Is LG about to exit the phone market?

LG’s market position seems precarious. I first noted LG’s predicament about a year ago: LG dreams of smartphones [Updated] | asymco

LG lost profitability in Q3 2009 and has not recovered it yet nor can it say when it might.

In a recent article on analyst reactions the prospect of LG’s exit from handset sales is raised:

LG’s handset division is the company’s biggest capital sinkhole and the shares have more than halved this year, making it the worst performer even when compared to HTC and Nokia.

“Selling the loss-making business is probably what investors want,” said Harrison Cho, an analyst at KB Investment & Securities. “But even with that option, LG wouldn’t get much from the sale. They should have sold it long ago before the overall landscape got tougher.”

“They simply missed the boat,” said Cho.

The dire business outlook had already pushed LG shares below their book value to a record-low multiple of 0.9 times its book value, much cheaper than Research In Motion’s 1.6 times, Nokia’s 1.1 and HTC’s 8.2.

That’s a huge discount for a company that is also a global brand in television and home appliances.

Analysis: LG faces tough choices for mobile phone division – Yahoo! Finance

As I like to point out it’s unlikely that management failure is the sole cause for this problem LG finds itself in. If it were, then why did Nokia, Sony Ericsson and Motorola find themselves in trouble at the same time?

But putting aside the causes, the prospect of another tier one vendor becoming a victim in a booming market speaks volumes. Only Samsung remains largely unscathed, though I believe they are not immune. The shift in profit capture that I have been documenting is plain proof that the industry is undergoing permanent structural changes.

As the chart to the left illustrates, the plunge into negative margins is difficult to reverse. The only advice for LG today (besides breaking itself up) is:

“What LG can do at this point is keep doing what it can do best; keep upgrading its hardware offering, differentiate them and then diversify away from Android to Microsoft’s Windows phones,” said Jung Kyun-sik, a fund manager at Eugene Asset Management in Seoul.

I suspect however that diversifying into multiple platforms will not be particularly differentiating as every other vendor will do the same.

  • @siracusa made a good point in his latest podcast, Hypercritical, about what Microsoft would due if the PC manufacturer business consolidated to two or three companies.

    If Samsung and HTC end up being the only tier 1 smartphone makers left, what type of pressure does this push on Android and WinMo7? Is it possible for the manufacturer's to come together and consolidate their power against the OS maker? How quickly could new comers such as HuaWei move in to take meaningful market share? (I don't think that HuaWei could move in that quickly because I don't think their SI is good enough at the moment for the North American/European market.)

    • Huawei and ZTE are improving all the time. Big parallels with how HTC got started. It is inevitable that they will take significant share at lower price points.

      • FalKirk

        "Inevitable" is a powerful word. It should be used judiciously and seldomly.

      • I totally agree that they are catching up. But I don't think it will be so easy for them to catch up. The price advantage of labor is not as big as people think. (I believe the estimates of labor costs in the iPhone is about $3 – 5). Up to this point, Huawei has been hitting lower price points by using less expensive components. I don't see this as a solid advantage, since other manufacturers can easily do the same thing as well.

    • EWPellegrino

      Different situation, because Android is already distributed for free (or at least free-ish) – so the pressure on WP7 is from Android and even we drop to only two licensees for WP7 or Android there's no space for them to increase margins at the expense of their OS vendors.

      At the end of the day it will always be simpler for a new entrant to build smartphone hardware than it will for a new entrant to build a smartphone OS, same with PCs

  • relentlessfocus

    Somewhat tangentially, I read a report the other day (here? did you tweet it?, what a week for news, I'm punch-drunk!) that South Korea was about to embark on developing an open source smartphone OS to compete with Android that it wanted the South Korean companies to adopt. While Sammy has Bada and is currently the most successful Android OEM they didn't sound enthusiastic. Were LG to leave the smartphone biz I wonder how that might affect this South Korean OS side show. In any case sounds like LG have some serious thinking to do. Am I correct that they'll be making iOS screens for Apple?

  • Who knows – its a volatile marketplace ….

  • Seems like this is another verification of the benefits of the integrated paradigm (Apple) vs modular (Google and everyone else). Handset makers who are using Android are competing in a marketplace for a product that is becoming more and more of an undifferentiated commodity. This is causing a race to the bottom on price, margin and hence, profitability.

