Smart phone

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Alan Hsieh

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AAPL, PALM, and RIMM smart phones

Smart phone adoption in the U.S. has lagged that of other developed areas, such as Japan or Europe, where consumer demand for cutting edge technology and better telecommunications infrastructure have spurred adoption.^[2] However, as corporate America has seen the advantage of supplying workers with 24/7 office email, and consumers have gravitated towards the rich media offered by Apple (AAPL) iPhones, the North American smart phone market is picking up. Analysts predict growth in the double-digits for unit sales in 2008.^[3]

I wrote in the past that I think they will launch Iphone Nano later.They have suprirsed me with Ipad I still think they will launch an iphone nano in the next 24 months with a lower price point and profits per unit but still with a very nice margin

Domestic Hardware Market Share

IDC Market Survey Data, Smartphone 2008^[4]

Change Wave IT survey^[5]

There are two critical markets when it comes to considering Market Share for Smart phone devices. These include the "general" smart phone population, which includes home-use, and the Corporate market, which has long favored Research in Motion (RIMM) due to BlackBerry enterprise service for corporate email.^[6]

According to the data service IDC, which tabulates sales by units, the domestic Smart phone market is 44.5% in BlackBerry hands, with competition from the IPhone. Motorola, and HTC are all second-tier players in this field. Palm has share at 13.4%, largely due to many Centro sales during FY 2008.^[8]

In the corporate arena, due to access requirements and security demands, as well as a general corporate aversion to Apple (AAPL) due to closed standards, BlackBerry and Palm are the primary competitors. Even as such, BlackBerry leads Palm 76% to 18%, according to ChangeWave, which conducted a survey among corporate IT groups. The number tabulates % of adoption among 2,000 different enterprises.^[10] The release of the 3G iPhone, which is more corporate email friendly, will likely have an impact on these shares going into H2CY2008.^[11]

International Hardware Market Share

Nokia has the largest share in the international smart phone market.^[12]

According to estimates by Canalys, Nokia had slightly more than 50% world market share for smart phone units sold in Q4 of 2007 and almost 19MM units sold.^[14] In second place was competitor Research in Motion (RIMM), with 4MM units.^[15] No other single competitor commanded more than 10% share in that quarter. This documents why the Symbian O.S. does so well internationally.

Trends/Forces

The many forces at play in this market are magnified due to the fact that the dust has not yet settled; the market is young and growing at double-digit rates, and therefore market leadership and associated consumer preferences have not yet been cemented.^[16]

The carrier/hardware provider relationship will determine future winners

Telecoms such as AT&T (T), Sprint Nextel (S), and Verizon Communications (VZ) set the conditions in which the Hardware vendors (such as BlackBerry, Samsung, and now AAPL) have their handsets sold. The telecoms have traditionally subsidized handsets that they supported, pushing down the price and creating demand from the consumers. In exchange, the consumer signs a service contract for a year or two. As a result of this, customers have come to expect cheaper phones than what the handset companies actually received in revenues. For example, in the iPhone 3G launch, priced at $199/$299 with contract, 1MM phones were sold over the first weekend, compared with 74 days for the 1G iPhone priced at $499/$599.^[17] This suggests that consumers were truly price sensitive to the more expensive machines, but are eager to jump on at lower price levels.

Each one of these contracts is worth a lot to the Hardware Vendors. When Palm announced that it had landed a contract for the Centro on Verizon Communications (VZ) network (June 12, 2008), the company's stock jumped 13%.^[18] As such, the cooperation and partnership is important to earn both unit sales for the hardware vendors, as well as subscription plans for the carriers.

Operating Systems: The Google (GOOG) Android wildcard

On November 5, 2007, Google unveiled Android, developed primarily by Google (GOOG) and the Open-Handset-Alliance it set up to develop a new open-source operating system for mobile devices.^[19][20] Despite the fact that no device has been released as of mid 2008, the alliance has secured the support of Carriers Sprint Nextel (S) and T-Mobile, as well as the hardware manufacturers HTC, LG, Samsung, and Motorola (MOT).^[21] Many carriers and hardware manufacturers are adopting a "wait-and-see" approach to see how the Android OS will be demanded and adopted by consumers. In the same way that Linux and other Open Source software disrupted Microsoft's OS monopoly on the personal computer, Android could provide an open-source alternative to the closed platforms of the many other OS's, however recent versions of the Android platform have been limited. ^[22]

Business Model Change: Consumer demand and 1G iPhone's revenue sharing model

The sales for the first generation AAPL iPhone suggest there was in fact some sort of market out there for $200 phones, selling 270,000 units in its first 30 hours in the United States.^[23] The pricing was consistent with AAPL's perceived image as a manufacturer of luxury and fashion technology items. At the same time, it mounted the first significant challenge to the carrier's subsidies-for-subscription model. While the 3G phone appears to have moved back towards the traditional model, Apple continues to have significant leverage in its relationship with AT&T. If demand for wireless plans becomes driven by hardware, rather than the phone service, this will have significant impact on the future relationship between telecoms and hardware manufacturers. Companies like PALM and RIMM will find themselves in a stronger negotiating position, with more control over pricing and distribution.

References

1. ↑ CNet.com "Developing markets fuel cell phone sales growth" May 29th, 2008
2. ↑ US News. "Want a Drink? Pay With Your Phone" March 18, 2007
3. ↑ CNET.com "Smartphone sales skyrocket" November 13, 2007
4. ↑ Information Week "BlackBerry Leads, iPhone Follows U.S. Smartphone Sales" May 30, 2008
5. ↑ Information Week "BlackBerry Defies Stagnant Tech Spending" June 5, 2008
6. ↑ Blackberry.co " Corporate: Data Access
7. ↑ Information Week "BlackBerry Leads, iPhone Follows U.S. Smartphone Sales" May 30, 2008
8. ↑ Information Week "BlackBerry Leads, iPhone Follows U.S. Smartphone Sales" May 30, 2008
9. ↑ Information Week "BlackBerry Defies Stagnant Tech Spending" June 5, 2008
10. ↑ Information Week "BlackBerry Defies Stagnant Tech Spending" June 5, 2008
11. ↑ Walter Mossberg: Personal Technology "Newer, Faster, Cheaper iPhone 3G" July 8, 2008
12. ↑ Canalys "Smart mobile device shipments hit 118 million in 2007, up 53% on 2006"
13. ↑ Canalys "Smart mobile device shipments hit 118 million in 2007, up 53% on 2006"
14. ↑ Canalys "Smart mobile device shipments hit 118 million in 2007, up 53% on 2006"
15. ↑ Canalys "Smart mobile device shipments hit 118 million in 2007, up 53% on 2006"
16. ↑ CNET.com "Smartphone sales skyrocket" November 13, 2007
17. ↑ Apple Press Release. "Apple Sells One Million iPhone 3Gs in First Weekend" July 14, 2008
18. ↑ Information Week "Palm Jumps As Verizon Picks Up Centro Smartphone" June 12, 2008
19. ↑ ZDNet Blogs "Google outlines the Open Handset Alliance; Will it succeed?" November 5, 207
20. ↑ Open Handset Alliance
21. ↑ Open Handset Alliance "Members"
22. ↑ Android Smartphones "Report: Open source Android mobile platform not very open at all"
23. ↑ Engadget." Apple sold 270,000 iPhones in the first 30 hours" July 25, 2007

Smartphones