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A rising tide does not lift leaking ships

I’ve often said that the smartphone rising tide has lifted many boats. If you were selling smartphones during the last three years, your business was growing, no matter what phones you made.

In fact, measuring success and failure was a matter of deciding what growth rate was “not good enough”. Growing at 30% was nearly enough to shame some vendors into re-evaluating their strategies.

But that sort of tidal growth can’t last. At some point  ships with holes begin to sink no matter what the tide brings.

When we look at the data from the last quarter, we should be asking again whether some ships have developed some leaks.

The challenge is in eliminating seasonal effects. Q1 is usually a sequential drop for many markets. There is an unsettling drop in Nokia and Motorola and a weakening in Samsung and HTC. On a year/year basis the growth rates appear more robust for HTC and Samsung (194% and 530% respectively), but one should note the low bases they started from. Apple maintained triple digit growth (113%) while RIM sustained a respectable 42%. Motorola grew at 78% but looks weak sequentially. Sony Ericsson began to offer smartphone units and they are showing a run rate similar to Motorola but can’t gauge their growth rate yet.

Apple and RIM seem largely unaffected by seasonality but Apple is growing twice as fast.

But the biggest surprise is the drop in Nokia’s volumes. There was a similar drop in Q1 2008 but the phone market was plunging into recession then and the company’s smartphones moved in sync to the overall market (one with limited competition). This quarter’s drop happened when the overall market is growing. The alarming thing is that Nokia’s smartphone performance in Europe seems to be a big part of the problem.

Data from IDC shows that Nokia’s volumes plunged by 15% y/y in Europe while the smartphone market there grew by 76%. Apple ended up with the largest share in a region that had been Nokia’s with 70%+ share. That share is now under 20%. Nokia’s overall growth was a mere 13% y/y while the market grew 73%. The result is the following picture of Smartphone shares:

But perhaps the drop should not be a big surprise. Was it due to the public execution of Symbian? Did Europeans stay away from Nokia in droves due to an aging portfolio or because they felt betrayed. Perhaps we’ll never know but there is another indicator to mull over. Nokia’s brand fell to 81st spot in a recent survey. It used to rank in the top 10.

  • CndnRschr

    I don't think the Nokia drop was due to the publics reaction to the dramatic plan to switch to Windows Phone as that likely went above most buyers radar. The problem is that their smartphones were already losing competitiveness and through a series of inexplicable missteps, they actually pulled planned models before they'd reached market. As a result, their smartphone portfolio is less competitive, they've lost momentum to Android, RIM and Apple and the cherry on the cake was the hiatus caused by the Elop flop into Microsofts lap. Nokia has bet the store, their granny and their stock of cloudberries on Microsoft. Their granny is not happy.

    • http://twitter.com/aegisdesign @aegisdesign

      They only pulled one model AFAIK, the US launch of the X7 which would barely register on sales anyway. That's now available in Europe, just.

      They were late with the N8 and E7. The C7 and C6-01 haven't been that popular with European carriers. Then they had the Elopcalypse announcing the shift to Windows and no migration path. At the cheap end in Europe kids are buying Blackberries and Nokia haven't managed to get Symbian^3 onto anything cheaper than the C6-01 due to it's GPU requirements.

      Total screw-up.

    • http://twitter.com/Niilolainen @Niilolainen

      "likely went above most buyers radar"

      Disagree

      Most buyers = Vodafone, Telefonica, T-Mobile, France Telecom, Carphone Warehouse etc. They're fairly savvy buyers I think you'll find

  • RichyS

    Two things:

    Firstly, I think the second graph is slightly disingenuous to HTC. HTC have been building smartphones for many years, but giving them operator branding (e.g. O2 XDA, T-Mobile MDA). I assume their market share pre 2008 has been attributed to 'other' as a result. But really, it shouldn't. Before 2008, HTC's customers where the networks, post 2008, HTC's customers are the networks. The branding is essentially immaterial from a 'number of shipments' perspective.

