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Espoo, we have a problem.

Poor quality of Nokia software is source of astonishment for market analysts.

Helsingin Sanomat – International Edition – Business & Finance — Analysts: Nokia has wasted 3 years trying to come up with challenger to iPhone.

A queue is forming to get on board the clue train but, instead of getting in line, Finland seems to be sitting and watching incredulously how the line grows.

The Finnish newspaper article continues:

The media often takes a blindly uncritical view of all Apple’s doings, such that the positive attention paid to the company’s products is in no way proportionate to the weight of the products themselves.

A good example is Apple’s iPad tablet, the commercial success of which is still a large question-mark. This has nevertheless not prevented journalists over the Atlantic from writing profusely and ecstatically about the newcomer.

If Nokia keep believing this their competitiveness problem will surely not go away.
Additional thoughts on the likely response process from Nokia here.

RIM now ranked 4th, Apple 6th in phone market shares

First quarter market share ranking of top mobile phone vendors according to Strategy Analytics:

  1. Nokia, 107.8 million
  2. Samsung, 64.3
  3. LG, 27.1
  4. RIM, 10.6
  5. Sony Ericsson, 10.5
  6. Apple 8.75
  7. Motorola, 8.5

These numbers are shipments or sell-in, which may differ from sell-through or end-user purchases.

RIM breaks into top 5 in surging phone market | Reuters.

Smartphone shipments grow 50 percent in Q1

Strategy Analytics said 54 million smartphones were shipped in the quarter, comprising 18 percent of the total handset market.

  • Apple’s share reached 16.4%, up from 10.6% a year ago while maintaining an ASP of €445.
  • Nokia raised its share to 40% from 38.2% on an ASP of €155.
  • RIM slipped to 19.7% from 20.3%.

via Smartphone Q1 shipments up 50 pct y/y -survey | Reuters.

Nokia vs. Apple phones business comparison shows comfortable lead for Apple

Nokia reported 21.5 million converged devices sold in Q1.  The units, share, ASP, Revenues and Operating Profits are compared in the following table.

It’s once again evident that Apple captured more profits from the iPhone than Nokia did from all its devices and services operations.

With respect to converged devices, Apple also generated more sales and had nearly triple the ASP.  Unit shares remained almost the same sequentially. Nokia did suffer more from ASP erosion sequentially as the converged ASP dropped by 24% vs. a 2.5% drop for Apple.

What is interesting from a growth perspective is that Apple’s #1 position in the share of profits from mobile phones was acquired with such a low market share.  Analyst Brian Marshall said the most interesting part of Apple’s story is the international growth of the iPhone. He believes that Apple has only acquired about 1.5 percent of its international carrier partners’ total postpaid subscription base of 525 million. For comparison, its penetration in the U.S. peaked in Sept. 2009 on AT&T with 5 percent.

Sources:

Nokia – Investors- News Release

Apple – Investor Relations

Nokia Tablet?

“Getting a strong Intel backing here could be an important advantage,” says MKM Partners analyst Tero Kuittinen, who sees the Nokia tablet as part of an array of mobile computers.

via Nokia Aims a Tablet at Apple: Exclusive | Technology | Financial Articles & Investing News | TheStreet.com.

No doubt Nokia’s tablet plans preceded the launch of the iPad–product cycles being what they are.  And the relationship with Intel is certainly a big part of this push (vs. on the handset side where Intel has no cards to play).

However, the elephant in the room is what software will run on this Tablet.  Any discussion on competitive potential of iPad competitors must include a view on the software/platform and ecosystem that tablet will rest on.

This is not a hardware business.  In fact, the hardware is designed to get out of the way.

The hardware is so understated — it’s just a screen, really — and because you manipulate objects and interface elements so smoothly and directly on the screen, the fact that you’re using an iPad falls away. You’re using the app, whatever it may be, and while you’re doing so, the iPad is that app. Switch to another app and the iPad becomes that app. If that’s not magic, I don’t know what is.

source: http://db.tidbits.com/article/11152

The Below Average CEO: Olli-Pekka Kallasvuo

I vehemently disagree with this premise:

Nokia did not take advantage of any of the opportunities that it had by being in first place. It failed to leverage its partnerships with carriers, manufacturers, software developers, and content companies.

link: The Below Average CEO: Olli-Pekka Kallasvuo Of Nokia (NOK) – 24/7 Wall St.

