Smartphone Form Book 2012 part 2 - For Apple it is 'Splitwatch'

I am posting a series of the 'Form Book' for the major smartphone rivals on this blog. I am proceeding in size from the largest, and started yesterday with Samsung. Now its turn for number 2 in the global race for smartphone supremacy: Apple.

APPLE

Apple the USA based former PC maker who now calls itself a 'mobile' company, was briefly the world's largest smartphone maker in Q2 of this past year, but saw Samsung snatch that title in Q3. The iconic smartphone maker also has its own OS, iOS which in smartphones had 15% market share in Q3, but the reach of iOS is about twice that when the other Apple products running iOS are added - the iPad and the iPod Touch.

Worldwide, the iPhone ecosystem is the third biggest smartphone platform now by reach of installed base, behind Symbian and Android, having passed Blackberry. If measured by global web users, the iPhone ranks second behind Symbian, and if measured by smartphone app downloads, the iPhone is ranked first ahead of Android. Apple doesn't manufacture any basic phones (dumbphones) so Apple's share of all new phones sold is currently only 4%, roughly about the same as the Macintosh PC had of the global PC market most of the past decade. Apple is a premium luxury product that sells well in affluent countries but is well beyond the reach of most of the planet. Obviously Apple's best market shares are in the USA, Western Europe, Australia and some advanced Asian countries.

The short version of this blog is this - for 2012 we await Apple's inevitable announcement that they will split the iPhone range and offer the world at least two distinct iPhone models, one premium model to follow up on the current iPhone 4S, and a separate cheaper and physically smaller iPhone for the emerging world markets and as the 'entry model' in the wealthy countries. I have been calling it conceptually as the 'iPhone Nano' to indicate that this strategy would be similar to what Apple did with the iPod music player market earlier in the past decade.

And before we go into that. Lets be clear. Apple had a great year. They started the year retaking the crown as the world's biggest computer manufacturer, if all user-programmable devices with computer chips and an operating system are counted (the classic definition of computer) ie when smartphones and tablets are included in the definition of computer (many other computer-counters have also reported that fact, but you learned it first on this blog). While Apple with only the Mac was not even big enough to qualify in the top 5 biggest PC makers worldwide, when we add smartphones and tablets and the iPod Touch (kind of pocket PC) then Apple jumps to the head of that chart, ahead of HP and Nokia. Its a long time since Apple last was the world's biggest PC maker - that was long before the Mac, it was nearly 30 years ago, in the time of the Apple 2 series of personal computers.

In 2011 Apple became the biggest tech company by profits and was briefly the most valuable company on the planet by its market capitalization. But we also saw the death of Steve Jobs and many pundits now ponder how can Apple navigate the ever more challenging interconnected digital markets without the visionary guidance and unparalleled management acumen of Mr Jobs. Even with that, if you make more profits alone, than all profits of all your rivals combined - in that part of your business where you see is the future - for Apple that is obviously mobile - that is a comfortable place to be in. As past rival giants in smartphones before the iPhone continue to stumble (RIM) or disappear (Palm) or implode (Nokia), Apple continues to be a profit-generation machine. It has the highest consumer satisfaction levels, highest loyalty and lowest churn rates.

The only major hassle being forced upon Apple in 2011 was by the carrier community - the delay of the new model launch from late June to mid October. What we originally expected as an 'iPhone 5' was planned to be the first Apple smartphone without a physical SIM card - but the carriers revolted and told Apple in no uncertain terms, that such a phone would never be supported. Apple had to rush back to the design table and came up with what is pretty modest upgrades to the iPhone which we know now as the iPhone 4S. Nonetheless, the iPhone 4S is obviously the best iPhone yet, and will set new Apple sales records in Q4 and Q1.

MARKET SHARE PLATEAOU

This whole Apple 2012 preview blog can be best summarized into one picture. This is Apple's market share from the launch of the original iPhone 2G in June 2007, to today, end of December 2011 (these market share numbers are by the annual numbers, not separated into quarterly numbers, to keep the picture very clear).






There are two distinct periods for the iPhone. From 2007 to 2009, the iPhone gobbled up market share and establishing a world record for new smartphone brand growing in the market for two years. When averaged over the 19 months from the annual levels, the iPhone picked up 0.79 market share points - per MONTH ! That is nearly 1 market share point every month!

That came to a screetching halt right at the start of 2010, when the iPhone market share hit a plateau. The market share has been virtually flat for two years straight (yes, its picked up one market share point in 2010, and is likely to pick up another one market share point in all of 2011 - but compare that to the first two years, when the iPhone gained one market share point per month, almost).

If the iPhone growth pattern of 2007 to 2009 had continued at the same speed, the iPhone today would have (and indeed it should have) picked up 19 points of market share more, rather than 2 points. If Apple had pursued its advantage and momentum from 2009 into 2010 and 2011, the iPhone would today have 34% market share rather than 17% globally. So rather than where Apple will end at about 80 million total iPhone units sold in 2011, Apple could have (indeed it should have) sold 160 million total iPhone units! And all this with the same profit margins as it currently has.

I love Apple and I hate to be a downer, after the spectacular year Apple has had, but look at that picture. WHY did the dramatic growth stall from the start of 2010 and has stubbornly refused to budge? Yes, the numbers are so clear, that this year Apple will end in the 16% to 18% range for the full year depending on how excellent its Christmas season Q4 of 2011 turns out to be as we'll see when January numbers come out. To understand how much growth I have given Apple in this model now - I have used a preliminary number for the iPhone for Q4 Christmas Quarter of this year as 26 million units - a massive 50% jump over its Q3 numbers of 17.1 million and far above the previous iPhone peak of 20.3 million.

Even if Apple does 26 million iPhones to close the year, the overall annual market share for the iPhone for the full year 2011 will be .. 17% .. which is yes, only a one percentage point gain of market share in the full year. And just two years ago Apple was devouring rival market shares at nearly one percentage point every month! And remember, this 2011 has seen both the spectacular collapse of RIM and the self-induced market suicide of Nokia. Why has Apple not picked up tons and tons of global market share as those two giants - both of which were bigger than Apple last year 2010 - have crashed and burned?

WHEN YOU EXHAUST ALL OTHER OPTIONS

Since 2009 we have seen Apple try everything conceivable, short of splitting its model range. We saw the launch of the App Store, and mindbogglingly high download numbers of apps. That didn't move the needle. (Don't even try to argue that the app store download number or the number of apps in an app store translates into actual smartphone sales. Why is the iPhone stagnant then if that was the case? App store download numbers are only of interest to us geeks, not the normal consumers of the world).

