Categories

The effect of smartphone growth on share prices

Data on Q4 performance is starting to trickle in. Last week Motorola, as part of a profit warning, revealed their Q4 smartphone shipments were 5.3 million. RIM had reported 14.1 million units (quarter ending November). HTC has also warned that their shipments of smartphones (and tablets) totaled 10 million. Samsung provided guidance on overall sales but since they don’t report data on smartphone (or phone) sales, the estimates are ranging between 32 and 35 million.

Many have forecast Apple’s performance but there are many other companies which are not easily estimated (Sony Ericsson, LG, Nokia, ZTE, Others.) But rather than dwelling on the specific quarter, we can make some long-range estimates of performance based on the historic data.

One method I use is to look at patterns of growth. Growth is the first derivative of market performance and it sometimes shows patterns which the performance itself does not. Consider the following chart showing the growth pattern for RIM.

The blue line shows the absolute year-on-year quarterly growth based on reported numbers of smartphones shipped. I’ve also shown the growth “relative to market” which is unit growth with market growth subtracted. This orange line represents how much faster (or slower) the company is growing relative to the market. If the orange line is above zero, the company gained share. If it’s below zero, it lost share.

I also overlaid the performance of the share price (right scale).

Now compare that with another long-term incumbent in the smartphone market, Nokia. 

Bearing in mind that the scales are identical, Nokia’s relative performance has been negative since early 2008. Persistent negative smartphone performance relative to market growth causes persistent loss in share price.

What about other, more recent competitors?

HTC is not a recent entrant in smartphones, and has gone through a phase of growth with Windows Mobile in the 2000’s. This is its pattern of growth (and its share price).

Keeping the scale for growth consistent with the other companies leads to a bit of clipping but the pattern of rise and fall also seems correlated to share price performance.

Finally, the following is the same analysis applied Apple.

Again, keeping the growth scale consistent leads to some clipping, but the pattern remains observable.

What seems to be rewarded to various degrees is consistency in growth of smartphones for companies which are primarily engaged in the market. However, failure to grow is punished with severe share price declines.

Being able to forecast smartphone growth seems to be useful, at least in the time frame of one or two years.

  • James Scariati

    Fascinating. Was the drop in Apple in mid-2011 due to the iPhone 4S being “late?” Should it worry them that relative growth dipped below 0% for the first time, or is thst most likely just an anomaly?

  • Pingback: Monday links: safer finance | Abnormal Returns

  • Anonymous

    James,

    I think there were a couple factors which held back Apple’s share price growth last year.

    As you say the delay in announcing the new iPhone resulted in a very weak iPhone sales Quarter ending Sept. 2011 as buyers held back waiting for the new iPhone. 

    The silver lining of course that the surge in sales has been delayed to the next quarter i.e. to FY Q1 2012, which is likely to results in a stronger than usual start to the financial year. It will be interesting to see if the next new iPhone is released this financial year or next?

    But another significant factor was the re-weighting of Apple in the Nasdaq Index (down from around 20% to around 10%) which resulted in a large amount of selling as trackers funds sold Apple shares, to rebalance their portfolios. This was a one off, and should not apply this year!

    • James

      I think they’ll do new iPhones every September now, replacing the iPod at the annual fall event. That’s why I say the 4S was “late” in quotes – we don’t know if it truly slipped from their internal schedule, or if they planned all along to shift it to September as the iPod line fades in importance.

      • Anonymous

        Exactly. It was either intentional, which makes it a sheer genius move, or it was accidental, which makes it an extremely fortuitous move. Either way, don’t expect Apple to move its release date back to where it was.

        BTW, 2.0 just did a piece on U.S. iPhone market share for October-November. According to that report, Apple stole a huge amount of market share from Android over that wo month period.

        So if there’s a correlation between smartphone growth and share price, APPL is about to skyrocket….

  • Anonymous

    Comparing Samsung’s “smartphones” to Apple’s is unfair, since most of Samsung’s barely rate the term. Much fairer would be comparing Samsung’s top-of-the-line smartphones to Apple’s – if Samsung would give out that information….

    • Anonymous

      Considering that Sir Johnny is doing design work for both Apple and Samsung…

  • Anonymous

    I believe Motorola announced 5.3million smart phone sales for Q4

    http://www.reuters.com/article/2012/01/06/us-motorola-idUSTRE80522I20120106

    • http://www.asymco.com Horace Dediu

      Yes, sorry, had a typo there.

  • Anonymous

    Units shipped versus units sold (sell-in vs. sell-through)… where are the posts, and subsequent discussion, regarding units returned (and rates of return)?

    I’ve read articles on other sites mentioning that iPhones have a 1% – 2% return rate. Is it safe to assume that kind of return rate for companies like Samsung, HTC, and other “smartphone” vendors, too?

    I’m primarily asking because it has been mentioned before that Samsung, in particular, manufactures/assembles “smartphones” not only running on Android x.x–but also for operating systems like Windows Mobile, Windows Phone, and Bada. Can anyone even hazard a guess as to return rates based on OS?

    Moreso than a quality issue, I’m thinking of software/hardware integration. Using the iPhone to compare against, I’m certain that comparable non-iPhone models are relatively high quality in terms of build, aesthetics, etc. And that for many customers Android is a good-enough OS, as an example. However, is there any talk–anywhere–regarding customers buying, say, a Samsung “smartphone” powered by Android (or one of their other OSes) only to return it or hock it because it wasn’t what they hired it for?

    Perhaps I’m making a mountain out of a mole hill, but only talking about units sold (and the revenues that accrue) makes it seem like these gadgets are never returned or resold by their former owners. Hmm, do business/corporations return/resell CE gadgets–what’s rate of return for them?

    • http://www.asymco.com Horace Dediu

      There are no posts or discussion on sell-through or return rates (or warranty costs) because that information is not publicly available.

  • Ian Ollmann

    Some sort of logarithmic representation is on order here.  -100% is a whole lot different from +100%  !

  • Ian Ollmann

    Also, you are comparing a derivative to a regular quantity. Share price should correlate with earnings, not growth. Share price growth should correlate with earnings growth. 

    • Ian Ollmann

      Sorry, I should have said units shipped where I said share price above. The charts need axis labels. 

      • Ian Ollmann

        Oh, that is share price! Sigh.
        Axis labels. Axis labels. Axis labels. Axis labels. Axis labels. Axis labels. Axis labels. Axis labels. &c

      • http://www.asymco.com Horace Dediu

        Yes, I should have axis labels.

  • http://www.facebook.com/bobvan13 Bob Van Valzah

    Horace, Insightful analysis as always, but I think I see a charting glitch. The growth range on the first (RIM) chart looks to be -100 to +150% while the rest are -150 to +150. I think it was your intent to use the same axes for all charts since you said “the scales are identical.”

    I enjoyed your remarks on the Mac Power Users podcast where you mentioned that your workflow allowed you to make quick revisions to charts. It’s a great way to incorporate feedback from comments.

    • http://www.asymco.com Horace Dediu

      Yes, thanks for the feedback. I will correct this.