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Month: August 2010

An apology

This site is fairly new. It has been around for only about 6 months. In that time there have been 393 postings and 586 comments. It has been read 100k times and I’ve moved it three times to accommodate this growth. Lately, thanks to links from John Gruber’s Daring Fireball, views have increased dramatically (to over 10k/day). This has been a blessing but also a dilemma because the traffic is overwhelming for the humble hosting setup I have. So much so that the site was down due to overload much of yesterday.

I apologize for this downtime.

I am trying to find a solution and have implemented a few optimizations (thanks to my lovely wife’s suggestions).  I also turned on full text RSS feeds so readers don’t need to hit the site for full articles.  In the mean time I hope readers will be forgiving and return even if the site is overwhelmed.

Additional suggestions on how to maintain a high quality of service are welcome.

Global mobile phone sales, the full picture

After piecing together the global smartphone shares, it’s time to take a look at global mobile phone shares. That’s all phones from all vendors that matter.

Unfortunately, just like there are only fragments available from Canalys about smartphones, there are only partial lists from IDC (IDC – Press Release – prUS22441510).  Missing are numbers from Apple, Motorola and HTC.  But fear not, those can be obtained from company earnings reports.

So here is the full picture for 2Q10 vs. 2Q09

The year-on-year growth for the vendors above is:

The source data is:

Observations:

  • The pure play smartphone vendors (HTC, Apple and RIM) are growing rapidly and capturing most of the profits.
  • LG and Samsung are taking share from Nokia but losing margins.
  • “others” are doing well at the low end.
  • Sony Ericsson and Motorola are transitioning from mass market vendors of commodity voice products to niche vendors of Android commodity data products.

The deterioration of Nokia's core business

The saga of Nokia’s challenges has been well documented in this weblog.

For this quarter, we take a look at the sequential deterioration in Nokia’s bottom line and draw causal inferences to its lack of competitiveness in mobile operating systems.

First, the bottom and top lines are shown below (in blue) and compared with Apple (in orange):

The charts show how Nokia’s bottom line (left) collapsed while the top line (right) remained relatively solid. By comparison, Apple remained consistent in revenue with slight dip in profit as it transitioned to a new model.

The top line (sales) is the product of units sold and their average selling price (ASP). Here are these two quantities side-by-side:

Note how Apple’s units are hard to discern relative to Nokia’s volume and how the opposite is true for the selling price. These values include all phones sold by the companies.

The story is a bit more clear when comparing the smartphone part of Nokia’s business, again with units and ASP:

The story here is telling: even in smartphones, Apple’s ASP is dramatically higher and much more resilient.

The question has to be why: Why can Apple retain not only higher prices (and hence margins)? The answer is competitiveness. Margin is an indication of value created and value differential is competitive differentiation. All the user satisfaction surveys, the reviews and tests boil down to these hard numbers above. The deterioration of Nokia’s business is directly traceable to its historic failure to embrace mobile software as a disruptive force and instead using it to sustain a hardware business.

Canalys: Android global share rises to 16% of smartphones in Q1 [Updated]

According to Canalys:

Usual disclaimers apply:

  • Only sell-through (i.e. not exact numbers that companies report as sold, i.e. excluding inventory in the channel)
  • Other includes Symbian devices not sold by Nokia, Microsoft Windows Mobile and various Linux, WebOS
  • iOS includes only phones, no iPads, no iPod touch, similarly Android includes only phones
  • Some of these numbers are approximate as they are based on partial data (Canalys does not publish complete share data and some must be interpolated)

Data used to build charts: Continue reading “Canalys: Android global share rises to 16% of smartphones in Q1 [Updated]”

Apple sales by product line

The following chart shows the value of sales per quarter (in $million) since the beginning of 2005. What’s interesting to note is that more than half of sales is contributed by products which did not exist three years ago (iPhone and iPad). Music and iPod did not exist 10 years ago.  It’s entirely appropriate that Apple removed “Computer” from its name, though they still sell mostly computers of a different kind.

Apple's Valuation Struggle Continues

asymco | Apple’s Valuation Struggle.

As despondency over Apple’s 75% earnings growth rate continues, it’s time to revisit the historic P/E in contrast to growth for the company’s earnings.

The latest chart (below) shows the company’s P/E ratio (in blue, left scale) vs. the trailing twelve months rolling growth rate (in brown, right scale) and the ratio between these two (in red, right scale).

The red line can be considered a form of PEG (Price over Earnings over Growth) with the caveat the the Growth is trailing not forward and hence is based on actual data not fictional analyst “consensus”.  I call this PETG (Price over earnings over trailing growth).

The actuals show that Apple’s price to trailing growth ratio is dropping to lows unseen since last year when the recession was still in effect.  At PETG below 20 the predominant sentiment displayed is extreme pessimism. 100 could be considered an even balance between pessimism and optimism. It now stands at 35.

Apple vs. Correlation fatigue and the ETF bubble

Recent commentary in financial press (e.g. FT Alphaville » Lost in correlation fatigue and The Herd Instinct Takes Over, Amber Waves of Pain)  points out how the markets have become insensitive to fundamentals or valuation itself.

Symptoms of this are:

  • Global markets trading in lock-step.  In an apparent blindness to any local differences, markets from emerging economies to Japan and to London trade in perfect correlation.
  • Crude oil and other commodities are mis-priced due to HFT or algorithmic trading which ignores underlying supply and demand fundamentals.
  • Value investors find that there is lack of dispersion among stocks.
  • Component stocks’ correlation to the S&P 500 is at highest level since ’87 crash, reaching a high of 83% vs. average of 44% since 1980.
  • ETFs (exchange traded funds) maintain (or freeze) over- and under-valuations.

Structural changes such as the proliferation of exchange-traded funds and super-rapid computer-based bloc trading, activities that are totally unconcerned with valuation metrics and/or long-term trends, are still taking place and there is little or no prospect of this development coming to an early end.

  • Adam Smith’s invisible hand has for the time being, been handcuffed.

It means you can’t trust any valuation. I could have valued a subprime CDO better on May 6 than any equity. And it’s almost the same thing all day long. Valuations and prices have been divorced for a while. Just look at the volatility. It’s not like traditional trading. No wonder there are such increased correlations.

What this has to do with mobile computing?  Interestingly, I find that Apple is not just a victim of this de-coupling of fundamentals from valuation. I hold out hope that the stark facts of its performance might actually pop this correlation bubble.
The hope comes from the fact that trading strategies have finite lives.  As soon as a strategy develops to a point of being widely used, it makes sense for a contrarian to “short” or bet on the reverse of that trend, taking advantage of the tendency to overshoot. I don’t have a strong handle on this phenomenon, but the chances are that value/fundamental investment will be back with a vengeance and Apple might just be the leader, by sheer weight of numbers.