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Forecasting Nokia's Windows Phone sales and Microsoft's mobile customer acquisition cost

Our agreement with Microsoft includes platform support payments from Microsoft to us as well as software royalty payments from us to Microsoft. In the first quarter 2012, we received a quarterly platform support payment of USD 250 million (approximately EUR 189 million). We have a competitive software royalty structure, which includes minimum software royalty commitments. Over the life of the agreement, both the platform support payments and the minimum software royalty commitments are expected to measure in the billions of US Dollars. The total amount of the platform support payments is expected to slightly exceed the total amount of the minimum software royalty commitments.

From Nokia’s Q1 2012 financial interim report

The figure of $250 million for Q1 is the same as the amount Nokia received for “platform support” in Q4 2011. This means Microsoft has paid $500 million over two quarters. During the same time frame Nokia shipped approximately three million Windows Phone devices. The average cost to Microsoft to acquire a Nokia Windows Phone user is therefore $167 per user. This is down from $250/user in the last quarter.[1]

If the royalty is equivalent to a license fee then the more interesting question is how and when will the royalty payments nearly match the platform support payments as expected. This might give us an estimate of what both parties are expecting from the relationship. Continue reading “Forecasting Nokia's Windows Phone sales and Microsoft's mobile customer acquisition cost”

Nokia's evaporating brand value

Nokia reported Q1 results following very closely the warning issued last week.

There were few surprises. There is much more detail in terms of regional performance which might be a better indicator of how the smartphone strategy is playing out. I plotted the data in three charts.

Regional Sales Value

A year ago Europe and China were nearly equally valuable as regions to Nokia (€2.1 billion and €1.9 billion, respectively). Even though sales fell across all regions, China fell so much that it has become the fourth in value and nearly the same value as Latin America (€577 million for China vs. €542 million for Latin America). This is a significant reversal for a very important market. The drop in value is a staggering 70%. Is there some clue as to what caused this? Continue reading “Nokia's evaporating brand value”

5by5 | The Critical Path #34: Climax and Anti-climax

Horace and Dan talk about Asymconf 1.0 focusing on the risks taken and rewards obtained. We cover the concept, technical implementation, dynamics and where the show will go from here. Horace describes the fascinating “lost tapes” of Steve Jobs and Nokia’s latest anticlimactic results.

via 5by5 | The Critical Path #34: Climax and Anti-climax.

Show notes:

Apple Stores have seventeen times better performance than the average retailer

Thanks to RetailSails we have some data on retailers in the US which can be used to calibrate the performance of Apple retail. RetailSails compiled a table of the top 20 chains by sales per square foot (annual basis). The total sample was 160 American retailers (excluding restaurants) that publicly report results.

Sales per unit area is a standard and usually the primary measurement of store success. Here are some benchmark figures:

  • Annual store sales in the range of $300 per square foot is considered respectable in the US.
  • The US national average for regional malls is $341.
  • The average for specialty apparel retailers is $400 per square foot.
  • The average for jewelers is in the range of $600 per square foot.
  • The median for the best 20 US retailers is $787/sq. ft.

The data for the top 20 is shown in the following chart:

The data shows Apple leading by a significant margin. It’s more than twice as efficient as the second place Tiffany and Co. It’s also more than seven times the median of the top 20 and seventeen times better than the average mall retail space.

Note also that this data includes only physical retail and excludes e-commerce, catalog or services revenues. It should only be used to compare physical retail performance.

 

The achievement is also remarkable when measuring growth in overall sales. Continue reading “Apple Stores have seventeen times better performance than the average retailer”

Asymconf 1.0

The first Asymconf was conducted on Friday, April 13th, 2012 in Amsterdam. Here are some statistics from the show:

  1. 155 registered participants and over 1000 participation hours
  2. Over 500 tweets generated during the day (#asymconf)
  3. Eight hours of conference executed on schedule
  4. Three iPads used to facilitate: one as a whiteboard, one as a slide presenter and one as an interactive motion chart.
  5. Seven video cameras used to capture over 1 terabyte of video data.
  6. Four cases conducted with majority of time spent on audience participation

Overall, feedback has been very positive. We will now edit the video to make it available for download. We will also analyze all aspects of the event to understand how it can be improved and post our findings.

We plan to hold Asymconf 2.0 in approximately six months somewhere on the West Coast of the US. We are already scouting for locations.

If you have photos or additional comments regarding the event that you’d like to share, please post them below.

My thanks to those who made Asymconf possible:

 

How Samsung beat Nokia

Nokia currently estimates that Devices & Services net sales in the first quarter 2012 were EUR 4.2 billion, comprised of Mobile Phones net sales of EUR 2.3 billion (71 million units), Smart Devices net sales of EUR 1.7 billion (12 million units),

via Nokia lowers Devices & Services first quarter 2012 outlook and provides second quarter 2012 outlook » Nokia – Press.

We don’t have the total number of Samsung shipments, however estimates exist. They range between 41 and 44 million smartphones and 44 and 47 million feature phones. The low end of that range would imply Samsung shipped 85 million phones.

Nokia’s press release indicates that it shipped 83 million.