    • this does not necessarily mean you cannot differentiate with the modular approach. When the hw and the platform become commodity, differentiation has to move somewhere else i.e. with services like iTunes

      • Good point, though at the moment it's difficult to think of another company that has done this other than Apple.

      • Amazon. They are simply missing the tablet/phone device.

      • Hamranhansenhansen

        That is not really true, in a few ways:

        1) they do have a tablet, called Kindle

        2) they do have iPad-style tablets, called XOOM and Galaxy Tab and so on, which run all of Amazon's apps, books, music, and video, and their books and music run on iPads also

        3) they do have iPhone-style phones, running Android, that run all their apps and music and books and video, and books and music are on other phones also, including iPhones

        4) they don't have any full-size apps, only mini phone apps

        5) they don't support C apps, only Java

        Sticking the Amazon or Kindle brand on one of these me-too KIRF iPad clones is not going to change the game that much. If you want that, you have already bought it, it's already out there today. You can go to Amazon and go click, click, click and a Galaxy Tab shows up and you can do all your Amazon apps and media. But not too many people are buying. There are by far more Amazon customers using the Kindle app on iPads or iPhones.

      • addicted44

        I can't think of a single company that has differentiated itself successfully on anything besides price on the over 20 year old Windows platform?

        All the attempts at differentiation turned out to be nothing but crapware people would pay to have removed. The only HW companies that have done well in the Windows space have done so because of the business market (Dell did well for a few years in the consumer market, until HP bought Compaq, and Dell started getting crushed in the race to the bottom).

        I think the best opportunity for Android Hardware manufacturers lies in selling Android devices to businesses, but more importantly, selling services based off them (e.g., they could customize the OS for particular business needs, provide maintenance, etc.). But even this will be harder than during the Windows years because of the increasing consumerization of enterprise IT.

      • kevin

        I think the Sony Vaio and IBM ThinkPad somehow had some differentiation, though I can't think of exactly what it was (since I owned Powerbooks instead at the time and when I was finally given a ThinkPad at work, I didn't see anything special about it).

        Sony might've been first to incorporate media capabilities (video camera, movie-making software, etc) on the PC side. Sony also had the smaller form factor notebooks.

        As for ThinkPads, was it just good branding? Was it the thumb-nub thingy or pad for moving the cursor? Did it along with the Vaios have slightly higher construction quality?

      • famousringo

        The ThinkPad positioned itself as the quintessential business laptop. No nonsense black styling and a focus on building rugged and reliable hardware. Remember the ad they used to run where the suits talk about using sensors to determine when the laptop has been dropped so the hard drive can be protected from damage "like an airbag."

        I've gotta say, I don't think it's just marketing, either. I've never a ThinkPad suffer the kind of hardware failures I've seen in an HP, Tobshiba, et al.

      • Hamranhansenhansen

        Yeah, ThinkPad. If only they were running OS/2, though, on a Unix foundation. And if VAIO were running Play OS. Then we would have differentiation. Because we obviously did not if IBM sold their PC business and Sony never sold many PC's or made much money at it. Being the "business-focused Windows PC" got IBM so far but not far enough. Being the "consumer electronics -focused Windows PC" got Sony so far but not enough. If they had continued those concepts in software, they could have built something enduring.

      • addicted44

        Good points. I think Gateway is a good example, but they were unable to sustain it. The question is whether it was a failing on their part, or whether the industry could not support differentiation in itself.

        I don't consider the Thinkpads (although they did a fantastic job of differentiation, based solely on a workhorse like dependability, IMO) because they were targeted at the business market. They were never a huge success in the consumer market.

        I believe there is room for differentiation in the business market, especially through services, but I don't know if there is any in the consumer market. Also, it seems to me, that room for differentiation in the business market is also reducing because of consumerization of the enterprise.

        We certainly have some interesting times ahead.

      • SteveB

        Gateway in the 90s made a name in a large part from customer service, a variety of build to order options, as well as price, but they also had some interesting product offerings – their Destination series was one of the earliest home multimedia systems, with custom built hardware running on Windows '95 and then Windows '98, before any of the windows media editions were available. They also had that cool black and white spotted cow theme/packaging. A lot of factors made them one of the best Windows platform vendors for many years.

