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.

Comments

[AndThisWillBeToo]

Whoa. You actually wrote more about Nokia past than actual year 2014.

[Antoine RJ Wright]

You mention that MS should be a 3rd platform/ecosystem in play here. But, I'm not so sure. MS will continue to have influence because of how they are playing across channels (TV, enterprise PC, etc.), but until they make themselves compelling in mobile/tablet, I don't know that they will be more than a bird on the back of an elephant (Samsung).

I'm seeing that the 3rd ecosystem is Android minus Google. From a high/profitable end, Amazon. Chinese, Brazilian, and sub-Sarahan Africian groups at the bottom end and moving up. What Jolla is doing in this respect is smart; leverage the ecosystem, but not its enabler. That's kind of the route. And when the bottom matures - probably following a model like Amazon's (get to a 3rd iteration and make it your own), then we'll see that #3 player as Android-minus-Google take shape.

Am still waiting for someone to point out how fast mobile will plateau (market saturation is such a low-heard topic). Makers will be effected by this - less Apple than others. And service providers won't adjust fast enough and so there's going to be more consolidation. I don't have numbers to support this. Just kind of a feeling I have. A bloodbath of a larger sort might ensue with such conditions.

[zvetamt]

So what's your take on 10%+ market share of WP in Q4 2013 in EU? Is that cherry picking? Do you thik WP has more of a future in EU than elsewhere?

Also, what do you think brought down HTC? It used to hava e bigger market share, right?

[KPOM]

Tomi,

The quick reaction of the rest of the market, starting with Samsung and then moving to Qualcomm, to Apple's completely unexpected move to 64-bit ARM v8 shows that you are wrong when you say that Apple will be a tech laggard, and that Samsung doesn't see it as a threat. The rest of the world was planning to move to 64-bit ARM v8... in late 2015, maybe. Now they'll be on 64-bit ARM v8 by the end of H1-14.

Samsung may sell 3 phones for every 1 Apple does, but it makes most of its profits in the same segment where Apple makes its profits. They are absolutely concerned about what Apple does. The brand new Note 3 is outsold by the iPhone 5c (essentially a rebadged 2012 phone). Rumor is also that Samsung is pushing the S5 release up in order to stem the tide.

Plus, if Apple does enter the big phone market in 2014 (or 2015), it threatens Samsung's margins, as well. No, no one is going to be challenging Samsung in market share, and in your narrow market-share-trumps-all view of the world, Samsung is likely to be on top for a while. They also are likely to be the only profitable Android OEM for a while, but as you point out, they will face more competition from the Chinese manufacturers at the low end. And Apple and maybe even Google/Moto and Amazon will provide competition at the high end.

Meanwhile, you do seem to have missed that Windows Phone actually is getting some traction in Europe and emerging markets.

[AndThisWillBeToo]

@KPOM
"Windows Phone actually is getting some traction in Europe and emerging markets."

Nope, it's just Microsoft throwing in so much money that all the operators commit a suicide and forget their Skype boycott.
/sarcasm

[Saksalainen]

Thanks Tomi for a good initial 2014 forecast! People are getting bored by the current offering of mobile operatings systems! There is only black or white and their closed "wall-gardens" (I don't count Windows Phone since it's not any real offering) and this has gone quite long ... too long that 2014 will be the year of the bursting pipe. Business students learn from the "Blue Ocean Strategy" which in short describes a situation of an uncontested market situation and this cannot consist in an very much growing market such as mobile (and yeah Apple is drifting to it's niche... so basically only Android left at the moment). Also the winning Chinese vendors will figure out that there is no differentiation using Android. Real innovation has been asked and the last years of mobile world congress have been extremly boring. At some point, I believe during 2014, the market will turn into "Red Ocean". Think about it, Cyanogenmod for Android has been extremely popular to make Android a bit more accessible and flexible but it's not a way to really differentiate.

