We see the $50 to $150 price band as the critical battleground in the mobile device market in 2013. Nokia stands to lose most as competition increases dramatically at this price point.

This price band will define the frontier of where smartphones are pushing into feature phone territory
Looking back at Mobile World Congress 2013 in February, one of the remarkable things about an otherwise fairly unremarkable Mobile World Congress, was the absence of non-smart phones. Nokia was the only manufacturer that was loud and proud about its feature phone line-up. The borderline between smartphones and feature phones is at stake now. The exhibition was awash with Android devices. Nokia was more or less the only company showing Windows Phone 8 devices and its feature phone line-up. Alcatel OneTouch (TCT) was displaying a number of feature phone products, but under glass.

We fully expect Android devices to crash through the $100 wholesale price level and will likely end up substantially below $100 by year end 2013.

In 2009/10 Nokia suffered a severe loss of market share in its traditional strongholds including markets like India. The cause was Nokia’s inability to make devices that included critical features – especially dual SIM capability.
Series 40 required major surgery to allow it run with dual SIM cards – this took time and cost Nokia over 20 points of market share in India alone. While Samsung was a beneficiary in market share terms the greatest damage was done by white label Chinese device manufacturers that were able to churn out aggressively priced handsets that had all the features consumers wanted. Nokia fought back with dual SIM devices, a powerful, if somewhat bruised brand, high build quality, first-class supply chain management and unrivalled distribution power.
In 2013 Nokia will again face barbarians at the gate. This time however the competitive differentiator is not dual SIM but Android OS.

Despite the likely poor user experience, we expect Android devices from Chinese branded and white label manufactures to take a significant share of the price band in 2013. As a result, we expect Nokia to be pushed back, losing market share in the $50-$150 price band. It should however be able to consolidate its position in the ULCH market with the 105. But with pricing more like FMCG than CE, the 105 will contribute little significant revenue and profit despite our expectation that it will sell in millions of units each quarter.
As we expected, the Q1 2013 Nokia results are showing the difficulty it is experiencing. Low cost Android is going to be a Global Phenomenon this year.

January and February smartphone sales were strong in a historically low season indicating good shipment numbers for Q1 2013 overall. There are more smartphones in the market than feature phones now; Smartphones crossed the 50% line, of total smartphone share within handset sales. Markets like Japan and Korea show more than 90% share of smartphones.

Samsung continued to rank as the top brand worldwide with 34% market share in the January-February period. Apple followed with 19% share. ZTE, Huawei and LG showed strong sales as the 3 surpassed Nokia during the first 2 months of 2013. The share of the other vendors grew significantly as Chinese local vendors like K-Touch, Gionee and Alcatel OneTouch almost doubled sales compared to the same period a year ago.

Android ranked first place in smartphone operating systems with 70% while iOS was 21% of the market. Windows seems to have established itself firmly as the 3rd operating system as it reached 5% share.

Research Director Peter Richardson explains, “the key driver of smartphone sales growth in the January-February period was the Chinese New Year holiday. It’s not just the Big 3 Chinese brands, Huawei, ZTE and Lenovo who sold impressive volumes. Starting from late last year other tier 2 vendors using the Mediatek solution have been active in the sub $200 smartphone space. Chinese vendors now account for 21% of the smartphone market.”

Of the big international brands only Apple, Samsung and LG showed growth in sales. Apple continues to sell well to the end consumer, but it had a big inventory problem in Q4 2012. Over 10 million additional iPhones were moved into the distribution channel at the end of last year. With less than 15 million units purchased by consumers in February this was not enough to clear the entire excess inventory. So we estimate Apple will end up shipping less than 35 million units in Q1.

Samsung on the other hand started the year with very low inventory and sales to end users are reaching almost 25 million units a month so this will all be translated to sell-in in Q1. Therefore we expect Samsung’s smartphone sales to exceed 70 million units in the quarter.

For more information and a free copy of the summary of the report please send us an email to:
info [at] counterpointresearch.com

In this report it shows that Apple has struck gold in the Japanese market as its share reached 16% in Q4 and 15% for the full year of 2012. Traditional local champions Sharp and Fujitsu each took 14% of the market in 2012.Apple ended Sharp’s 6 year reign last year as it took the crown. Apple had already temporarily displaced Sharp in Q4 2011 but Sharp soon took back the No. 1 spot for the first half of 2012. For the full year of 2012 it was a close call between the three top players in Japan but Apple rose to supremacy at last.

