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Estimating HTC's post-traumatic life expectancy

In May 2012 I wrote:

The pattern may be that companies either have short post-trauma lives of about two to three years or relatively long post-trauma lives lasting 4 to 5 years. What determines this life expectancy and how long do RIM, Nokia and LG have?

via Post-traumatic life expectancy of phone vendors | asymco.

These comments came right after BlackBerry (then RIM) announced a loss and thus entered what I called the “post-traumatic” phase of its existence.[1] The observation I have been making is that once a company begins to generate negative operating margins from phone sales, that phone business never recovers.

The question then becomes one of gauging how long they have before the business is sold, dissolved or merged. Since that update, both Nokia and RIM have tentatively agreed to be sold. If the sales go through then we can update the graphs as follows:

Screen Shot 2013-10-04 at 10-4-11.01.11 AM

[Graph note: solid bars in the second graph indicate companies which exited and thus the duration of life post-trauma. Hollow bars indicate the companies have entered post-tramuatic period but have not yet exited. Lines extending from the hollow bars indicate life expectancy henceforth.]

It turns out that Nokia and RIM did indeed have “two to three years” of life left under the same ownership. Two years to be precise. But as Nokia and RIM change hands (and are thus re-classified in the graph above) HTC enters the schedule.[2]

HTC has just confirmed that they have lost profitability for the first time since going public in 2002. As the clock begins running the alarm is now set to a much tighter 2 years. The implication being that HTC will change ownership or control no later than mid 2015.

But there is a post-script to this story. LG, you may note, has not exited phones. In fact, it seems to be recovering nicely. Doesn’t that give hope to HTC?

I don’t believe it should. The caveat to this short post-tramuatic life expectancy hypothesis is that it applies mostly to companies which derive the bulk of their sales from phones. Companies which are conglomerates or which can offset losses from phones with cash flows from other businesses tend to live longer.

This does not mean however that LG’s survival is assured. The factors at work in the phone business place continuing stress on the weakened while favoring the strong only temporarily. The dynamics are nothing like those in consumer electronics or in the computer industries. Reversals of fortunes are breathtaking.

Sic transit gloria mundi.

Notes:
  1. The analysis began earlier, in June 2011 []
  2. Note that there are many companies not listed which also exited. I simply did not have data for Palm, Panasonic, NEC, BenQ, Alcatel, Hitachi, Casio, Fujitsu, Handspring or Danger or many other asian brands which are no longer in this business. []
  • Tatil_S

    Wasn’t Sony handset business losing money until one or two quarters ago? Do you skip it to as part of a natural turn around period after the acquisition of SE?

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

      The point is to track a company that has been operating successfully as a phone maker for a few years and reaches a point of trauma. I use making an operating loss as a proxy for trauma though obviously it’s not a perfect trigger. It does not make sense to observe a company that has just been acquired as it is not yet stable enough to be considered out of post-trauma.

  • willo

    Unless you make software,hardware and services yourself, you´re on your way out of the handset business or computer business as it should be called.

    • TheEternalEmperor

      “computer business.” Great point.
      In other words, how many PC makers would survive if they were only selling $99 or $99 PCs?

      Not many.

  • http://twitter.com/LunaticSX Lun Esex

    Are there any numbers for Sony’s handset business, after acquiring Sony Ericsson?

    There’s also Kyocera…

    • Tatil_S

      Siemens, too. Ouch, this is a tough business.

  • normm

    Horace, you say “The factors at work in the phone business place continuing stress on the weakened while favoring the strong only temporarily. The dynamics are nothing like those in consumer electronics or in the computer industries. Reversals of fortunes are breathtaking.”

    The phone industry will soon be the mainstream of the computer industry, so its dynamics will define the computer industry. Whether this will be more like the former phone industry, or the former computer industry, is a matter for debate. I expect there to be a long-lived and profitable high end, dominated in the near term by Apple.

  • obarthelemy

    I think there’s a huge difference between RIM & Nokia, who didn’t have apps, and HTC, who do courtesy of Android.

    Saving RIM and Nokia involved making an OS people actually liked, running it on hardware that offered something more than than the safe alternatives (Apple and Android), then gettings thousands of devs to write apps for a non-existent userbase. That was just impossible.

