The end of the independent phone brand

As shown in the yesterday’s post, in the third quarter, overall mobile phone profitability declined. The eight vendors I use as a proxy showed a total net profit of $8.51 billion, down slightly from $8.57 billion and a drop of $9.01 billion in the first quarter.

Overall, the industry dropped by 1% sequentially but is still up 30% over last year and has a 20% compounded growth rate over a three year period.

  • Nokia returned to profitability, though at $180 million it’s only about 2% of the top eight.
  • Motorola remained in the red with a small loss of $20 million, an improvement over the $90 million loss of the previous quarter. Motorola is being acquired by Google after an accumulated mobile operating loss of $4.69 billion since the beginning of 2007. It’s unlikely we’ll receive any updates on performance thereafter.
  • Samsung had a great quarter with a sequential increase of 19% and year-on-year growth of 130%. The total profit amounted to 25% of the peer group.
  • Sony Ericsson broke even with about $50 million in operating profit. Like Motorola its performance was barely break-even during the last four years and its also disappearing from our list of independent vendors as it becomes part of Sony.
  • LG had its sixth consecutive quarterly loss and is now appealing to investors for more capital to continue operating as a smartphone vendor. Raising dilutive capital seems a radical approach and not one that inspires confidence.
  • RIM had a sequential reduction in profit of 35% and y/y reduction of 30%. The company is exhibiting clear signs of decay and the stock market is valuing the company below book value.
  • Apple profit dropped by 19% but grew 43% y/y during a transitional quarter. The growth remains 43% compounded over three years.
  • HTC has a 1% sequential increase but a 78% y/y growth.

To illustrate the performance in terms of profit, pricing, volumes and margins, I developed the following chart. 

The solid areas representing profit are operating profit/phone in the vertical axis and volumes shipped in the horizontal. The blank areas above are the cost of goods sold per phone and the combined solid and blank represent the average revenue per phone.

Some of the areas are over-represented due to the lack of resolution available.

Using before-and-after pie charts for positive profits, we can see how the entrants (RIM, Apple and HTC) went from 6% of profits to over 73% four and a half years later.

I feel that this is somehow the end of an era. I’ve written before about the brutality of this market, listing 13 companies which were either merged or acquired or disappeared in the last decade. Now both Motorola and Sony Ericsson will soon be added to the list. On average, it’s as if one phone vendor has disappeared every year for fifteen years.

And it’s still not over. RIM is also becoming a going concern issue, and LG has a big question mark above it.

Of course, ZTE and Huawei and Lenovo are joining the list of competitors but I note that they are not focused on mobile phones. They are opportunistic phone vendors, depending on other businesses to compensate for the risks inherent in phone sales. It’s interesting to note that neither Apple nor Samsung are pure phone plays.

In fact, of all the phone brands only RIM and HTC are exclusively phone-only companies. It may indicate something profound is happening. The notion that the development and marketing of phones as an activity independent of other business models may be coming to an end.

  • What else does Nokia make beside phones?

    • They own Navteq and the joint venture with Siemens in network equipment (Nokia Siemens Networks).

    • Duncan

      Disgruntled developers?

    • Anonymous

      Patent licenses?

  • Anonymous

    Do you think Nokia will be able to keep on being a standalone company?

  • Charles Jade

    Arguably, RIM is no longer a phone-only company with the launch of the PlayBook, though I’m skeptical whether the RIM will continue to make tablets.

    • Anonymous

      Of course they will, if they want to have a chance that is…

      • Anonymous

        I’m not convinced — if RIM is going to survive they will need to refocus their priorities and a Quixotic attempt to compete with the iPad seems like money/time/vital resources out the window. Not sure how RIM can justify or afford it at this point.

        Now I’ll grant you that it may be too late to save RIM no matter what they do, but I don’t see a future for the Playbook either way. It’ll become that much less viable the day Amazon’s Kindle Fire debuts, at $200 and with a real ecosystem behind it.

      • Anonymous

        Having a tablet product will strengthens their smartphone ecosystem(both for consumers and enterprise clients), when they’ll shift their smartphones to QNX. The don’t necessary need for PlayBook to be the tablet-market-juggernaut.

      • Guest

        They won’t have much of a tablet business if this is what the tablet applications look like:

      • davel

        I agree with Ted_T, they need to focus.

        Playing with a tablet without a clear direction is a diversion of resources.

      • Tom Thompson

        Right, the arrival of the Kindle Fire is going to make for an interesting laboratory test for tablets that have ecosystems behind them. The Fire is really about media consumption. The iPad, while it too consumes medial, it happens to be a general-purpose computer. Whether that capability will justify a higher price for the iPad than the Fire, well, the market will tell us…

      • Anonymous

        It’s not a general purpose-computer any more than any of the others. Apps written for general-purpose computers do not run on them. And the apps that replace them are currently workaround approximations of the real thing. Until someone makes the transition easier for big software vendors like Adobe, no mobile operating system has any advantage there.