We saw the phenomenally successful launch of the iPad - and bearing in mind that previously when Apple introduced a completely new product type to bear the Apple logo, that would help legacy product sales like the iPod helped improve Macintosh PC sales. But for all its global world-dominance stats, the iPad has not moved the needle for the iPhone.

There was so much more after 2009 such as the radical cool sexy new iPhone product the iPhone 4 in 2010 and its upgrade the iPhone 4S in 2011. Loved the world over and the most desired smartphone brand with the highest loyalty and satisfaction - has not helped move the needle.

Is software, or apps, or the web or the cloud 'the key' to more sales? Cool software and service gimmicks like Appletalk or Siri have not moved the needle. What am I forgetting? The iPhone White? Did not boost sales. Neither did the iPhone CDMA version. Neither did the massive spread of the iPhone carrier availability to Verizon and Sprint in the USA, KDDI in Japan etc. The iPhone market share has stayed stagnant stubbornly for two full years. Nothing has changed the picture.

I think its time to admit, that the reason for the iPhone 4S sales plateau today globally, is its price. When we remove the artificial pricing gimmick of the handset subsidy (which carriers force consumers to repay in a two year monthly payments contract hidden into the two year contract) the real price that all consumers the world over pay for a new iPhone 4S today is about 600 dollars (plus local taxes etc). The real price for US consumers who seem to pay 199 dollars for example is the same 600 dollars as anywhere else on the planet. About 600 dollars is what Apple receives from AT&T or Verizon or Sprint when they buy iPhones 4S models. And dear USA-based readers - please note that most of the world features mobile telecoms markets where phones are not subsidised, and we consumers pay full price for the handset, and there is no monthly contract 'jail' for two years with astronomically high prices.

And 600 dollars for a new phone IS expensive. We white-collar fully employed adults in the Industrialized World can easily afford to buy a 600 dollar electronic gadget, our big screen TVs cost more etc. But most of the planet has a population living in the 'Emerging World' countries where often the average daily wage is 2 dollars or less. They still have mobile phones but for them a 600 dollar iPhone is as impossible a dream as is owning a Rolls Royce or a private jet.

There is a natural ceiling to the global market for luxury cars like Rolls Royces. There is a larger market for 'premium' cars like BMWs and Audis and Cadillacs and Jaguars. And there is a far bigger mass market for mid-priced cars like Toyotas, Fords and Volkswagens. And in the Emerging World there is a far far bigger car market for low-cost basic and small transportation with brands like Proton, Tata, Kia etc.

THE CAR ANALOGY

I have often said when comparing Apple and Nokia, is that where Nokia is the Toyota of mobile phones, Apple is more like the Porche of mobile phones. Nokia makes smartphones and featurephones and very basic and utilitarian dumbphones. Apple only makes smartphones. Nokia offers many models to suit many tastes and segments, like Toyota in cars having different versions and styles of its popular models, with diesel, gasoline and hybrid engines, etc.

Apple offers us one iPhone model per year, and up to recently, they would not even give us the iPhone in more colors than one, which now has been expanded to two with the iPhone 4 line (Black and White). Nokia phones come in all sorts of colors and often even feature user-interchangeable covers. The analogy is not perfect, but Apple has been far more like Porsche than like Toyota in mobile phones, and Nokia has been far more like Toyota than like Porsche in mobile phones.

What Apple now has to do, as Porsche did, when it noticed it had reached a natural limit of its sports-car oriented product range - is to expand it. A few years back, Porsche introduced its SUV model which became Porsche's bestselling model. That is what I argue for Apple. I WANT Apple to return to giant growth in its market share. And that can only be done now, with the split of its model range. I return to this picture.

I think anyone who looks at that picture, sees that something is wrong. Remember, in year 2011 so far, Samsung has more than doubled its market share in smartphones. It can be done. But go to your phone dealer, you'll see one iPhone model but a wall full of Samsung Galaxies of every form and type and function, plus many other cheaper Samsung branded smartphones. This is exactly how Nokia used to play the game when it was bigger than iPhone and Samsung smartphones combined (as recently as December of last year).

I am not arguing that Apple should saturate the market with dozens of iPhones to create tons of fragmentation. In fact, my iPhone Nano strategy recommendation has been very explicit in not causing any further fragmentation to the iPhone ecosystem than already exists in terms of screen size, resulution etc. I have also explained how the jump in market share is achieved by a lower cost model that is not going to cannibalize the main top-model flagship model sales and profits. And that the actual profit margin on the Nano model would be about the same as what Apple already earns from its iPhone model line.

And one last point - offering last year's model for half price is not the same. That is selling obsolescence and it will not serve Apple well. Apple can very easily do a miniaturization and re-energizing model update to the older model, give it a couple of sexy new features, and give it a new model name - and sell thus a totally new but cheaper iPhone, where most of its guts and components are a year old - meaning Apple can generate a huge profit while selling it at far lower cost than a year ago.

In a perfect world, this is how I would do it. Launch a new sexy iPhone 5 for June 2012. Make it a 4 inch screen size phone but with the same 'retina display' resolution as the current iPhone 4S. Offer it with a 12 megapixel camera, WiMax ie 4G and LTE for superfast speeds, and NFC ie Near Field Communication (for whatever Apple will call its money, iMoney probably). Keep the form factor outwardly size almost exactly the same as the iPhone 4S is now. It would make sense to make this iPhone 5 model physically distinct from the past iPhone 4 models.

Then for last week of September, launch the iPhone 4 Nano, which takes all of the current iPhone 4S features except Retina Display, and offer it in a smaller case, and a new design, where it is instantly recognizable as the Nano iPhone. It cannot be confused by outwardly appearance with any older iPhone model. Give it still a 3.2 inch screen which will be close enough to 3.5 inches, so that all apps will still work the way they were designed, but with the older iPhone 3GS screen resolution (so causing no fragmentation in the specs, for developers).

Then use most of the other guts of the iPhone 4S ie processor, memory, sensors etc. But make the casing less expensive ie not the two-sided glass with steel design of the iPhone 4 line. So the camera resolution of the Nano would still be 8 megapixels, it would come with the two cameras, with Siri etc. Then add at least one new feature that the 2011 model of the iPhone 4S does NOT have but the new 2012 flagship iPhone DOES have. The obvious part would be NFC if Apple launches its mobile money in 2012. There should be something 'better' in the Nano than the past flagship (NFC) but also something less than the previous flagship (screen resolution). Physically the Nano would need to be clearly smaller than the iPhone 4 models in height and width (it may be 'thicker' if necessary, that is not as critical at this price point).