    Saving HTC requires coming up with one smartphone that sells. It may be hard because it’s very hard to differentiate hardware when all players use the same suppliers and software doesn’t seem to click (if I were HTC, I’d go “100% Google Edition and guaranteed updates for 3 yrs, and ditch Sense, in favor maybe of a few specific tools/widgets). But it’s one or two orders of magnitude easier than what RIM and Nokia had to achieve.
    Edit: I think HTC’s high-end strategy is misguided, that market is way over competitive and HTC lost their chance vs Apple, Samsung, Sony, even vs LG. Go mid- and low-range,

    • Dennis Baker

      The problem is getting that one phone that sells to market. They currently have little or no leverage in the markets to acquire the hardware they need to get their products out the door. We’ve already seen the effect of this as they struggle to compete with other phone makers for key components. They struggled with delays on the HTC One the problem only gets worse as volumes continue to drop. More recently they were forced to settle for an older Qualcomm CPU for the HTC Max since the chipmaker couldn’t produce enough of their new high end processor to meet demand for smaller companies.

      Making an appealing Android phone is going to be increasingly difficult as they struggle to get critical components.

      • obarthelemy

        That’s true, but that’s probably even more true at the bleeding edge than at the middle of the market.

        There are several apparently unfilled niches for Android handsets. Maybe those are mirages, but they seem to be:
        - subsidized Nexus-type high end devices
        - small (<4.5") top-range devices
        - brand-name dumbphone replacement, something usable (dual core, 1GB RAM, 720p screen) around $250.

    • JohnDoey

      Every company that goes into the red can say the fix is to ship one product that sells. No mobile phone company has ever been able to do that, though. HTC is not only in the red, they are COMPLETELY UNNECESSARY. Absolutely nobody NEEDS HTC. Every HTC user can buy a Samsung and run all their same apps.

      • obarthelemy

        True, but, if you think about it, also true for almost all markets with more than one supplier, ie cars, blue jeans, silverware , PCs,…

        There no question they *can* fail. The bar they need to jump not to is not as high as others though.

      • Kizedek

        Nice argument. Except the reverse of it is always used to devalue Apple: Apple makes only the iPhone; therefore, Apple needs to keep coming up with hits, otherwise Apple is doomed.

        Yeah, the bar is not that high if all you aim at is producing something that “sells”; but, to do so profitably is a little higher yet. However, the bar is extremely high to produce an “iPhone killer” — or even worthy competitor. These are three VERY different bars.

      • obarthelemy

        I hadn’t noticed Apple are in the same “survival” situation than HTC ? And, again, HTC don’t have to support an ecosystem.

        Also, nobody’s going for iPhone killer anymore:
        - “Kill XXX” is good for teen movies, especially when XXX = Bill. It’s not really a way for grown ups to run a business.
        - iPhone is 15% of the market globally, ie 50% in the US and mostly 10% everywhere else. Not really a worthy target. Samsung is both bigger and more vulnerable.

      • Kizedek

        Granted. I was pointing out that Apple’s business is commonly perceived as “precarious” (as many of Horace’s recent posts have dealt with)… precisely because it has one* phone, that just happens to be selling well at the moment because Apple has somehow gotten the favor of a fickle public — fickle, but one that nevertheless can see real “sense” when it comes in the form of a Samsung ad, apparently.

        Therefore, saying that “all a company has to do” is “to make one product that sells” sounds a little funny, because apparently, to many, it isn’t enough for Apple, even when they aren’t in “survival” mode.

        [*Apple likes to think they now have a couple of phones that might actually sell on their own merits; but perhaps, as you would tell it, "repackaging last year's model" doesn't really count.]

      • Kizedek

        When something merely “sells”, it’s still only half way there, or may yet completely miss where the market is going. A “selling” product merely shows that everyone acknowledges the need for transportation, clothing, eating utensils in their most basic form.

        But merely “getting from A to B” is not the same as having reliable and comfortable transportation; avoiding nakedness is not the same as being comfortable and presentable in a variety of situations, etc.

        …likewise, merely making a phone call and checking mail is not quite the same as having reliable and usable computing technology in your pocket.

        As time goes on, common perceptions and expectations are raised, and the bar(s) only get higher.

      • charly

        Sony did, LG probably too. But they never say we need one product that sells. You need a family of products that sell.

    • charly

      Mid-range is last years high end + some cheeping/improvements. The only companies that go directly to the mid-range are companies who’s name isn’t good enough for the high-end aka Chinese junk.

      About the 100% Google edition. The camera software sucks in the 100% edition so it is a no go for the non-geek market.

      RIM market is business. They should sell their QNX phones as a safer version of Android on which most Android apps run. A kind of OS2 Warp which was a complete failure except financial. Nokia was badly run by Elop.

      • obarthelemy

        Exactly. How about doing a brand-name, updated-where-it-counts midrange phone to go against that “chinese junk” (sic, all phones are chinese-made, and some chinese-designed ones are good) ? Sounds like a low-hanging fruit.

        So, HTC should do a camera app and that’s it. I’m sure it can be fairly independent of the underlying OS. Archos already do that with their video player/media center, thus adding value to vanilla Android instead of FUBARing it into Archoroid.

