While the well-respected Internet blog TechCrunch focused on the Apple/Samsung story in analysing the data from Gartner’s latest survey on the mobile market, the real news was elsewhere. The BBC got it right in trumpeting that “mobile phone sales fell in 2012“. This is a big deal and it will put inexorable downward pressure on margins.
As I first laid out in July, mobile is a landgrab right now as the mobile upgrade cycle means significant flux in terms of the types of phones individual consumers are buying. This means that adoption rates are much more important than platform switches, particularly in the smartphone space. IDC released a report on the mobile market in the last quarter which showed three trends of note here. First, overall market growth was slowing to a crawl, meaning that when one adds up all of the sales of mobile phones, the market is not growing. Second, the market for smartphones is still growing briskly, with unit sales for Q3 2012 up 47% year-on-year. Third, Android was taking share in that market due to the impact of Apple’s once a year platform cycle and the adoption of cheap Android phones as users upgraded from feature phones. These three trends will continue to dominate the mobile landscape, putting pressure on margins as average selling price declines.
You can see this playing out in Gartner’s new numbers. First, there’s the smartphone part via TechCrunch:
While worldwide mobile phone sales continue to decline, down 1.7 per cent from 2011 sales, smartphones continued to drive overall phone sales, said Gartner, with record smartphone sales in Q4 last year — of 207.7 million units, up 38.3 per cent from the same period last year.
For Samsung, it’s the opposite story: accelerating growth. In Q4 the Korean mobile maker’s overall smartphone sales rose to 64.5 million units, up 85.3 per cent from Q4 2011. In full year 2012, Samsung accrued sales of 384.6 million mobile phones, of which just over half (53.5 per cent) were smartphone sales. This is a considerable jump on 2011 when more than a quarter of its sales (28 per cent) were smartphones.Together, Apple and Samsung accounted for 52 per cent of the smartphone pie in Q4, up from 46.4 per cent in Q3 2012. Samsung ended the year top in both worldwide smartphone sales and overall mobile phone sales. While former third placed Nokia continued to slide down the global smartphone marketshare rankings. In the full year 2012, Gartner said Nokia clocked up 39.3 million smartphone sales worldwide — down 53.6 per cent from 2011.
“With Samsung commanding over 42.5 per cent of the Android market globally, and the next vendor at just 6 per cent share, the Android brand is being overshadowed by Samsung’s brand with the Galaxy name nearly a synonym for Android phones in consumers’ mind share,” added Gupta. The next Android vendor after Samsung is presumably Huawei.
Apple’s smartphone sales hit 43.5 million units in Q4, up 22.6 per cent year-on-year. For the full year 2012, Apple sold 130 million smartphones worldwide. Gartner noted that while consumer demand for iPhones in the quarter remained strong, buyers favored the less expensive iPhone 4 and 4S models over the newer iPhone 5. The analyst also said some consumers now face a dilemma about whether to spend on the iPad Mini, rather than buying a new iPhone.
Here’s how I would parse this: the mobile phone market is largely saturated as sales continue to decline. Smartphones are doing well though with volumes up 38.3% in the last year. That tells you new users are not coming aboard in droves. Rather, people with feature phones as mobile handsets are upgrading to smartphones. That’s paragraph1.
In paragrapgh two, the story reads that Samsung is the smartphone vendor to watch as they have the sales momentum with 85% growth year-on-year. Even their mix of phone sales is now skewing toward smartphones with 50% of the mix coming there versus 28% in the previous year.
Vendor wise, everyone like to talk about Apple, Samsung and Nokia, so TechCrunch does. But the real story there is that Samsung is riding the Android wave and that is taking momentum away from Apple.
The guys in Cupertino realise this and are on the case. The rumoured 5-inch iPhone could be for real. The latest story is that Apple had wanted to introduce it soon but they simply cannot churn out the volumes in time and so they will remain exposed by a long product cycle. Here’s Apple Insider with details:
In a report issued to clients on Wednesday, Jefferies analyst Peter Misek said Apple’s product roadmap had called for a 4.8-inch iPhone to launch sometime during the 2014 calendar year but added that the company recently made an unsuccessful attempt to bump up its launch into the back half of 2013 amid increased competition and lost market share to rival Samsung.
More specifically, Misek said scaling the in-cell screens from 4″ to 4.8″ has resulted in poor yields — meaning a significant number of display components from each batch being manufactured are not passing the company’s quality assurance tests. As such, Apple is unlikely to be able to manufacture enough of the larger 4.8″ displays to facilitate a full-blown launch of the handset until next spring.
“We believe Tim Cook defended the 4” screen of the iPhone 5 on the last earnings call in order to avoid freezing iPhone shipments in the quarters before a 4.8” launch,” the analyst told his clients.
But poor yields of the larger display components may not be the only bottleneck Apple faces in pushing out the so-called iPhone 6. Misek believes Apple will jump from a 32-nanometer production process to a 20-nanometer process in a bid to add more processing cores (4 to 8), completely forgoing a move to a 28-nanometer process.
Again, parsing this correctly tells you that Cook’s explanation about the iPhone’s now small size was not the real story at all. Apple want to release a larger phone but can’t because their manufacturing processes won’t allow them to produce in volume. Therefore, they have to delay and suffer through another long product cycle. I have been telling you for months now that doing this would be deadly as Android will take share. Already a slew of Smartphones with 13 megapixel lenses and 5.5-inch 1080i screens are coming out. Samsung is supposed to be issuing a Galaxy S4 phone this Spring with all of the whiz bang features. Apple is in serious trouble.
Here’s how it is playing out:
- Everyone and their 90-year old grandmother has a mobile. There’s no growth in mobile anymore.
- Handset makers know this and so they are all focused on higher margin product that they can upsell users into just as computer manufacturers before them.
- However, just as computer OEMs started to concentrate on upsells and upgrade cycles, prices started to plummet, squeezing margins for everyone.
- Most hurt by the margin squeeze are now marginal players like HTC, which is losing money, and Apple, whose whole strategy is built around high margins. This is similar to the losses suffered by the Packard Bells of the 1990s and by Apple in the 1990s PC market.
- At the same time a smartphone platform contest between iOS and Android is being won by Android, especially with Samsung doing so well.
- Finally, Amazon has entered the mobile market, drawn in by high margins and knowing that its low margin strategy will allow it to take share. It has concentrated on tablets but the assault will soon move to handsets where Apple will be very vulnerable this holiday season.
The winners in the near term are Samsung and Amazon. The situation is neutral for Google. The losers are Apple, Microsoft, Blackberry and Nokia.