there, and we are approaching those. I am saying that this iPhone 4S will set new sales records yes for Apple in Q4 and Q1, but an Apple grow its market share? It may well have lost a few points in Q3 and this new 4S model is not that much of a gain in specs to really fight against the growing army of Androids plus all other new rivals.

What Apple needs next, and to release by end of June, is TWO hot new phones: the iPhone 5 with high tech cool specs like a bigger screen, NFC and WiMax to start with; and the low-cost iPhone Nano, as a evolution of this 4S model with some new stuff but mostly lower costs and perhaps even a smaller screen size to allow the whole phone to be smaller. Both models would need to be visibly different from the current iPhone 4 and 4S..

So the Bloodbath continues. Intel is not dead with MeeGo now becoming Tizen. Nokia is back in the smartphone OS business inspite of Microsoft, with Meltemi. And Apple's iPhone 4S is more an evolution than revolution, which is good news for the rivals, making the whole market space even more exciting for the end of the year race to Christmas. What happens in this bloodbath next? We are now awaiting what HP's new CEO Meg Whitman says of the future and will they remain in smartphones (and computers).

PS thank you Mike Stead for the correction about microSIM.

Comments

[Matt]

"Apple finally adds video out (a feature we've had on premium cameraphones for five years..). "

Actually video-out has been on the iPhone for years - for Photos, Videos (including films) and Keynote-style apps.

But MIRRORING OF THE DISPLAY is new. Has that really been available on premium cellphones?

[darkdirk]

I think you under underestimate the use cases for Siri. It's not just for driving. I use Voice Control when walking to the bus stop and while cycling. Siri will be very useful in these situations too. Like Voice Control, it is not an 'always used' feature, but one that sues specific situations

[Tim F.]

You go on and on about how much of the world's culture (primarily Asia) is not conducive to Siri... but you forgot to read the specs: Siri only supports English and the dominant Western European languages at this stage anyway.

[KPO'M]

If Tim Cook and Jonathan Ive are committed to carrying out the next few steps of Steve Jobs' iPhone timeline, I think eventually Apple will win out on the virtual SIM if that is their goal. Apple has a lot more clout with the carriers than Nokia had. Nokia got big by playing the carrier's game. Apple got big while bucking the carriers as much as they could. Sprint reportedly committed to buy $20 billion of iPhones over the next 4 years. That kind of commitment tells me that if Apple says the next iPhone has a Micro-SIM, the carriers will go along. They just need to take it one step at a time.

I'm guessing LTE wasn't released yet since it isn't really ready. It is just getting started in Europe, and in the US AT&T has 5 cities with LTE, while Verizon is a little bit further along. By this time next year, Sprint will have a decent LTE network, and VZW and AT&T will have much of the US covered. Plus 4G chips will be better. We'll see LTE then.

[Sergey Karmanenko]

Hey, it's not right about Micro SIM, iPhone4 and iPad has it since early 2010. They did not replace anything, they had it in desgin since iPhone4, doesn't matter when they submit 3GPP document. Apple do not do technology which is not bullet proof from user experience point of view, they will not include WiMAX (what the hell for), it's huge, needs antenna, discharge battery and does not make sense with HSPA, or NFC - again, no ecosystem, not their business, if Google geeks integrate - who cares. Apple are not technology geeks, right? Regarding virtual SIM, obviously the operators don't want it and Apple can do nothing about it. You should not be consultant with 20 years experiance to understand it - the question should be not be decided during PCB layout design, but decided a bit earlier.

[kevin]

Tomi,
Although you just wrote that Steve Jobs is great, at the same time you show that you think Apple to be incredibly stupid to think that they completely designed, invested in production, and were within two months of launching a new phone with a virtual SIM before seeking agreement from carriers. You certainly know how long it takes and how costly it is to design a phone, and how long it takes and how costly it is to tool and ramp up to manufacture a mass market phone. And yet you think Apple would've spent that much time and money before checking if any carrier would agree to it. Unbelievable.

Apple is an engineering company and under Steve Jobs and Tim Cook, a very disciplined engineering company. They explore lots of lots of possibilities, and make huge numbers of prototypes, but bring very, very, very few products to manufacturing and market; likely fewer than any other consumer products or handset company in the world.

My conclusion is that there is absolutely no way that the "delay" was caused by a redesign resulting from the virtual SIM in the "new iPhone to ship that was to ship at the last week of June." I have not found a single other source willing to put that in print. There was no such iPhone in January or March or anytime this year that was to ship in June.

[John]

Its a good thing Apple didn't put any Wimax in since Sprint is moving away from it.

[Robert]

n900lover make good point - WP7 will be big loser w. new price points for 3GS and 4.
Baron95 also makes good points - internal upgrades are pretty big, esp. for gamers and photo shooters. And there is iOS 5... .
And for stockholders - w/o huge investment in new manufacturing facilities, profits will continue to grow. Meanwhile, don't you think there are already facilities being designed, if not under construction, for new generations of iPhone/iPad and components?
It looks like the iPhone 4! And... ?
Accessory sellers are delighted they don't need to do all new designs for iPhone4S.
And not related, but - why are so many pundits writing that the Kindle Fire is the new "iPad Killer." It's the low-end killer, and will hurt budget Android and WP7 much more than it does iOS.
The pundits are also missing the scope and breadth of Steve Job's accomplishments. Thank you, Tomi, for recognizing the many Insanely Great achievements of SJ.

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