        The whole “let’s re-spin the OS’s UI” thing originated in Windows 4/5/6.x dreadful touch UI. There’s no justification for it anymore, Android’s 4.x UI is best of breed, and customizable on top of that. OEMs should just supply widgets, skins and value-added tools, not recompile the OS with a new launcher for the sake of it.

        “Safety” is not going to be enough to stand on. Android is secure enough to start with once you lock it down to the PlayStore, and then there’s Samsung KNOX for Entreprise customers. Nokia was badly run before Elop, though Elop didn’t help any (unless the goal always was an MS takeover in which case he did great).

      • charly

        High-end gets you many reviews, mid-end not so much.

        High-end components cost drop a lot, mid-end less. Some markets don’t do mid-end, like for instance USA. Mid-end is also much more susceptible to be a price-taking market and a dumping ground for unsuccessful high-end models

        Archos is a step up from no-name Chinese but a step down from any serious brand. Stock is a positive point for them. It isn’t for one of the A-brands. Stock is only a plus-point for geeks &macdroids. Not for the average consumer

        A re-spin allows you to improve the user experience, hopefully. And can create lock-in, something desperately needed for Android phone makers.

        Andoid + Playstore allows you to root your phone. I can imagine a company not liking that workers can do that to their phone. Also Android security is alright from an owner-user perspective but their privacy is googlelastic.

      • obarthelemy

        Loaners to press gets you reviews. OEMs mostly loan high-end models, but Nokia for example ahd no trouble getting their 520 reviewed.

        Indeed, but still. The US market is weird to start with, so focusing on all other markets instead of that single one actually broadens your reach.

        I’m not sure HTC is still an A-Brand. Stock per se is 1- a draw for geeks, who are prescriptors, and 2- a means to an end: more updates (and lower costs).

        Honestly, from having tried them out, re- spins don’t do much except respin for the sake of respinning nowadays. Once you’ve added hardware-specific stuff (SD, IR, camera, USB Host, pen…), your job as an OEM is done. Widgets are a jungle, so providing nice ones (even 3rd party ones) is certainly a value-add. But launchers and custom UIs are over the top. For example, for some reason my Ascend’s Android version does not have a separate “all apps” screen, everything MUST be on the home pages. This has now value, unless you’re a “junk folder” provider :-p

        Android+Playstore allows you to root *some* phones, but BYOD corps can check there’s no root. Privacy is weak since it is user-controlled, but insulating work apps+data from the rest is fairly easy.

      • charly

        Nokia is WP. Getting an Android Me-Too phone reviewed is much harder.

        US market is weird but subsidies are normal. You can force a phone company to sell you at the high-end but not at the mid-end.

        HTC has tv adds so they see themself as an A-brand

        Re-spin works. See LG double-tab to close/open

        Privacy is weak because it is Android were everything is paid for by adds.

      • twilightmoon

        Nokia was doomed before Elop got there, you can’t say it was “badly run” by him without a lot of justification.

    • xynta_man

      > Saving HTC requires coming up with one smartphone that sells.

      No, it doesn’t. That one phone needs to be iPhone-calibre popular to support the whole company, which isn’t really possible for companies other than Apple. It also should be profitable for the company to sell that phone, which isn’t that easy to achieve.

      > if I were HTC, I’d go “100% Google Edition and guaranteed updates for 3 yrs, and ditch Sense, in favor maybe of a few specific tools/widgets

      And you would just kill HTC with those decisions even faster than they are dying now.

      Cellular carriers wouldn’t buy those “Google Edition” phones, since they don’t want undifferentiated products, users would not get any brand recognition in using those devices (good luck with that in the long run) and having to support software for three years on those devices would only increase their cost for the vendor, killing their already low profitability on them. There’s a reason why Apple can make software updates for their devices, while other companies can’t — Apple makes a healthy margin on their devices, while others don’t, at least on their mainstream devices. Sure, that’s not the only reason, but it is a very important one.

      It seems that you don’t know how the software world works — you don’t just get a copy of Google’s new Android versions and put in up somewhere on a server for your users to install — nope, doesn’t work that way. Google basically gives OEMs something like semi-ready product, which they need to tweak, patch, test, debug, test again, etc to make something resembling a finished product, and that’s not even mentioning the test and certification by cellular carriers and other BS.

      • obarthelemy

        Google Edition would be differentiation: 3/4 yrs of guaranteed OS updates ! I’m sure tech costs would be negligible compared to marketing costs.

        I actually used to work for a consultancy which among other things developed low-level software. The low-level stuff changes a lot less, if at all, between versions, and is a lot less work than re-spinning your fancy custom notification shades because the new version of the OS has added 10s of notifications APIs.

    • twilightmoon

      This is insanity. Support a mid-range low margin phone with software updates for 3 years? You must work for Samsung and want to see all major competitors such as HTC exit the space post-haste.