      • GeorgeS

        By your criteria, many PCs and Macs in current use are not “general-purpose” computers because “apps written for general-purpose computers do not run on them.” My iMac G4 and PowerBook G4 will NOT run a lot of current Mac software. A better definition of “general-purpose computer” would be what it DOES, not what specifica software runs (or does not run) on it.

      • Anonymous

        What a convoluted example.

        But yes, it should be about what it does, which is defined by what software it runs. Unless it’s your belief that everything a general purpose computer does is built into the OS itself. I think that would be a tough point to defend.

        Some specific apps that currently define a general purpose computer include apps like Photoshop and MS Office, among others. It’s the difference some people refer to as content creation vs. content consumption. Every tablet in existence right now is a content consumption device. As I said, the alternatives provided through each tablet’s app store are approximations of the real apps at best.

        There will be a barrier right up until the point where people stop cringing and thinking “I really wish I had a real computer right now!” And that day is not today.

      • Tom Thompson

        Clearly our definitions of general-purpose computers differ. You require that they run existing desktop software. Fine and good, you are welcome to your opinion. My definition of the general-purpose computer is that it runs software that the device’s makers did not anticipate. I’ve used the example before where a teacher uses iPads with specific music generation apps to work with autism spectrum disorder students. Pilots use the iPad for flight plan information, business are investigating its use, and so on. It’s not about running desktop apps: it’s about running apps to do something practical for people. If it was only about desktop apps, the iPad would not be selling as well as it is. We’ll get a better picture of how content consumption (and creation) is a factor to tablet sales when the Kindle Fire hits the shelves.

      • Canucker

        The PlayBook development costs are largely sunk. It was a means to develop the QNX/BBX operating system and had value in that. Of course, the PlayBook is tarred with a terrible reputation and has been another example of failure to execute by RIM, but there is no need to kill it. They just don’t need to actually build any new ones for a while….

    • Anonymous

      PlayBook is just a phone. Until it has a 10 inch screen and a native C/C++ API, it is not a PC. What kernel it runs is irrelevant.

      • Anonymous

        Questionable criteria.

        7″ tablets will see some huge growth for the holidays. Kindle Fire, PlayBook, and tablets like the HTC Flyer are all clearly 7″ tablet computers.

        Not quite sure how you think the PlayBook a phone considering it doesn’t even connect to the cell networks at all (it’s WiFi only), and you don’t hold it up to your ear. Though maybe you do JohnDoey. Anything appears to be possible from you at this point.

  • Anonymous

    Horace, for the pie chart comparisons, can you scale the pies so that size of the pies represent the amount of profit? So the 3Q 11 pie would be bigger because of more profits. Easier to do with a stacked bar chart, but it could be more readable with pie charts?

    • Done.

      • Anonymous

        Cool. Thanks! Um, one more request: color and ordering consistency between the pies.

        I make a lot of aerodynamic plots in my day job, and making cool and obvious charts are one of the things we love to do! And something you are pretty awesome at.

      • Done.

      • Canucker

        Aenean144 is a demanding bugger isn’t he? 🙂

        Nice charts. Instant comprehension.

      • Jean-Marc Liron

        Horace, just to outbug Aenan144, have you scaled the pies so that the areas of the pies represent the amount of profit? Or is it their radius that is proportional to profit, which would be misleading.

        Scaling the radius to the square root of profit, and subtitling with overall profit figure would bring you even closer to perfection.

      • I scaled the areas, of course.

  • k.mun

    Horace, I love the first chart – it clears shows who is generating and garnering value in the mobile device sector. I agree with your sentiment about the decline of mobile phone brands – it’s a simple reflection of the commoditized market IMO. The ‘platform’ battle has taken another device sector to its demise. Perhaps platform logos will dominate the future devices.

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  • Anonymous

    Very astute observation, Horace. In the next few years – as people move more and more into the “post PC” era we will expect a higher level of integration with our devices.

    Mobile phones syncing data with our tablets, and maybe even our TVs. RIM, HTC, and some of the others just can’t compete against better integrated products. They will soon fall by the wayside too.

    It will be fascinating to see how Googlerola will effect Samsung’s Android products. Also, many people expect Amazon’s kindle fire to be a big player in the tablet space. But, it seems like the Kindle Fire’s main competency is a media tablet for purchasing Amazon books, audio, and video. There is no accompanying Kindle Phone to complement the tablet. I expect they are working on one, but chances are it won’t be ready until at least 2013.

