Significance: Currently Apple is in something of a fallow period in handsets as the market waits for a new iPhone, which needs to be a bighitter to steal momentum from Samsung. But the iOS vendor is still riding high in tablets, though with Samsung finally getting slates right with the Note 10, this could be where Apple comes under pressure later in 2012. The defining form factor of the holiday season is likely to be the small tablet, with Google’s Nexus 7 joining the budget crowd and Amazon facing dilemmas over how to regain its leadership. Meanwhile, with the seamless content experience being the hallmark of this sub-segment, Apple should be well positioned to play, especially if ‘ as some reports say ‘ it unleashes a new family under its iBook brand.
The latest quarterly smartphone figures from market researchers indicate that Q2 belonged to Samsung, as the market waited for a new iPhone and the Korean firm rode high on its latest Galaxy S. However, Apple retained about 70% of the tablet space, refusing to cede the iPad’s dominance to its rival’s Galaxy Tab or any other slate. Later in the year, though ‘ and whatever happens in a court in San Jose ‘ the positions could be reversed. The new iPhone will undoubtedly give Apple’s handset share a new boost, but Samsung has unveiled its most credible challenge yet to the iPad, in the shape of the 10-inch Galaxy Note. And with Google’s Nexus 7 joining the Amazon Kindle Fire ‘ to date the most successful non-Apple tablet ‘ the iOS maker may well have to respond with the much rumored ‘iPad mini’.
According to Gartner figures, the overall handset sector saw weakened demand in Q2 because of recession and the tendency of consumers to wait for bigger launches later in the year. Global sales of cellphones were down 2.3% to 419m units compared to the year-ago quarter, though smartphones were up 42.7% to reach 36.7% of the total. Samsung led the overall market with 21.6% share, ahead of almost 20% for Nokia, while in smartphones, Android models were up to 64.1%, from 43.4% a year earlier. Apple’s share was up only marginally, to 18.8% of a total of 153.69m smartphones, and its share of the total cellphone space was up from 4.6% to 6.9%, but its unit sales dropped by 12.6% compared to the first quarter of 2012 as the user base waited for an ‘iPhone 5’.
So it is clear that Apple will have to come up with something special this fall to claw back profile points lost to clear smartphone leader Samsung. If it does, Piper Jaffray analyst Gene Munster estimates that Apple will sell 26m to 28m devices in its September quarter should its latest iPhone land 10 days before the end of the month, which would be a big leap from current estimates of 22m to 23m.
Munster wrote in a research note: ‘While our model, along with most of the Street, assumes an October launch, we believe that a September launch could result in the final 10 days of the month generating 6m-10m iPhone 5 unit sales, which would likely shift out of December. We believe if iPhone 5 launches in September, Apple could sell 26m-28m units in the quarter (this takes into account iPhone sales slowing dramatically from September 12-20, which is announcement to availability).’
An LTE iPhone 5 with larger display, and an ‘iPad mini’, are presumed, though much will depend on new functionality that Apple can add ‘ in the same way it made iPhone 4S less mundane by offering Siri. The latest reports suggest the company may brand its smaller tablets as iBook rather than iPad, seeking to drive Amazon and Microsoft/Barnes & Noble off its turf, and is having to consider a wide range of LTE radios for its next phone.
While Verizon and AT&T ‘ and perhaps Sprint – would presumably be the launchpads for an LTE iPhone, Apple may be looking for a broad international debut, rather than ‘ as many have speculated ‘ returning to its original focus on a few exclusives. While it unleashed the first iPhone on the world only with AT&T, it has progressively got less selective, and the 4S had a global roll-out almost worthy of Samsung. However, to regain some of its image as a premium brand, it is possible it will initially sell the latest handset more restrictively (and expensively).
However, it is unlikely to confine itself to the US for long. China Mobile is angling for a TD-LTE iPhone which could finally be the lure to bring the largest carrier, in the largest smartphone market, into Apple’s clutches. And this week, reports have surfaced in Korea that SKT and Korea Telecom are already in talks with the iPhone maker as they see burgeoning uptake on their new 4G networks.
According to Korea Times, executives from SKT are in Apple’s Cupertino, California base this week to talk about a deal for this fall, and KT is also lobbying for the handset. Both cellcos currently sell the existing iPhone, but are eager to encourage consumers to move to their more efficient LTE networks. The newspaper quotes an unnamed senior KT official saying: ‘KT is in negotiation with Apple to persuade the latter to support KT’s 1.8GHz frequency in Korea for the upcoming iPhone.’
This points to an interesting dilemma for Apple ‘ it has traditionally stuck to a select group of mainstream frequencies, hence its shunning of T-Mobile USA’s unusual AWS/HSPA network, but in fragmented LTE, it will have to adapt more quickly to supporting many bands, as well as ‘ for China Mobile ‘ TDD mode.
Meanwhile, Apple still has about 70% of the tablet market, but is facing stronger challenges from Samsung with its upcoming new Galaxy Tab and Note models. Most of the non-Apple slate sales have been in the smaller form factors which the iPad maker has purported to despise, and it is likely to try to fill that gap ‘ currently dominated by Amazon Kindle Fire and the emerging Google Nexus 7. It may distinguish the smaller product from the iPad with a separate brand, reports suggest, which could also make it easier to position the gadget’s functionality and pricing structure differently, without diluting the main brand.
