Communities Dominate Brands

Google Sells Motorola Unit to Lenovo - I told you this would happen...

In August 2011 Google bought Motorola's handset business for 12.5 Billion dollars. Today we learn that Lenovo has bought the handset business for 2.9 Billion dollars but Google keeps most of the patents it acquired from Motorola.

I wrote right from the start that Google's primary interest was the patents portfolio and Google would sell the handset unit most of all because this purchase caused irritation in the Android handset manufacturer community who didn't want their software operating system provider Google to simultaneously compete with them on making the hardware. That thesis was repatedly proven by press stories that the Android manufacturer community was not happy - and led to several significant developments of rival operating system projects (Firefox, Tizen etc) to purchases of operating systems (Palm WebOS bought by LG from HP).

Now its happened. This has several important impacts to the smartphone bloodbath. First its another consolidation move (and we are still likely to see more of these). So two smartphone brands (arguably 3) become one (by three meaning Google as smartphone maker plus Motorola as its 'independent' brand merge to Lenovo's ownership and eventually all of it will only be known as Lenovo brand just like how Lenovo did with its original IBM PC business purchase.

LENOVO

What does this do to the smartphone battle? Lenovo is currently mired in that mid-field battle with Huwaei, LG, ZTE, Sony, Coolpad/Yulong and HTC for who gets to be called 'third largest smartphone maker' behind the giants Samsung at 1 and Apple at 2. Huawei is the latest also-ran who sits in the 3rd ranking position for Q4 of 2013 (while we still await the last tidbits of the data to complete the Q4 and full-year 2013 results on this blog). Motorola was some years ago the world's second largest handset maker and has been as high as 4th largest smartphone maker but currently isn't even near the Top 10. Still they make in the 12 million to 15 million smartphones per year. So when we add Motorola shipments to Lenovo's latest, we get roughly 6% market share and over 60 million total shipments of smartphones annually. That is the level where Lenovo now climbs to, well above the Huawei level in the 5% market share stage. As Motorola is all running Android as is all of Lenovo, and Motorola has completed its migration of dumbphone production to smartphones the transition to Lenovo unified smartphone portfolio running Android is relatively easy (vs say MIcrosoft's purchase of Nokia where they still have to manage the costly transition from Nokia dumbphones - 89% of the handsets sold in Q4 under the Nokia brand were dumbphones and only 11% were smartphoens - to Windows based smartphones)

So Lenovo now will have about 6% market share and becomes rather clearly number 3 in the smartphone race. Note that just in 2012 Lenovo was ranked 10th largest smartphone maker and powered by mostly only in-China domestic smartphone sales (China towers as the world's largest smartphone market now more than twice as big as the USA) Lenovo had climbed to 4th biggest smartphone manufacturer. It now becomes the clear number 3. In the global handset race Lenovo will be ranked 5th as Microsoft/Nokia and LG are bigger when their dumbphone sales are added to their smartphone sales.

More importantly for Lenovo, it gains a global brand and global distributor channel via Motorola and can far more rapidly boost its market penetration by the Lenovo brand into local national smartphone markets. Motorola's strongest markets left are in the Americas North and Latin America where Lenovo had not yet done meaningful market entry in smartphones (while Lenovo had already entered many Asian markets and some Europeans already). While its market share is modest it is also well trusted in Africa and Middle East. Lenovo should be able to build very powerfully onto the Motorola brand and gains a big leg up ahead of its Chinese rivals Huawei, ZTE and Coolpad/Yulong who are all in the process of also expanding abroad.

The Motorola business has been making losses for years. The Motorola handset business has been declining in sales numbers at alarming rates until Google bought it and stopped releasing unit sales numbers - suggesting quite clearly that the troubles continued. So this is not a healthy unit. But it is a global brand which has a global distributor network something that Lenovo did not have in handsets (remembering that the PC sales distribution channel is very different from the far larger handset industry distribution system that depends on mobile telecoms operator/carrier support), Can Lenovo turn this business around? I think the IBM laptop business purchase shows a very good signal that Lenovo is able to buy a 'US' business and make it work and grow. Yes IBM's PC business was profitable when Lenovo bought it vs Motorola's loss-making but I think this is very promising compared to say Microsoft's bad history of buying hardware makers like its purchase of Danger that it messed up totally into the aborted Kin phones launch. Time will tell but I think Lenovo has a good chance to capitalize on this purchase and propel itself to a safe third-ranking in smartphone wars of the years to come.