    • Anonymous

      Well put. I used to think that only HP and Microsoft had any chance of creating a total ecosystem to counter Apple, with an outside chance for Google. With the demise of WebOS, that’s devolved to Microsoft and possibly Google. The big question is whether Google can successfully compete against both Apple and Microsoft over the long term. To do this, they are, IMHO, going to need to seriously clean up their act from an intellectual property point of view. Perhaps their purchase of Motorola will help accomplish that.

      In effect, Google will have to match the computer ecosystem of Microsoft and Apple. Will Google be able to leverage its mobile OS onto a desktop, including powerful desktop apps that interact with its mobile apps? That’s a pretty tall order.

      My inclination is towards a future where only two ecosystems remain standing; Microsoft and Apple.

      • Ccaajj

        MS currently has a failed/fledgling mobile phone OS, and an unreleased tablet OS, neither with any meaningful ecosystem. They have the worlds biggest PC ecosystem, but so far they’ve shown zero ability to leverage that in the post-PC era. So if the future is Apple vs MS (arguable premise), the future is Apple.

      • Anonymous

        I did say “chance of creating”….

      • Canucker

        To be fair, Windows Phone 7.5 is half decent (if you are into the Metro GUI). It’s much smoother than Android and approaches iOS in responsiveness. Microsoft has taken this seriously – its no WinMo bastardization. Of course, its market uptake is less than spectacular but that will very likely change with Nokia. After all, Nokia has put its Finnish future on the finish line. The two first Nokia WP7 phones are not spectacular, but they will sell. I agree Microsofts tablet approach leaves a lot to be desired. The idea of a mutant hybrid system for touch and keyboard entry doesn’t warm my cockles. I think Apple showed the way with OS X and iOS. iOS was born of the loins of OS X but strips away the PC underpinnings denying lazy fall-backs to interface elements that should never be poked by a finger.

      • Anonymous

        Perhaps Googles best move would be to buy Amazon…

      • Canucker

        Over the dead body of Jeff Bezos. He is standing on Sergei Brins shoulders and relieving himself in public.

      • Anonymous

        Ha! So much Google hate around here.

        Unfortunately, the predictions tainted by that hatred are not very realistic.

        The outcome of all of this integration will be more and more standards. Look what has happened to the web. It has returned from whence it came. Full circle. Back to standards.

        This group’s (not so) secret wish that Apple assert dominance and control of all computing will never happen. Sorry.

      • jawbroken

        I don’t see where anything like that is expressed as a “wish” – the focus of the site is analysis and prediction, not desire.

      • I don’t know what group you are referring to but Apple has 5% of mobile phones and less than 5% share of PCs. It’s hardly in a position to assert dominance and control in anything (apart from customer satisfaction.)

      • Anonymous

        I agree it could all be OS X and NT in a few years. Google is so incompetent in client computing that they make Microsoft look good.

      • Shameer M.

        It’s like deja vus all over again but this time it may be Apple who’s in the driver’s seat.

  • Anonymous

    I’m not sure how easy it is to do, but it would be better if the lines around the white boxes in the first graph were thicker. The ASP of half these companies is very difficult to see. I guess another option would be putting a background behind the graph or filling the boxes with a colour other than white.

    Thanks for all your hard work.

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  • Walt French

    Might be fun in a “fantasy football” way to merge Nokia’s and Microsoft’s phone businesses. Certainly Nokia is capable of cranking out all the WP7s that Microsoft wants, the feature phone business is contracting rather sharply, the existing WP7 partners are building a rather insignificant number of devices and now you posit the end of standalone smartphone companies.

    Although you suggest ecosystem integration that would favor bringing Nokia into Microsoft, I actually believe both would be better served by the opposite direction. Everything I see about the MS slate and phone projects suggest classic incumbency reactions, trying to compete against incumbent phone manufacturers and disruptive PC/slate manufacturers with a sustaining enhancement to Windows. Something to chew on.

    • Canucker

      This is the Google/Motorola dilemma. How to promote an effective ecosystem without pissing off the competitors. Microsoft is clearly treating Nokia as a prodigal son and that must hurt the other licensees – especially as they are also sending cheques to Redmond with every Android device they sell. In other words, Redmond will likely continue to receive substantially more $$ from its non-Nokia licensees but is channelling those $$ to their direct competitor. They (Samsung and HTC) really are caught between two juggernauts and are really little more than collateral. Samsung knows this, as does HTC. If Nokia does develop into the primary WP licensee, Samsung and HTC will have lost their weak hedge and be reliant on Google which now shares its bed with Motorola (minus a few thousand of the people they let go). I doubt Baidu will come to the rescue.

