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« All Roads Lead to Mobile - World Cyber Games to go Mobile-Only | Main | The 'Cliff Theory' ie How Handset Makers Die, why in Mobile Phones do Companies Collapse so Rapidly (Siemens, Motorola, Palm, Nokia, Blackberry and Windows Mobile) »

March 28, 2012

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cycnus

Hi again,

Remember when Elop crash the nokia with 2/11, elop than said that the crash in sales because the distributor have to clear their inventory because they were have lots of nokia in their inventory.

Back then, I was said bullshit, because I know most electronic store didn't like to put lots of inventory in their store because they don't want to take the risk. All the electronic store mostly put around 1 week - 2 week inventory and will have an order around 4-6 times per month.

Back there, I don't have an article to support this, but now i have.
It turn out that HP, RIM, Motorola have inventory for around 1 month supply.
So, I guess this could be use as a proof that Steven Elop lie.
Here is the source: http://www.fool.com/investing/general/2012/03/23/apple-lesson-of-the-day-inventory-is-evil.aspx

SK

As usual Tomi insists without evidence that Apple delayed iPhone 4S.

I believe that they deliberately released for the Christmas season AND do that they have 6 months between iPad and iPhone launch.

We will see this year but I expect a September/October 2012 launch. I expect it to be called the new IPhone.

Tomi: if I am right will you agree that likelihood is that the 4S was not delayed.

Regarding QWERY I believe Apple won't do it.

However I think Tomi is right that Apple needs and wants a portfolio strategy. They are in a bind that they don't want to dilute the iconic iPhone brand. Whether they come out with a low cost device called iPhone Nano or iPhone Air or something else entirely they DO have to do something.

cycnus

@SK

Tomi see things differently than Apple.
Tomi thinks that in order to concure the market certain things have to be taken, for example if Apple do the Apple iphone Nano and Apple iphone QWERTY, Apple market share than maybe could kick android.

But Apple, don't want to do it because Steve Jobs already outline the company fate by saying QWERTY is for looser, and as for iphone Nano, because apple want profit, not sales number. Apple believe that iphone Nano could bring more user, but apple don't want that more user. Because:
1. that user might lower the profit. They were affraid some of the non-nano user might run into the cheaper model.
2. If that the cheapskate, than it won't bring more revenue, they will jailbreak, and use cydia/big-boss to download apps.
3. the prestige of having an iphone will be less

So, it's not because apple is wrong, or tomi is wrong
but because the two of them have different idea on how to manage the company

Twofish

One thing that I think may be a game changer are the shanzhai manufacturers in the Pearl River Delta. What they do is to take reference designs using the Mediatek 6573 and 6575 chipsets and then manufacture white box phones. So far, the shanzhai have been focused at feature phones, but with the Mediatek chipsets, they've been moved quickly into the domestic smart phone market.

The smart phones are extremely cheap (US$180 unsubsidized for a smartphone) and the cheapness comes from the fact that they have zero marketing cost. Some of the higher end shanzhai manufacturers are trying to get into the branding game locally in Hong Kong. Also while shanzhai *cell phones* are not heavily branded, there are some local brands of Android tablets and you can get a 10 inch tablet running Android 4.0 for US$120.

Finally, one absolutely amazing thing to see are the cell phone markets on Huaqiang Bei Street in Shenzhen. Imagine blocks upon blocks of stalls that look like stands in vegetable markets, except that instead of selling fruits and vegetables, they are selling cell phone parts. You have stands with bags full of chips, and the cell phone assemblers buy parts and put together cell phones.

There's a tip of the iceberg feeling that I get. In China at the top you have Apple and Samsung, then you have high end local manufacturers like Huawei and ZTE, and then you have this huge pool at the bottom of no-brand/off-brand assemblers, that just buy parts and make cell phones. Android is pretty critical for the these off-brand phones. Because they have zero marketing, they piggy back off Android marketing. The other thing is that off-brand phones have a tiny market share largely because the smart phones are still too expensive for local users, but as MediaTek and Spreadtrum come out with cheaper chipsets, that's likely to change.

Twofish

One other note is that a lot of the move away from qwerty keyboards toward "tablet like" pen entry screens has to do with Chinese. It's annoying to write Chinese using a keyboard, but using a flat screen touch screen is the most natural way for most users to input Chinese.

I think much of the push away from feature phones to smart phones once the price goes down is going to be driven by Chinese data entry. Chinese data entry was a "killer app" for the iPad, and Android has data entry that is comparable. I haven't seen good Chinese data entry for Windows 7 or Windows 7 Mobile, and if they don't have something as smooth as data entry on Apple or Android, it's going to be one more nail in the coffin.

cycnus

@TwoFish

I'm kind of familiar with these MTK product in ShenZhen area, to be exact it's the Lou Fu area that were the first place you step out from Hong Kong to China. I manage to buy one of the fake dual sim Nano iphone back in year 2009 just because I want to know more about this product. I use it for around 1 month as my third phone, and to amuse some of my friend, after that I gave it to someone because it's really not my things.