    • Carlos

      It does not seems that the integrated paradigm has been good for Palm (HP).
      Also I think that RIM and Nokia (I think that is Ok to call them integrated) are also suffering

  • Dick Applebaum

    What caught my attenion was not the details, but when you step back and let the magnitude of what has happened sink in.

    One company dominates.

    I am reminded of the maimframe computer market of the 1960s-1970s — where IBM grew rapidly to dominate the market with 97% of the installations.

    Today, it is not big iron and market share — rather, it is smart phones and profitshare.

    Now, as then, we have a single, dominant leader and a bunch of followers.

    Apple… And the seven dwarves.

    As an aside, I like Horace, believe that Apple is working to obsolete the iPhone.

    • kevin

      Agree that Apple is coming up with ways to obsolete the iPhone, but what would one consider that to be:

      Would we think the iPhone was obsoleted if there was a change (or combination of changes) in:
      – carrier business model, i.e., no more voice plan costs, only data costs; or on-demand multi-carrier selections?
      – user input methods?
      – form factor, i.e., wearable?
      – back end support, i.e., deeper integration of an expanded iCloud?
      – price?

      For example, some say the iPod mini was obsoleted by the iPod nano, because Apple EOLed the mini with the nano's intro. The nano changed the storage type and form factor (thinner), increased battery life, and increased the price. But others would say this was just evolutionary. But does "obsoleting" require revolutionary change?

      • Dick Applebaum

        1) Eliminating the [need for the] carriers.
        2) incorporating high-quality camera and video-camera capability while maintaining size and form factor

      • Hamranhansenhansen

        It would be cool if they invented some kind of wide area Wi-Fi where they could put a base station in each Apple Store and cover whole cities with Wi-Fi, and you could just pay $30 per month per device on your iTunes account and get unlimited bandwidth. Just make the network totally transparent.

      • EWPellegrino

        Physics is against them on that one. Wide area wi-fi is possible, but the total available bandwidth in a cell of that size isn't enough to support the density of users you have in a city. wireless WAN is designed for sparsely populated rural areas were the cost of cabling makes ADSL impractical.

      • $30 per month is $20 MORE than I pay for 3G here in the UK.

        I used to think the answer was some kind of mesh wifi networking solution but time and time again the big companies seem to have put the brakes on that.

      • El Aura

        No more voice plan costs are already a reality in lots of markets… but they don't come for 'free', you have to pay the full handset price (no carrier subsidies). Well, and of course Skype requires a better signal than a pure voice GSM call and Skype is not free either for most calls in reality. But these data-only plans also usually include a fairly cheap pay-by-the-minute GSM calls fallback solution.

      • Hamranhansenhansen

        iPhone is a computer in a phone. iPad is a computer in a pad of paper. iPod is basically a computer in an audio cassette tape. As the technology shrinks, Apple could put a computer into glasses, rings, bracelets, shoes, clothing, whatever. People are pretty comfortable walking around talking to themselves in phone calls these days … at some point, walking around all day talking to your iOS glasses may seem perfectly reasonable. Saying "I want to walk to City Hall," and a walking route to City Hall appears overlaid on one side of your glasses could be pretty cool.

    • As Ipods didn't disappear and were simply folded into the iPhone's functionality, perhaps we need to look how to fold the iPhone's seemingly unlimited functionality into something else. The iPad is folding some of the PC's functionality into a new form factor and that certainly is popular. So let's combine everything we do on a computer, everything we do on a (smart)phone, everything we do with a TV, everything we do for entertainment, everything we use to document, everything we use to create: glasses that provide a screen for viewing, with a builtin mic and camera, keyboard on sleeve, and touchpad on back of hand. But that's run-of-the-mill scifi fair and still seems too far into the future. Maybe the built in projector in the iPhone turns it into a full-fledged computer solution, just add keyboard. Instead of obsoleting the iPhone, it obsoletes desktops even more so than the iPad. It is certainly fun to speculate but, in the end, smarter people than I are working on this and I can just be happy to be able to watch it unfold.

    • L.K.

      They probably got an iTricorder lined up.

  • Seems like this is another verification of the benefits of the integrated paradigm (Apple) vs modular (Google and everyone else). Handset makers who are using Android are competing in a marketplace for a product that is becoming more and more of an undifferentiated commodity. This is causing a race to the bottom on price

  • "As an aside, I like Horace, believe that Apple is working to obsolete the iPhone."
    I'd be very interested to read the material in which Horace makes this point, can you link to an article?

