September will be a big month for the smartphone wars, with a hat trick of major launches expected in the first two weeks. Samsung has promised ‘something big’ for September 1, probably the latest Note to steal some thunder from the expected ‘iPhone 5’ debut on the 12th. Squeezed between those two dates is Nokia World, where the Finnish firm is likely to unveil its first Windows Phone 8 Lumia models, as it struggles for visibility between the big two.
At least Nokia has something different to show off ‘ it is increasingly hard for other Android players such as HTC, Sony, Motorola and LG to be seen at all under the shadow cast by Samsung on the Google OS landscape. However, it is too early to call the sector a duopoly. Google’s acquisition of Motorola and its own stepped-up Nexus strategy may shift the battle lines; Sony’s latest results indicate that its buy-out of Ericsson is bearing fruit; and with China now the world’s largest smartphone market, the rules are changing rapidly, in favor of less traditional vendors.
China is the best indication that this is still an immature and fluid industry. The country is now the dominant force in global smartphones, doubling its purchases over the past year to account for 27% of all shipments in the second quarter. According to calculations by research firm Canalys, 42m smartphones shipped in China, up 199% year-on-year and 32% on Q1. By comparison, the former number one market, the US, made up 16% of a global total of 158m devices.
There is little comfort in this shift for western handset makers like Motorola, Nokia or even Apple. While Samsung retained the lead it took from Nokia last year, with 17% of the Chinese market in Q212 (but down from 28% in Q1), most of the growth benefited domestic suppliers. Chinese vendors shipped 25.6m units, a huge year-on-year growth of 518%, and took 60% of the space between them. By contrast, non-Chinese manufacturers grew at a more stately 67% to ship 16.7m smartphones.
So after Samsung, the next places in the top five are all taken by local majors ‘ ZTE in second, followed by Lenovo and Huawei. ZTE, the most established of the three in smartphones, saw 171% year-on-year growth, while Huawei reported 252% and Lenovo ‘ better known for its PCs ‘ a phenomenal 2,665%.
That left Apple down in fifth place. Its 102% increase on year-ago sales would have been good anywhere else, but more concerning was a 37% drop compared to Q112. Apple had a particularly good first quarter in China, after it added a second carrier deal, but as in other areas, Q2 suffered from the consumers’ wait for an expected iPhone upgrade in the fall.
The most successful non-Chinese player in growth terms was HTC, which saw its smartphone sales increase by 389% compared to Q211, selling 1.8m units. Its highlight was the launch of the Desire V series, specifically tailored to China.
Nicole Peng, China research director at Canalys, said the domestic brands had thrived on their responsiveness to market demand changes, their understanding of local consumer tastes, and the recent effort they have put into cultivating strong ties with operators. Tier two Chinese suppliers, such as Oppo, K-Touch and Gionee, have also increased their shipments as they move up from their established featurephone bases. Android ran on 81% of the smartphones shipped in the quarter.
There may be new opportunities up for grabs in China, but Apple may also face renewed competition from more traditional quarters too. In particular, Sony is showing some signs of rebirth. Mobile was a highlight in otherwise downbeat results at the firm, which reported a net loss of ‘24.6bn ($314m) in its first fiscal quarter.
The Japanese giant said sales rose by just 1.4% year-on-year, to ‘1.51 trillion,and that modest uptick came from the mobile business, which it bought out from joint venture partner Ericsson earlier in the year. However, without the assimilation of Ericsson’s 50% stake in the venture, sales would have been down 7%, and group operating income fell sharply, by over 77% on the year-ago period to ‘6.3bn ($80.5m), and the firm slashed its profit forecast for the full year.
Sony put a lot of the blame on macroeconomic factors ‘ the global recession and exchange fluctuations for the yen ‘ but it also has significant weaknesses of its own to address, notably declining sales in TVs, gaming consoles and PCs. These trends make it imperative that Sony makes a rapid success of its strategy to focus on advanced mobile products, and to harness its content assets to create a multiscreen media platform from TV to phone.
In the mobile and communications division, there was a 133% year-on-year rise in sales to ‘285.6bn ($3.65m), because of the consolidation of the former Sony Ericsson. Without that change, sales would have been up 14% year-on-year in the unit. That heartening figure shows that Sony is starting to reap the benefits of a long transition from midrange handsets to focusing almost entirely on high end models. It said average selling prices rose and it also saw better unit sales of key models like Xperia S and Acro HD. It sold 7.4m smartphones in the quarter and raised its full year forecast to 34m units, well up on last year’s 22.5m.
However, the consumer electronics major has taken on plenty of challenges with full ownership of the handset unit too and it reported an operating loss of ‘28.1bn ($360m), versus a profit of ‘1.6bn a year earlier. Some of this was down to the inclusion of the Vaio PCs in this division, as well as one-time charges for the takeover ‘ without those, the loss would have been ‘7.2bn.