This would be the first quarter that Samsung beat Nokia in total phone shipments. It had already overtaken Nokia in sales volume and profitability last year but this is the most cited metric of market performance: being the biggest in volume. Here is the tale of the shipments:

How did this happen? Continue reading “How Samsung beat Nokia”

5by5 | The Critical Path #33: The Futility of Machinations

Dan and Horace are back to discuss the latest news from Nokia, RIM, HTC and Sony and what they have to do with each other. We touch on the distinction between market and product orientation and meander into the question of what is the value of the enterprise vis-a-vis the product it sells and what management has meant and what it should mean. We even tackle the history (and future) of history.

via 5by5 | The Critical Path #33: The Futility of Machinations.

This show covered a lot of topics, broad as well as deep.

Show notes and links:

  1. Investors hang up on Nokia after yet another profit warning – Apr. 11, 2012
  2. Sony posts its worst loss ever – USATODAY.com
  3. Sony doubles red ink forecast to worst loss ever – Yahoo! Finance
  4. Sony and Sharp warn of record annual losses – Telegraph
  5. 5by5 | The Critical Path #2: Synchronized failure

When will smartphones reach saturation in the US?

Nielsen has already noted that more than half of US consumers have smartphones. comScore’s data seems to point to that threshold being crossed sometime this year.

If that point is crossed then it would mark the smartphone as one of the most rapidly adopted consumer technologies of all time. I plotted the time it took for a set of technologies to reach 50% penetration of US households.

I also showed the time it took for some of the technologies to reach 80% penetration.  Continue reading “When will smartphones reach saturation in the US?”

Did the dividend decision affect Apple's share price?

One of the arguments made for the cause of the increase in Apple’s share price of late has been that dividends would attract more institutional investors and provide more liquidity to Apple’s shares. Can we test this argument?

We’re not dealing with speculation. The decision to start paying dividends was made three weeks ago. It makes sense to assume that this new information has been absorbed by the  markets and market participants have adjusted their positions. Funds that were previously restricted in their investment in Apple due to its lack of dividend policy, could now go ahead.

However, as the following chart shows, the share price climbed continuously before and after the dividend declaration of March 19th (shown in red). Trading patterns did not show unusual highs or lows. In fact, after March 19th the trading volume decreased on a weekly basis.

The other indicator is institutional holdings. Continue reading “Did the dividend decision affect Apple's share price?”

Take the money and run

In August 2007, during the HD format wars between HD-DVD and Blu-ray format, Toshiba offered Paramount and Dreamworks $150 million to produce HD versions of their movies exclusively as HD-DVD.[1]

This type of deal is equivalent to an “advance” offered to a book author. The DVD manufacturer pays studios up-front cash for the right to make its DVDs. From an accounting point of view this is treated as an advance that the manufacturer recovers by selling the DVDs back to the studio’s video division in the same way a publisher earns back the advance it gives an author.

In this case, the payment was so large and the sales of HD-DVDs so small that Toshiba was unlikely to earn back the entire advance. The way the deal made any sense for Toshiba was that it was exclusive: the studios could not continue to release their movies in Blu-ray. The deal was done explicitly to hobble a competitor and create “critical mass” of content for its own format.

But then in March 2008, Toshiba threw in the towel and abandoned the HD-DVD format. The way the deal worked, the studios got to keep almost all of the $150 million. They then re-released all their movies in the Blu-ray format. The only “cost” to the $150 million windfall was that there was a nine month delay in the eventual release to Blu-ray–a small price to pay for an emergent format without a large install base.[2]

Platform owners go to great lengths to ensure “content” for their platform. They will, essentially, finance an ecosystem when there are barriers to entry or when competing ecosystems are far more lucrative.

This scenario for movies is being played again with Netflix, Hulu and other distributors who need to fill their pipelines. Netflix’s content acquisition costs are exploding and putting the whole company’s future in doubt.

But this scenario is also being played out with app developers. Most recently, news broke that developers are receiving payments from Microsoft for Windows Phone ports of popular apps. In mobile platforms, apps are the new content and developers are the new studios.  It’s also a practice that is not without precedent[3].

This is as it should be. The value of the platform lies mainly in what is built on top of it just like a foundation is not much use without a house on it. However, the practice of “priming the pump” with cash payments for porting is not ideal. Like spiffs, those who receive payments may become used to it and withhold development if there is no payment. Also, those who did not get payment offers may feel shunned and retaliate in kind. Those who receive payment may become cynical about it and may not put in the extra effort (or, more probably, outsource) to make the work spectacular.

Or, like Paramount, they may just take the money and run if/when the platform fails.

—

Notes:

  1. Source: The Hollywood Economist 2.0: The Hidden Financial Reality Behind the Movies by Edward Jay Epstein.
  2. Paramount made $250 million more from three “replication output” deals: $50 million from Toshiba for agreeing to release Titanic on DVD in time for Christmas sales, $150 million from Panasonic for agreeing to allow them to take over video replication from Thompson, and $50 million from the law firm Ziffrin, Brittenham and Circuit City stores for agreeing to support the DIVX format. Paramount got to keep the money even though DIVX never launched.
  3. Although it’s never been reported that Apple pays developers for building iOS apps, some developers do benefit from promotional placement and visibility during launch events and from early access to devices or SDKs under development.

Asymco

Asymmetric Competition

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