I should note that this clearly proves that Lenovo was serious when we heard rumors that Lenovo was looking at buying RIM/Blackberry - and Nokia. I did say on this blog several times that Nokia shareholders would have been better served if they allowed the handset business to be bidded for openly (Lenovo was not the only one interested in addition to Microsoft) and that very likely Nokia could have sold only part of its handset business to some other buyer than Microsoft to get enough cash to continue but still keep at least part of its handset business... (Note that Lenovo also made a $2B purcase of some IBM server business just a few weeks ago so Lenovo obviously had that itch it wanted to buy someone and had plenty of money to burn.) But yeah, that is water under the bridge but I wanted to point this out against those who accused me of imagining things and not being in touch wtih the industry anymore haha...

GOOGLE

What does this do to Google? Google has been having trouble in its Android manufacturer partners base as many of those in partners were pursuing various alternate operating systems to Android in some capacity or another. There is also some talk of some Android partners possibly re-joining Windows in part (most of all Sony possibly launching a business-oriented Vaio branded smartphone running Windows). This sale very clearly establishes Google's ambitions as 'pure' of not wanting to compete with its handset manufacturer ecosystem. That it was true as so many of us speculated at the time in 2011 that Google's primarly reason for buying Motorola was the patents portfolio that Google didn't want to own the handset manufacturing business. Google is a software and services company at heart. So those doubts and irrituations now recede for Google and this should help stabilize the Android base and possibly even gives motivation for some handset makers NOT to pursue alternate OS platforms. Good move by Google. Obviously the Motorola handset business never turned profitable under Google's ownership and the handset sales numbers dimished while the overall industry grew.

MICROSOFT

I should mention Microsoft and its Windows Phone OS platform as well as its Nokia purchase. I accurately predicted that when Nokia would sell its handset business or parts of it, that MIcrosoft would almost certainly end up owning the Lumia unit because Microsoft could not afford anyone else buying the Lumia unit and then ending Nokia's silly Windows project and shifting that to Android. (Microsoft obviously ended up owning all of Nokia's handset business).

I have since said that MIcrosoft will never be able to make the Nokia Windows Phone smartphone business into a viable significant-sized business into the double digits market share. Never. I have also said that in the long run MIcrosoft's Nokia handset business will be a drain to profits and it will be eventually winded down and ended quietly. I still beleive this except now after the Google Motorola purchase I would add a new scenario - Microsoft may at some point decide to sell what remains of the Nokia handset business while still trying to continue on the Windows Phone OS side...  Now that Google no longer owns a handset manufacturing unit the contrast to Microsoft is even more glaring and that irritation that Google felt, will be transferered to ever bigger irritation by Windows hardware manufacturer partners against MIcrosoft. Not just in smartphones but also in PCs because of Microsoft's growing efforts in the larger computing world through its tablets like the Surface and the Nokia phablets. Microsoft's PC side is not helped by this, but the smartphone side is definitely damaged by this. What bad future the Windows Phone platform faced before today - just got even worse.

SAMSUNG

Samsung now sees clearly who is the new number 3 rival to monitor in addition to Apple's iPhone now that Nokia/Microsoft is a non-player. The new number 3 to consider as emerging rival is Lenovo. Not Huawei not LG not Sony. Lenovo. For us in the Bloodbath-watch year 5 Who is Left Alive we have yet another death and the year starts with consolidation. Who is left alive? I believe this year will see still mroe consolidation...

PS first Samsung Tizen phone leaked via Korean gaming site Moveplayer.net and is called the ZEQ 9000 - see it here for example at Digital Trends. 

Apple Results Q4 - Wow this was far worse than I thought...

Ok then we have Apple (Samsung released Q4 numbers on Friday but as usual, they didnt' give us their smartphone number other than the total smartphone shipments were up.. I am projecting over 90M but lets see what the big analyst houses count for our number in early February)

 

So Apple.. How many iPhones? Only 51 Million for the October-December ie calendar Q4 quarter. That is up yes 53% from Q3 - but Q3 is historically Apple's worst quarter of the year while Q4 is the best as the new iPhone model is sold for the first full quarter. How does Q4 of 2013 compare to Q4 of 2012? Only 7% more iPhones sold this past Christmas worldwide than the year before. This while the industry has grown by 48%. This is NOT good news. Not good news at all.

So how does it show in the market share calculation? Apple's prelim iPhone market share now for Q4 is 15.7%. That is down from the same period a year ago when it was.. 22.0% !! MASSIVE fall. Yes Apple did again make obscenely big profits and yes the iPads sold well blah-blah-blah but the iPhone market share is now in SEVERE decline.