The marketing point is, that if the three phones are placed on a table, it will be clear to anyone unfamiliar with phones, that all three are different iPhones, even if they are turned off. The iPhone 5 has to be clearly the sexiest newest flagship, and the iPhone 4S must seem like last year's phone, and the Nano must be physically the 'baby' of the series, exaclty like they do in cars, the Porsche Boxter is clearly the cheaper smaller version of the Porsche line, compared to the 911 for example. Or how the BMW 3 series is clearly smaller and cheaper than the 5 series etc.

Any existing iPhone user of the iPhone 4S will not bother to buy the iPhone Nano for himself or herself to replace the 4S, because the Nano is legitimately a step down. And there is a brand new glorious iPhone 5 with the 4 inch screen, the 12 megapixel camera, WiMax 4G and LTE and NFC etc. So this Nano model would not (in any meaningful way) cannibalize existing iPhone user base. Anyone who owns an iPhone 4 or 4S (or 3GS) will want the new sexy hot super-spec iPhone 5. And because that consumer had been able to afford to buy the previous iPhone at its full price (with or without subsidy) clearly that consumer can also afford to pay 600 dollars for the next iPhone. In fact, if Apple really wanted, they could even HIKE the price of the iPhone 5 a little bit, with the incredibly strong Apple loyalty, to say 700 dollars haha.

But here is my kicker - for the true Apple loyalist, who wants two phones - they can DEFINITELY see the Nano as their second phone, for the tightly-fitting jeans when going out partying, when the larger iPhone with its fragile glass screen is not really convenient. I am sure the Nano would sell well into the existing iPhone user base as their second phone. Having only one new phone model per year EXCLUDES this opportunity - and in all advanced markets the affluent young employed all walk around with two phones (think Blackberry user as the work phone who also has an iPhone as the private phone). In Europe we've passed the point where half of Europeans have two phones already.

And for those who want to give iPhones as gifts. If the new model is too expensive, and giving last year's model seems cheap, the Nano is the perfect hristmas gift. And for the youth who - against Nokia executives' hopes - have not grown tired of the iPhone - where the iPhone is highly desired but often too expensive - this lower priced Nano will be the first step into a lifetime of Apple ownership. Use the Nano as the 'bait' and that consumer will soon buy the next version of the top line iPhone 5 model, and an iPad and a Mac and an Apple iTV etc..

I have said that even conservatively when the Nano version is launched in parallel as the second new iPhone model in any one year, it will boost Apple smartphone sales by 50% from that point on. Considering how big and strong is China already (China passed the USA as the world's biggest smartphone market) and how strongly India is growing etc, and how much more price-sensitive those customers are, the time to launch the Nano is now, to turn that flatlined market share curve back into growth. Apple has forever abandoned at least 10 points of market share it can never recover but if it launches a Nano model in 2012, that market share curve will return to growth once again - and the gross sales revenues and profits by Apple will take a giant bounce once again.

That is why I say, this is the year of 'Splitwatch'. Any reasonably intelligent executive who sees that graph, will decide to try the product line split sooner or later. Apple has tried all other gimmicks and they did not help. And Apple has done this with the Mac and with the iPod, so don't bother to write that it is somehow 'against Apple philosophy' haha. And the product line fragmentation has already started with Retina Display, I am not adding to fragmentation with this Nano strategy. It is time. No, it is past time. But I trust Apple will do this soon and lets hope it happens in 2012.

(And separately, Apple should do a third version - take the premium iPhone 5, and add a QWERTY slider version that is yes, 25% more thick but otherwise same form factor and all other specs the same - and charge 100 dollars more and massively increase the profit MARGIN Apple makes per handset. This is sure to be a hit product and gain a large additional iPhone user base of those like me, who are so addicted to messaging we cannot do without a real QWERTY keyboard, no matter how clever a touch screen keyboard or voice recognition could be. We need the ability to type single-handed, blindly and silently. No touch screen allows that and voice recognition is not usable in silent situations)

There are many exciting things happening with Apple for Apple-watchers from the iPad to Apple TV but this blog is not an Apple blog. I look at the smartphones in the Bloodbath series. In smarpthones, Apple has stopped growing its market share for no sensible reason. It is time for Apple to resume its strong market share gains and the only way it can do that, it has tried everything else (without obviously cutting prices, which would be stupid) is to split its product range. That is why 2012 for Apple will be the year of the Split-watch. This split is inevitable. But every quarter that Apple waits, it is gifting potential life-long Apple fans to Samsung, HTC, SonyEricsson, etc

ABOUT COMMENTS

When I post anything about Apple I get the most comments on this blog and very often they are very hostile. I don't mind that. I have a rule on this blog, that you can comment provided you remain civil in your tone, and your comment is relevant to the blog - and that you illustrate that you have read the actual blog article where you are posting your comment.

It is my policy to try to respond to everyone (I have fallen seriously behind on that this past year due to very heavy travel). If my response to you would require me to write 'but if you read what I wrote in this very blog article' - that kind of response by me is pointless, it wasts the time of my readers and in some cases, even some of my regular readers will waste their time coming in to point that out. I will have none of that. Any comment left on this blog (on any topic) if it indicates that the person didn't read the full blog posting, will be deleted without mercy and if there were other 'valid' points in it, those will be lost. You have been warned.

DOES TOMI HATE APPLE

And with that, I need to make a few very specific Apple-related comments. Some visitors to this site think that I hate Apple. I do not. I love Apple. I was employed as a Macintosh trainer for an Apple authorirized reseller early in my career when I was working on Manhattan. I have always loved Apple. The signature book for this blog, Communities Dominate Brands, has as its very first case study the iPod and iTunes and the book clearly makes the point that what Apple did there was textbook execution of creating a new market space - ie my case study is a case study of excellence - that is how much I love Apple. And if you think I don't 'understand' Apple, read my tribute to Steve Jobs when he stepped down from the CEO's position. I am not an Apple experts, I am a mobile industry expert, but within that context, I do understand Apple quite well - specifically because I have admired the company from its very beginning.

And I do not hate the iPhone. I was the first person to say that the iPhone is so important that it is the mobile phone handset that will cause a demarkation of time in this industry, of the time before the iPhone and after the iPhone (as so many tech pundits nowadays refer to the smartphones space or even the total telecoms industry, in words like 'but that was in the time before the iPhone') etc. I said that first on this blog, in the landmark blog about the full impact of the iPhone - before one iPhone handset had been sold and nobody had played with the device is when I wrote that! My blog is the origin to the term 'Jesusphone' (even though I did not use that term, it was mistakenly attributed to me and that blog posting).

