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Mobile Computing Industry

A short interview with Jasna Sykorova

Feb 14, ’13 12:37 PM

A short interview for iCon where I’ll be presenting tomorrow. The interview originally took place on January 9th, 2013.

Jasna Sykorova: You have focused on mobile devices for some time now. What made you to start to give a special attention to Apple related data?

I began to look at Apple in 2005; long before they were in the phone market. I had an iPod and liked the Mac but I did not have particular reason to think about the company. You might find it strange that it was the launch of two very peculiar products that caused me to change my perception of the company. They were the iPod Shuffle and the Mac mini.

These are not seen as important today nor were they back then.  But they signaled to me that something dramatic was happening: the company was shedding its “premium” image. This and the earlier move of iTunes to Windows signaled [to me] that Apple was serious about the mass market and the minimum price that a person would need to pay to become an Apple owner.

This was pivotal to me also from the point of view of disruption theory. If a company takes the fight to the low end it means it protects itself from a low end disruptor and may even enter new markets. So if the thinking is that Apple would disrupt then it would have to get into new categories. I then asked myself what it would target. I told myself (again, in 2005) that Apple will do three things:

  1. build a phone
  2. disrupt the PC market
  3. enter the living room.

1 and 2 are well understood to have happened and 3 is nearly here with Apple TV.

Each of these were tremendous opportunities and it’s been fun watching it happen over the last 7 years.

By the way, my expectations were right not because of any insight into the company. I had not studied Apple much at the time. All my expectations came from understanding the psychology of a disruptor. Nor does it mean that what Apple did was deliberately planned. It’s possible to predict what people will do even if they don’t know what they will do themselves.

Can data tell stories? Can you judge just by data?

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What’s up with text messaging?

Jan 18, ’13 2:48 PM

The following graphs show text messaging volumes, pricing and revenues for SMS in Spain.

Screen Shot 2013-01-18 at 1-18-2.40.39 PM

After peaking at the end of 2008 at about €450/quarter, revenues have fallen by 60% to about €171 million in the third quarter of 2012. These figures represent almost 100% operating profit for operators so the impact is felt directly in the bottom line.

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The iPhone MOQ

Jan 17, ’13 3:38 PM

[Kaoru] Kato, president of NTT DoCoMo Inc., said that the firm would want to add the iPhone to its lineup of serviced smartphones if it could form a mutually beneficial contract with Apple, Inc.

Apple requires that carriers servicing its devices sell a fixed amount per year. Katō said that his company could handle such quotas if iPhones accounted for approximately 20%-30% of its overall smartphone sales.

via NTT DoCoMo President Interested in Servicing iPhone — BrightWire

When thinking about an iPhone launch, especially with a new operator, the crucial question is what is the minimum order quantity (MOQ). Some of the iPhone production is sold direct (as in the case of orders coming from Apple’s online store) but the majority of units are sold via operator who order in batches.

This issue came to light when Sprint’s order was leaked in late 2011.  I discussed the order size at the time and put it in context. I concluded that Sprint MOQ was on average 7 million/yr., ramping with 4, 6, 9 and 12 million over a four year period.  I concluded that this was not a particularly aggressive gamble.

Data published since then shows that Sprint actually sold 6.3 million during the first year, well ahead of my expected minimum order of 4 million and above even the expectations for the second year of sales. So far then Sprint and Apple gauged minimum demand quite accurately.

I also showed that the Sprint MOQ was probably indexed off their sub base. I suggested that, based on subs data at the time, Sprint was committing to roughly 13% of its subs buying an iPhone every year. This was indexed off the data showing that 17% of AT&T subs were buying iPhones every year and 10% for Verizon. (I also assumed that this run level would be ramped over time).

The updated totals for the 12 months ended October 2012 are 19% of AT&T subs purchased an iPhone, 12% for Verizon and 12% of Sprint. The performance is shown in the following graph:

Screen Shot 2013-01-17 at 1-17-3.33.10 PM

Which leads us to think about how the MOQ for the iPhone is calculated. If we assume Sprint and Verizon performance is typical it would imply that an operator like DoCoMo would be required to purchase iPhones at the rate of about 10% to 12% of its sub base each year, modulated to some degree by a ramp.

NTT DoCoMo had 60.7 million subs in September 2012. 10% is about 6 million. Is Mr. Kato’s quote above of 20%-30% of smartphone sales consistent with this?

In an earlier interview (in July) Mr. Katō also stated that the target for smartphone sales in the year to March 2013 was 13 million. 30% of that would be 4 million units.

This suggests that the iPhone MOQ for DoCoMo is only about 6% of subs. (4 million) Perhaps this is the basis of negotiation for an iPhone deal. Apple may have held out for 10% subs/yr. with Sprint on the basis of performance of the iPhone in the US but might be willing to settle for 6% subs/yr with DoCoMo, at least for the first year.

The MOQ figure as percent of subs for China Mobile would also be an interesting point of debate.

 

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Cracking the China code: Microsoft vs. Apple

Jan 11, ’13 10:22 AM

In 2011 Microsoft’s CEO bemoaned that revenue in China was about 5% of what it obtained in the US. Yesterday Apple’s CEO suggested that revenue from China will overtake the US in the near future.

The contrast is even more stark when one considers the time and effort each company has made in China. Microsoft has been investing and promoting itself in China for decades while Apple barely had any presence 3 years ago.

To put a finer point on this I show below Apple’s sales by region:

Screen Shot 2013-01-11 at 1-11-10.08.26 AM

Apple’s China net sales in fiscal 2009 were only 769 million. In 2012 they were $22.8 billion. That is a figure greater than US sales three years earlier. Put another way, China sales grew in three years as much as they did in the US in 33.

The growth rates were astronomical: over 250% in 2010 and 350% in 2011. In 2012 the growth slowed to 83% but that is still almost twice the US or the global average. The growth rates are shown in the following chart:

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Getting to know the meaning of sisu

Jan 10, ’13 6:36 PM

Nokia announced 4.4 million Lumia smartphones were shipped in Q4. That’s about 14 million since the Lumia line was launched a year earlier. It isn’t however nearly enough to replace the lost sales from Symbian. One year earlier Nokia shipped 19 million Symbian phones in the fourth quarter and the year before 28.3 million. The history of smartphone sales from Nokia is shown below:

Screen Shot 2013-01-10 at 1-10-6.23.00 PM

I repeated the forecast I drew up in February 2011 when the platform switch was announced. That forecast was based on the company stating that 150 million Symbian phones would still be shipped. Symbian fell far more rapidly than I (and Nokia) expected and to date only 98 million have shipped. The last quarter’s 2.2 million seems to be so low that it will be hard to imagine the platform lasting more than a few quarters.

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