      • obarthelemy

        1- I don’ think it’s that expensive, especially since customizations are minimal.CyanogenMod do a whole re-spin with about 20 ppl + exernal contribs, so I’m guessing OS maintenance/update team is about 5 ?
        2- I never said updates should be free.

      • twilightmoon

        You have no idea how much it would cost, and you have no clue how hard it is to maintain a handset for future releases of an OS your company does not even control. Your comparison to CyanogenMod is completely ludicrous because they do not maintain compatibility with specific handsets for multiple years.
        Also making it not-free is a non-starter. You could not possibly charge enough to make it zero cost, and that’s assuming anyone would pay for the upgrade. No one will.
        I maintain my view that you want to see HTC go out of business even faster than they already are.

      • obarthelemy

        Here’s the official list of devices supported by CM’s latest Release Candidate. Note several 2010 devices (Nook Color, Galaxy S, …). So yep, they do maintain compatibility with specific devices for multiple years.
        People pay for OS updates on their computers, usually ?

      • twilightmoon

        CM is volunteers? If so, can you provide a list of people who are willing to similarly work for free to maintain HTC’s handsets for 3 years?

      • obarthelemy

        Did you miss that CM was only being used as an example ?

        “1- I don’ think it’s that expensive, especially since customizations are minimal.CyanogenMod do a whole re-spin with about 20 ppl + exernal contribs, so I’m guessing OS maintenance/update team is about 5 ?”

      • twilightmoon

        So you give an open source project as a sub in for what a manufacturer would be able to use as a model.

        First your example I believe uses volunteers as the main contributors and you also said there is a team of other contributors. So a completely or nearly completely volunteer effort would work for a hardware manufacturer how exactly? Can you provide some details as to how you think this is even remotely possible?

      • charly

        A not-working camera is not a problem for CyanogenMod but HTC can’t do that

  • http://can-turtles-fly.blogspot.com/ Sivaram Velauthapillai

    Although the dynamics are slightly different, I still think mobile phone manufacturers are very similar to consumer electronics companies–it’s just that the phone market has changed more rapidly in the recent past.

    For instance, look at televisions, which are very similar to mobile phones in their behaviour. Just to pick some popular brands that pop in my mind (without checking the numbers or doing research)… Right now, Samsung televisions are somewhat common whereas no one even heard of them 5 to 10 years ago. Conversely, companies like Sharp were fairly popular 5 to 10 years, whereas they are struggling and losing money now. If you look back 10 to 15 years ago, Sony televisions were top of the class and quite popular, whereas I don’t think they even make any money on televisions right now and are steadily losing market share. About 15 to 20 years, it was common to see televisions by Panasonic and JVC, whereas now I’m not even sure if JVC makes TVs. I’m not too familiar but I believe companies like Zenith (as well as several American companies) were popular television manufacturers 25 or so years ago whereas they are out of business right now.

    In my eyes, there is no evidence that mobile phone manufacturers are any different from consumer electronics companies of the past. This situation may be slightly different for integrated manufacturers (like Apple) but even then, I suspect the value will accrue to the mobile carriers (such as AT&T) and software service providers (such as Google or Facebook).

    This might be a radical view but it would not surprise me if the current top two, Samsung and Apple, aren’t even in the top 3 (within this industry) in 10 years! If you treat mobile phones as consumer electronics, the history suggests that is likely.

    • charly

      25 years ago there weren’t any America TV makers left. Samsung sold tvs 20 years ago but they were crap.

      Mobile phones makers are more like software companies than TV makers in that they have virtually no hard activa.

      ps. All the TV makers you name not only sell TV but also make their own tube/plasma/lcd screens. Those factories cost a lot of money. This is what allows a comeback.

    • twilightmoon

      Very good analysis, and I totally agree that Samsung will be out of that business in the long term as they add zero value to handsets. Apple builds an ecosystem and has extremely loyal customers and it is highly unlikely that they will exit the space in 10 years.

      • charly

        Samsung makes phones with almost 100% Samsung components. That is their added value. Apple sells high end phones and are used to very high margins. Problem is that the high end will be killed by Moore’s law. Android much bigger market will kill IOS ecosystem and having such extremely fanatical user base is also a negative for such a public device

      • Davel

        You mean like the PC market where Apple has 5% of the market and 45% of the profits?

        How many companies make money selling mobile devices? How many companies make money selling Android devices?

        I am curious how profitable Samsungs mobile division is this quarter. It is said profits have dropped in that division while its components division has increased driven in part by the one time event of a competitors problem with a factory

      • charly

        Apple doesn’t have 45% of the profit if you count the profit Microsoft makes on Windows.