    • Dick Applebaum

      Horace made a comment to one of his articles within the last week — I tried but couldn't find it.

      Sorry, but I am running a lot of beta software and sometimes I lose track of things.

      Maybe Horace will comment?

  • John Mac

    I'm reminded of when Jobs launched the iPhone on '07 and dared call it revolutionary (What? No 3G or cut and paste!) Oh my. And what a revolution it caused…

    • Hamranhansenhansen

      I love the guys who don't get it who were like, "other phones have Web browsers!" Ha ha ha ha ha.

      • addicted44

        Peter Bright on Arstechnica (the MS contributor, and one of the founders, I believe) still doesn't get it. And this is a really bright guy too.

        He still goes around in the forums saying that the only reason that the iPhone was successful in 2007, despite being a worse phone than the ones available then, was a sympathetic media, and fanbois.

        If someone as bright as him fails to see it, I am not surprised there are less intelligent folks who still think the iPhone is a marketing creation.

  • Horace,

    I disagree with one statement you made in this write up:

    "Only Samsung remains largely unscathed, though I believe they are not immune."

    I believe that HTC is the second best run handset maker behind Apple. They seem to have a wonderful understanding of their customers as well as a solid handle on their processes and costs. Likewise, they have consistently grown their profit share ever so slightly quarter after quarter. The only thing they really lack is elegant hardware design. NOTE: I really do not understand what is driving HTC's stock into the dirt. Perhaps you could shed some light on that as that might be the missing piece I am not seeing.

    While HTC's operating margins have been declining a bit, they are still very healthy and have been showing signs of self protection on the whole IP issue and not waiting for Google to do something. By settling early with MS, buying S3 (of marginal value but value none-the-less), supporting WP7, WinMo and Android, I see HTC very well positioned to take advantage of whatever comes their way.

    • Horace Dediu

      I was referring to Samsung as the only tier one vendor left unscathed. I consider HTC to be an interloper similar to Apple and RIM. A vendor who came in late with only smartphones in its portfolio and swept up all the money.

  • Childermass

    To say management is not the 'sole' cause does not absolve them.

    I know it is tougher to do the analysis if human failure is one of the causes, but all business is a story of human failure in the end. To ignore it does not improve the analysis, it merely narrows it.

    Choosing to look at the 'non-managerial' aspects simply leaves us with the same incompetence as before. We must point the accusatory finger at individuals and call them to account. All business is run by people. They cannot be left merely as victims of circumstance. That overvalues the mediocre many and undervalues the glorious few.

    • The "Innovator's Dilemma" contains a few of examples of companies that have survived a disruption. They are the exception rather than the rule, but that shows that it is not impossible if a company has the capable leadership. Therefore you right that absolving the management of all the responsibility is not fair, in a way.

      On the other hand, looking from a bigger perspective, humanity is served just as well even if it was Apple who profited from the work of the Xerox research lab on PCs, and is well served even if Apple builds phones instead of Nokia and RIM. It gets more political when these disruptions have a cross-border dimension, but the products that humans create will still be the same whether it is an incumbent or a newcomer creating them. In an age in which corporations started to be treated like legal entities with human-like rights it's good to remember that they also share some of the human limitations, like mortality. I don't know if it is a good idea to learn how you can make a company that will dominate a particular market forever.

      • Hamranhansenhansen

        Xerox is a bad example because they profited from their own GUI research. They sold it to Apple. Apple did not steal it. The team from Xerox was hired by Apple and moved to the Apple campus to continue and commercialize their work. In exchange, Xerox got part ownership of Apple, pre-IPO. When Apple went public, Xerox made a ton of money. Much, much more than they invested in the GUI research at PARC. And the desktop publishing revolution that the Mac started sold a lot of Xerox photocopiers.

    • Tatil

      Agreed. When the company is doing well, or even when it is just not deteriorating, upper management justifies its pay by their decision making abilities. They never disclaim credit or reject bonus awards saying that the company was just going through its routine and they did not do anything most other managers would not do. However, when things go wrong, business collapsing or fraudulent practices resulting in large fines, all of a sudden the excuses start flying. CEO is just one man, how can you expect him to know what each group was up to and these events were not impossible to predict. Either take credit for both the negatives and the positives or tell people you got to the top out of luck more than anything else.