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  • Adrian Constantin

    Horace, I would not draw the same conclusion from the data. Development and marketing of phones as an independent activity has always been a rarity in the business. The phones business has never been the only activity for Motorola, LG, Nokia, Samsung, Alcatel, Siemens, Ericsson, NEC, Hitachi, Fujitsu or Toshiba. For some of them it has not even been their primary business.

    • While it’s true that there have always been companies involved in more than phones, the trend for a decade has been one of divesting of non-core assets to focus on the phone part. Motorola spun off into Motorola Mobility, Nokia has tried to separate its phone and networks businesses, Sony Ericsson was formed as an independent phone business separate from Ericsson and Palm was once a dedicated business (even spinning off its software into PalmSource). I believe that notion is coming to an end. The idea of being in the phone business as a pure play does not make sense any more.
      I don’t see any independent phone-only vendors emerging to take the place of those who are being integrated into other businesses.

  • davel

    The notion that the development and marketing of phones as an activity independent of other business models may be coming to an end.

    As has been noted many times on this blog phones are computers not a mobile phone. Apple drove this point home very clearly a few years ago. As you have noted before the victors in this race are computer companies, not mobile phone companies.

    The race is to be more valuable and useful to the consumer. Being focused on being a phone is not good enough. In fact it is insufficient to survive. All the features that mark a modern phone stem from traditional computing not the ability to make a phone call which has become secondary. So a computer company that has a phone line has more options and resources to making a modern phone than a company that only has expertise in making calls.

    • Anonymous

      Funny, we posted at the same moment addressing the same issue. Great minds etc., etc.

    • Anonymous

      Phone calls and texts are commoditized. The user expects them to be there on every device. Same as users expect every computer to have the Web. The competition is based on other features. So users are choosing “phones” based on apps, games, movies, music, books, Web, email … anything *but* calls and texts.

  • Anonymous

    Horace, excellent analysis, thanks.

    But I wonder if the exit of so many incumbents is really an indication that this analysis is nearly obsolete. We seem to be clinging to the notion that there actually is a smartphone market when in fact we are in the middle of a transition to a “handheld computer” market. The exiting companies seem to be those that assumed that continuing to build nifty phones would keep their market position, while the new entrants are focused on providing data/web/email devices that also happen to make phone calls.

    The implications of this are enormous. For instance, carrier relationships to the handset makers (thanks to Apple) is changing due, in part, to the fact that standard usage is becoming less like a phone and more like a computer. Also the wifi enabled aspect of modern phones is disintermediating the carriers even faster.

    As the carriers become little more than dumb pipes and shopkeepers they will do less and less of the sales and marketing heavy lifting, leaving traditional handset manufacturers to do it on their own and they haven’t a clue how to even go about it. They will continue to be beaten about the head by those handset manufacturers that have marketing ability, sales channel experience and a product marketing model more appropriate for the computing world–say Apple.

    So what happens if Motorola, LG, SE and RIMM go away? Can we even call this a smartphone market? With only Apple, Samsung and Microsoft (or Microsoft/Nokis, if you want to look at it that way) really in the race, we are talking about an industry that is closer to computing than it is to cellphones.

    So, I posit that that the old line handset manufacturers aren’t leaving the smartphone market; the smartphone market is leaving them–by turning into an entirely different animal: The handheld computer market. May I predict that soon the charts you make for this industry will have a different legend?

    • Anonymous

      I think you’re right that the focus is on “mobile computers” versus “mobile phones”. The only nit I’d pick is in including Samsung in “the race”. Samsung’s present success hinges largely on their having cut very, very closely to the look, feel, and even method of iOS. It seems quite likely that they’re about to pay a huge price for that. It may even be that the creation of “Googerola” is due to Google seeing the handwriting on the wall vis a vis Samsung and trying to carve out a safe haven for when the S hits the F.

      Just my two cent’s worth….

      • Anonymous

        Good point, although imitating a “real” handheld computer is the next best thing to actually being a handheld computer maker. But possibly Samsung’s present success has little to do with anything except their enviroment. I’ve had the suspicion, since Samsung started their recent rise, that they have been successful largely because most of their competitors executed so poorly. I mean, if you want to share a market with the likes of Motorola, LG, SE and RIMM…well, how could you not do well?

        What happens to Sammy if Apple’s new multi-tiered product offering sells like gangbusters and if Microsoft/Nokia come on strong?

      • Shameer M.

        I am confident the Nokia / MS partnership will come on strong. MS had made a great platform with Windows Phone (especially Mango) and Nokia still is strong on the hardware & services side.

      • Anonymous

        Samsung is selling more smartphones than anyone else. They’re not only “in the race.” They’re leading it.

        And Samsung does better the more they diverge from Apple products. Their UI is already different enough and now it comes down to who holds the trademark on a glass screen with black bezel.