        Companies like Dell operate in a very competitive market with extremely low barriers of enter and as such you expect very low profit-margins.

        ps. Can you name any other business with such low barriers? You only need one screwdriver and some money to buy components to make desktop PC that are as good as Dell.

      • twilightmoon

        While I am not a big fan of DELL and I do not think they will remain in the PC commodity space very far into the future they do have more than screwdrivers, they have engineers that create the exciting boxes, they have a distribution system through retail and via mail order internet sales, they have a sales force and they have IT professionals that help people keep Windows running.

      • charly

        A lot of engineers do work at Dell. But i can make a better PC for $1000 than Dell can make for $500. I can’t name any other technical product for which that is true.

        they have a distribution system through retail and via mail order
        internet sales, they have a sales force and they have IT professionals
        that help people keep Windows running.
        That is called distribution

      • charly

        How many companies would money selling IOS devices?

        Only one. Apple Because they are the only one who can sell IOS devices. So if you are a company not called Apple you have the choice between the difficulty of making money with Android or the impossibility with IOS.

      • twilightmoon

        The high end will be killed by faster processors by Moores Law? So that means since car engines are commodity products they must not be any high end cars? Oh.. wait..

        No.. houses.. Surely houses are all made with the same building materials, there can’t be any differentiation in houses. Hmm.. I guess there are.

        Ok, food? Food all has the same basic ingredients, surely there are no venues for higher end differentiated food?

        Well I can’t find an example anywhere that supports your assertion. There are cheap and expensive versions of clothes, food, vehicles, houses, vacation spots, artwork. I can’t think of a single industry that has no differentiation.

        Android is a larger market only because all Android handsets of all build qualities by all manufacturers are all lumped together. If you only include higher end Android the comparison if it still remains in Android’s favor is far less impressive. Apple’s “extremely fanatical userbase” is not a negative, it only appears so because you very clearly are part of the Android “extremely fanatical” fan base.

      • charly

        What i meant by killed by Moore is that at the moment the high-end is perceived to be much better at its task of being a smart phone than the middle. This is not the case in for example the PC market were if your task is office/internet than a $1500 desktop computer isn’t perceived to be much better at its task than a $400 desktop.

      • http://can-turtles-fly.blogspot.com/ Sivaram Velauthapillai

        Apple may not exit the market but it may fall lower. They might become like, say, BMW which is only a small portion of the auto market. The difficulty for Apple is that they earn exorbitant profits that will likely decline over time. Apple earns outsized returns in the moblie phone market and the industry is not sustainable as is. So I think its profits/market share/etc will decline. (This doesn’t necessarily mean the company’s total profits will fall. It may enter other industries that create profits).

        As for Samsung, I think it’s not accurate to say they don’t add value. I would argue that the value they add is their large distribution channel and economies of scale.

      • twilightmoon

        Apple’s large loyal customer base will be only available to Apple, so if Carriers want the cream of the crop paying customers they will only be accessible through Apple. Samsung has no such loyal customer base, they are a commodity broker with a slight advantage in manufacturing but nothing that could not easily be copied with capital. Nokia had as much or more economies of scale and look how much that helped them? No, Samsung adds zero value and is simply a successful copier and will likely be gone in a few years if they don’t find a way to differentiate themselves beyond an Apple coat tailer.

        Their failed watch with a copy of Apple’s ad does not show that they have any competency beyond a tail chaser. They could well be around in 5 years in the handset industry, but that will only be because no one else has stepped in with the manufacturing and capital needed. Given the speed at which Chinese knock-offs have come into play that is very difficult to imagine. HTC was sitting high until they decided to allow their customers to unlock their phones and the carriers dropped them like yesterdays newspaper and they are headed out of the market. Samsung has other things going on so if they fail in the handset market in the future they won’t necessarily fold up but I do not see them as a dominant player in any sustainable sense.

      • charly

        We have seen how Apple’s large loyal customer base was only available to Apple for Macintosh in the early 90′s.

        You are comparing Apple with Samsung but it is the operating system that matters.

        Nokia didn’t have the component divisions that Samsung has.

        The success of Microsoft started with dos on IBM. IBM was the Samsung of its day. But it is long gone out of the PC business.

        If Samsung doesn’t invent than why did Apple steal Samsung fast setting screen? Or why does IOS 7 look like an failed Android knock-off

      • Kizedek

        “We have seen how Apple’s large loyal customer base was only available to Apple for Macintosh in the early 90′s.”

        Those that bought and continued to buy Apple Macs since the early ’90′s because Apple’s approach worked, still buy Apple Macs today. Only, quarterly sales have grown from some 10′s of thousands to a profitable 5M that today HP, Dell and others envy, with 50% of sales going to first-time buyers.