So lets look at the full year numbers. Apple sold 135.8 million iPhones in calendar year 2012. The industry grew by almost half since then. Apple managed to grow... 13% to 153.4 million units. Last year Apple had 20% market share globally in smartphones for the year. That tumbled to 15% for 2013 !!! This even as the iPhone 5C was introduced to spread Apple's market presence down the price range (and I did warn that the 5C was not cheap enough). It would be FAR worse if the 5C didn't exist.

THIS IS THE RECENT HISTORY
iPhone market share
Year 2009 . . . 14.6%
Year 2010 . . . 15.9%
Year 2011 . . . 19.1%
Year 2012 . . . 19.7%
Year 2013 . . . 15.0%

Yes it is now a fact, we've seen 'peak iPhone' in its market share - and now the iPhone will adjust gradually towards the historically consistent market share that the Macintosh has held in the PC market which will be single digits by the end of this decade definitely. (But we've known about this and peak iPhone on this blog for some time now...)

And how will 2014 play out? Because the market is growing at the bottom not the top, and Samsung is increasingly grabbing some of iPhone's top end and others like Sony Xperia etc are joining in on that fu, Apple's iPhone market share in 2014 will DEFINITELY go down even more, perhaps to about 12% range by full year 2014 - depending a bit on how Apple revises its dual product line during 2014 and perhaps lowers the prices of its bottom end..

Just as a note of how to play this market. Samsung reported growing smartphone sales from Q3. That means they have sold at least in the high 80s or likely in the low 90s of millions of smartphones in Q4. For the full year Samsung clears at least 310 million and likely well over 320 million smartphones. Samsung grew 50% from 2012 ie faster than the industry which grew 48% in the same period. Oh and Samsung is doing its smartphone sales very profitably - don't be fooled by the one-time cost item now in Q4 that was the surprise bonuses the CEO paid to the handset folks for achieving Samsung's dream of becoming the world's biggest handset maker. Without that one-time bonus payment the Samsung quarter was totally on par with its high profit smartphone business as per usual. Why is Samsung able to grow far faster than Apple? Samsung caters to all markets and offers a broad portfolio of smartphones that it updates feverishly many times per year. Apple just reluctantly last year went from one annual iPhone model to two. If you want to be a market leader you have to play the market leader game like a market leader. If you want to be a niche player - which is what Apple is - then dont' delude yourself - or your investors or app developer partners - that you are anything else...

As a company yes, high profits. I don't care about that on this blog. This is not a blog about investments. This is a blog about the industry and now that the iPhone market share is in clear decline annually, that long-standing myth that Apple can be a mass market platform should slowly die. Apple is to phones what Porsche is to cars - a highly desirable luxury niche item of fierce loyalty but not a mass market product for all price points and markets. That is Samsung (like Toyota is in cars)

PS feel free to discuss iPhone market share or iPhone features, apps, future versions etc. Don't post about Apple the company profits - that topic is not open to this blog and all comments discussing Apple profits (or Samsung profits) will be deleted as will all that deal with stock market evaluations, share prices etc.

Some Smartphone Snippets: Nokia Q4, HP is Back, Tizen Delayed Again (Updates with Nokia Lumia ASP etc)

Lets do some smartphone items. We're in the Q4 results season and we have Nokia's numbers but Nokia is being naughty, decided not to give us the detail they have always given in the past... Also we have some good news from HP and some bad news from Tizen. Lots of bad news from Tizen. But lets take the Nokia numbers first.

NOKIA SMARTPHONE SALES DOWN AGAIN

So we did not get the actual numbers anymore. I predicted that Microsoft would be doing this when it takes over the Nokia handset business. I'm disappointed Nokia already now is resorting to this move. Why is Nokia not reporting the detail of its handset sales? Because they are down in what is usually Nokia's best quarter, the Christmas Q4 quarter. Nokia did not give us the details but in its Quarterly results it did tell us sequential sales revenues were down 5% for the total sold unit which includes the dumbphones and the smartphones. So in very rough terms smartphone sales should be down something like 5% sequentally from Q3 the last quarter we had the precise number at 8.8 million. Then we also learned that the average selling price is down for both dumbphones and smartphones (that drives down the sales revenue figure) but we learned that unit sales were flat sequentially for featurephones but down for smartphones. This leads me to believe that smartphone unit sales were down somewhat more than 5% sequentially from Q3, so I put it at 7% decline ie 8.2 million units.