    Secondly, concerning Nokia. I have always felt uneasy with the automatic definition of any Symbian phone as being a smartphone. The vast majority of Nokia's Symbian handsets have been purchased and used as feature-phones. Really, your average S60 phone is used in the same way as, for example, an LG Prada. And no-one would really consider the latter as a smartphone either. Therefore, although S60 purchases might have contributed to Nokia's smartphone share in the graphs above, the customer perception is that they were buying a feature phone. These customers are now upgrading (in their eyes) to smartphones and buying iPhones or Android handsets. A new Nokia was simply not a consideration. Even today, very very few of Nokia's smartphones (really only the N8 in the UK) could be considered direct competitors to the iPhone or various mid to top tier Android devices. What does this mean in terms of numbers? Very difficult to say. But I think Nokia's smartphone share has been massively overstated in the past, and only very overstated today!

    • asymco

      The data for HTC comes from HTC's financial reports. These numbers are all sourced from the companies themselves. I also use definitions that the companies choose for their categories of products.

      • RichyS

        Sorry Horace, I didn't mean to criticise your figures. You can only work with what you're provided with, and the granularity that they're provided at.

        I wonder how HTC accounted for their phone sales prior to 2008 though… They certainly made them (I had one — it was horrible), and apparently accounted for some 80% of all WinMob devices.

      • asymco

        The numbers were not that big a few years ago. The market nearly quadrupled in four years.

    • http://twitter.com/aegisdesign @aegisdesign

      The N8, E7, C6-01, C7 and X7 all have identical hardware bar minor differences in camera spec, RAM, screen and a keyboard in the case of the E7 so if you consider the N8 a smartphone then so are the others.

      Using a smartphone as a feature phone is not a Nokia trait either. I see just as many, if not more, people using iPhones with just the standard apps on them. What the iPhone has is status whereas Nokia doesn't have that anymore as reflected by Nokia's fall to 81st.

      • RichyS

        It's not really a question of whether the user properly uses their smartphone as a smartphone (though I'd argue that most people do use the smartphone features — e.g. full HTML5 browser — of an iPhone, even if they don't download apps); it's more whether they realise it's a smartphone to begin with.

        For example: many of Nokia's S60 phones have a numeric keypad (N79). They might well be considered a smartphone in these stats, but I doubt anyone buying one would know it was.

        Finally, I haven't seen anything outside of the N8 (from the list you provide) available to buy anywhere. So, I stand by my assertion that the only smartphone Nokia offer to consumers (in the UK) that customers would actually consider to be a smartphone, is the N8.

      • http://twitter.com/aegisdesign @aegisdesign

        N79??? That's like 3 year old! They don't sell it anymore. I don't necessarily agree that just because it has a keypad it's not a smartphone though.

        The C7 has been reasonably successful in the UK with Three in particular. Three also have the N8 and E7 though strangely not the cheaper C6-01. They're also picking up the X7.

        Vodafone also do the E7, N8 and C7 and not the C6-01.

        I've not paid much attention to the others but I imagine it's similar. Pay more attention when you're next in a shop maybe.

      • RichyS

        3 years old. You mean like from when Nokia were doing okay with 'smartphones' as per Horace's chart. Please engage your brain before criticising.

      • http://twitter.com/aegisdesign @aegisdesign

        Huh? Horace's chart still shows Nokia shipping more smartphones than anyone else regardless of your snobbery over what you personally consider a smartphone. Selling vastly more of something is generally considered as okay.

        I'm not defending their technical sloathness in getting high end competitive hardware and software out of Finland but their sales have generally held up as the graph shows at least till the end of 2010 and we all know why it went south in Q1 2011.

        "For example: many of Nokia's S60 phones have a numeric keypad (N79). They might well be considered a smartphone in these stats, but I doubt anyone buying one would know it was. "

        You're asking me to engage my brain? 3 years ago the N79 WAS a smartphone. It still IS a smartphone. A Mac SE/30 WAS a computer in 1989 and guess what, it still IS a computer. and mine still does exactly what it did then. I'd much rather use my iMac though and for that matter also my N900 than an N79 (or iPhone or any other lesser smartphone)

    • KenC

      Yes, the definition of smartphone has always made measurement of the market difficult. I think any phone sold without a dataplan is not a smartphone. If you can only use data while on wifi, how is that any different than having a feature phone for voice, and an iPod touch?