  • Remember that LGE needs only a 5-10% operating margin "to be successful". Other competitors like Samsung need to put up minimum double-digit OPMs, otherwise be punished severely by investors. Just breaking even sends LG's share price through the roof. Also, LGE's supply chain is made up of mainly unlisted family-related SMEs that can weather out the worst storms due to support from the entire LG Group. LG will start gaining market share and profitability once costs come down below the point where carriers can offer the phone for free. e.g. cost of phone $190, carriers pay LG $200, and give the phone away for free with 2yr contract.

    • Hamranhansenhansen

      Yeah, but LG is cooking along at 20% less than a 5-10% margin.

      And even at 5-10%, is that enough to create a hit device? Can they invest enough to create even 1 standout feature? Because due to the Internet, one hit phone is worth much, much more than 50 phones that make people yawn and nobody wants to even talk about them.

      And the software situation is anything but certain. Android is either going to die or it is going to get much more expensive, and neither is good for LG.

  • CndnRschr

    I know it is antithetical, but despite all of its blunders, RIM is still doing reasonably well in terms of margins. It has an integrated ecosystem, albeit based on email and instant message delivery. It designs its own phones and has cash in the bank. It is undergoing a fairly major OS transition. It also has two dead weights as co-CEOs, has screwed up its tablet effort (who hasn't?), is losing marketshare in North America and is valued at less than 40% of peak. Its effort in music is laughable and the new temporary OS and hardware is lacklustre. But the plus side ingredients are the closest to Apple's successful approach that there is. WebOS and Symbian are dead. Windows Phone 7 is treading water and has an orphaned future. The only currently feasible alternative to iOS and Android is that demented product from Waterloo. Just shows how screwed companies are in trying to survive in this market.

    • Tatil

      It is the only other company that can supply hardware and software, so it can control its own destiny. Its OS transition is critical, but at least they have the cash flow and the experience to afford it. I don't trust the management, based on their tone deaf dealings with the media. Nokia's CEO sounds determined and he has a clear plan, but I don't trust the plan. Time will tell whether the management or the strategy would lead to success.

      Some people here said they would have announced the switch to WP7 close to when the products would be ready, but Nokia needs to cut costs. If they axe Symbian and MeeGo related projects and start spending money on WP7 phones, the plan would become obvious very quickly. I doubt Nokia could keep that a secret for very long. The internal opposition would be too strong and the plans would leak in a matter of days.

      • CndnRschr

        Much easier to criticize a CEO from a blog than become a CEO 😉 I don't trust Elop's plan as I don't think he "owns" it. He presumably has a reasonably air-tight contract with Microsoft and he does know the guys in Redmond, but if Nokia sales do not recover or another Windows Phone licensee threatens to abandon the OS, then those contracts mean little. Of course, companies depend on each other all the time, but in this case, we have two bedraggled, rain-soaked, exhausted entities who are forcing a marriage even though there was no real indication that anyone would turn up and the wedding cake is a bland, store-bought square with neon-red icing glowing "Windows 7".

      • Tatil

        I don't trust the plan, but I cannot say I have a better one. Nokia had plenty of time and resources to come up with better OS and it failed. I would trust Microsoft more than Google though, so if I were to pick an outsourced OS, it would be WM7 as well. MS has the track record of tolerating billions of dollars of losses every year in fields it considers important. If it does not mind losing $2.5 billion a year in online services, you know they will not give up in the mobile space for at least another 5 years, if not 10. Google is not in the same boat. Android is a defensive move, so it only needs to make it good enough, not very good. Until Motorola purchase, it could even shut it down without hurting its core business if it had assurances that MS and Apple would not block it in mobile advertising.

      • _Rj

        Did you see the video of the new MeeGo phone? I definitely wouldn't say that they failed; they were caught flat-footed and it took a long time to get their 1.0 out but it looked like it had some really interesting ideas in it and it shipped a long time before Nokia is in a position to ship WinPho7.

      • Tatil

        Getting something look good in a video does not mean much. It may excite a few techies, but Nokia needs to move billions of dollars worth of merchandise with good real life performance and polish. WebOS has interesting ideas, too, look what happened to it.