      • perhaps you missed the second pie chart? You know the one with current profits? Where apple is taking over half. Most business define leading by profits not “shipped” units.

      • Anonymous

        It’s all about definitions, isn’t it, Deviant? The way you are defining “in the race”, you may be correct (for the moment – last quarter you would have been wrong and next quarter you may be wrong again), although a lot of your argument hinges on the definition of the term “smart phone” and whether or not those smart phones are actually in customer’s hands or gathering dust on a shelf. However, who sold the most smart phones last quarter wasn’t the gist of delmiller’s definition, now was it? The “race” he and I were referring to was owards a future where the advantage belongs to those who have developed a full-blown computer ecology. If Samsung is in that race at all it will only be tangentally, as a producer of devices that operate on a Google or a Microsoft OS.

        Please try to keep up.

    • Adrian Constantin

      I don’t know how many people remember, but the incumbents had already anticipated the change of the smartphone into a mobile computer business. Microsoft was sure that they can succeed in the smartphone business using their PC business model. Nokia has talked for a long time about the convergence of communication and computing and even had a commercial for the N95 product claiming that “it’s what the computers have become”. The phone manufacturers tried hard and in all honesty to build a mobile computer, but the output of their design has stubbornly looked like a phone again and again, until Apple showed the way forward. The smartphone today is what the phone manufacturers predicted it to be. Ironic and spooky at the same time, but also in line with what the disruption theory predicts.

      • Anonymous

        True, but it’s not just about building a device. It also involves a lot of go to market considerations that the encumbents didn’t seem to have the agility to execute on. Just making a phone with a microprocessor inside is not the same as making a handheld computer. How would the original iPhone have sold if it didn’t have a built in iPod or a touch interface that made mobile computing a pleasure instead of a chore? What if, instead of taking control of the product marketing, Apple had sold iPhones solely through the carrier’s purchasing department like everyone had always done before. The iPhone would have been considered just a fancy phone.

      • Not only had the product looked like a phone but it was sold like a phone, was sold by the same people who sold phones and thus had the same channel incentives, was priced as a phone, had a hardware-centric business model and obtained no network effects from platforms that were never nurtured. The mediocre Design is the tell-tale sign that beneath the surface the organization does not perceive there is a break with the past.

      • Anonymous

        You guys need a history lesson.

        That does not “look like a phone.” It uses the same capacitive screen as the iPhone, but it was released about 6 months prior.

        It wasn’t that Apple “showed the way forward.” As usual, they were smartly in the right place at the right time.

        If not for the iPhone (a phone with the backing of a well-known computer company), the LG Prada would have sold more that the 1 million they sold in spite of the iPhone.

      • jawbroken

        Is your suggestion that Apple reacted to the release of the LG Prada by quickly putting together a clone? Is your suggestion that the iPhone-like phones that have been released since are actually Prada-like? I don’t think this is supported by the evolution of the software that runs on these devices, which is the far more important element of the current disruption. The hardware isn’t as relevant.

      • Anonymous

        Nope. I try to keep my posts on-topic, so you can generally just refer to the parent posts to figure out the context…

        Specifically, “…but the output of their design has stubbornly looked like a phone again and again, until Apple showed the way forward” followed by Horace calling their designs “mediocre.”

        I contrasted that with a link to a capacitive touchscreen phone whose design is quite similar to the iPhone, but months earlier, and would have led to the same changes in phone design that the iPhone did, if the phone backed by a big computer maker had not eclipsed it, encouraging people to get past the risk of the purchase of a new technology smartphone. Of course, since it is an LG phone, I’m sure many of you wouldn’t praise the design just on the fact it has no Apple logo. History is written by the victors?

      • jawbroken

        “I contrasted that with a link to a capacitive touchscreen phone whose design is quite similar to the iPhone, but months earlier, and would have led to the same changes in phone design that the iPhone did,”

        This is a strong assertion that Horace has already responded to above.

        “Of course, since it is an LG phone, I’m sure many of you wouldn’t praise the design just on the fact it has no Apple logo.”

        Again, the design of the device includes the software as much, if not more than, the hardware.

        Anyway, if you want to determine who “showed the way forward” you should look at who everyone followed.

      • Design is how something works not just how it looks. It’s function as much as form.

      • Phones that did not look like phones existed far earlier. The first one I used was a Handspring Visor with a GSM module plugged into the Springboard slot. I was a perfectly usable touchsceen phone even before Microsoft shipped the Pocket PC Phone Edition and the hundreds of phone models using that interface during 2000’s.
        The point of my comment, and the post, is the absence of dedication of incumbents to pursue platform-based products at the expense of voice-oriented product lines. Your choice of LG as an example is apt as the company is now in significant distress because of their disdain for the very category they dabbled in with the Prada. It was not a smartphone and the company made no investment in any software development for the product rendering it a footnote in history.