I have said since time and again, that in mobile there has been no other phone as influential as the iPhone was. And I have celebrated all further improvements and advances of the iPhone and its ecosystem from the iPod Touch to the App Store to the iPad.

I am also a forecaster. As every forecaster knows, we cannot be totally 'correct' - EVER. It is not possible to know the future. EVERY forecaster makes mistakes ALL THE TIME. And on Apple I have been wrong many times, such as my forecast in early 2010 that the iPhone market share will turn from growth to decline. I have been wrong on other smartphones such as my prediction that one of the biggest beneficiaries of the Nokia market share collapse this year would be Blackberry. Every forecaster gets it wrong all the time. It is impossible to be right always, and those forecasters who get one forecast exactly right, have been lucky.

The professional forecasters will be open about this. No forecast is iron-clad. We can assign probabilities to our forecasts but even then we get it wrong from time to time. What is the aim then? The aim is to be insightful. To have more of the forecasts right than wrong. To have the main themes of the forecast to be more right than wrong. Ie, if you forecast a growth, and your exact growth number is not spot-on, but you did forecast correctly the growth, that is good and if the reality turned out to be a decline, that is bad.

We try to be better at forecasts than the mainstream. It is easy to join all colleagues in a consensus view, the gutsy move is to break with the colleagues and forecast a deviation. And the most difficult challenge in forecasting is to pinpoint a change in direction - to forecast that a growth curve turns into a decline or vice versa. It is easy to prolong a current trend and think that because in the past year something grew, it will continue to grow into the next year (and in most cases of forecasts, to forecast that the growth RATE will slow down, is always the safest bet, that happens mathematically the most often).

TOMI FORECASTS AND APPLE

So a short summary of Tomi's forecasts relating to Apple on this blog. I was the world's first forecaster to say that the massively growing iPod music player market was about to be overtaken by 'musicphones' ie music-playing featurephones - and that this would happen within a year. I said so in 2005. I was quoted with that forecast in the Financial Times for example saying that musicphones will outsell all Apple iPods. I was crucified on this blog for daring to say that. I was proven right. And for those who try to argue the point now five years after the fact, I only refer to Tim Cook's statements when he admitted that the iPhone was developed explicitly because Apple saw that the musicphones such as SonyEricsson's Walkman series were indeed cannibalizing iPod sales. I was vindicated. But that was a gutsy move to forecast that while iPod sales were still setting new sales records, that the era of iPod dominance had come to an end. No other analyst dared to say that in the early Autumn of 2005, that during 2006 the iPod's reign would come to an end. That was going against all 'conventional wisdom' consensus view forecasters, and I was proven right - they were proven wrong.

Incidentially, in 2006 I also said that Apple had to release its iPod-phone (what turned into the iPhone) by 2007 to enter that market. I was right but I was not the only one calling for Apple to release a mobile phone handset.

When the iPhone was announced and Steve Jobs said it would sell 10 million copies in a year, most mobile industry analysts laughed and said that was impossible (especially with the very high price tag). There were Apple loyalists who boldly claimed Apple would do far better than that. I ignored both views, and wrote my two analysis blog postings of why Apple would pass 10 million but not much more - and that it would take significant marketing costs to achieve that. I was proven right, Apple had to drop its prices severely to achieve that 10 million unit sales in 2008, its first full year. There were other analysts who did say yes, Apple would hit 10 million. Most picked numbers far below. But I don't recall any who said the 10 million was to be achieved WITH major marketing costs (price cuts) by Apple. Note that I wrote those blogs before Apple had sold one unit and none of us had played with our first iPhone.

Also well before the first iPhone was sold, I gave a global iPhone market breakdown for the first year. Where the iPhones would sell better and were worse, and why. I have not seen any other analyst give an international breakdown of where Apple would achieve its sales - that was published before the iPhone started shipping. And was I right? I was dead-on.

There were early pundits who asked Apple to split its product range (and some who suggested similar strategies to what I describe as my Nano concept). I was vocal early in 2007 and 2008 that it was NOT the time to waste designing cheaper versions because the top-line iPhone was still gaining sales. So I have not always been asking for the Nano model.

I changed that tune when the iPhone market share growth stalled. That means I am not a dogmatic person, I look at the real world and am willing to adjust to the market realities.

For the iPhone insights, my two most relevant postings came in early 2010. As I said, the easy (and lazy) forecasting option is to continue a trend curve. As Apple was growing iPhone market share strongly in 2008 and 2009, it would be very easy to forecast at the start of 2010 that Apple would continue to devour its rivals in 2010 and that Apple would end the year 2010 with about 20% or 22% or even better market share. If you go back to forecasts about Apple iPhone market share that were published by any analysts of the tech space in late 2009 or early 2010, nobody predicted that Apple's growth would stall. All forecasts were rosy growth into the 20 percent and above market share range for the full year 2010 and beyond.

I was literally the world's first analyst or forecaster to say that the dramatic growth had stopped. I pinpointed the end point accurately and after I made my call, many other analysts came with similar projections in the Spring and Summer of 2010. In my forecast I said Apple's growth in market share would turn to a decline in market share. I correctly forecasted that the growth was over, going against all other forecasters (brave) and pinpointed the exact point in time when a long-running trend broke (most difficult to forecast). But I was too aggressive in my forecast, Apple's market share did not decline, it plateaued.

So yes, those who like to gloat, I was obviously wrong on the detail. I was right on the major point. How much was I wrong, in fact? By one percent! In the forecasting profession on annual forecasts if you are within a percent, you are considered to be perfectly accurate haha..

But what happened? That January-March quarter of 2010 something happened that had never happened before in smartphones, that impacted Apple heavily. I was on this blog first, long before anyone else would write that 'Tomi Ahonen was wrong about Apple' - I came on this blog, and wrote that the Jan-Mar Quarter of 2010 had numbers from Apple which were in conflict with my published forecast. (Is that not honesty and a sign of respecting my readership). I said that my forecast had not been invalidated by the new data, but that it placed my forecast in doubt and said what to look for in the rest of the year, and promised I would keep my readers up-to-date.

Note, for that January-March Quarter Apple sales, ALL forecasters got that quarter sales wrong (including me). But my forecast was one of those with the smallest error. Not the most accurate (the smallest error) but out of about 30 analysts who published iPhone sales projections for that quarter, I think there were 3 or 4 whose error was smaller than mine. I was still in the group who were less wrong than the most.

