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The Competition

Smartphones made up about 30% of global phone sales last quarter. That is a significant increase from 10% in Q4 of 2007.

From this perspective, iPhone obtained 5.6% share, Android 14.2%, Nokia Symbian 4.6%, RIM 3.6%, Bada 1.1% and Windows 0.4%.

The competition however still has 70.5%.

The chart to the right shows the challenge remaining and the progress being made.

The good news is that the non-smartphone market is not growing while the smartphone market is. In fact, the non-smart market has had a three year CAGR of 0% and a y/y growth of 1.0% and a sequential decline of 6%.

The non-smart portion of each branded vendor’s business is pretty dismal:

  • Nokia saw 17.57% decline y/y
  • Samsung’s non-smart business declined by 8.14%
  • Sony Ericsson’s dropped by a dramatic 80%
  • LG’s fell by 38.56%
  • Motorola is the only one that grew y/y, by 17.86.

The reason all these brands fell is because the unbranded vendors took their place. “Other” non-smartphones grew by 43%. They have been sustaining growth at the rate of 57% compounded over three years.

The following chart shows the increasing share taken by the “other” vendors in non-smartphone units:

The non-smart business is so dismal for branded vendors that I’ve been assuming that they will cease to build such devices in the near future.

The trend is shown in the following chart which shows the percent of units for branded vendors which are smartphones.

Motorola, Sony Ericsson and Samsung are fleeing to smartphones as rapidly as they can. LG is following as quickly  as possible as well.

The only question remains with Nokia. While their smartphone business evaporates they’ve also made a commitment to the non-smartphone market and are thinking about “the next billion” users who, presumably, will not buy smartphones and will buy some variant of Nokia’s Series 40.

Targeting the low end may be commendable, but the question they need to answer is why would those next billion buy anything other than a low cost smartphone? And if not, then what’s so different about the next billion?

 

  • Travls Lewis

    Just massive opportunity for growth in smartphones. How are so many of these so called "pro's" willingly ignoring this data. Talk about the best graph I have ever seen to look back in 10 years and say "see, I bot here" when the category was in it's infancy.

    It's just a matter of time before all cell phones are "smartphones"

    • gerwitz

      "Smartphones" by some definitions, but how many of them will be app phones, used as such? In other words, will the growing category of "smartphone" continue to serve as a proxy for the app- (or even web-) consuming market?

      • asymco

        I maintain that there are no second-class wireless citizens. As users in the US moved from not-so-smart-Blackberries to iPhones and Android, I believe most citizens of the world will do the same. There is a time lag, but the migration to "better" smartphones is inevitable.

      • Ian Ollmann

        Horace,

        Do you think your assertions are true for people who can't read, and those for whom smartphones, apps and/or the Internet are not available in their local language.

      • asymco

        As mobile phones broke through every barrier to adoption, so will smartphones. The value of the product is even higher to those who are disadvantaged by lack of access to existing infrastructure.

        The only obstacle to growth is availability of power for re-charging.

      • Vatdoro

        Good point. Soon we'll need to differentiate "dumb smart-phones" and "smart smart-phones". I would venture to say that most of Android's explosive growth is "dumb smart-phones".

      • observer

        My gut feeling is that explosive growth of *any* smartphone platform right now must come in the form of 'dumb-smart-phones'. For the simple reason that 70%+ of phone owners are not yet conditioned to using their phones as they would use a computer. Eventually that will change, but it will take much longer than just the technology being available.
        I suppose what I'm trying to say is that I feel there is likely to be a different mental model of a phone between smart-smartphone usage and dumb-smartphone usage which is not related to availability or functionality of the devices, but to the way an owner looks at the device in their hand.

      • newtonrj

        And dumb & smart users of smart-phones. I am a firm believer that there are many dumb users of smart phones, by which they use a very small subset of the available features or services. Too many people I meet don't even use a phonebook, let along backup, buy media, apps (free or not) or use internet browsers.

        This is not to say that every user should use every feature and service of a smart phone, however, there is a dearth of training and up-take on what is possible with smart phones today. -RJ

  • Nate

    I don't know which way to expect the trends in the so called developing world to go. When I've spent time in West Africa, I see that the computer use / ownership model is very different than the US. It seems like many fewer households own a computer themselves, so for email and other uses they rent time in an internet cafe or on one of a few computers in a local store. I saw lots of cell phones in urban areas, and the wireline telephones were widespread and pretty reliable, but in rural areas a shared cell phone would be used to make calls, and it just seemed like the wireless infrastructure was more reliable than the wired lines.