Until we get a more official number from Nokia, that is my best guess of Nokia Q4 sales at 8.2 million units in its smartphone unit. That gives Nokia a preliminary market share of 2.5% for Q4, down from 3.5% in Q3 (as I predicted it would happen after Microsoft took over the failing Lumia smartphone business from Nokia). Oh, and the overall handset sales are unprofitable again..


UPDATE - note only moments after I posted this, apparently Nokia already confirmed the smartphone number as 8.2 million haha... not bad guesswork eh? I haen't seen the number yet, that was based on a tweet. I'll go dig for it but we can safely assume 8.2 is the right number and if it is not., I will update this blog again.



UPDATE - as we didn't get the usual info from Nokia smartphones like regional splits, average sales prices etc, its nice that some of the detail is emerging. Mobiili.fi the Finnish mobile industry magazine reported that they counted the revenues based on the info that was out, at 1.1 Billion Euros for the smartphone unit in Q4 (this is down 12% from Q3 when usually Nokia reports 25% jump in smartphone revenues in the Christmas quarter). They also kindly calculated the Average Sales Price ASP for the Lumia lne which was 134 Euros in Q4, down from 143 Euros in Q3. So not only are the customers abandoning Nokia massively when the industry has its best growth quarter, they are not willing to pay as much for the Lumia handsets even with the big phablets and other new devices like Lumia 1020 etc - the Microsoft purchase has damaged the already struggling Nokia Lumia line even more if that is possible Thank you Mobiili.fi for the calculations and I know many of our readers on this blog will appreicate at least those details of total smartphone unit revenues and the ASP for Q4.

Let me mention also one truly brilliant piece of writing by Tero Kuittinen at Forbes - not only reporting on the Nokia Q4 results but also about how and why the US analysts tend to misanalyze Nokia so badly, and why this bodes badly for Microsoft's purchase of the Nokia handset unit. Definitely a must-read article!


For the full year Nokia sold thus about 30.5 million smartphones and had 3% market share, down from 35.0 million in 2012 and 5%, and down from 103.6 million in 2010 the last year before Elop's doomed Microsoft strategy when Nokia's market share was 34.8% and the handset unit grew 52% unit sales and generated Nokia record profits... That is the end of the Nokia tale in smartphones. Sad end but yeah, we saw it coming didn't we on this blog. Lets move to the other news.

HP IS BACK

Hewlett Packard is back again into smartphones, promising us two phablets which will run Android. Lets see them soon! Welcome back HP! For those who still remember, HP bought struggling Palm and planned new smartphones using WebOS but then after a new CEO joined the company, HP suddenly announced the end of its smartphones business in 2011. It then sold the WebOS system to LG. But now they've seen the light again - as PC sales globally fell last year but smartphone sales grew by nearly half. 2013 saw roughly 3 times the sales of smartphones than traditional personal computers in volume and most major PC makers are also smartphone makers led by Lenovo. Now HP has seen it has to be in this game and is back. Very good news and hopefully we'll see some good innovation from HP and not only some 'me too' devices.

TIZEN IS DELAYED (is this the end?)

So this was supposed to be the period of great news for Tizen. We heard suddenly from Japan that NTT DoCoMo will not release the first Tizen smartphones in Q1 now after all. Then shortly after that we heard that Samsung won't release a Tizen smartphone in the first quarter either. What was expected to be big news at the Mobile World Congress in Barcelona with many Tizen anouncements and demos is now apparenty winding down. Some rumors suggest one Tizen phone may be out by ZTE but overall, what was seen as the strongest play of the new platforms is seriously damaged by these news.

I take the NTT DoCoMo news as the most significant. That was my reasoning why Tizen had such a strong insider advantage in the race for the new platforms (Sailfish, Ubuntu, Firefox etc) because NTT DoCoMo controlling about half of the Japanese market had a large enough smartphone customer base to alone sustain an ecosystem. If NTT DoCoMo is out of Tizen, the prospects are really bad. And NTT DoCoMo's strong past support has now turned sour. Then the other obvious big player is Samsung. Now that Sammy also is delaying its first Tizen device that is bad news. We also hear separately that Intel is moving away from its smartphone ambitions (why?) so the whole Tizen world is coming apart. We heard earlier that one of the big brands in the partnership, Panasonic was pulling out of all smartphone business (this was befoe these items of Tizen news, middle of last year) but that was one potentially big hardware brand for this alliance.

So my enthusiasm for Tizen is obviously severely dented. It might still work out, but there is no opportunity if there is no handset. And those handsets will do nothing if there is no carrier support. Before we can believe in Tizen, we need both. At the moment both are severely delayed..... We'll keep monitoring this space. More news expected soon in the smartphones end-of-year results. 