In 2012 both Softbank and KDDI heavily promoted the new iPhone 5 to challenge Docomo. This move sparked a battle of smartphones in which Docomo fought back with various new smartphone models, the majority of which were also foreign branded. So yet again it’s operator competition that has catalyzed the iPhone’s success – but in Japan at the expense of home grown players.

Japanese local brands had a long legacy of smart feature phones running operator friendly or handset vendor proprietary operating systems but it took a globally accredited operating system like Android to compete with iOS. Samsung, LG, HTC had a head start compared to Japanese brands and even Chinese brands like ZTE and Huawei were more adept at introducing Android equipped smartphones.

As a result in Q4 2012 foreign brands like and Apple, Samsung and LG took 50% of the handset market in Japan. Chinese Brands like Huawei saw sales jump three fold in a short period.

Our analysts comment that Japan was once considered to be like a Galapagos Island, an isolated terrain, in terms of mobile technology. It had its own unique digital cellular technology. It was far more advanced than any market in the world and it seemed nearly impossible for any foreign technology company to penetrate the market. Motorola had failed and Nokia had failed. The wave of smartphones has changed the situation now and it looks like the Japanese market is a market that can be transformed after all for better or worse.

More more information, please contact info@counterpointresearch.com

Counterpoint Research has released its preliminary Q4 2012 mobile handset and smartphone results. The most stunning part is that Samsung took 25% of the industry profit while Apple took 70%. Leaving a tiny 5% to share among the other 100+ handset vendors. As 4Q 2012 results roll in from across the technology sector there are some interesting patterns emerging in the mobile device market. In the full report we take a look at the preliminary market numbers and try to tease out the main signals and what they mean for the industry.

Apple wins the 4Q battle but may not win the the war in 2013.
Apple’s record quarter failed to match heightened investor expectations. Apple’s main challenge is in creating the next wave of innovation to both lock-in its largely loyal customer base, while unlocking new segments. This is far harder to do second time around. The fast growth the company has enjoyed will naturally flatten through 2013.

Samsung, was the only other mobile handset manufacturer to record a meaningful profit in 4Q 2012. Samsung continues to lead the market with a volume share of almost 27% across the handset market as a whole and a 32% volume share of smartphone market.

Meanwhile Nokia is mourning its lost supply chain mastery. It did well with its high end Lumia products but could have done better were it not for supply chain constraints. Nevertheless, the signs are less negative than they have been for Nokia over the last number of quarters. The greatest danger likely comes from low cost Android disrupting the Asha volume story, while the greatest opportunity will come from a general warming toward Windows Phone.

Below are some key findings.
- Samsung is number one in handsets with 26% share (down slightly due to the rise of Apple.)
- Samsung is number one in smartphones.
- Apple however is number one in smartphone revenues.
- Apple is now again number one in overall handset revenue (including both smartphones and feature phones)
- Apple is still number one in handset profit – making over 2.5 times as much as Samsung
- Samsung and Apple take more than 95% of the profit in the industry

There has been a lot of talk over the last week with Samsung increasing its share in the market even beyond Nokia. This was the final but necessary blow to Nokia’s multi-decade-old leadership in the mobile industry. It’s actually interesting to see that there are few people who ask the very obvious question: how did that happen?Samsung’s success is based on nothing else than an extreme focus on execution. Samsung is the most prevalent example of how you can turn from a fast-follower into a first-mover. Yes, let’s face it. By taking over the lead from the dinosaur Nokia, Samsung has effectively made itself not only the market-leader, but also the product- and innovation-leader. If we only look back five years, Samsung was nowhere close to Nokia. Back then Samsung did well here and there, but was still the underdog compared to Nokia and Motorola. Its products were good in quality and already very popular in its home market South Korea, but none of them had the power to take on those stylish, trendy and high-quality phones from Nokia. Nokia was THE brand back then.

But then came the window of opportunity opened by Apple and that window was wide open for everyone, but only Samsung managed to fully take advantage of it. There was little clarity regarding which operating software would prevail. S60 was still a big name and Nokia would encourage other handset manufacturers to use its OS. Google pushed Android, but didn’t have the huge ecosystem that Apple already offered. Microsoft also emerged trying to use its dominance in the PC-industry to enter the mobile OS market. And to tell the truth, Samsung also was contemplating for quite some time, trying Android, trying out S60, trying out Microsoft and also trying out its own OS “Bada” (which actually still exists today somewhere in Korea).

