January 2011
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Month January 2011

In Barcelona attending Mobile World Congress

I’m registered as a member of the Press and will be attending the MWC 2011 in Barcelona February 14 through 15th. Please email me if you would like to schedule a meeting.

Fourth quarter mobile phone industry overview

The following chart shows the units, sales and profit shares for the top eight phone vendors.

Of Platforms, Operating Systems and Ecosystems

In the earnings Q&A Stephen Elop used the word ‘Platform’ once, ‘Operating System’ three times and ‘Ecosystem’ 15 times.

Though they seem interchangeable, the three phrases have significant differences in meaning. Briefly put, a Platform is a business model concept,  an OS is a technology concept and an Ecosystem is a marketing concept.

Platform

A platform, as the New York Times recently pointed out, can take many forms.

Steve Jobs on Apple's priorities

To me, Apple exists in the spirit of the people that work there, and the sort of philosophies and purpose by which they go about their business. So if Apple just becomes a place where computers are a commodity item and where the romance is gone, and where people forget that computers are the most incredible invention that man has ever invented, then I’ll feel I have lost Apple. But if I’m a million miles away and all those people still feel those things and they’re still working to make the next great personal computer, then I will feel that my genes are still in there.

Jobs Talks About His Rise and Fall – Print – Newsweek

In the language of innovation theory that Clayton Christensen created, companies are characterized by three attributes

  1. Resources
  2. Processes
  3. Values (or Priorities)

Resources come and go, typically arriving every morning and leaving every evening.

Processes take a lot of hard work to change but they can be changed.

Values and priorities are almost immutable. They are what Jobs refers to as the “genes”.

The fact that Steve Jobs said these words about Apple in 1985 after his first departure gives one hope that in 2011 (after his return and departure and return and departure again) the genes are still in there.

Stephen Elop's ecosystem messages

Yesterday I made my predictions on Nokia’s new platform strategy. They should  be treated as pure guesswork, but they are informed guesses. I based them on public information.

That information comes in the form of statements from Nokia’s CEO at the earnings call. I made a table of all the statements that dealt with platform decisions and my interpretations of those statements.

You may do your own interpretation, but to me there is significant evidence here to support my predictions.

Summary view of Apple's income statement [Updated]

Since reporting on the 18th, I’ve mostly finished going over the the fourth quarter Apple data. Here is a quick summary of the articles that covered the financial and product performance:

Subject Article
Cash Having added $20 billion last year, Apple’s cash growth suggests total could top $100 billion next year
Growth Apple’s Growth Scorecard: 63% average earnings growth over 16 quarters
iPhone pricing The end of exclusivity doesn’t change the price operators pay for the iPhone
Sales by product 65% of Apple’s sales came from iOS powered devices
Next quarter’s estimates Estimates for Apple’s second quarter earnings (ending March)
Share price/valuation Is Apple a candidate for acquisition?
Margins and platform mix of profit iOS enables 71% of Apple’s profits. Platform products power 93% of gross margin
Cannibalization iPhone and iPad: Fine Young Cannibals?
Operational Expenses $76 billion a year from a tableful of products

That leaves one more: Summary view of cash flows.

Samsung was the fastest growing major smartphone vendor

The smartphone market grew 73% in Q4. Here are the growth rates for vendors which regularly report smartphone sales:

  • HTC: 142%
  • Motorola: 96%
  • Apple: 86%
  • RIM: 40.5% (period ending November)
  • Nokia: 36%

Mobile phone vendor share update. Biggest winner: Other

Biggest share winner: Other.

The trend toward ZTE, Huawei and others taking volume share from the traditional incumbents continues. Smartphones continue to capture value share. Dedicated smartphone vendors HTC, RIM and Apple would make up the third biggest single vendor, starting from a very small base.

Looking over this three and a half year period, the change in the market is quite dramatic.

Predictions on Nokia's new platform strategy: new OS for the US

Nokia must compete on an ecosystem to ecosystem basis.

In addition to great device experiences we must build, capitalize and/or join a competitive ecosystem. The ecosystem approach we select must be comprehensive and cover a wide range of utilities and services that customers expect today and anticipate in the future.

Nokia CEO Discusses Q4 2010 Results – Earnings Call Transcript – Seeking Alpha

These kind of statements are signaling that there will be fundamental changes announced.

Here are my guesses for the February 11 announcement:

$76 billion a year from a tableful of products

During the calendar year 2010 Apple spent nearly $2 billion in R&D. That is a significant increase from $714 million in 2006. However, as a percent of sales, R&D spending has decreased. Sales have grown more rapidly than resources hired to develop the products (or to sell them).

In Q4 2005 Operational Expenses (costs which are not tied directly to units of production–sometimes called fixed costs) were 14.2% of sales. In the last quarter of 2010, the ratio was 9.2%. Sales and administrative expenses (which include advertising, promotion and overhead) were 7.1% and R&D (which includes all engineering, testing) were 2.2%. As percent of sales both reached new lows.