I'm a bit forget.... Either Nokia or Tomi said that MTK chip from various factory have produce around 200 Million phone each year. In Indonesia, India, and lots of developing country, this phone right now mainly sold around US$ 30 - US$ 40. I've kind of trying to keep tracking the news about this product, at first they seems able to gain lots of sell and money when they first sell it at US$ 70 - US$ 130. but according to the latest news/rumors that the seller of this product were struggling to fight the second hand market of well known brand. Some of this off-brand product have a lifetime between 3 month - 6 month, some other have around 1 year - 2 year. The thing is reliability is not their strong point. And for budget conscious user after buying a couple of times this MTK based chip and maybe got a couple of time bad brand/model/device will run into the branded phone for having a better felling at feeling secure on reliability.

I also know that MTK have create a Arm Cortex A8 600MHz-800MHz based CPU with dual sim capability that were targeted at US$ 80 - US$ 90 Android phone, and I also have seen this product too. But the local brand (they bought from Shen Zhen off-brand factory and put their own brand) were struggling to sell this phone in Indonesia. There were a little interest to buy this US$ 90 off-brand product compared to US$ 120 Samsung Galaxy Y.

But, although I said struggling, I heard rumors/news from friend that 1 of the local brand that sell this cheap dual-sim MTK based phone were able to sell around 10K/month. It's a failure if you compared it to the big guy, but if we assume he could get US$ 10 / devices, that mean he's able to get US$ 100K /month, which is very big number for small company in Indonesia.

cycnus

@TwoFish

btw before continue... I want to write here.... the term Shanzai is actually refer to replica, the shanzai factory means they create a fake product. They were the factory that used to sell fake nokia, motorola, HTC, etc.

I also want to state a fact NOT to rule out this Shanzai factory... If this shanzai company can put a better R&D, have their own brand and quality control, they could emerge to became the small player (but bigger than what they were now). I believe they could be a good challenge for the big guys if they did this. One factory that I know that were one-tenth-way here is G-Five. G-Five produce around 200-300 model each year and find some local brand to buy their model and do the OEM for them. They have R&D, etc, it just not in the right way. The R&D is not there to research better product, but it's there to do design, and small tweak, and strengthen the casing quality.

So, right now I think this whole shanzai factory were clueless.

Szymon

"Apple might never release a QWERTY iPhone" Why it should ? Modern phone is not like old fashioned mechanical typewriter which can jam. QWERTY is XIX century relic. Majority of NON-qwerty pc keyboards are still only variation of basic theme. Me thinks Apple might consider releasing "physical" keyboard when they will be sure to make it right.

darwinphish

After reading (and re-reading) this post and reflecting on many of your earlier posts, I offer two criticisms. One, you place far, far too much emphasis on simple market share numbers. Two, you focus too much on best-in-class features, often ignoring the concept of standard-in-class features.

With regards to market share, the smartphone market is too large and too diverse to put too much emphasis on total market share. I am not saying this measure is insignificant, its just not the ultimate measure your analyses imply. Using simple market share, the sale of a sub-$100 Symbian phone counts the same as a $900 iPhone and this is ridiculous. To gain meaningful insight, we need to look more closely at sub-sets of the market. To fall back to the over-used car analogy, does Audi really care how many Tata Nano's are sold?

Yes, the low end of the market is growing, but unless we know by how much it is out growing the rest of the market, or to what extent lower priced models are taking sales away from the higher priced ones, it tells us very little. Knowing whether $100 Bada phones are cannibalizing the sales of top end Galaxy phones is more insightful than knowing what Samsung's total market share is.

As for best-in-class vs standard-in-class, let's consider camera specs. You describe how important a feature cameras are to the majority of smart phone users. That only suggests that a smartphone without a camera (or without a decent camera) will not sell. It certainly does not imply that the phone with the best camera will dominate. The camera just has to be good enough. I will grant there will always be customers who want best in class, but I really doubt they dominate or dictate the market.

This distinction can be applied to almost all features of a smartphone, just as it applies to almost all products with multiple features and capabilities. When I buy a TV, I want it to have decent speakers. I don't need it to have the best speakers available which is why I won't drop 5 grand on a Bose TV. Having best-in-class is nice and there can be a halo affect as consumers associate a bet-in-class feature with overall quality. However, when a best-in-class feature (e.g. camera) is packaged with below-class features (e.g. screen), you limit your sales potential. And if you look at just about all product categories, good-enough beats best more times than not.

cycnus

@darwinphish,

I'm gonna share with you one of the 'special' target market. It is called the 'Elite'. This Elite market doesn't mean a person who own Ferrari, but it's apply to a new young generation who have enough money to buy THE BEST phone, and need that TO SHOW THEIR STATUS or maybe THEIR PARENT STATUS. The money they got doesn't necessarily from working, it could be an allowance from their parent (High School student, College Student).