I went on a search for the truth. I also found it. I was the first analyst in the world to spot a brand new phenomenon in smartphone sales, that the January-March quarter would yield a kind of 'Second Christmas' sale period, but specifically in China, because the Chinese do not have Christmas-time (December) as their gift-giving season, but rather the Chinese New Year, which occurs in late January or early February every year. So the Chinese gift-giving season shifts Chinese gift sales from the October-December quarter that most other countries witness, to the January-March quarter for the 'Greater China' region where the Chinese culture is dominant. I was the first analyst to say this meant increased SMARTPHONE sales for the Jan-Mar Quarter, for those smartphone brands that were strong in China (like Nokia, Apple, Motorola etc, but not Blackberry for example).

Again, there were many who came to this blog to argue that point calling me foolish. Some said I didn't understand China and others said this was not relevant to smartphones. I was vindicated, however when Nokia released its numbers a few weeks later, where Nokia both admitted that China sales were stronger than they expected (so even for Nokia who owned that market having more than 70% market share in smartphones in China) and Nokia explicitly wrote in its Quarterly results that this was because of Chinese gift-giving for the Chinese New Years holiday period.

I was the first to identify where Apple's surge came from in the January-March Quarter of 2010. Remember EVERY forecaster got that quarter massively wrong. Where were the others? But not just identifying where the surge game from, I was then also the first to explain WHY China had behaved like this. And I was the first to point out why this had never happened before - as China was so small in smartphone sales prior to 2010, because it was only in 2009 that China launched its 3G networks into full production so this phenomenon had not been possible in previous years.

If you want to say I have been wrong, that is true, but that is true of every single person who earns a living as a professional forecaster, whether in tech forecasting or economic forecasting or weather forecasting. That is a pointless charge.

If you want to think Tomi is incompetent to comment on Apple future developments, and think this 2010 instance is proof of it - I point out that no other analyst spotted that Apple growth had stalled. Nobody. Not a one. Every other Apple forecaster was off by DOZENS OF MILLIONS of iPhone units. I was not right, but I was BY FAR the least bit wrong. Everyone got it wrong but my error was smallest. I was least wrong. If that is not a value to you as a reader, perhaps you should not bother with any forecasters haha.

And the only reason why I ended up missing my forecast by one percent, was a surprising development out of China which surprised even the world's biggest smartphone maker, Nokia, who sold more than 7 out of every 10 smartphones in that country. Even Nokia didn't expect this to happen. Every forecaster got it wrong that time and I was among those for Apple forecasts, whose forecast was among the least bit wrong.

Then of my ethics. I was on this blog the moment there was contradictory data, informing my readers that my previous forecast was now in doubt, because of new data that had emerged. I then informed my readers whether I stood with my forecast in light of this new data or not (I did) and I promised to track the numbers as they came in (which I did) and in the end, I was off by one percent. If that is cause to crucify me, when all other forecasters had Apple with well above 20% market shares, then you do not undestand the science of forecasting. And I went on to spend my time to study the issues and long before Nokia published the first confirmation that there is a 'China Syndrome' to smartphone sales after Christmas in the January Quarter, I was the world's first analyst to bring that insight to Apple (and other) smartphone analysts.

I was on this site clearly when the final numbers came out for the full year 2010 and was the first to say, that yes, I was wrong in that part of the forecast saying Apple would see a decline in its market share for the year, and calculated my error too. I see precious few analysts or forecasters drawing attention to where they had it wrong. I publish every single result of every single forecast I have made, where I happened to be reasonably close to right, and where I have been obviously wrong. I do not hide from those errors.

Back to Apple. I am not infallible, obviously. For example my iPad forecast was far too pessimistic. I also was clear in my forecast that my prime competent is the telecoms/mobile/handsets side of the tech industry, not the PC side, where the iPad is more an ultraportable tablet-style personal computer, than a large-pocket-sized mobile phone.

But if you look at Apple's performance in smartphones, there are three truly significant points in time that would need a forecaster. Would the original iPhone grow dramatically to 10 million units sold in 2008, its first full year. When will the dramatic iPhone market share growth stop. And will new moves by Apple bring in new growth for the iPhone market share. On all those three points, I was right. You will not find any other forecaster who had those three points right, forecasted year 2008 during 2007; forecasted that 2010 stopped the growth (forecasted any time during 2010) and that forecasts during 2011 any moves by Apple including iPhone White and CDMA and Verizon etc - will not restore the growth back in smartphones. If that does not make me 'credible' to comment on the iPhone, I am at a loss.

Nobody is perfect in forecasting. I would dare to claim, that in Apple-related mobile industry forecasts, I am one of the most accurate, if not the most accurate forecaster.

I am sorry to be so pedantic about this, my past with Apple and the iPhone. I know what kind of responses we traditionally get on this blog whenever there are stories about Apple. I am only trying to pre-empt some of the nonsense. I would prefer we have intelligent discussion here on what to expect from Apple in 2012, and why Tomi thinks this is the time of the Split in the product line, and why it should be the Nano model. I would love to hear ideas of how Apple can gain more iPhone sales if there is any other thing it could do (but do not repeat the things they have tried in the past, like the App Store or CDMA model etc as obviously those ideas did not work). Give me your thoughts but don't bother to remind my readers that Tomi has been wrong on some detail of some forecast at some point. Such comments are now clearly ADMITTED by me so if you make such comments, they are a waste of time of my readers and your total comment would be removed. Lets stick to the real points here, how can Apple come back to a growth pattern in smartphones and would my recommended strategy of a Nano model be a practical way to achieve it.

We have done Samsung and Apple, next in this series Nokia, RIM, HTC and later coming Google, Microsoft, Sony etc 

Comments

[KPOM]

You say you don't want fragmentation, but you then tell Apple not only to introduce a nano (a possibility), but also a QWERTY version? Sorry, I don't think you "get" Apple. A slider keyboard doesn't make for a good aesthetic, and I don't see that happening as long as the current management team (all hand picked by Steve Jobs) is in place. Apple has never been a company to produce focus group-designed products.

You mention Porsche as an example. Look what happened to them when their growth aspirations got too big. They expanded their product line beyond recognition, then tried to swallow up Volkswagen and wound up getting swallowed up by them instead. It would be better for Apple to stick to a premium strategy and continue occupying the high end of the market rather than chase market share growth for its own sake.

Apple is more likely to expand into new markets than it is to expand within an existing market. The Mac is a perfect example. They have refused to sell a full-featured PC for less than $999, no matter how many "experts" have told them they should make netbooks or compete in the sub-$499 PC market. Steve Jobs expanded Apple's reach not by building cheaper PCs, but by building music players, then phones, then tablets, finding a natural market share for them and then moving on to the next big thing. Likely TV will be the next move.