Citing the strong yen and weak world economy, Sony cuts its full year sales forecast to ‘6.4 trillion, down from an estimate of ‘7.4 trillion issued in May. This would still represent a 5% improvement on the last fiscal year. The firm said it expects to remain profitable, but cut its guidance for operating profit to ‘130bn, and for net profit ’20bn. Sony added that it expected ‘significant growth’ in underlying sales and operating income at Sony Mobile this year, and also in its components business, but warned that its gaming and TV businesses will remain weak.
‘Sony is working to improve profitability [of the mobile division] and harness the full power of the Sony Group by further enhancing cooperation within the electronics businesses, improving the efficiency of engineering by enhancing collaboration between engineers, strengthening product competitiveness, restructuring operations, and, in the area of sales, increasing cooperation with Sony Group companies in each region,’ said the corporate statement.
This reflects the firm’s aims of increasing its control over its smartphone future, and generating better returns by integrating handsets into its broader range of portable and media products and brands. Supply chain efficiencies and common branding are both hoped-for advantages.
Also trying to combine cutbacks and technological innovation to hit back against the big two is HTC though ‘ despite the Chinese success ‘ the results are slower to be seen. The Taiwanese vendor this week issued the latest results warnings, which are becoming almost routine. With analysts only just collating the smartphone league tables for Q2, the Taiwanese firm said its third quarter revenue would be between TWD70bn ($2.3bn) and TWD80bn, sharply down from TWD135.82bn in the year-ago period.
That means HTC will miss analyst estimates for the fifth quarter in a row, while operating margin will be around 7%, compared with 14.86% in the prior year. The midpoint of its revenue forecast would be 45% down on the year-ago period, its biggest drop since 2002. The company said that it ‘continues to optimize organizational structure and resources to increase efficiency and competitiveness, focusing on key growth areas’. In Q2, HTC had reported net profit of TWD7.4bn, down from TWD17.52bn a year ago, on revenue of TWD91bn.
The delayed shipment of some products to the US, amid legal battles with Apple, was cited as a factor, as well as weakness in Europe, where HTC had made significant progress from 2010. Unlike some rivals, including Apple, HTC is bearing up well in China, where local brands are on the march. HTC said that, in Q2, ‘Asia regional sales met expectations since the One family launched in Q2’ and that in the rest of the year, ‘with growing brand awareness, strong operator partnerships and increasing retail presence, China is well positioned to become a key growth driver’.
However, HTC is pulling back from some other areas. Like others before it, is appears to have been driven out of Korea by the native power of Samsung and LG, and is also reducing its presence in Brazil and closing an R&D center in North Carolina, USA.
‘They’re going to face a lot of pressure because their high end models are facing a lot of competition,’ Aaron Jeng, an analyst at Nomura Holdings, told Bloomberg. ‘HTC’s top line sales are declining so they need to cut expenses to help improve their bottom line profit.’
HTC’s share of the global smartphone market dropped to 4.5% in the first quarter from a peak of 10.7% in the second quarter of 2011. However, IDC rates its performance somewhat better in Q2, at 5.7%.
“The HTC One X is a very good product, but consumers are ignoring it over Samsung’s Galaxy S III because of the brand,” Gartner analyst Carolina Milanesi told Reuters. ‘It is almost like a kid going from junior high to college and still playing around as if it was a kid.”
Even more ignored by many consumers is the Nokia Lumia, despite its many qualities, so a big push will be needed behind the next generation ‘ for instance, the inclusion of the stunning PureView imaging technology first seen in the Symbian-based 808 model, which won prizes at Mobile World Congress this year.
A high impact launch at Nokia World on September 5-6 is particularly urgent for Nokia since its key partner, Microsoft, recently added to the Finnish firm’s pressures by announcing that WP8 would not be available as an upgrade to the existing WP7 base. Windows Phone, and Lumia in particular, have been gaining some modest ground in the last two quarters, so it is important that Nokia can tap into this demand with the new platform, rather than an operating system with a short shelf life.
As well as assuring consumers it still has a relevant platform, Nokia needs to keep its carriers loyal. Several large cellcos has said they would like to support Windows Phone as a counterbalance to Android and iOS, but of course, handsets only get shelf space if they appeal to the buyers. According to Bloomberg, the flagship Lumia 900 has been given less prominence in-store recently by its most important US carrier, AT&T, which once pledged to be the leader in the WP7 handset sector.
However, while Nokia may show off the new models, developers will be under pressure to have the software ready for the holiday season. WP8 will be released in September but the software developers’ kit has yet to be released. So shipments are unlikely until November, though some observers think this will be beneficial, coming after the iPhone hype has simmered down a little and trading off the debut of Windows 8, which shares many user interface features with WP8.
Meanwhile, Samsung continues to rob Nokia of the home region it once dominated so completely. In Europe, the phenomenon of users waiting for the next iPhone has been sufficiently intense to cancel out some of the sales boom of the iPhone 4S launch ‘ Android gained 65% of the smartphone market in the region in the year to July 2012, according to a new report. And the data from Kantar Worldpanel ComTech indicates that Samsung has had a massive 45% of the smartphone space in Europe during the 12 months, with strong 2012 sales of its Galaxy range, especially the new S III, outweighing the late 2011 iPhone launch.