There Are Some Early AR Numbers - All Looking VERY Good for Augmented Reality

Now we have some serious AR numbers. AR as in Augmented Reality the next mass media channel after internet and after mobile. As AR started we’d only seen some very early numbers in the AR space. First numbers were only tidbits, one particular AR provider, perhaps only in one country and possibly only on one smartphone platform etc. Now in late 2013 we have seen the very first global numbers.

 

Those who read this blog frequently may remember that I gave the AR industry its first global forecast for this decade, predicting roughly 1 Billion media audience for AR by year 2020. As we count the start of AR from year 2009 it means 12 years to 1 Billion. This forecast was (and still is) based on the adoption rate of mobile media, which hit that milestone of 1 Billion users globally in 12 years from its commercial launch in 1998 - the first paid downloadable mobile media content was the basic ringing tone which was launched in Finland back then...

 

So, as Augmented Reality media formats are currently primarily designed for mobile phone ie smartphone use (but not exclusively so) we can use the mobile media adoption rate as a model. And then monitor as data comes in over the early years to see if my initial forecast turns out roughly in line with the future that emerges. Note that a mass media audience of 1 Billion users is massive globally - newspapers worldwide have only a combined daily circulation of less than 450 million...

 

That was the context of where the industry was most of last year. I had the honor of presenting the keynote to the Augmented World Expo (AWE) in Silicon Valley last year and made a lot of new friendships in the AR space. But I also eagerly was scouring any data sources for any stats we might have for this young industry in its fourth year. Then towards the end of the year we found some. We have the first global stats for AR. Now the story gets interesting...

60 MILLION USERS IN 2013

 

Juniper Research is the first analyst house to release into the public domain a count of global users of AR. They announced in November that the world has 60 million AR users at the end of 2013. 60 million might not sound like much. Remember, AR is primarily a media type accessable to smartphone users not all mobile phone users. 60 million AR users means 4% of all smartphone users globally are already using AR. That my friends, IS a HUGE number. AR is not on par with the growth rate of mobile media. AR is ahead of where mobile media was four years in.

AR REVENUES HALF A BILLION DOLLARS

So that is users. Many AR offerings are gimmicks, often advertising and marketing related and often free. Does this industry make any money? Good that you asked. We have that too. The first global number for AR revenues was also released late last year. Research and Markets found the AR global revenues for 2013 to be almost half a Billion dollars. They counted 496 million dollars in October 2013 for the full year.

 

If we use those two separate studies we get a preliminary ARPU number too. The annual average revenue of the AR industry per user is US $8.27 so the monthly ARPU is 67 cents per active user. This is VASTLY ahead of the early mobile media revenue and ARPU levels. It again points to AR likely to overperform vs mobile media not that it would underperform. My 1 Billion user forecast for 2020 is looking very solid by these early numbers.

MORE DATA, NOW IN SAMPLE CASES

During 2013 we saw more sample case numbers. Layar the AR browser people from the Netherlands reported in April that they had passed 30 million downloads of their browser. Note that a download is not the same as user, but this is very good validating data to put the 60 million user number from Juniper into context. The Juniper number is definitely not too big, it may in fact be too low. Meanwhile in the Netherlands, the home of Layar, they had achieved 1.3 million downloads which was 14% of the total Dutch smartphone user base at the time. Again the 4% adoption rate globally seems not to be in any way a kind of ‘ceiling’ if a leading country is far ahead of it already.

Then Cherry Picks of Hong Kong has released some new data on iButterfly. We already knew before that in the first year iButterfly had achieved 300,000 users in Hong Kong who collected 10 million virtual butterflies (and received 10 million mobile coupons in that media’s advertising channel which serves one coupon for every butterfly that is caught by a user). Some stats on those - remember this is 2012 data - 7% of Hong Kong’s total smartphone user base had used iButterfly and the average user caught 33 iButterflies in the first year meaning average user caught nearly 3 butterflies per month. One roughly every 11 days. But that is not the big news. This is:

Now Cherry Picks told us in 2013 the redemption rate of those iButterfly coupons. Are you sitting down? So these frivolous virtual AR butterflies fluttering around Hong Kong are hunted by 7% of Hong Kong’s smartphone users - Hong Kong with the world’s second highest smartphone penetration rate behind only Singapore and ahead of the UAE. The average person isn’t tired of this silly hobby, they collect these iButterflies on average once every 11 days. And are served a mobile coupon as reward for doing so. How are these coupons redeemed. Would you believe 7.5% ie more than 10x better than coupons on the internet? No. Thats not the case. Try ... 75% !!!!! Yes, 100x better than coupons on the internet! iButterfly achieves 75% redemption rate on the mobile coupons served via Augmented Reality on smartphones!!! Yippee !!! This IS good news! So we have the first actual advertising that is sustainable on AR, not just a one-time gimmick.