What Apple does 5, 10, or 15 years from now is anyone's guess. That's the strategic challenge for the Board and the new management team. However, for the next few years, I think we'll see the move into TVs, while seeing the iPhone settle into its current niche. We'll also likely see the phase-out of the standalone iPod line. iPad will be the wild card. It won't continue to have a majority of the market, but it will be interesting to see whether its sales and market share patterns more closely resemble those of the iPod or iPhone in years 3-5. I'm guessing it will follow the iPhone. The lawsuits were there to buy them one more Christmas season on top, which they did.

[KPOM]

Also, where is your proof that Apple had a radically new iPhone 5 but delayed it and quickly came out with an iPhone 4S at the behest of the carriers? You say this all the time, but with no proof. The iPhone 4S antenna was revealed in January 2011 by some of the rumor sites (none of whom realized until afterward that's what it was). Also, the 4S was a logical extension of the CDMA iPhone, since that's what it was based on. I'm guessing the delay was for several reasons. First, the iPhone 4 was still selling reasonably well. Second, iOS 5 wasn't ready (Apple has slipped on OS X releases in the past, so slipping on iOS releases isn't unusual). Third, the virtual SIM idea was just recently patented (it usually takes some time for patents to appear in shipping products), and it isn't dead at all - Apple has it ready for when the carriers will finally take the plunge and the ITU endorses it as a standard. Fourth, Apple pushes the envelope with carriers (you called it a "carrier-hostile" attitude yesterday), and so is more likely than anyone else to get done.

Also, you are wrong about the CDMA version having no impact on market share. Remember, the CDMA version is most relevant to the US market, since the rest of the world went with WCDMA. Apple's market share has ticked upward in the US since it added Verizon and Sprint. The latter in particular has made a big push for it here. It was a necessary move to protect their home turf since there is no LTE voice standard yet and CDMA will be around for quite a while.

[Nano2012]

I don't think you are right about the Nano. Yes, I read the posting and yes your idea of new-Nanos rather than unofficial cheap-last-year-Nano is better. But does Apple need to be brilliant? I think it might just be going with the quick, it's good enough approach. Apple is very secretative and we don't know much about what other issues might be affecting their choice to do this cheap-Nano version.

What we do know is that I could by an iPhone 3GS on contract (in UK) as cheap as last year's Nokia N8, or even cheaper than this year's Lumia. As the advert says "if it's not an iPhone, then it is not an iPhone". Apple may well have got it right, certainly good enough.

Happy New Year!!!

[Kalle inventor of many things, accomplisher of nothing]

I don't think Apple was first to "invent" virtual SIM cards even though they filed a patent for it. Software implementations of USIM & SIM elements using secure element have been around for quite a while.

Apple has been stagnant in their OS development, while others have caught up in usability, which in iPhone is pretty much nice transitions and animations, they have innovated a lot of new elements into their UI. My year old iPhone 4 even with iOS 5 can't compete with my daugthers new Android and a 100€ Nokia doesn't look so bad considering the money saved.

Vocal minority exited about mobile phones. Most people ask around, go to store and buy what they've heard is good. Tommi is right, if the price is 600€ and your cut off is 200€, then all of a sudden those smooth animations will more irritate than dazzle you.

Hardware innovation is constrained by physics. Everybody can get pretty much the same components. So there is very little Apple can do to really make a difference in that segment. People foam about A4 processors, but they are built by Samsung and they will sell similar chips to who ever wants them. Retina display is nice, but basically it is just a sharp display. Again can be bought off the shelf.

Only thing left is design. Apple has decided, that we need to all have same design in our pockets. The trend has been towards ugly phones recently, but is it going to last?

I think Steve Jobs illness and passing damaged Apple ability to execute their strategy more than we believe. If you think what happened with the iPhone 4S (I don't know if you buy the iPhone 5 virtual sim thing). The phone got newer processor, some could services that I haven't bothered to use and third party app siri. iOS5 gave a notification dropdown copied from Android. That is hardly a bold move in Apples part. When the big dog was out, the little dogs started their turf wars. It is yet to be seen if a coherent strategy, which can be executed efficiently emerges from Cupertino. Apple is at the cross roads and can snatch defeat from the jaws of victory. Just like we've seen happen before.

[David Doherty]

First I completely agree that this would be a brilliant strategy for Apple but I get the feeling that they haven't yet maxed out on the potential of existing customers.

Just as we don’t see brands like Rolls Royce heading down into the larger ‘premium’ market before they’ve capitalised on the luxury market they have already with bespoke accessories, financing, servicing, warranty packages, approved used sales, etc, etc I think we're going to see Apple explore these opportunities to grow first.

I think we will see Apple take a few more little bites out of the operator revenue pot before they go down market as the features they've already added (eg. billing, iMessage and Facetime) and customer loyalty places them perfectly to supplant operator relationships.

PS All the very best for 2012!

[Darwinphish]

Tomi: There are so many things to comment on here that it is hard to know where to start. I will start with this:

I know you are familiar with Horace Dediu's work at asymco.com, so I am surprised that you do not even mention the theory that supply (i.e. production capacity) is the real limiting factor for the iPhone. Dediu and others argue that Apple sells as many iPhones as it can make. If so, then the issues is not that they need more models, but that they need to increase production (unless, of course, a low end model would be easier for Apple to produce in much larger quantities).

You mention how Samsung increased it's market share this year. I think a simple explanation is that Samsung has much greater production capacity to make smartphones (though I wonder if they face limitations on their flagship devices), certainly much greater than Apple. Until Apple solves it's production constraints, talk of expanding the product line may be pre-mature.

[vvaz]

Tomi,

Similarly to other commentators I think that you are dead wrong on nano iP or QWERTY model. Would they increase Apple marketshare? Yes. Would that increase Apple profits? Hell, no.
To produce other models they would have to significantly invest in new factories, r&d, etc. and they could sell those new models with margins about the same as still produced 3GS or 4. There is no real monetary incentive to produce more models.
Situation of Samsung is different because Big S owns many factories on various levels of sophistication (similar to Nokia). To fully utilize them it *has* to produce various models.

[guest]

Tomi,

I see two issues that your analysis does not tackle in depth.

1) Your viewpoint is quite terminal-centric. However, Apple devices get their true strength from other pieces of infrastructure and services: iPod from iTunes, iPhone from AppStore, iPad from iBooks, Mac from iCloud (maybe). Let us face it, wthout these services, Apple terminals would be drab affairs -- no matter the good looks (the sheer limitations on the iPhone regarding connectivity make it much less useful without apps than Android or Symbian devices).