        …But iOS devices is something else again: same loyalty to quality and integrated approach — but orders of magnitude greater. Hundreds of millions. Apple simply isn’t a “niche computer maker” any longer. For some reason, pundits and Apple critics like to look at it that way when it suits them.

        “Or why does IOS 7 look like an failed Android knock-off”. If it looks like one, it’s because Android and Samsung fans can’t see past the surface, or past spec lists, to see what truly matters.

      • charly

        There were plenty of people who bought Apple in the late 80′s, early 90′s that didn’t do that in the late 90′s. And Dell, HP etc also have high percentages of first time buyers but changing PC maker is easy as they all sell windows.

        IOS is a large market but niche if you look at their global market share.

      • Kizedek

        You have an interesting concept of “niche”. I find that an awful lot of all sorts of people buy and use iOS devices. It’s like you saying that brown bread is “niche” compared to white bread if you look at their global market share.

      • charly

        Niche: much smaller than the non-niche market

        Brown bread isn’t much smaller than the white bread market. IOS is much smaller than Android

      • DesDizzy

        See

        http://thenextweb.com/apple/2013/06/10/apple-announces-over-600m-ios-devices-sold-to-date-over-90-of-users-on-the-latest-version/

        So 200m uploaded iOS7 in one week & Apple announces 600m iOS devices sold. You quote a figure of over 1bn Android devices. Does this include the Chinese “Android” devices not connected to Google services?

        Again small compared to what. I would suggest that the iOS platform is in fact larger than the Android platform for any individual company i.e. Google or Samsung and that the only larger global platform is Facebook. Which has over 1bn active users but is not an order of magnitude bigger.

      • twilightmoon

        Stop trolling.

      • http://can-turtles-fly.blogspot.com/ Sivaram Velauthapillai

        TwilightMoon: “Apple’s large loyal customer base will be only available to Apple, so if Carriers want the cream of the crop paying customers they will only be accessible through Apple.”

        Although it’s hard to prove, I doubt most of the revenue for the iPhone comes from long-term loyal customers. Apple’s loyal market is quite small because they are premium, higher-priced, products. Because they introduced a revolutionary product, they share of iPhone market is higher but I suspect not even half of their current iPhone owners can be classified as loyal.

        The big question mark is whether Apple’s ecosystem is “sticky” and will retain its current users. Typically, operating systems create big barriers and users don’t switch easily once the OS reaches sufficient scale. So, some argue that iOS is permanently capturing customers. However, my view is that this is not so obvious in the present era because a lot of the value is likely to come through platform-independent services (e.g. Facebook or Google Maps or Amazon). My theory is that the power will shift from mobile phone manufacturers like Apple to service providers like Amazon (or whomever).

        As for Samsung, I agree with you that they are not as innovative and tend to be a follower. But that’s not necessarily a bad thing for them because their business model is based on large volumes and the benefit from economies of scale. If there is a lot of innovation, they are vulnerable (e.g. Nokia) but if the mobile phone market enters a mature phase (it’s not clear but it may have) then they can survive for a long time (because new entrants will have difficulties disrupting them).

      • twilightmoon

        “I suspect not even half of their current iPhone owners can be classified as loyal.”

        I believe Apple would define customer loyalty by what they call “Customer Sat” or customer satisfaction statistics. This can be statistically measured in part by asking if a current customer would repurchase, and watching repurchase history of existing customers. Apple wins this by miles over their nearest (distant) competitor.

        The point about the power shifting to services is well taken, but Apple is working in that space too, although they don’t yet have highly disruptive and unique strengths there, there is a reasonable probability that they will develop it.

        Samsung has no strengths that others could not copy given capital. The Chinese are very well funded, and it is highly probable that one or more Chinese manufacturers will overtake Samsung and over-run it. If Samsung expects that their strengths in operations and economies of scale will protect them I present to you the computer manufacturer DELL.

      • charly

        Customer satisfaction doesn’t work if the other is much cheaper and better

        Dell wasn’t vertical integrated

      • DesDizzy

        Not sure who would define over 200m iOS users as “Small”. Compared to who?

      • charly

        A billion + Android users

      • charly

        The main uses of a BMW car is compatible with the us of a GM car. The same is not true for a smartphones.

        Total profits for iPhones have to fall. In the future they will have a much lower margin and a much lower sale price that can’t be compensated by the much higher sales they would need

      • http://can-turtles-fly.blogspot.com/ Sivaram Velauthapillai

        Charly: “The main uses of a BMW car is compatible with the us of a GM car. The same is not true for a smartphones.”

        Why do you say that? As far as I’m concerned, there is almost no difference between the mobile phones for a typical user. There are some differences due to lack of services (i.e. apps) on some platforms (e.g. Windows Phone or Blackberry) but overall, I think the mobile phone market is starting to resemble the car market.