      • http://twitter.com/aegisdesign @aegisdesign

        Lots of people used smartphones BEFORE ubiquitous internet connections you know. Was a Sony Ericsson P800 not a smartphone despite it only having slow GSM dialup speed comms?

        Applications have become more internet biased because of improved data connections but that doesn't necessarily mean the phones are now smarter than before. They just have different tasks to perform.

      • KenC

        Yes, I know. No need to be so pedantic. The world has changed. Perhaps, the definitions need to change too? We are all grasping for mean in the data. The current definitions and data seem to obscure that.

      • http://twitter.com/aegisdesign @aegisdesign

        I think they're fine. If I buy an iPhone and never stick a SIM in it, is it not a smartphone? Does it stop being a smartphone if I'm on PAYG and I've used my credit up?

        I'm presuming you can still use an iPhone without a SIM in the same way as with one. Possibly a big assumption but then my N900 hasn't had a SIM in it since I bought it and it's used daily as a phone with wifi.

      • RichyS

        Eh? I had a P910 (in 2003 or 2004) with an internet connection. It only managed GPRS, but it was still a 'data plan'.

      • http://twitter.com/aegisdesign @aegisdesign

        I wrote P800 not P910. I also had a P910 which had a choice of GPRS or HSCSD. Both of which achieved 'dialup speed comms' as I also wrote.

        It was cheaper for me to use HSCSD since on my carrier it was included in my talk-time minutes rather than paying for data. So, there I was, in 2001 or so using a 'smartphone' without a dataplan mostly offline.

  • ARJWright

    If smartphone shipments are the metric, then wouldn't the question on "who" isn't purchasing be the one directed to carriers not consumers? This would mean that for such a number, that it has the effect of being controlled by carrier desires for certain markets/market performance. Consumers (meaning those who purchase from carriers, whom I deem with the term customer), have an effect to this shipments number, but probably not as much as is given them with this and similar metrics.

  • http://www.loudscreen.com vinner57

    Nokia has no player in the game at present – as the guys above have said there is nothing interesting about their offering today. The public smell decay; or perhaps Nokia have simply become irrelevant. The precipitous fall was predicted by many here and it's only going to get worse. The Nokia Windows phone is going to have to be an extraordinary product or the company could be toast.

  • Ziad Fazel

    Agree with Horace's usual data-driven proof, and offer this general reasoning.

    Unless there's an oligopoly, a rising tide does not result from all offerings in the market being uniform. Some suppliers are increasing demand, or meeting frustrated demand, because they have better offerings.

    If the superior supplier has enough capacity to meet not only the new demand they created, but to take customers from inferior offerings, the inferior suppliers will sink in increasingly painful ways: market share, unit volumes, margins, earnings, liquidity…

  • Iphoned

    So who are the leaking ships?

  • chandra

    Dead in the water….
    Rising tides and leaking ships…
    A nautical theming trend perhaps Horace?

    • CndnRschr

      I need to take a leak…

    • claimchowder

      It's all about shipments :)

  • KenC

    Using shipments probably flatters Apple a little, as they increased channel inventory in Q1, probably a little more than was expected, due to adding so many new points of sale.

  • melgross

    No. Apple lists SALES of phones, meaning, phones that are bought by the end user. Other companies are using the "shipped" metric, which means phones shipped to warehouses of carriers, distributers, etc.

    If anything, the metrics are unfavorable to Apple's numbers. Apple also measures inventory separately.

    • artificialintel

      I believe it counts as a sale if the (external) channel bought it, just like with other companies. The main difference is that the channel is basically 100% external for most companies, but for Apple much of it is internal and thus goes in the 'inventory' section rather than counting as sales. Which is mostly a quibble, but Apple has always considered sales to distributors as being sales.

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