The rumors point to Apple using the iBook name of its online bookstore for a smaller tablet, which would hit directly at Amazon, whose Kindle Fire also combines the features of a slate and an ereader, and features heavy integration with content, including books. The same is true of Barnes & Noble’s Nook Tablet, which now falls within a unit backed by Microsoft.
Raising the profile of the iBook brand, and creating a more portable tablet (ideal for reading on the move) could enable Apple’s bookstore to make a bigger dent in Amazon’s dominance than it has so far ‘ even on the iPad, the Kindle Store remains the leader. Going heavy on books, magazines and portability could even enable Apple to persuade some fans to invest in both its slates.
That, and the good reviews for the Nexus 7, will put intense pressure on Amazon to pull a rabbit out of hat itself and fight back in the disruptive sub-sector it pioneered to wrongfoot Apple ‘ the portable cloud tablet with fully integrated content and shopping experience. By unleashing Kindle Fire, Amazon showed how vendors could make marginal profits on hardware as long as it drove increased content and services revenues, and set new consumer price expectations in a market which had been largely considered a premium one before the $199 slate. Google has learned both lessons, with its own low cost tablet designed to drive usage of the Google Play hub and all its ad-driven services. Now it seems Apple might take the same lessons on board too, and without sacrificing the iPad profile.
As for Amazon, with Fire’s sales suffering in Q2, it is likely to respond with a wider range of form factors and price points, as it has done with the Kindle ereader range ‘ which now includes touch versions and an ad-supported budget option. The new Fire will have to match or outdo the Nexus’s superior hardware specs, perhaps with a quad-core processor to replace the current dual-core TI OMAP 4430. And of course, Amazon has greater pricing flexibility than companies which rely mainly on hardware revenues, or which depend on fat margins, so it may slash pricing again to create a genuine loss leader. CEO Jeff Bezos has often pointed to the fact that Amazon, as a retailer, is far better adapted to razor thin margins than vendors of premium gadgets.
Amazon is also likely to add a videoconferencing camera, Bluetooth and GPS, all of which are in the Nexus 7; a higher resolution screen; and perhaps a 10-inch variant. The company could also diversify the family. One differentiator would be to add an ereader/tablet combination switchable between e-ink and reflective display. This would be clearly targeted at readers, and so useful against the putative iBook, while larger models could be more heavily optimized than the current Fire for video content, and important source of Amazon revenues (at least in the US), where video on demand and movie rental services can be bundled in with cashflow-friendly Prime subscriptions.
Given that Amazon’s appeal lies with its seamless, multiscreen content experience and addictive purchasing process ‘ not with advanced hardware per se ‘ there is always the option to back away from devices and partner with other tablet makers. Creating the Kindle family has certainly boosted Amazon’s profile and content sales, and its heavily customized Android platform drives users to consume more media than they typically do via Amazon apps and stores on other products. But with Google getting a bit better at seamless content interfaces, and Apple lurking, the gap between Amazon’s user experience and those of its rivals will narrow ‘ meaning the hardware specs will start to matter more, especially to high value customers with deep pockets for content buying.
In that case, Amazon could take its user experience and stores to partners, having used the Fire to put its own stake in the ground (rather as Microsoft still may do by launching its own tablet, to show third parties what it expects, not to become a permanent device maker). It could work with a strong slate maker like Samsung, which has a far less developed content interface and store, in the same way that Google has collaborated with Asus on Nexus 7. Samsung is more than happy to support varied software platforms and UIs as long as they drive business, and to sell phones and tablets under multiple brands. It also has access to a highly economical supply chain and its own group’s advances in displays and processors. This combination could be a stronger move for Amazon than to invest more heavily in its own platform, by boosting hardware specs (and costs) and perhaps creating a full OS of its own, as often speculated.
International reach will also be vital to Amazon ‘ as Apple learned rather slowly, the US alone is not enough, especially if fighting the global presence of firms like Samsung. Pin Chen Tang, an analyst at Canalys, said recently: “Amazon must now launch a more powerful replacement for the Kindle Fire, and expand internationally, or see its pad business fail.’
Android tablets growing up says Nvidia:
Nvidia reported better than expected second quarter results, in a mixed Q2 for the chip industry, crediting record sales of its Tegra mobile processor.
The firm said Tegra 3, which has led the charge into quad-core devices, is now a powerhouse of growth, and recent design wins include both the high profile tablet launches of the summer, the Google Nexus 7 and Microsoft Surface.
Nvidia reported Q2 earnings of $119m, or 19 cents a share, on revenue of $1.04bn, ahead of Wall Street forecasts of 14 cents and $1.01bn.
CEO Jen-Hsun Huang said in a statement: ‘Tegra has achieved record sales as tablets come into their own. Our GPU business made strong gains in a weak market, boosted by our Kepler architecture. Looking ahead, we’re optimistic.’ The firm projected third quarter revenue between $1.15bn and $1.25bn, ahead of expectations, but Q3 margins are expected to be flat at around 52%.
Huang said Android tablets, which have remained eclipsed by the iPad, are finally seeing “the costs, the functionality and the quality” all coming together to deliver a good experience, citing the release of new Android versions (Ice Cream Sandwich and Jellybean), which reunited the user experience with that of the smartphone. The first tablet focused Android, Honeycomb, was not suited to small screens.
‘I think it’s taken this long to really build a platform that adds value to Android users, and so that’s the value proposition. It’s not an alternative to an iPad. It’s really a device that enhances the user experience for someone who’s an Android user and there happens to be hundreds of millions of Android users,’ said the CEO.