    It seems like for many people, a smartphone could do both jobs, acting as their first "computer" in addition to providing wireless calling. Is this the same as the smartphone market in the US? I can't imagine anywhere the same pricing would tolerated… Any research to look at this?

  • davel

    It looks like Samsung is holding steady in the dumb phone market while making great strides in the smartphone one.

    Your bottom graph shows a wholesale move to smartphones and yet other graphs on this site clearly show a lack of profit by the same companies. How long can these companies sustain loses or no income from the segment?

  • edaciuk

    It'd be interesting to see how the Other category plays out in smartphones down the road.
    – Previously you bought hardware and software as a single unit. Android with it's ecosystem of ISVs and ads has pushed the cost of the system close to zero
    – The Chinese are going to enter this market in a big way. Why would any of the hardware profits at the low end go to Samsung or Sony or Motorola
    – The U.S. and Europe are brand conscious and care about a millimeter thickness difference. In developing countries that's just not the case.
    I bet that taking a 10 year time frame Korean, Japanese, and American hardware manufacturers (including Apple) are the losers in emerging markets.

    • EWPellegrino

      Depends what part of the developing market you mean. Even in developing markets some people are better off than others, and many millions earn what would be respectable incomes by western standards. Those people are even more likely to buy a 'luxury' smartphone as a status symbol than a western consumer of equivalent income.

      They are where the majority of revenue is, and they are where almost all the profit is – but most important they represent the aspiration of the average consumer in those markets. What they buy today, will be what the people in the next quartile down hope to buy in four or five years. You may be very surprised at what current developing nations consumption patterns look like in a decade.

  • CndnRschr

    Apple has an advantage and a disadvantage in land-grabbing the wild west of the transitioning dumb phone market. Their advantage is technological simplicity. Their brand is A+ when it comes to UI usability and the learning curve of operating an iPhone is significantly shallower than for an Android (or Blackberry – can't comment on WP7, never tried one). The disadvantage is price as iPhone's are at a premium and this sector is very price-sensitive. Indeed, a heck of a lot of low end Android buyers don't activate a data plan. Apple will presumably address this with lower memory capacity, older models but they'll need to be careful not to be seen as hand-me-downs. Of course, the primary interface of any iPhone looks pretty much like the latest iPhone so this may not be such a problem.

  • poke

    The truly explosive growth will come when somebody manages to get the carriers out of the loop. These devices are pocket computers that have telephony as one feature among many and need to be sold as such. Only Apple appears to be interested in disrupting the distribution model and they've only taken small steps (such as insisting on their own branding and a clean install of iOS). The real disruption has to be in the prepaid space, since the subsidy model is part of what allows the carriers to maintain their position as gatekeeper.

    • Hamranhansenhansen

      Apple has taken giant steps. They do everything except run the network. They provide stores, customer service and support, hardware replacement, software updates, stores, training. People routinely buy an iPhone at an Apple Store and then almost as an afterthought, they buy a SIM from whatever carrier is cheapest. I've had an iPhone for 4 years and iPad 3G for 1 year, all on AT&T, but have never gone into an AT&T store, in spite of working next door to one for a year at one point. The relationship is 100% with Apple.

  • Gene Keenan

    The data is misleading: The opportunity is much larger than what you state. I say this because smartphones need to be redefined into two categories. Those that have touch screens and those that don't. This is the new delineation. Feature phones are dead; all phones will be smart but the only ones that really count are touchscreen devices. It's owners of those devices that purchase goods and services at a significant level not smartphone owners without touchscreens.

  • Chris

    Horace,

    Horace, I see Apple at $28 eps this year and at least 50% growth in FY12 to $40+ eps. Think about simple logic. Apple will grow IPad units by 100% again in 2012 and at minimum will grow IPhone unit sales by a minium of 50%. So how could earnings not grow at least 50%. My biggest concern is how low will the market allow the PE multiple to contract? Maybe 13 TTM? Even at 13 TTM Fy 12 we will be $520 by next fall.

    • James

      Factor in China Mobile and you might even come up with a bigger number.

    • asymco

      Your assumptions and forecasts are eminently reasonable. During the recession the P/E went as low as 11.

      The valuation of the company was last discussed here: http://www.asymco.com/2011/07/25/apples-share-pri

      I don't know how low Apple's multiple can go. Growth adjusted it's already the lowest it's ever been.

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