Wait. I’m not done. We’ve done Europe, we’ve done Asia. Now lets go to North America. Canadian newspaper group Glacier Media spoke about their AR innovation at the WNC13 event for the newspaper industry in May of 2013. They had just completed their first full quarter of using AR to enchance print advertising sales. Yes, to enhance print ads in newspapers they used Layar’s AR engine to sell online digital mobile connectivity to print ads. Just like inserting QR codes or putting an URL on a printed page, except that it is done via AR so its far more user friendly and doesn’t need to waste ad print space for the QR code etc... How did Glacier Media do with it? They sell the Augmentation of any ad in their newspapers for a premium ad price of 99 Canadian dollars extra, above the cost of the normal print ad. The actual effort to Augment a printed page (inserting the web link to the advertiser’s website or campaign site or YouTube video or whatnot) takes 60 second of work by a sales assistant. So this is nearly pure profit. And how much did Glacier Media do in Q1 of 2013? 7.5 Million Canadian Dollars of bonus income to the newspaper group. Cool !!!!!!

We have the first sustainable business model for an AR solution in media. Enhance you advertising sales by Augmenting it. I love it !!!

 

Yes. Augmented Reality is definitely emerging as a new mass media channel. It is well on track to outperform mobile media in the equivalent amount of time. Talking of mobile media did you notice that Strategy Analytics counted mobile media to be worth 161 Billion dollars annually when they reported it in June of 2013. Thats bigger than recorded music worldwide. Its bigger than cinema, all movies Hollywood, Bollywood, Nollywood and all others - added together, including DVD sales and rentals and so forth. And 161 Billion dollars in media income is bigger than videogaming global revenues in 2013. Wait. Mobile media is bigger than music, movies AND videogaming - added together!!

 

That is where mobile media has gotten in 15 years from launch. If AR gets to about a Billion users by year 2020, it may well hit these kinds of revenue numbers when AR is 15 years old, by year 2024. To give a round number, I’d be happy to say 150 Billion dollars of AR revenues is my forecast for AR media in 2024. Counting backwards, that could be around 60 to 70 Billion dollars in year 2020.

 

Am I confident in my initial forecast. Yes. All published AR numbers so far are strongly consistent with 1 Billion users of mobile media by 2020. And again lets be cautious, lets say the revenue number in 2020 to be at least 50 Billion dollars globally. That would be a monthly ARPU of about 4.17 US dollars. Keep collecting those iButterflies.....

So Previewing Smartphone Bloodbath Year 5: Who Is Still Left Alive

Hi Gang.. been on holiday, now starting to prepare to come back (not quite yet, still doing some travel) but have had time to think a bit and draft some blogs... lets start first with the Bloodbath Year 5...

When I started this ‘Bloodbath’ intense focus on the upcoming smartphone wars four years ago, I said the wars would bring a lot of change. Back in 2009 the world’s largest smartphone makers were very well known brands of the handset tech space such as Nokia, Blackberry, Palm, Motorola, HTC and SonyEricsson, with the upstart Apple iPhone having appeared only two years earlier. No Chinese smartphone maker was ranked in the Top 10. What happened has been dramatic, indeed the most volatile period of any global industry. Motorola and Palm died early and were sold. Ericsson quit the races leaving the partnership to Sony. Nokia was sold late last year. Blackberry is on the ropes and HTC is not faring much better. Four Chinese vendors have already crashed into the Top 10 (Huawei, Lenovo, ZTE and Yulong/Coolpad) with a fifth, Xiaomi likely to enter the Top 10 early in 2014.

 

Many tech writers looked at Apple’s early iPhone growth trends and promised that Apple would own this market. I was the first to say that Apple’s growth trajectory (in taking smartphone market share) had ended. This past year, 2013, marks the first year that Apple’s iPhone actually lost market share. Most on the West Coast haven’t yet gotten their heads around that fact. Readers on this blog knew to expect this to happen.