      • Anonymous

        You can not predict what would have happened to LG had Apple not created their own capacitive touchscreen phone just months later.

        The major difference between the iPhone and previous devices (except the Prada) was that you didn’t have to use a stylus, and Apple designed the interface around finger presses, with large buttons as opposed to Windows Mobile’s buttons so small you had to use a stylus to change settings and tap buttons. Apparently the LG Prada used a Flash UI, which also allowed a usable touch interface.

        Had Apple not been there, it’s quite likely that after they sold a million LG Prada, someone would have improved upon the software. That may have happened quickly or slowly.

        It wasn’t that they were still making devices that look like a phone. Again, this is what I was replying to: “The phone manufacturers tried hard and in all honesty to build a mobile computer, but the output of their design has stubbornly looked like a phone again and again, until Apple showed the way forward.”

      • Davel

        Yes. You cannot predict what might have happened.

        But we have seen what did happen, which is Apple came out with a completely different value proposition with a superior integration of features and everyone else got sent to the back of the bus.

      • Adrian Constantin

        My choice of words “looked like a phone” was not good, indeed. Design is not really about how it looks, it is how it works 🙂 And in that respect Apple did not design a phone. The iPhone did not even work very well as a phone in the beginning. Prada might have similar tech spec, but it works in a very different way. I also agree with delmiller and Horace that the iPhone was not sold like a phone either.

      • poke

        Judging from the shoddy Flash-based UI it’s more likely that the LG Prada phone was rushed to market based on the pervasive rumours of the iPhone at the time than that the iPhone was in any way inspired by the LG Prada phone.

      • Anonymous

        I never said the Prada inspired the iPhone. Get over it.

      • jawbroken

        If it didn’t inspire the iPhone, and nobody else set out to copy it, then how did it “show the way forward” in any way?

      • Anonymous

        Please. Please stop putting words in my mouth. Denying that Apple “showed the way forward” does not imply that I ascribed it to anyone else.

        Technology moves forward. I don’t glorify individual companies in the same way many of you do. Especially when the evidence shows we were going to get where we are through one or more independent innovators anyway. I just think some people are getting carried away.

      • jawbroken

        So you are saying that nobody drove change in the mobile phone industry, that the actions of no company influence the actions of another. That all these technology companies exist in a vacuum, behind a chinese wall, etc. Very interesting mindset. Kind of makes for a very disinteresting discussion, though, and doesn’t really allow for any reasonable analysis or prediction.

      • Anonymous

        What don’t you get about independent invention?

    • Canucker

      The telcos are starting to wake up and some are trying to bite back at Apple (Czech O2 and US Cellular). Way too late. AT&T defined the new relationship and spread the virus that is undermining the traditional telco power relationship. Their only hope is to hang onto their Internet/TV business as a shackle for bandwidth. Good luck on that…

      • Shameer M.

        It’s never really too late. All it takes is a couple of carriers to stand up and it could potentially start a domino effect. From what I understand, Apple commands a price subsidy that’s $200 higher than industry average, which is pretty high. How long before carriers say enough.

      • Anonymous

        U.S. Cellular already has. They weren’t having any of that.

      • GeorgeS

        So? You seem to want to give people lessons, so here’s one for you. US Cellular is the *8th* largest cellular provider in the US, a bit less than Clearwire and a bit more than Cricket. In March, 2011, US Cellular had 6.07M subscribers. Compare that to: Verizon–107.7M; ATT–100.7M; Sprint: 51.1M. Together, the 3 US carriers who sell the iPhone have 159.5M subscribers–nearly 43 times US Cellular. Even Sprint has more than 8 times the subscribers as US Cellular.

        To put this another way, in the last quarter, Apple sold 17+M iPhones–2,8 times US Cellular’s size. In the last fiscal year, Apple sold 72.3M iPhones–nearly 12 times US Cellular’s total subscriber base. Apple has said that 70% of iPhones are sold outside the US, so one could assume that about 21M iPhones were sold in the US during their last fiscal year. (Horace surely has better numbers.)

        As far as Apple and iPhone sales are concerned, US Cellular is pretty much irrelevant.

      • Anonymous

        Nice stats.

        But he asked “How long before carriers say enough.”

        And I answered. Sorry if that offended you. You seem mad.

      • The original comment mentioned US Cellular. Repeating that is not an answer to when others will do the same.

      • Davel

        Sprint very publicly disagrees with you. Their CEO has stated their loss of customers is directly related to the lack of an Apple phone. They corrected that with a guarantee of iPhone purchase. Verizon also recently decided they had to have the Apple phone.

        this was foreshadowed in Europe. So the telcos disagree with your thesis.