      • El Aura

        Exactly, how many great videos have we seen of WebOS over the last couple of years? WebOS was far ahead of MeeGo in terms of being actually a finished and complete product but it still failed in the market place.

      • jonshf

        I think what happened to MeeGo is that it was kept going as a kind of backup plan if the WM7 vision faltered. The people behind MeeGo suddenly found themselves with their butts on the line. A local saying here is that necessity teaches a naked woman to knit.

        The resut is that MeeGo turns up as a really compelling platform and ready to absorb the whole Symbian ecosystem. Remember that Symbian still is one of the largest platforms in the world – magnitudes larger than WebOs ever had to build on.

        Nevertheless, I wonder if the switch to WM7 had been omitted, whether the MeeGo people would have just floundered along, feeling safe at their jobs at the big company Nokia.

        Too late. Elop blatantly announced WM7 as the way forward and they would only be squirming in quicksand if they change their minds now.

        I have to add that if the new WM7 gets something like the impressive N9 hardware then maybe there's a chance.

      • EWPellegrino

        MeeGo could not simply absorb Symbian because they weren't compatible, which is pretty much why WP7 never absorbed WinMo-6. Even assuming that Nokia could suddenly develop competence at producing software they still would have been launching the OS effectively from cold.

      • jonshf

        My understanding was that both used the Qt application framework which would suggest a warm start if not a seamless transition.

      • You're totally correct jonshf.

        For all intents and purposes, you no longer write software for Symbian OR MeeGo these days if you're still doing so, you write it for Qt. Both the N9 and every Nokia phone from the N8 on with Symbian Anna ship with the exact same version of Qt and are pretty much compatible.

        The UI is also converging between Symbian and MeeGo Harmattan with the same icons in Anna and the N9 and even more so with Symbian Belle, which incidentally is a pretty stunning update for a 'dead' OS.

      • EWPellegrino

        My point is that it's nothing like the way that iOS 4 simply absorbed the iOS 3 userbase, or Android Gingerbread could absorb Froyo because devices themselves wouldn't and couldn't be upgraded.

        The app eco-system might make the jump, but only once there were sufficient MeeGo phones around, and they would still need to maintain distinctly different versions even if much of the code was the same.

        When iOS 5 is released there will immediately be an enormous population of people using it, likely over 100million within the first few months. That means it's tremendously worthwhile for developers to go off and integrate the new features of the OS into their products. That initial burst of users didn't apply for WP7 and it doesn't apply for MeeGo.

        Motivation to update/migrate applications is far more important than ease.

      • If that's your point, then yes, Symbian to MeeGo isn't just a point upgrade and you can't just take any Symbian binary and plonk it on MeeGo.

        It'd be quite cool if MeeGo did have the ability to run Symbian apps as some Symbian apps still have no peers on other platforms (eg Gravity).

        But you're totally wrong if you think the development effort involved to port a Symbian Qt app to MeeGo (or even Maemo) or vice versa is of the same order of magnitude as WP7 from WinMo. It's more like the difference between the iPhone and the iPad. Slight interface tweaks and a compile time toggle if you're lazy.

        So, in theory, MeeGo could have a reasonable selection of apps at launch just ported from Symbian.

        Qt apps on Symbian are however a fairly recent phenomenon so I'd guess there's not that many compared to older AVKON Symbian C++ apps. Developers of Qt apps, by definition, wrote the apps recently and are probably still around. A lot of the older AVKON based apps haven't seen updates in a while suggesting the developer isn't really involved with Symbian anymore to any great extent.

        There's already quite a few MeeGo Qt apps out ported either from Maemo or Symbian and also it's going the other way also with Qt apps being ported back to Symbian since it's now so easy and getting easier as the UI converges.

        Motivation, as always with Nokia platforms, is the key issue no matter how easy it is to write code. I'm personally looking forward to more iOS support (coming in Qt 4.8) so porting apps to the iPhone might motivate me more.

      • EWPellegrino

        It is my point, I assure you, and the reason you can be sure it's my point (beyond me just swearing it), is because WP7 actually had no problem at all building an App Ecosystem that was superior to that in Win-Mo6. It wasn't the lack of porting that stopped WP7 absorbing the rest of Win-Mo.

        As of May WP7 had five times the number of Apps of Win-Mo 6. I believe now it would be more like 15 times. The reason that the platform failed was not lack of Applications per se, it was and is lack of users. The lack of an upgrade path annoyed existing users who felt abandoned and also meant that there was no instant population of users with the cool new UI showing it off to their friends and building momentum.