[Saksalainen]

As you mentioned Tizen will make a big splash but also Firefox-OS, Ubuntu touch and for sure Sailfish OS will be part of the big fresh steam. It's great to break up this stigma of the OS or the "I belong to this or that club" - it's essential to support Android. Here it comes: e.g. in SailfishOS (Jolla) you just can use Android apps or native apps (the native ones not all yet in the store which btw. have exceed the amount of apps from Windows phone contender). Most people (currently Europeans) which had pre-ordered the Jolla have anyway installed unofficially the PlaySore. Another thing to think about, this market is also steered by the geeks and youngsters but not necessary the ordinary or the advertising industry which currently believes in this black and white thingy because it's convenient to print that PlayStore or AppStore stickers. The youngsters with surely more than one phone in the pocket are less distracted by the advertising industry but more well connected via social media. I fully agree with one thing: communities dominate brands -some of the mobile contenders do have pretty well organized communities!

[KPOM]

I think Samsung is more likely to go the forked Android route (at least for some of their product line) than devote significant resources to Tizen, unless somehow they are able to port all of their Samsung APIs over to Tizen seamlessly. They are promoting Galaxy and have never really promoted "Android," but being able to rely on Google to do the heavy lifting in OS development has benefited the company.

[Christian]

Tomi,

I really do appreciate your analyses of the smartphone market. You made a great job indeed calling out the disgrace of the destruction of Nokia by Elop. Its dire consequences -- Especially in Europe. The quick and smart response of Google+Samsung with Android+Galaxy. Thanks a lot for all this -- Including for your piece on aircraft carriers!

But I am confused, to say the least, by your views of Apple, as they fall short to match the fine analysis I am used to read from you.

Like when you write "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." This picture might have been true when Microostf had 98% of the PC market and the Mac was getting from 2.0 to 2.1 % after several "best years ever" for Apple. A fair number of Apple customer at the time were rabid geeks (and to tell the truth I was one of them). But this was last century, pre-iPod era. This was 1996-2001. But since 2007, I am amazed how quickly and to what extent Apple became mainstream.

In my environment, those that appreciate the most iOS products do not qualify as geeks by any definition. My father, 78, enjoys his iPad. So are my in-laws, 78 and 75, with their iPhone and iPad. And I can go on : 58 and iPad+iPhone, 62 iPad+iPhone, 45 with iPad, 44 with iPhone, etc. Believe me, all those people spend their hard-earned cash or pension with lots of caution. And BTW: all of them but one have cheap PC at their home computer.

If a so called "cult" goes from 1% of followers to 30% in a given population, then it makes no sense anymore to call it a cult and dismiss their members as fools. There must be some intrinsic appeal, some real value, to what is offered. I am puzzled that you seem to fail to see this.

Regards.

[Saksalainen]

@Christian I can understand your comment about Apples being mainstream! This is exactly the thing that there's a move away from current mainstream. I have also an Ipad at home which I got for free. I'm not willing or wanting to use it because it's rather old and unpleasant to use. It has a home button which annoyes me. Android has it too and that's also annoying
. The most annoying on the Apple-over-mainstreamed I-world is the huge amount of advertisememt especially in free apps. It this productive or entertaining? That's also part of the Google-world, unfortunately. Sorry but I'm not retired, have kids, lack of time and hopefully 30 more years to work before the pension. Apple products aren't for me! I like the speed of things, gestures which make sence and I believe therefore the not yet mainstreamed of Ubuntu touch, Tizen or SailfishOS will will rule the futurefuture! No more home buttons!

[eduardo]

Welcome back, Tomi.

Is it true you spent your vacation working in the pit crew of an F1 team?

More on topic: Ben Thompson says both Nokia and Blackberry should have gone with Android:

http://stratechery.com/2013/blackberry-and-nokias-fundamental-failing/

[Roo44]

"...will probably spread the price difference between flagship model (current 5C) and discount models (5S)..."

Should read?; flagship model (5s) and discount models (5c)..."