Given the fact that Apple continues to develop its service infrastructure (Siri, and the rumoured Apple TV stuff), this should weigh heavily in the analysis, but you do not delve on it.

2) There is a difference between being a manufacturer of select products, and being a mass-producer. This affects a number of aspects, but maintaining quality (there are enough issues with the iPhone 4S already: battery, SIM card, speaker) is a major one -- with all implications in terms of image, after-sales support, and profits.

Do you really think that Apple can become a mass-market manufacturer without deep implications on its organization and business practices?

[Rune]

I think the long-term success is going to be decided by apps. At the moment, Apple is doing very well, I would say that iPhone and Android are about equally strong on apps. But Android is gaining fast -- not only in phone market share, but also because they got a bigger part of the smartphone-beginners, who are only just starting to learn what apps are about. Long-term, Android's strength in apps is going to match its share of the phone market.

We've seen how the Macs have been struggling since their birth. Always having too small a part of the market to get anywhere near the diversity of programs that DOS and later Windows had. Apple's success in other markets has helped the Macs in recent years, but Windows PCs are still the default choice.

Apple desperately needs to avoid a similar situation on iPhones. They need to keep their strength in the apps-market at a level of "main player", rather than "niche". And I think that a 20% phone market share is going to become very close to that tipping point. They need to get to 25% to be really safe. And I quite agree with Tomi that product differentiation is the only way to get there.

[whally]

How about comparing Apple's growth on mobile phones to the complete market of the phones? Including smartphones and dumbphones? In that chart the growth of the iPhone has not stalled at all. It's just an illusion of the markets transition from dumbphones to the smartphones.

About the iPhone Nano. You seem to be confident that there should be a smaller screensize for that. Why? The cost of producing two different sizes is bigger that making just one size. On the software side that would also fragment the market too much. The cost of including 3.5" screen instead of 3.2" is not an issue if we look at the component costs. So 3.5" screen would just be a sensible thing to do if Apple decides to make a iPhone Nano. If the screen would be a smaller one there should be some other advantage to it. Not just the cost savings of the manufacturing.

NFC - does it just work? Where is the Apple way of doing things in that? It just seems that this technology is not yet matured enough. Users should not have to worry if there is wide enough support for it. If that is done as Apple does things.

[Ben Eng]

Tomi, maybe I am looking too far ahead into the future in this forecast, but I am thinking Apple or another mobile device vendor needs to work with enterprise software vendors to provide a compelling enterprise collaboration story that will accelerate the obsolescence of traditional office work environments and a rapid shift to take advantage of a mobile always-on work force that uses smart phones and tablets instead of desktop/laptop PCs and desk phones. See http://www.jetpen.com/blog/2012/01/01/enterprise-collaboration/

[anotherGuest]

First of all let me say this, an analysis really well done, i vliked your samsung one and im looking forward for more ...

Regarding apple i still cant loose the feeling that all their products are not premium, for me its china made stuff with a really large chunk of profit for the inventor

im not saying other goods are not china made stuff but compared to the price/value ratio i find apple to be a scam literally

also i dont know how about other people but the closed nature of the ecosystem with no option to adjustments-cross platform connectivity without jailbreaking it, is turning me off...

other than that i think you might be right with your diversification forecast for apple ... we shall see

ill wait for those cold winds of nord and see what they bring me :)

[cycnus]

Hi Tomi,

I agree when you said that apple could not gain market share because they don't have 2 price point. By having only 1 product / 1 price point, Apple set it self in the "I'm Premium", but I also think that this is the kind of attitude that apple want. Apple want to differ them selves from the rest of the pack, and want to have a stuck up kind of user. Apple think that if apple were producing a lower end of iphone, and getting ordinary user, it might make the brand less premium.....

I also think that you were forgetting to write that other player (android) have catch up with iOS too. So, in the last 2 year the battle were harder for apple. For example, Samsung Galaxy Y sold for around US$ 130 non-contract, it's one of the most successful phone of 2011.

[KDT]

Tomi,

Even though you have been told you were wrong by myself and many others about two points, you still insist on repeating them.

1. You were not the first to suggest that Apple combine the iPod and the phone and create an "iPhone" (the pundits were even calling it that). In an interview in 2003 with Steve Jobs, Fortune magazine was asking about whether Apple would introduce a phone. Not only that, *everyone* knew that Apple was trying to get into the phone business. By the time you recommended the "iPhone", Apple was already partnering with Motorola for iTunes.

2. You are wrong about the virtual SIM delaying the iPhone 4S. Apple has *never* released a new phone without a new OS and has always released the developer preview of iOS about three months before they introduced the new phone. iOS 5, iCloud, iTunes Match, Siri and the accompanying back end services were not ready by March for developers, some pieces were not even ready in October.

[Tomi T Ahonen]

Hi all, thank you for the comments, I'll reply in small sets

Hi KPOM, Nano, Kalle

KPOM - first, it seems you do agree that a Nano model would make sense? But yes, about the QWERTY - I said its unlikely for now, I do think in the long run it will happen because Apple is leaving so much money on the table. And your argument why my Porsche example is bad is pretty hilarious. You suggest a company should NOT grow so much that it could afford to buy rivals? What is Apple then doing right now with all that cash in its vaults? Why not drop the price of the iPhone and iPad etc and not rake in the profits. You'd want Apple to turn into a not-for-profit charity perhaps? Come on, that Porsche mis-managed its Volkwagen take-over in no way invalidates the decision to expand the product line so much that they generated vastly more profits? (unless you believe in communist/socialist market philosophies obviously where profit is seen as inherently evil haha)

I do agree with you, that Apple will do what it wants. I do think however, that the comparisons you make do not invalidate the Nano strategy. The way I have described it, the Nano would provide minimal redesign of mostly existing designs, bringing mostly last year's model into a slightly smaller casing, adding one or two new features form this year's flagship - and selling that at a far more desirable price point to the same profit margin as the current line of iPhones (and the QWERTY variant actually at higher profit margins when it comes..)

On the iPhone 5 no SIM slot model. I have no 'proof' for you. I report what I know and what I hear and you can believe me or not believe me. I have no proof. I have given you EVERYTHING I have found, including reporting when the idea was first suggested by Apple - and my immediate comment that this will infuriate the carriers (as I as proven right) and that Apple did then redesign its iPhone and delayed its launch. You can believe me or not. Until someone from Apple retires and writes a tell-all book we will probably not have 'evidence' of it haha. But there is no plausible alternate theory that fits the facts why Apple would abandon 3.6 Billion dollars of iPhone sales - especially when it was running against Samsung and the Galaxy was eating up iPhone market share.