However, while everyone was busy contemplating, Samsung did what it could do best: it made a decision and then executed on it. Samsung realized two things, 1) it would be too expensive and time-consuming to create a proprietary eco-system which was required as the base for an OS, and 2) there was only one OS that had the potential to become a competitive ecosystem against Apple, and that was Android.

So with these two insights in mind Samsung acted rigorously. If you have ever visited the Samsung headquarter in Korea or even one of its factories, you will agree that Samsung is one of the best organized companies in the world. Everything is meticulously organized. There are clear-cut structures, processes and designs for everything. From the shape of its office-buildings, the visitor registration process to the cafeteria and shops in the basement, there is no spot where you can find an “undermanaged” area. There is even a wedding-hall in the basement of its headquarters, so its employees have “quick” access to it!

So if Toyota invented “lean production”, Samsung took it to the next level by inventing “fast lean production”. Samsung basically executed faster than anybody else. Life is sometimes tough for its employees, Samsung has a rigorous approach to putting resources together once a decision is made and if that decision requires quick action, Samsung is an organization that can put together large development-teams and assign million-dollar budgets within hours. Work – Life balance doesn’t even come into the equation. It can analyse competitor models and have reports for its top-management within days. Samsung also has the managerial capability of putting things together on a larger-scale. Let’s not forget: for Samsung, mobile-phones is just one business-unit beyond its other electronics businesses, e.g. the mission-critical semiconductors! And it is just one business-unit beyond all its other group-businesses that stretch from insurance, to amusement-parks, to ship-building and advertising. So Samsung is a company that has the resources and scale of a huge multinational, but also the decision-making of a small innovator and attacker. Which other company in the world has that?

Once Samsung realized that Android-based phones were doing well, it quickly put in tons of resources. In Korea alone Samsung sold more than 3 million units of one smartphone model in 2010 already. So with the technological question solved, the battle quickly became very familiar to Samsung. Now was the time of scale-economies and learning-curve, i.e. how fast are you at generating which quantity and how much do you learn every time you make the product. As stated above, that is where Samsung is invincible and the interesting point now is that Samsung has turned from a fast-follower into the number one and first-mover.

You don’t believe me? Then let’s look at the car-industry, because there Toyota was also seen as a fast-follower for decades. There was always a sentiment in the US and Europe that the Japanese car-maker is really good in quality, but nowhere near to innovation. These days everybody knows where hybrid-motors came from, certainly not the big dinosaurs in the US or Europe.

With the two leading smartphone manufacturers having a combined market share of over 60% and a profit share of more than 95%, the question arises how long this leadership can last. There is no industry where a monopoly can continually exist. But can there be a mobile-industry with a duopoly lasting beyond 2015?

Looking at the above mentioned market shares and profit shares it seems virtually impossible to take on these two giants. So who could take it on? Who has what it takes? And first and foremost, what is it you need to take it on with the big guns?

There are three components in this game, ecosystem, regional footprint and brand. It is obvious that it would take a very long time to effectively compete with two such large ecosystems as Apple and Android, which is Samsung’s main playground. Just this week Apple announced that it had more than 20 billion application downloads in 2012 and more than 500 million active users for the Appstore. So who would be able to create an operating system software that is easy to use, incentivize developers to develop applications (for free!) and at the same time locks in its consumers once they start using it? There is nothing today that comes even close to being relevant. Even Samsung has tried to create a proprietary operating software/ecosystem through various attempts (called Bada), but nothing bears any fruits today.

The only company who could therefore quickly attack is a well-known player: Nokia. It is the only company that could take it on with Apple and Samsung. It has a big enough product-planning team and manufacturing footprint. It has well established sales-relationships with distributors and operators. It has a brand that is still well-respected in many markets, especially in the not yet penetrated emerging markets, where expensive smartphones are only evolving now. If Nokia today decided to launch an Android-based phone, it could quickly re-establish itself as a relevant player and participate in the smartphone profit pool. A medium- to low-tier smartphone could sell basically everywhere outside North America and Northeast Asia, meaning outside Apple’s and Samsung’s home turf. Such a phone would sell very well in Europe, Latin America, Southeast Asia and also China. Chinese still love Nokia!