[RottenApple]

@KPOM:

"I think Samsung is more likely to go the forked Android route (at least for some of their product line)"

As I understand Google's terms, that's not possible. It's either playing along with Google or lose all access to Google services. Samsung sure can't afford that. If they want to do another product line without Google they have to use a different OS.

[Vikram]

Tizen has no chance to succeed in terms of making money for Samsung. The reason is that Google has no need to support it. Put it this way, Tizen requires Google to make it succeed i.e. with Gmail, Google Maps and other Google services. What rationale does Google have to help Tizen along? None.

Tizen will be a flop, just like Bada.

Samsung has zero ability to create a sustainable platform. They will soon be commoditized by the Chinese vendors. They run Android just like Samsung does.

And as for Apple, " lagging in most tech specs from the leaders..." Apple offers superior technology. They don't need to have 3gigs of RAM to run as fast since they can do it with only 1 gig, because they understand that RAM impacts battery. That's technological superiority. Simply having bigger numbers or more of something doesn't mean that they are lagging in anything. It means that they have better technology design in implementation.

It's not as if Apple can't afford to put the biggest processors or more memory or whatever they want in their phones. There is a reason why the A7 is so much faster than comparable processors - that's everything to do with Apple's technological prowess and doing it all in house vs. simply buying an Nvidia commodity part.

[Kevin P]

@RottenApple: Samsung already make Google-free Android phones, and have done for some time. In China their Android phones have no Play store, no Google Maps, no Google Search, no Gmail, no Chrome or any other Google services - and yes, I'm talking about genuine Samsung models like the Galaxy S4 and Note 3, not some domestic knock-offs. Admittedly China is a special case as certain Google services are blocked, but it shows that the situation is more complex than the "all your phones have Google or none of them do" situation described in some media.

@Tomi: No chance of a Motorola comeback? When I went back to England over Christmas the Moto G seemed to be hugely popular, more than any other phone except Apple or Samsung's flagships. If the same thing is happening in other countries I can easily see Google-Motorola breaking back into the top 10, especially if they can follow through with some more good models in 2014.

[RottenApple]

@Kevin P.:

" Samsung already make Google-free Android phones, and have done for some time. In China..."

You said yourself that China is a special market and for that reason doesn't fall under Google's terms - otherwise no Android manufacturer could sell there, so it doesn't count.

[plum]

As Roo44 pointed out:
"difference between flagship model (current 5C) and discount models (5S). " is incorrect. Being as how Apple sells only 3 models at a time, while others sell tens of different models, one would hope that "the most influential expert in mobile" might have been able to get this small fact correct.
However, facts seem not to matter to today's 'experts'. For example, are all these hundreds of millions of Android phones sold last year, and for this coming year, running the current version of Android (4.4)? If so, then great, but prove it. As the chart at http://en.wikipedia.org/wiki/Android_version_history shows, 30% are running a 2year old version of Android, with another 45% running even older versions.
If all these Android vendors are really selling new "smartphones", shouldn't the more current version of Android show a much higher share?
If they aren't, then can you really count them as today's version of "smartphone"?

[Roberto William Sripalamama]

@Tomi

What about Motorola and the AFFORDABLE motoG? It seems to me that moto will make a comeback in 2014. How about the other Chinese manufacture such as Oppo, Meizu? How big are they?

What went wrong with HTC?

BTW tomi, in your (other) post why did you seperate the Windows Mobile and Windows Phone OS user number, but not seperate the BB OS 6-7 and BB OS 10. BB OS 10 and pre-10 is 2 different OS just like WM & WP. Should you seperate their user base as well?

@Kevin P

Samsung did NOT fork android in China. It's still the google android, but wihout app store.

[zlutor]

What about Nokia's rumored Normandy: https://twitter.com/evleaks/status/418085111536435200

Will it be released or it was made for forcing M$ buying dumb phone division, only?
According to rumors it was not made in D&S division but in some research project thus remains inside Nokia after finalizing the deal with M$...

[KPOM]

@KevinP, Google is starting to aggressively price Motorola phones here in the US, as well. I think Tomi is underselling the possibility of a Moto comeback.