      • Anonymous

        Not with me. With U.S. Cellular.

        I’m not sure what is the disconnect here. U.S. Cellular was offered the iPhone and refused. They stated that publicly. I’m just relaying this news to you. You can disagree with the reported facts all you want, but take that to the newspapers that reported this story, not to me.

      • The economics of iPhone are well understood. It requires a huge up-front payment in exchange for later recovery through higher ARPU, lower churn, better quality of earnings, etc. The decision process is exactly what operators do all the time with respect to network investments. There are risks however and every operator needs to decide if the investment meets their criteria. There have always been operators who said “No thanks.” In fact, the vast majority said no for years. There are many huge and small who still say no for various reasons.
        The conditions that Apple sets for the product are difficult hurdles but, slowly, many if not most carriers are finding it a good proposal.

    • Z Kariv

      All this might be true in the developed world (and even here it depands on the affordability of the monthly fees). Yet, most of the world’s population lives in an infrastructure which is undeveloped (and it will take possibly decades to bring it to our level now–2011)
      For them, even the most simple phone is barelly attainable–perhaps for most is still only on the horizon. Some of those by-the-way-side companies might come back with the “only phone” the “primitive” (?) type devices in the future

      • The history of mobile phone adoption shows that emerging markets have lagged the adoption of new technologies by less than 5 years. 3G is being rolled out very rapidly and it’s financed by data plans just like it was financed in the developed world. See for data. From the summary:
        • By the end of 2010, there will be an estimated 5.3 billion mobile cellular subscriptions worldwide, including 940 million subscriptions to 3G services.
        • Access to mobile networks is now available to 90% of the world population and 80% of the population living in rural areas.
        • People are moving rapidly from 2G to 3G platforms, in both developed and developing countries. In 2010, 143 countries were offering 3G services commercially, compared to 95 in 2007.

      • Canucker

        Just returned from Wuhan, China. This place is not on the map in terms of news, but has a huge population (12 million or so) and is growing like crazy. There are lots of fake products, but also a growing middle class and the roads are full of BMWs, Mrcedes and other up-scale cars. There is a lot of poverty, but also a lot of consumption and disposable income. I saw real iPhones and iPads, not to mention many other devices, everywhere. People will buy devices based on both their value to them and for their perceived value. It is not for us to judge their choices. Apples percentage of global sales in China went from 2% a few years ago to 12% in the last quarter.

    • Anonymous

      Smartphone has always been a meaningless word. Users don’t carry a phone and a smartphone. They are not two different devices. A smartphone is just a phone.

      • Anonymous

        I have a non-smart phone in my pocket right now. Quibbling over semantics aside, I can tell you it is neither a smartphone nor a computer. It is just a phone. There is a difference.

        But the distinction I was making was that at some point a phone becomes more of a handheld computer than simply a phone–smart or otherwise. At that point the usage case changes the entire market and phone makers will be left playing checkers while the new entrants will be playing chess.

        According to the last estimates I saw, for every 10 iPhones that Apple sells it moves 4 iPod Touches–which is a smartphone without the phone and is therefore indistinguishable from what you could call a handheld computer. Add in the iPad and you can see that the market for highly mobile computers is huge. Now, consider that morphologically the iPhone is an iPod touch with a cell radio and you can argue that it is actually a closer cousin to computers than phones.

        As these handheld computers with phones in them take ever larger market share, the market will change and be a handheld computer market.

        Or so says I.

      • Anonymous

        Spot on.

      • Shameer M.

        The market’s already changed. There’s no turning back.

      • Anonymous

        The “computers with phones in them” that are taking ever larger market share are not Apple’s. Just saying.

      • Anonymous

        Really? This increased market share would be going to whom? Motorola? LG? Sony? We are talking about the future of handset manufacturers here so maybe you’re talking about the nebulous estimates of Samsung. But let’s wait until there has been a full quarter of iPhone 4s sales and we’ll see what “ever increasing” means.

      • Davel

        It depends on how you count smartphones.

        Yes. Apple has 28% or whatever of the market and Samsung is breaking out, then there is HTC and all the rest. The problem with Android is they are not all created equal. Even for the top tier, the interface overlays create differences in interface and so fragments the market.

        But more importantly the white box type phones from china degrade the brand. Are they any good? Is a $50 android or a free one the same as a $200 one? What about quality?

        I agree that Apple is maintaining a ~25% share and probably will not break out much beyond that. But consistency of experience is important too. That is why in the pc space hp and dell are top brands, you can get others, but the consumer wants to know what they are buying.

        A year from now with the entrance of the cheap Android phones will the consumer be as sure? Will they just go for HTC, Samsung, Motorola and ignore everyone else? If so what is the share of those 3 Android phones? Can you count them? Can anyone?