 

I told readers on this blog when Motorola was in trouble and what HP had to do with its Palm acquisition to capitalize on it. We saw what happened. I was on this blog explaining what would happen to Nokia after the new CEO Stephen Elop changed the strategy - and I was the most accurate forecaster on how badly Nokia would fall. I also clearly forecasted that the single company with most to gain from Nokia’s fall would be Samsung - as it was.

 

I wrote last year that the ‘Bloodbath’ wars had become boring. We had now the two clear winners. On the operating systems side, Android had won. Android is today on more devices than Windows is on any computing device so Android has already defeated Microsoft’s Windows juggernaut. Congratulations Google. But my readers have known this for a long time, as I did tell you this back in 2012.

 

On the handset side some on the West Coast still think its a two-way race between Apple and Samsung. Readers of this blog know that is utter hogwash. Apple only has a niche - a large and highly profitable niche yes, but Samsung is the real thing, selling two smartphones for every one iPhone (plus Samsung sells a third lower-cost dumbphone in the same period). Samsung covers the full range of devices by features and design, and more importantly, by price.

 

Samsung has already gained the leadership edge of being the world’s largest handset provider, and its competitive advantages out of scale. Scale in manufacturing. Scale in sourcing. Scale in reach. Scale in retail presence. Scale in installed base of users. As long as Samsung doesn’t mess this up (like Nokia did), this is a very strong position and Samsung won’t be dethroned any year soon. If they grow complacent towards the end of this decade, maybe. But by pouncing very strongly when Nokia stumbled the past two years, Samsung has effectively won the decade, and is guaranteed to have well above average profits in a very profitable industry. The real long-term rival to Samsung is not Apple, it is the Chinese vendors. One from the pack will finally get a genuine hit product and propel it to solid second place, in the next few years. That Chinese manufacturer will fight on price and in most consumer segments where Samsung is (and where Apple is not).

That will be Samsung’s real rival, not Apple. Just like Apple was not Nokia’s real rival - Samsung always was (and until Elop came along Nokia HQ knew this very well and kept their focus on the real challenger. Remember - during Nokia’s world-record collapse Apple actually LOST market share while Samsung gobbled up almost all that Nokia left on the table. If Apple was Nokia’s primary rival, Apple would have taken at least half of that and today Apple would have 25% smartphone market share rather than 16%). So Sammy is very happy to see that there is no solid number 3 emerging. The longer the number 3 place alters year from year and the pretenders fight amongst each other, Samsung can collect huge profits and not be too concerned. But a solid number 2 will emerge and trust me, Samsung are nothing if not competitive, they are monitoring the market very closely to see who that will be and react accordingly.

Apple will do the iThing. They take the cream off the top, offering less than supreme devices, with some very Apple-ish ooh-aah single feature every few years, but lagging in most tech specs from the leaders. But providing uber-desirable sexy iconic iGadgets that every iGeek has to iHave. And in the process Apple gets to collect the biggest share of iProfits. As long as Apple investors are not under any illusions that Apple would one day ‘rule the world’ of smartphones, and its role will be in the 10%-15% market share mid term, maybe more like 6%-8% in the long term, but taking the biggest profits, that is fine.

 

So this story is a bit boring now. We do have a nice tussle for who gets to call themselves the third largest smartphone maker. That race currently features Asian makers. World’s largest home electronics entertainment company Sony from Japan. World’s largest laptop computer maker Lenovo of China. And several second tier handset players - LG out of South Korea, Huawei out of China, ZTE out of China and Coolpad/Yulong out of China. If you want to be generous you can add HTC out of Taiwan.

 

A player who is not in the race for the third ranking among smartphone manufactuers is Microsoft, with its Nokia acquisition. When we started this series of articles, Nokia towered over its rivals. Even in its ‘problem’ year when Elop was hired in 2010, Nokia still wiped the floor with all the rivals, growing more new smartphone sales than Apple, or Blackberry or Samsung - and Nokia did this with Nokia-record profits in its smartphone unit. That all was demolished under Elop’s reign of terror. In a world-record collapse Nokia went from twice as big as its nearest rival to now ranked barely 9th largest smartphone maker by the end of 2013 (and the smartphone unit is now massively unprofitable).

 

Can this improve under Microsoft? In the long run, maybe. In the short run absolutely not possible. Microsoft has been tossing Billions of dollars into propping up the undesirable Windows Phone system and much of that money has gone to help the Nokia Lumia sales either through marketing support paid to Nokia or as further marketing support paid to carriers/operators. (Recognize what this means in reality. The Lumia series of Nokia smartphones has scared away 4 out of 6 loyal Nokia Symbian smartphone customers - and of the 2 that remain, half will never again buy another Windows Phone based device - so say consumer surveys. And this ‘success’ was achieved by Nokia reporting anywhere from 20% to 49% losses per quarter of selling those Lumia phones. AND that ‘loss’ was diminshed by the money-injection from Microsoft. In reality Nokia Lumia phones generated even bigger losses - and produced almost no satisfied customers).