    • Hamranhansenhansen

      I think they have a chance, but they are where Apple was at the turn of the century. What they need is an iPod-like hit product that implies the start of a new era and gets people feeling optimistic.

  • poke

    There are strong parallels between what's happening in PCs and phones right now. With the #1 PC vendor (HP) dropping out of the race and the #2 (Acer) unprofitable and the same company (Apple) monopolising profit in both markets using devices that share technology. The PC market might actually be further along since it's smaller and Apple is already disrupting the low-end with the iPad. Perhaps it makes more sense to look at both markets together – i.e., the PC market and the traditional phone market are now being largely replaced by a single, consolidated mobile device market. It might be wise to track the fate of the PC vendors more closely.

    • CndnRschr

      Interesting idea but the two markets are only joined by one company. HP (under Hurd) perhaps had the sense to follow Apple into the uncharted territory of mobile devices, but quickly got out. The PC companies define diversification through introduction of variants of a theme – laptops, netbooks, tablets that run Windows, phones that run Windows, etc (they have singularly failed with ultrabooks though). This is because they all drink at the same nipple supplied by Intel and Microsoft. They either have no taste for other foods or are worried that if they stray too far from the Wintel teat their spot will be lost to another. But the milk they drink has slowly been diluted and their fat reserves are almost spent. Adding to their misery, there is a fat cat diverting the attention of Intel away from them and Microsoft Mom is having trouble feeding herself. It will be interesting to see whether the survival instinct of Dell and others will force them to move into new domains, but with Apple already monopolizing the riches in mobile, they will likely be eating gruel for some time.

      • EWPellegrino

        Dell is also playing in mobile with both phones & tablets – they killed the streak but it has successors, Lenovo has two android tablets, Toshiba has an android tablet, Sony has two android tablets and a half–share in S-E, Asus has a tablet etc.

        The PC makers are all flirting with mobile, though so far unsuccessfully.

      • CndnRschr

        Good verbs "playing" and "flirting". They are not serious. They haven't made convincing bets or investments. Dell's efforts are almost laughable and make me wonder if there is any leadership left there. Lenovo's Pad looked good on paper but is yet another disappointment in real life:
        Sony's S1, S2 efforts might bear some fruit but nothing from these guys is moving the market forward. The most excitement generated in the past year was the fire sale of the TouchPad which basically showed that there is a market, but unless its an iPad, it commands little value. It's as though these companies know they should be in these new markets but they keep bringing a knife to a gunfight.

      • EWPellegrino

        Asus seems to have the most popular android tablet although obviously that's not saying very much. But as I think Horace has said on Critical Path, tablets will be sold in big box retailers and not out of mobile carriers – so the forces keeping the PC makers out of the handset market don't apply for tablets.

      • poke

        There's an interesting dynamic because the PC guys have failed at moving into the mobile space and the mobile guys are failing at moving into the PC space (with tablets). So if I'm right and the two markets are becoming one market, any company coming in with only half the solution is going to be in trouble. A lot of people dismissed the iPad as "a big iPhone that doesn't make phone calls" but maybe that's the point. This is one market with one product and that products comes in (so far) two screen sizes.

      • Paul S

        I like the way you're thinking. Smart comments. As a consumer, I really don't care about the device . . . it is a means to an end . . . what I really care about is access to my information, my data. And if iCloud works the way it is advertised it will work: persistent/consistent views into my information/data from multiple locations in different situations (which often translates into viewing my information/data on different devices) . . . well, then, that is what I am after. Data/information fragmentation is what kills us as consumers. Inefficient, error prone, frustrating. I look forward to the day when my MacBook runs some version of iOS and then I can get a persistent/consistent view of all my data/information from my iPhone-like device, my iPad-like device, and my iMacBook-like device.

      • EWPellegrino

        They're one market technologically, but they're not one market, because consumers are shopping for the products in different venues, maybe we'll see retail convergence eventually, with people buying handsets in big box retailers – but right now people still buy their handsets from phone shops – and phone shops aren't big enough for the most part to sell tablets.

    • Tim F.