Cell phone has been chosen to be de facto in showing a status because it's the piece that were going with us to toilet (or what american call rest room). and because the price of the cell phone is not big, this Elite could change their phone 2-3 times a year. They would try to be the first on every high end / iconic model. for example, Samsung Galaxy S series (SGS I, SGS II, SGS III), or iphone. This elite doesn't have brand loyalty. They would change to any brand that were considered THE BEST at that moment. and in phone industry, this iconic model would bring the most profit/handset. and would also drive the middle and lower end sales up.

How do I know this?
Because I'm young, and live in that competitive edge where cell phone = status.
I even know a 60+ years old guy that change phone around 5-8 times a year just because he can.

cycnus

@darwinphish,

So, even though what you said is right about standard in class. The best in class is the one that would drive the standard in class sales.

Seeing from a pure technical world.... When nokia got the pureview 808, it would increase Nokia brand in Photography. When someone want to buy a phone, and know how good the PureView 808 were but don't have the budget of PureView 808, he would then firstly considered any Nokia brand because Nokia brand were associated with the best in Photography.

Seeing from a pure egocentric world I just told you before.... When nokia were considered the best by this elite just because the PureView 808, the Elite would buy it to show off they got some iconic device. The non-elite would buy the other nokia brand product just to feel secure that they were in the same league as the Elite.

cycnus

@darwinphish,

as to what you said about US$ 100 bada cannibalizing the US$ 900 Samsung Galaxy SII, it's not the way the market work.... A person who have US$ 30K and want to buy Mercedes Benz because he want to buy Mercedes Benz, would consider Audi, BMW, Honda Accord, Toyota Camry, but would not even consider a honda fit, or toyota telcel or tata nano.

darwinphish

@cycnus:
Yes, there is a sub-market of elite buyers, just as there is a sub-market of must-have-the-best-phone buyers or must-have-a-physical-keyboard buyers. However, these sub-markets are not what is driving the over-all market. And even if I concede that the Elite's you describe are disproportionally influential, the over-all market is so large that I would still say they are not driving the market. And yes, best-in-class does drive/influence what is considered standard-in-class. However, there are diminishing returns as you push forward with any improvement.

Put more succinctly, no manufacturer is going to be very successful by focusing on one or two best-in-class features, especially if they package these with other parts that are below current standards.

Regarding the Bada vs Galaxy, that is my exact point. Tomi talks about market share as if every device is the same. I believe, and you seem to agree, that there are different discreet sub-markets which have little or no intersection. Going back to the iPhone, there is little value in knowing it had 19% of the total market in 2011, especially if you assume 40% of devices sold went for under $100.

SoVatar

So, RIM just came out with their latest quarterly report, and the numbers are indeed abysmal. 11.1 Mio Blackberries sold, $4.2 Billion in revenues, lay offs, and no guidance anymore as they can see that it goes down, down, and down. This Train wreck approaches Nokia dimensions.

I subscribe to Tomi's assertions re RIM, and I do one up: Within 12 months RIM is no independent company any more.

Louis

Viz "sending blind": Here is how you do it. You say: "Siri, send a message to XXX." Then you say the message. Young people have their headphones on anyway, so this doesn't seem weird when walking, etc. Apple has a different plan than RIM. Since RIM is going out of business, I would kind of guess that QWERTY isn't driving the market.

Viz "portfolio strategies": Something that doesn't come up here is that Apple is a smaller, much flatter company than its competitors. This means that it can only take on projects that the very top people think is worth their personal time. Seeing as Apple sells every single iPhone it can possibly crank out and it both ramping up and iterating, another model probably doesn't make sense at the moment.

The flip side of this is that Nokia does have a large middle management class of a million or so VPs. Elop is trying to simplify his company's structure, but that will create osmotic pressure elsewhere for managers to have something to manage. Like a new Linux announcement. A critique that Tomi seems to be making implicitly is that Elop's product strategy utilizes the resources he actually has available. The problem, of course, is that a million worse-than-a-cheap-Android, incompatible product lines won't make money.

Viz bada/tizen: I have a bada device sitting in a drawer in my flat. It's terrible, which is how I came into it: the visiting person who bought it as a cheap, unlocked phone wasn't willing to bother dragging it on the plane home. Tizen will be about as important as Maemo/Harmattan/Limo/Meego and all the other non-market-having projects with Intel on the board.

Samsung will migrate Android down-market as components get cheaper. That is where their best software competence seem to be.