        Charly: “Total profits for iPhones have to fall. In the future they will have a much lower margin and a much lower sale price that can’t be compensated by the much higher sales they would need”

        Total profits may fall but I don’t think profit margins and average selling price will fall that much. I think Apple will attempt to maintain high margins and prices (relative to rest of industry), while sacrificing quantity. I think it will happen for two reasons.

        Firstly, Apple’s expertise is in high-quality, higher-cost, products. They have not shown they are able to compete with cheaper products and their market positioning/branding isn’t compatible with cheaper products.

        Secondly, Apple’s shareholders price the company as if it were a high-margin business. I don’t think the owners will allow the company to significantly weaken its margins. (It’s kind of like how, say, shareholders of H&M expect its gross margins to be higher than Walmart and wouldn’t expect it to alter its business model). Anything could happen but usually the market doesn’t re-price the company except during crises.

      • charly

        There is a big difference in apps and that is the attraction of a smart phone (besides good internet). and apps made for Android don’t work on IOS (and visa versa). A Chevrolet can drive the same road as a BMW

        Apps are much more important in the smart phone market than in the consumer PC market where most people only use the top 20 programs so market share is much more important and thus quantity

        Apple PC’s are still expensive and in the top of the market but they are less expensive then they used to be.

        Apple shareholders want a big profit and high margins make that easier. But if they have to choose between lower but still high margins and lots of sales or high margins and low sales than i know what they choose.

        About H&M and Walmart. I expect the clothing margins of both companies to be in the same ballpark

      • twilightmoon

        This is based on what exactly? Apple’s margins have held fairly constant against the rest of the industry because unlike commodity Android manufacturers Apple actually brings unique value to carriers who are willing to pay extra for Apple’s customer base.

        I can use facts and actual statistics to argue against your point, what evidence have you got exactly?

      • charly

        4 years ago a $300 dollar smart phone was crap, it isn’t anymore. And in 4 years a $100 smart phone won’t be crap anymore. Apple has to compete with that so a $700 phone can’t be sold that easy anymore as $600 is a lot of money even if they are better customers.

        Cheaper Apple products still have high margins, but smaller ones than the high end. See the iPhone, iPod as examples. But a lower price and the same margin gives less profit.

        My expectation is the explosive improvements in phones is nearly over (5″screen is the only improvement the 5s i can think of that you really want in your 2017 phone, everything else is good enough). Just like in the 90′s you wanted a new PC after 3 years but now a 10 year old PC is good enough. Or camera’s were going from 3 to 5 megapixels was a real improvement but going from 8 to 20 isn’t. We are getting to this time for smart phones and this means replacement rates will drop and ASP prices will drop too. Apple has already such a large share of the smart phone market and the penetration rate of the smart phone market is already so high that i can’t see how Apple can increase its market share so much to compensate for the lower margin and the much lower ASP.

    • Kizedek

      iPod

    • Space Gorilla

      Apple’s in the computer business. But the handheld computers they’re making recently (iPhone, iPad) are disrupting some other industries. It is very likely Apple will still be in the computer business in 10 years.

      • sharrestom

        I agree,

        The phone business as we know it today will not likely exist in 10 years, just as the iPod business is winding down today, replaced by iPhones and other devices with integrated media consumption. Once the gold rush is over for the smartphone, there will still be commodity builders mining the marker tailings, but Apple, MS, Google, Samsung will have had to move onto some other computing/communication paradigm.

        If the current phone business model does continue to exists, it will be thanks/no thanks to carrier perseverance not to change radically.

      • charly

        in 10 years the market for handheld computerized communicators will still be enormous. It wont be booming but it won’t be like music-player who are almost death

      • sharrestom

        I’m just stating that it won’t be a smartphone but something beyond it, Hard to say who will be the leaders of that.

      • charly

        There wont be something beyond it. It is not like camera’s and ipod’s a market waiting for death but a market like pc’s shrinking but not dying

      • charly

        Apple has a problem with its security ethos. It is loosing its grip on the arts so i wouldn’t be surprised if they completely left the PC market in 20 years. And that is quick with all the computer legacy

      • Kizedek

        Not sire what you are trying to say about security, but as for the other — yes, you’re right… because, “the PC market” does not equal “the computer business”. Apple has been instrumental in expanding personal computing beyond the “PC” in ever more personal ways.

        So, Apple certainly will have “completely left the PC market in 20 years” because it is likely that there will be no “PCs” left in 20 years (if not less), nor the need to support legacy computing — “computing” will involve something other than “PCs”, something that Apple has, and will continue to have, a large hand in developing and bringing to the main stream.

      • charly

        You really think that you wont find a pc with office on the desk of the average office worker in 20 years time?