      Yes, I think this is the "evolution" of the iPhone: a general iOS. (I would hope OS X survives in parallel for a fair while still, but the line between laptops/desktops and mobile devices will be erased or blurred by cloud services.) It will evolve past the iPhone in that iOS will be tailored but seamless across several form factors (including the evolution of the "laptop" and "desktop"). In other words, all devices are evolving to a generalized "mobile" (always-on data connection), touch operating system-based devices. The players remain Apple, Microsoft, and the new entrant Google. Google still has to develop its laptop/desktop offering but they seem to have a plan (or two plans). Microsoft is still strong despite its mobile weakness. The middle tier "interlopers" have a ton of work today. And the OEM/ODMs will always be a shuffling/consolidating pile of followers.

    • Hamranhansenhansen

      Another way to look at it is there is a shrinking generic PC market, shrinking generic phone market, and there is a growing market for iPads and iPhones and Macs.

      Also, last quarter, Apple sold 4 million more PC's than HP, like a changing of the guard.

      The thing that ties this all together is the iPod. All of Apple's products are more iPod-like than their competitors. They are smaller, lighter, longer battery life, flash storage, touch features, ease of use, connected to cloud services. Phone companies are missing some iPod things and PC companies are missing some iPod things. They can't even make an iPod, let alone an iPad.

  • LG, as far as I'm aware, are the only other handset maker to use MeeGo btw. So far it's only on prototypes but LG have been hand-in-hand with Intel's mobile strategy for a while. They were showing MIDs back when Intel thought they'd fly.

    Intel so far have not released competitive hardware for mobile handsets but I wouldn't bet on that being for long and the OS of choice for Intel is MeeGo being as Intel are the primary partner there these days after Nokia stepped back.

  • GJG

    After the HP announcement last week, the question to my mind was who will buy WebOS from HP. Last weekend, I'd have said that WebOS would have given LG a chance to compete in the phone and tablet markets.

    After the Google-Motorola Mobility announcement this week, the question suddenly became much more critical I think to several phone and would be tablet manufacturers.

    The only manufacturer who has had much success against Apple is Samsung (in large part because their component manufacturing expertise allowed them to match Apple's volume advantages so far). With Google's purchase of Motorola Mobility and Apple's victory in the European courts this week, Samsung must be feeling more than a little threatened right now. WebOS must look much more attractive to Samsung that it did at the beginning of the month.

    HTC must be feeling much the same pressure but they haven't the component strength that Samsung has. The net result will be 18-24 months of disruption in the phone market I suspect as Nokia and Microsoft try to settle who's in charge, and the others try to figure out what businesses they want to be in and what operating system they want for the long-term.

  • It is interesting that all the goliath's are now rolling over and calling it quits or experiencing near death scenarios.
    In 2007 when Apple announced the iphone my first reaction was, "Why does apple want to get into the dog eat dog world of cellular phones?" Even in 2007 the competition was intense as evidenced by Motorola's experience till then, and the decimation of Palm.
    Five years hence I am convinced that Steve Jobs and the people at Apple take a real long view of a market, and enter it only when the game plan to dominate the market has been well laid out. While Jobs has stepped down as CEO I am curious to see what was the strategic opportunity he mentioned in his interview on all things digital about the use of Apple's $76 billion cash war chest. Horace if you have any clues please clue us in.
    Apart from the obvious TV land I am sure that there is something far more important use of the cash that he had in mind.

    • EWPellegrino

      Funnily enough I had the exact opposite reaction – I was sure immediately that an Apple phone would be huge because I had two complaints with existing handsets, poor build quality and terrible software.

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  • Ajay

    AirPlay feature in iOS 5 is very complelling for games and could spur sales of Apple TV along with iPad and iPhone

    When Jobs wrote that Apple’s best years where still ahead if it, I somehow tend to believe it

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  • ARJWright

    Years ago, LG, like Nokia and Samsung, tried to push their feature phone offerings into smartphones. LG went the route of Samsug with offering several platforms, but they also pandered to carriers like Verizon who could sell a boat load of feature phones. Unfortunately for LG, while they seemed to have the capacity for making low cost mobiles, they didn't have the same penchant to move their brand out of the bargain-commodity perspective for carriers. They are so dependent on carriers in fact that LG's smartphone strategy, missing it's own OS or vertical services approach, was/is more subject to recent market changes. They would be better in leaving, unless they could reinvent themselves (webOS perhaps).