Viz cameras: Leica can have slow auto-focus and no Instagram support and do just fine. Not so much a smartphone camera when the iPhone 4s is super-fast, sharp enough, and has a hugely valuable sharing and editing software ecosystem. Parents, dog owners, and young people who travel aren't going to use anything without all that, and they seem to take the most pictures.

kevin

I said here back in July 2010 that Nokia and RIM were in decline. Right or wrong, Nokia chose a new CEO in 2010 and a new path in 2011. Today, RIM, also with a new CEO, looks like it will finally start making some decisions about a new path to save itself.

http://allthingsd.com/20120329/rims-new-ceo-acknowledges-it-is-time-for-a-change/

Like I suspect RIM has done since 2010, RIM did some channel stuffing in Q4, so Tomi, it was not "stabilized" and not "growing." Blackberry did not have "horribly bad luck"; RIM just had no vision, so it tried to copy Apple but without truly understanding where Apple was going, and really poor execution (partially due to not adjusting its management practices when it was rapidly adding personnel).

SK

@cycnus - I don't think I am fundamentally disagreeing with you that Apple and Tomi have clearly different priorities.

Tomi focuses on market share with a certain minimum profit to stay in business. The justification is the standard platform requirements - market share brings developers which makes the platform useful and interesting to consumers and therefore viable and vibrant helping the platform owner and developers. A virtuous cycle.

Apple focuses on profit share with a certain minimum market and consumer mind share. They clearly believe that they have enough of both to keep developers interested and in fact the more the smartphone OS market splinters the more viable and valuable their platform is. Justification, well just look at their balance sheet and the fact that even with Android growing like gangbusters Google's revenue from the iPhone is 4x (that's 4 TIMES !) its revenue from Android. See: http://www.guardian.co.uk/technology/2012/mar/29/google-earns-more-iphone-android?cat=technology&type=article

I will, however, note three things:

1. Every now and then, at least on Twitter, Tomi will roundly make fun of people who push Apps saying "WAP is the answer to everything". Well if WAP indeed is the answer then marketshare is even less relevant and all that's necessary is for the platform to deliver a killer web browsing experience. In other words the killer app is the web browser and not SMS (cue the new Web-Browser-Dance instead of the SMS-Dance !!) and we all well know that Mobile Safari is definitely amongst the best web browsers.

2. Regardless of the forward-looking strategy, looking back I still believe that Apple did not delay the iPhone 4S and in fact is very clearly on the path to introducing radical hardware designs only every 2 years, and that they deliberately moved the iPhone to the Fall quarter in order to be well positioned for a blowout holiday Christmas quarter and the subsequent Chinese New Year quarter. Most importantly it gives the company and their supply chain breathing room between 2 major launches.

3. In regards to the portfolio strategy, the Apple executives have multiple times stated very clearly that they too care about market share and care deeply about reaching the low-cost pre-paid market. They need to do that without diluting the brand of the high end iPhone. Hence the portfolio strategy. In this regards I actually think that Apple and Tomi agree quite well on what needs to be done with the difference only being in the when and the exact how. In fact Apple faces a similar bind with the tablet strategy where there is a 7'' space being taken by Amazon - my sense is that Apple will respond not with a 7'' iPad but with a rebranded iPod aimed at being a purely consumption device. Again a portfolio strategy. Essentially I think we will see something similar, the low end phone will imho NOT be called an iPhone Nano at all but something else ...


SK

cycnus

I think there is no such things as Chanel Stuffing. This term were created by Elop in order to cover his incompetence.

As I post here a couple of days back and also said before that retailer only have roughly 1 week - 2 week stocks, and distributor have about 3 weeks - 4 weeks stocks. No one want to have a 2 month - 3 month stock in ELECTRONIC especially mobile phone, notebook, etc because the price depreciation is very BIG.

As for RIM, RIM did a massive marketing in Q4 2011 and Q1 2012. In Q4 2011 RIM manage to grow to 14 million phone with that massive marketing, but alas, in Q1 2012 the marketing effect were ware off. It would be really interesting to see Nokia number in Q1 2012 though. Although Elop is smarter than RIM, he manage to promote Nokia 800 with country hopping, so the bad effect it may have would be harder to trace because he always have new country to launch, and the sales number would seems always go up.

kevin

There is such a thing as channel stuffing. Microsoft is an expert at it, having done it with Xbox multiple times. Retailers and distributors don't like it, but they may go along if they get agreement on returning unsold inventory.

cycnus

@Tomi,

It seems RIM manage to get the Q4 2011 sales number back to 14.1 Million with very great effort.
http://www.theglobeandmail.com/globe-investor/rim-begins-laying-off-high-level-staff-source/article2386012/

RIM lost a US$ 125 million for Q4 2011 when selling 14.1 million unit, in contrast of having a positive in Q3 2011 with 10.6 million unit sold.

Their Q1 2012 would be very interesting.

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