When disrupted, large incumbents invariably fail to respond adequately to the threat.

You can only blame management if the threat is symmetric and they fail to take up the challenge. This failure almost never happens.

Asymmetric competition is intractable in almost all instances. This failure always happens. A response in kind by management is usually worthy of dismissal “for cause”.


Microsoft and Nokia agree: Apple is hindering Innovation in Mobile market

From the GSMA Mobile World Congress 2009 (one year ago):

Kallasvuo used Apple and its “closed” ecosystem as an example of what could limit innovation in the mobile market in the future. He said Apple’s vertically integrated model, where its hardware and software are tightly controlled by the company, further fragmented the market. And he added that what is truly needed is more openness in developing applications.

Yes, prior to the iPhone innovation was zipping along rapidly, but now it’s stuck because the iPhone is closed. The iPhone is hindering innovation because it’s highly integrated.

Ballmer argued that device openness was important to give customers more choices. And he pointed to the number of choices that Windows Mobile customers have when choosing a device.

We’d all have more choices if we’d all choose Windows Mobile.

Fast-forward one year and Microsoft decides to offer more choice by adding a new operating system (in parallel to its existing OS) and Nokia decides to solve fragmentation by launching a new platform called MeeGo (in parallel to Symbian).


Platform Bonanza! Three new Platforms in one Day

Delivering precisely what the world needs today:

  • Samsung launched Bada
  • Microsoft launched Windows Phone “7 Series”
  • Nokia and Intel jointly announced MeeGo.

Three new ambitious platforms starting with zero installed bases and no applications are going up against the following:

  • Symbian with more than 200 million users and 20k apps
  • WebOS with less than 3 million users and about 1k apps
  • Windows Mobile with 30 million users and about 2k apps
  • iPhone OS, about 75 million users and 150k apps
  • Android with 3 to 5 million users and approx. 20k apps
  • Blackberry OS with more than 50 million users and a few thousand apps.

It should be noted that Microsoft’s new Windows Phone “7 Series” will compete with Microsoft’s Windows Mobile 6.5 which will continue as a product line.

MeeGo will also compete with Nokia’s existing Symbian OS for developers, replacing Maemo.

Most of these new platforms will not have products shipping for at least 6 months during which time another 50 million (at least) new users will join existing ecosystems.

There are now nine smartphone platforms, but who’s counting? I’ve been hearing predictions of consolidation for years and although platforms have come and gone (PalmOS, SavaJe), the total number continues to increase.

If nothing else, this seems to indicate that the industry is not in any state of maturity or point of “over-service” where commoditization takes place.


Calibrating iPhone Growth

I calibrate my growth rates on the assumption that Apple will overtake the combined share of the two money-losing handset vendors.

Sony Ericsson and Motorola are the weakest competitors in terms of portfolio and competence with software. Their sales, units and profits shares for 2008/2009 are shown in the graph above (source: Morgan Stanley).

Therefore, my thesis is that Apple could beat these two weakest competitors in 3 more years.

Here is the basic top-down view:

In 2009 174 million smartphones were sold out of a total of 1.13 billion phones (IDC, Strategy Analytics). Using a 10% CAGR on this figure gives 1.65 billion phones in 2013

Apple obtained 2.1% share in 2009 and about 1.5% share in 2008. My forecast share for Apple:

2010: 3%

2011: 4.1%

2012: 5.5%

2013: 7.5%

During the last quarter, Sony Ericsson held 4.5% share and Motorola 3.7% therefore my 2013 target for Apple is a little less than the sum of what these two hold today.

This results in unit sales for Apple of 125 million units for 2013 and a compound annual growth rate of 50% a year.


Nokia back on top

Nokia regained top spot in operating profit. I’ll leave net profit assumptions aside this time, but Apple is sure to have beat by having far lower R&D as percent of sales.

Nokia Smartphones had a good quarter due to new launches. I show also share and ASP comparisons for smartphones in both companies.