      • Anonymous

        The white box Android phones aren’t available here in the US and I doubt they’re available in Europe. Why anyone would buy one here when there are free alternatives from the major brand is beyond me. Sounds more like an unrealistic talking point to me.

        You should also put a disclaimer that the 28% figure for Apple is for the US. For global smartphone shipments, they are at around 18% and Samsung is 28%. And yes, I am referring to smartphones only.

      • Davel

        I would argue that Apple built a mobile computer with a phone attached. Then Google copied the software and HTC and the others were able to copy the features.

        Just as an aside, the power of any smartphone today is probably more than a mainframe from 1980.

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  • Anonymous

    What it looks like to me is that phones are computers now.

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  • kevin

    And it won’t get any better for Apple’s competitors in the 4Q. HTC has already seen and acknowledged it in their 4Q forecast on 10/31. Apple’s shift to an Oct launch looks to have taken the media and consumer attention away from the WP7.5 release, the Samsung Galaxy S II’s US launch, and the Android ICS release. Reminds me of what happened to the Palm Pre.

    If Apple launches the 4S in China ahead of Chinese New Year (Jan 23) and also on China Telecom, 1Q12 should look really good too.

    • Anonymous

      Just to add to that cogent observation, Apple’s move to upgrade their iPhone at the beginning of their fiscal 1st quarter looks to me to have been supremely calculated. By doing so, they “front load” their new iPhone introduction into the biggest sales quarter of the year. It’s going to pay off hugely in the coming months thanks to the sales momentum they will generate. And even more importantly, that strategy will pay off big time for them in future years as well. Yes, they took a PR hit this year by “missing” their normal upgrade window, but strategically it was an extremely smart move, IMHO.

      • BCo

        Sacto_joe, could you elaborate on that? I’m not sure why Apple would purposely front-load the iPhone 4S such that it inflates their fiscal Q1 revenue…wouldn’t any gains seen in fiscal Q1 be offset by the “losses” Apple took in the previous quarter by “missing” the June target? In other words, it seems to me that launching the 4S in October just delayed revenues that would be reaped anyways in the previous quarter, so I don’t understand how their decision to delay the launch is of any strategic net benefit. Feel free to educate me 🙂

      • Anonymous

        I’ll try to elaborate, BCo. This year, the new iPhone has been moved closer to the prime purchasing season of the year than last year. At this time of year, people are looking for the newest, most desired gift to give. That will avalanche demand. That avalanche will create momentum carrying into next year.

        Think of a snowball. The bigger the snowball you start rolling down a hill, the faster it gets bigger, relative to a smaller snowball. Launching now as opposed to three months earlier creates the biggest possible snowball to start rollling down the hill.

        If there’s a potential problem, it’s going to be Apple’s ability to keep up with demand leading up to Xmas.

        Note that this isn’t a one-time deal. Next year I expect Apple to once again deliver its newest iPhone at about the same time, and for the exact same reason.

        Time will tell if I am right.

      • Davel

        It also spreads out the announcements. Tablet in spring phone in the fall.

        I agree that phones can be nice Xmas gifts and so by not giving the competition time to add features it allows the product to stand on its own for the holiday rush.

      • Anonymous

        BTW, this ties in with kevin’s original remark in the following way: Before, there was the possibility to be “upstaged” by competitors, and kevin points out some competitors who might have been able to do so. Moving their iPhone unveiling closer to the prime sales season decreases the likelihood of such upstaging this year and in all subsequent years.

  • Canucker

    Exactly. The carriers used to be the dominant partner and held considerable sway. They dictated terms to Nokia, RIM, etc. they blocked apps and pushed their own revenue stream (remember Verizon’s music….?). Then AT&T/Cingular did their deal with the devil and exchanged their control for a bigger subscriber payment -splitting the spoils. In virtually every market, customers can buy an iPhone for a carrier. Some choose not to carry it whereas others are still falling over backwards to offer it. The point is, small players like US Cellular can choose to be different but they do it for their own business reasons – it doesn’t change the market. While Apple is grabbing the lion share of the prize or creating the new environment, other device makers are also benefitting. If the telcos decided to band together, play hardball and lock out the likes of Apple for better terms (and the thought of that ragbag of self-serving companies achieving that is not too preposterous), then Google, Apple, etc would very likely build their own network infrastructure. Why not?

  • Anonymous

    BTW, this ties in with kevin’s original remark in the following way: Before, there was the possibility to be “upstaged” by competitors, and kevin points out some competitors who might have been able to do so. Moving their iPhone unveiling closer to the prime sales season decreases the likelihood of such upstaging this year and in all subsequent years.

    • Anonymous

      Sorry – posted this to the wrong place….

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