Of course, Samsung rolls out a bighitting new model with far greater regularity than its rival, and the strategy, plus massive marketing, is paying off, for a firm which was considered a smartphone also-ran only a couple of years ago. The research highlights that Samsung sells smartphones across all tiers and user profiles, not just the flagship S family, and in the five largest European markets (the UK, Germany, France, Italy and Spain) it has been the main driver, pushing Android’s share from 42.7% in July 2011 to 65.7%. In the UK, for instance, five of the top 10 smartphones sold during the period were from the Korean vendor. The largest market share for Android is in Spain, where it has a huge 87.1%.
Apple’s average market share across the big five European markets was 14.4% although its loyalty factor is very high ‘ in the UK 80% of Apple users upgrade to another iPhone.
The usual quarterly string of reports on the smartphone market is appearing, with many disagreements, but one unifying theme ‘ the rising dominance of the big two operating systems. The Kantar report speculates that Android might have peaked in the US ‘ saying
Apple increased its share from 28.7% to 38.2% over the year, leaving Android with only just over half the space (51.5%) in July 2012. But IDC says that, in global terms, the Google OS is still gaining momentum, with 104.8m smartphones shipped during the second quarter. This was a 106.5% increase over the year-ago period, giving Android 68.1% of the total base. That compared with 16.9% for iOS, on 26m shipments, as the company suffered from the wait for a new iPhone. However, its figure was still up 27.5% year-on-year.
Together, the two operating systems secured 85% of smartphone shipments during Q2, though another report, from Canaccord Genuity analyst Michael Walkley, said only Apple and Samsung make any profits ‘ and indeed, because some of their rivals are lossmaking, actually achieved 108% of the handset industry’s operating profit.
And in the US, Apple and Samsung together increased their Q2 sales by 43% year-on-year, according to another study by NPD Group. This found that the combined sales by other US smartphone vendors fell by 16%, hitting firms like Motorola, HTC and LG. In the quarter, Apple secured 31% of the US smartphone segment, with Samsung on 24%, HTC on 15%, Motorola 12% and LG just 6%. The pattern is very different from other geographies, where Samsung has taken the lead ‘ in Europe in Q2, for instance, it had 45% share by some estimates.
NPD said total smartphone sales were up by 9% year-on-year in the US, though there was a shift to lower priced, prepaid models. These grew by 91% while sales of postpaid models were flat. “Prepaid smartphones are no longer just cheap, also-ran options, focused on older and less capable phones,” NPD said. “As the smartphone market matures, and as growth slows, carriers have been smart to aggressively market some of their best current smartphones on a prepaid basis to a new set of customers, in order to keep sales humming along.”
Meanwhile, Symbian was down 62.9% to 6.8m shipments and 4.4% market share as it nears its end of life, while the biggest gainer in Q2, in percentage terms, was WP7, whose shipments were up 115.3% to 5.4m units. In total, IDC calculated that 154m smartphones shipped worldwide during the quarter, a 42.2% gain on Q211.
IBM latest firm with reported interest in RIM:
Samsung having, yet again, denied any interest in buying RIM, speculation has turned in another direction ‘ and perhaps a more fruitful one. IBM is said to be interested in acquiring the BlackBerry maker’s enterprise services business which, even though the devices may grab more headlines, is clearly the most valuable aspect of the firm.
In areas like mobile messaging and device management for enterprises, RIM retains genuine expertise and differentiation, and these capabilities are becoming more critical in the era of BYOD (bring your own device), even if that trend is partly to blame for the crisis facing the BlackBerry products. IBM has been building up its own mobile enterprise activities for several years by acquiring various firms and extending its own services and software frameworks, so there is some logic to the reports.
According to ‘people familiar with the situation’ who spoke to Bloomberg, IBM has made an informal approach to RIM, with a particular interest in its network of secure servers and its Mobile Fusion back end platform, which extends BlackBerry management capabilities to other devices.
Insiders say RIM’s CEO Thorsten Heins remains cautious about breaking up or selling the company, despite the demands of some activist shareholders. Therefore any final decisions are likely to wait until RIM rolls outs BlackBerry 10 and the accompanying devices, which RIM hopes will boost its fortunes and its value. However, with BB10 delayed until early next year, and RIM’s shares falling all the time, that hesitation could prove impractical, especially if IBM progresses from general interest to concrete negotiations.
Despite Heins’ instinct to turn RIM around before selling, with new products and a major cost reduction program, the firm did hire JPMorgan Chase and RBC Capital Markets in May to study ‘strategic options’, though the CEO has repeatedly said he would prefer to find an investment partner or a licensee for BB10 than a sell-out. Only last week there was a revival of talk that Samsung was set to license BB10, or even buy the vendor, but the Korean firm denied the rumors outright.