 

Microsoft will need to continue subsidising this undesirable tiny ‘ecosystem’ as during 2014 Microsoft takes over the Nokia handset business and tries to figure out how to fix it. A big sign of will Microsoft do this intelligently or dumbly, will be how quickly Stephen Elop is removed from running the handset business of Microsoft. If Bill Gates (and Steve Ballmer) knew what they were doing with the Nokia acquisition then soon after the deal is completed in April, or during the spring they will reassign Elop to do something less damaging than running Microsoft’s handset business.

 

But during 2014 no matter what miracles Microsoft were able to achieve with its new Lumia (Nokia) unit, much of 2014 will be just adjustments and corrections and this is not a year of Microsoft/Nokia comeback. Microsoft-Nokia will be fighting just to remain relevant and in the Top 10 throughout this year. If you want to see the glass as half-full, then maybe in year 2015 we can hope for a comeback. If you want to see the glass as half-empty, we are now counting time till Microsoft shuts the lights out from the futile purchase of the Nokia handset assets. Although with Microsoft’s deep pockets. that will take years still.

 

Blackberry already fell out of the Top 10 and are in such a bad shape they won’t be doing major returns any time soon. We already have seen Chinese Xiaomi pass Blackberry taking 11th ranking during Q4 of 2013 (they may even pass HTC and enter the Top 10 by the time the final Q4 numbers are in around early February)

 

If you are ‘interested’ in the race for who is 3rd they are all essentially full Android houses now, all from Asia, with very similar products and prices in their product range. This industry from the hardware side is Samsung, Apple and the Nine Dwarfs (Huawei, Sony, Lenovo, LG, ZTE, Yulong/Coolpad, Microsoft/Nokia, HTC and Xiaomi). Yes I will be monitoring the races and reporting on the stats but yeah, this is not anymore the exciting times it was three and four years ago.

 

We did see the ‘son of Nokia’ ie Jolla launch on the evolution of Nokia’s next generation operating system MeeGo, called Sailfish (which is also Linux based and can run Android apps natively... cool). Jolla in December outsold the iPhone on the one carrier/operator that offered it in Finland DNA. From small things big successes can grow. Wishing Jolla and Sailfish all the very best.

 

There are regional players hungry to take to the global stage, especially from India we see Karbonn and Micromax. With some luck and an aggressive global expansion strategy one of those could grow into a Top 10 contender. No doubt there are more ‘Coolpads’ coming still from Shenzhen China, so we may well see a few more Chinese makers appearing to follow in the footsteps of Xiaomi etc. In Japan the industry has been consolidating but of the fewer domestic handset makers we may see one or two re-emerge to the global stage. And in South Korea if you like Samsung and LG, there is also Korean number 3 handsest maker, Pantech. And this is a global industry so the next big thing could just as well be someone like Africa’s MiFone.

 

On the software side the biggest potential disruptor is Tizen. We should see the first Tizen smartphones from Samsung this Spring and likely sold among first markets in Japan on NTT DoCoMo’s network. My guess is that Samsung wants to create a big spash with its first Tizen device so they are putting extra effort to make it noteworthy. If a couple of other hardware vendors also deliver on expected Tizen handsets, it could be a fascinating world. Samsung also intends to use Tizen on its TVs and Tizen has many car makers and other tech providers lined up in that ecosystem

 

Will Sony use the Playstation brand to boost Xperia and other Sony smartphone sales? Will Nikon launch a smartphone? Will Nintendo correct its strategic mistake (of missing the smartphone challenge in pocket gaming). Will Microsoft use the Xbox branding to help its Nokia handset sales? What will LG do with the Palm WebOS platform it acquired from HP. And how will HP re-enter the smartphone space as it signalled last year. Its likely that Apple breaks the iPhone release cycle from 12 months into 6 months, releasing a new flagship in the Spring and new cheaper models in the Autumn, likely starting this year and they will probably spread the price difference between flagship model (current 5C) and discount models (5S). Yes, there are many stories still to be expected in smartphones but the big deaths are done in the Bloodbath. This will be the post-Nokia era of smartphones, Bloodbath Year 5: Who Is Still Left Alive. But stay tuned, I will be reporting on it as it develops.