Nano - good point but note, selling an older 3GS or iPhone 4 model is not incompatible with my idea of the Nano. A year later, the Nano would have its newer variant again (Nano 5 or whatever) and the previous Nano would be selling at even lower price than the older 'big' iPhones.

Kalle - very good points, thanks. I agree the coming times will be most challenging for Apple and a test of the new management. I think many of the strong rivals were caught napping when the iPhone appeared (starting with Nokia) and Samsung so far has been strongest to react to the iPhone challenge and the Galaxy series is stealing Apple's thunder. Apple will respond and I think the Nano is a natural step into that path. But more strong rivals are taking the fight more seriously (Nokia failing at it, but you can say they are trying, just unfortunately Elop is not up to the task). Look at Sony for example, buying out Ericsson and deciding to go full steam to smartphones. Apple may soon find it is facing a war on many fronts..

Thank you all for writing, I'll return with more comments

Tomi Ahonen :-)

[KPOM]

You missed my point about Porsche. They wound up diluting their brand and grew faster than their management could handle, taking risky bets with shareholder money. That's why they wound up being forced to sell out. I don't want Apple trying to turn itself into the next mass-market producer. They would be out of their league. That's also what got them into trouble in the 1990s (commoditizing their portfolio).

[KDT]

"But there is no plausible alternate theory that fits the facts why Apple would abandon 3.6 Billion dollars of iPhone sales - especially when it was running against Samsung and the Galaxy was eating up iPhone market share."

Tomi,

I gave you a "plausible" alternative. Apple is not just trying to sale a mobile phone. Apple sales a platform -- software + hardware. Getting iCloud right especially after the disastrous MobileMe roll out was more important than just releasing a phone. For iCloud to work properly, everything had to work together simultaneously. It involved creating a data center, updating Pages, Numbers, and Keynote for the Mac, iPad, and iPhone, transitioning MobileMe to iCloud, updating iOS, securing licensing agreements with all four major music distributors in the US for iTunes Match and the major TV producers to allow re-downloads. iOS had to not only be updated to iOS 5, they also had to re-engineer their entire iOS distribution strategy to allow incremental over the air updates.

How was Apple going to release the iPhone in June without providing a developer preview in March?

There were never any leaked part designs that showed a different phone was being planned than the iPhone 4S.

[Tomi T Ahonen]

(more replies)

Hi David and Darwin

David - very good point and there is an alternate and viable stategy for Apple, which is to explicitly not pursue a world domination strategy in smartphones and focus on keeping the 4% or 5% of the world's phone owners, their high-value customers, very happy. And serve them all sorts of premium goodies. Yes, the Rolls Royce strategy. But that is not what Apple is communicating. It is trying to distort the world view that the iPhone (and iPad etc) are taking the world over. That was a feasible story a few years ago, it is now being compared to reality and that diagram I show, with the plateau'ed iPhone market share, is the picture Apple does not want.

If Apple wanted to pursue this strategy, they need to communciate it clearly so their investors are not disappointed to see Android shooting past the iPhone in everything. But the Nano strategy is perfectly viable to restore the growth curve and I think Apple should pursue it to take 10% rather than 5% of the total market and thus be 50% bigger as a tech company haha..

But on the carrier vs Apple battle ie iMessage for example - that is a very dangerous game. That will anger carriers and Apple should move very cautiously there. What Apple cannot sustain, is a sudden global sales boycott against the iPhone.

Darwin - good point about supply issues. I hear the argument, it may be a factor in some cases but most of those same components go into rival phones so its then a market share battle (back to my illustration in the diagram again).

Then on production constraints - actually Apple has the least production limits because Apple does not use its own factories. Apple can give its production contracts to other third-party phone makers and Foxconn itself (Hon Hai) is nowhere near peak capacity - they are adding production capacity far faster than Apple is growing. But Hon Hai are obviously supplying several other manufacturers too.

Tomi Ahonen :-)

[Tomi T Ahonen]

(more replies)

Hi vvaz

You make a good point that the profit margin on my proposed Nano model is probably about the same as selling last year's models like right now selling iPhone 4 and 3GS. But my point is that for most consumers, the 3GS and 4 are 'last year's models' and for most regular consumers, especially who are buying not their first smartphone - they want 'this year's model' - they know the phones grow old fast, why buy an obsolete model now. Look at them, you'd go back to 3 mp cameras for example while new phones today have 8 mp or 12 mp or 16 mp etc. The rate of tech advance in mobile is faster than any other consumer tech so a one year old smartphone is severely outdated in some ways, two years old is often too old.

But my Nano suggestion is that there are totally modern specs on the phone, including something (a few things ideally) that are BETTER than last year's model such as if this is the time that Apple launches NFC in 2012, then both the main 'big' iPhone 5 and the 'Nano' would of course then have NFC. This type of modernization would make the Nano far more desirable than last year's models. And of course when next year's Nano comes out, this year's Nano is then the old model and sold at a further discount (while still making healthy profit margins, just like the 3GS and 4 sell today)

Thank you all for the comments

Tomi Ahonen :-)

[KDT]

". But my point is that for most consumers, the 3GS and 4 are 'last year's models' and for most regular consumers, especially who are buying not their first smartphone - they want 'this year's model' - they know the phones grow old fast, why buy an obsolete model now."

Tomi,

I hate to sound like a broken record -- but you still don't get it. Apple sales a platform hardware + software. The "obsolete" iPhone 3GS that came out 2-1/2 years ago can still run the latest OS. There are Android phones coming out now that will never run the current Android OS. In the US, the iPhone 3GS is still the second best selling phone -- only behind other iPhones.

Before last year, you always wanted Apple to pursue the Nokia strategy of a 10 or 12 different phones -- where did that get Nokia?

"If Apple wanted to pursue this strategy, they need to communciate it clearly so their investors are not disappointed to see Android shooting past the iPhone in everything"

Investors don't care about market share, they care about profitability. App developers don't care about market share, they care about which platform generates the most app sales (iOS is 4 to 1). Carriers don't care about market share, they care about which customers bring in the highest ARPU (iPhone customers by 50% according to Sprint's CEO).

"Apple can give its production contracts to other third-party phone makers and Foxconn itself (Hon Hai) is nowhere near peak capacity - they are adding production capacity far faster than Apple is growing. But Hon Hai are obviously supplying several other manufacturers too."

"Production capacity" is more than just assembling. It also involves getting components. Only Samsung is producing more smart phones than Apple, but Apple also is producing iPads and iPods. Why else would Apple not expand it's carrier network? Do you really think that there is any carrier in the world who not want the iPhone? The iPhone still is not available on the worlds largest carrier.