        In 20 years time you will still find millions of pc’s running DOS programs.

        Apple will leave the PC field because nobody will buy Mac’s not because nobody buys PC.

        IOS will also be death because there is just to little legecy programs depending on it

      • Kizedek

        I don’t know what we’ll find! But, obviously, MS, Nokia, Blackberry, HP, IBM, Dell, HTC, … are all in the messes they are in because they think exactly the way you do!

      • charly

        Blackberry, Nokia & Microsoft are in a different mess. They try to own the OS when they don’t have the power to pull it off.

        There is a new PC war. It is between Apple and Android. Apple is loosing that one. Outside the US they are already not the first OS to develop for and now they aren’t anymore the highest status phones as LG and Samsung will sell their curved phones for more than the price of an iPhone.

        Selling Ti calculators is still a viable business. Problem with PC is that it is an extremely competitive market as assembling a PC isn’t exactly difficult.

        And Microsoft is going into tablets and phones because nobody else wants to go into the market selling Windows phones/tablets. The reason why they don’t sell PC’s is obvious. Others make them already

        Apple devices are all very pretty and expensive. The problem is the expensive part as can be seen in how Chrome OS will pass Mac OS X as second most common desktop OS

      • twilightmoon

        What on earth are you talking about?

        Millions of computers running DOS programs in 20 years? Are there even that many running a 30 year old OS today?

        Nobody buys Macs is a quaint saying that has been going on since 1984 and is even more silly today than it was back then. True Apple has a small PC “marketshare” when you include business bulk purchases of glorified typewriters, ATM machines, POS machines, and other low level uses for PCs, but Macs dominate on university campuses, and among people who buy their computers for themselves (at least in the US). Apple remains the most profitable PC manufacturer even excluding the iPad (they make the majority of all PC profits).

        This trend has been accelerating in Apples favor for over 7 years, and Apple is the only PC manufacturer that has been around for more then 30 years. So unless something extremely radical happens, it is likely that in 20 years Apple will be the ONLY PC manufacturer from today that is still making PCs (if the market still even exists) and Apple will also likely be the only one making significant profits.

        iOS has no legacy programs? Well that’s news I guess you should tell the developers who have been paid over 10 billion dollars that they didn’t make any money from their non-existent programs.

        Honestly it is hard to tell if you are trying to make salient points or if you are just trolling, because almost everything you said is either provably false, exceedingly unlikely or laughable.

      • charly

        20 years ago people were still using Windows 3.11 so i would say it is not even 20 years old. I also didn’t say that they run DOS but that they run DOS programs which IIRC Windows still does.

        Those glorified typewriters will still be necessary in 20 years time and they likely will still run MS Office. Changing a working program happens so slowly that most POS etc will still run the same program they use now. Many people who use sector wide programs will still use those same, upgraded programs in 20 years time and those programs are with the exclusion of printing only available on Windows. Universities use 3 kind of computers.

        1.internet consoles

        2. glorified typewriters + internet console

        3. Scientific computers which are mostly Windows but also a lot of *nix compatible

        People who buy them for themself are mostly using their computer for internet. IMHO the lowest of uses, lower than POS. They should buy a chrome box instead of an Apple. Especially because gaming is nearly death on the Mac

        30 years ago was 1983. Was HP already making IBM compatibles at that time? Dell did not exist at that time. My guess is that at that time there was a very short list of makers of compatibles and IBM and Compaq don’t make them anymore so you are probably correct. But IBM still makes computers and will still make computers in 30 years time.

        The maker of those Surface computers is the most profitable PC manufacturer.Dell etc. are more distributors than manufacturers.

      • charly

        Legacy program: Program running on an outdated software layer. Examples: 16 bit programs on windows. Rosetta programs.

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

      TVs during the LCD era are a peculiar CE business as it is mostly dependent on a single component which has a high concentration of suppliers. LCD TV commoditized very rapidly. For a reading of the disruption of consumer electronics I suggest http://www.asymco.com/2010/08/09/the-parable-of-the-transistor/

  • http://sumocat.blogspot.com Sumocat

    It’s important to note that the outlier LG is not solely reliant on the phone industry for survival. Like Samsung, their phone business is built on their component business. As long as that remains profitable, whether they sell those components to others or in their own finished products, they can comfortably ride out and bounce back from losses. HTC has no such cushion.

    • charly

      Sony is the other outlier.

      • http://sumocat.blogspot.com Sumocat

        Sony is not an outlier. The Sony Ericsson venture tanked and was bought out by Sony Group to become Sony Mobile Communications. The business was saved, much as Nokia’s smartphone business was saved by Microsoft, but it still tanked (and might still fail).

      • charly

        Sony pre Ericson was IIRC also loss making. They still exist as phone-company and that makes them an outlier.