Other candidates could be LG Electronics or HTC, because both companies have initial relationships and experiences with Android. You might have forgotten, but back when it all started these were the two companies that had the Android offered by Google first before anyone else. If any of these companies would expand their Android capabilities there might be a chance to participate in the profit pool as early as 2014. However, they both had their chance and at this point rather doubtful to assume they would quickly act on their strategic options.

What deserves some more consideration, though, are the options of the existing players. How could they move forward? Apple could simply create a new and cheaper iPhone to respond on this threat. Samsung is already doing this with its various models, but Apple has so far not shown any movements to expand its product-line. We all know how Apple decides expanding its product-line, but this time it might make a lot of sense to skip old behaviour. With a cheaper phone Apple could gain new momentum to grow itself to a new level of smartphone provider. Similar to what we described about Nokia’s options are in fact even easier options for Apple. Brand, operator distribution channels and manufacturing-footprint are all things that Apple could easily leverage. The margins might be lower for such a lower-priced phone, but looking at other industries and straight-forward economics you cannot simply rely on one product if you are a company that size. And first and foremost a new product would help Apple to defend its current market-position, because any attacker apart from Samsung would need a huge organizational, a huge investment and a lot of time to catch up with Apple.

With the smartphone market share so consolidated and dominated there are only few “windows” of opportunities to enter the market, let alone opportunities for game-change. Windows 8 and Microsoft Surface could be both, but it remains to be seen how Microsoft will digest this opportunity.

The tablet market is similarly consolidated as the smartphone market and it is difficult to compete with the existing players and ecosystems. If you look at people sitting in cafes, subways or also remember your last business-meeting, there are always iPads. People just love browsing through webpages with their fingers, playing with apps or working on their emails.

The new Microsoft Surface is trying to compete within this space at a price-point of almost 500 USD. It seems Microsoft decided to go under the price-level of an iPad, but still way over similar consumer tablets such as the Nexus 7 or the Amazon Kindle Fire HD 8.9”. At first sight, it looks quite reasonable: cheaper than the exclusive luxury offerings but still not in the range of the main-segment.

We think Microsoft is plainly wrong with this strategy and it will miss a huge opportunity if it doesn’t adjust its strategy quickly. Different to smartphones, tablets still do leave some room for a game-change, because the B2C sector is not the opportunity. While you could argue that the B2C market is big enough, the much more appealing opportunity lies in B2B sales. Even until today the iPad  and also Android tablets are quite inconvenient if you want to connect your workplace to it and do productive activities. Neither of these devices allows for a key enabler for any office-worker or executive; Microsoft Office. Even though Google documents and all its components are gaining popularity, both users and also IT-departments are not fully happy with it yet. Sure MS Office works on a Mac computer, but it still doesn’t on iOS. Similarly, many corporate ERP’s and intranets don’t work at all or are very uncomfortable to use in a Safari-browser. The iPad is still essentially a media-consumption tool, whereas a Windows-based device is a productivity-tool. So most big corporates today complain about the difficulties they have with the iOS based iPad and don’t have a tablet offering for their workforce, because the heavily rely on Office, Windows Server and Internet Explorer.

Microsoft could and still can do a smart move by targeting all these unhappy B2B customers. Many IT-managers will happily allow a Windows-based tablet in their company, and similarly many employees and executives will be happy to use MS-Office while they are on business trips or work from home.

So Microsoft’s positioning of the Surface device at 500 USD is a doubtful move. It seems that the price was rather chosen out of a fear to quickly recover its development cost, rather than a strategic insight of how to enter a specific segment.

And another really interesting question arises: what about Nokia? If Stephen Elop was formerly head of Microsoft Office, then why does Nokia not come up with a Windows 8 tablet for the B2B customers? Wouldn’t it be an easy move? Microsoft and both Nokia are missing out on a big opportunity here.

 

Our August report reveals the numbers behind last month’s handset market. Samsung takes 23% of the global market while Nokia and Apple fall behind, again.
 
We estimate the August market to have been dominated by Samsung once more as rivals fall behind in lack of new compelling smartphones.
 
We find in the analysis that Samsung’s strengths are derived from its unique and powerful portfolio of hit products. Samsung’s smartphones are targeting the Premium tier and Mid-high tier simultaneously and 3 to 4 hit models are helping the engine running. Model efficiency is reaching its peak which will help boost profits more than sales.
 
Samsung is number one in the premium tier of $400 and above products with 35% share and is also number one in the mid tier which is between $100 and $400 with 24% share. Galaxy S III and Galaxy Y are both selling well in a variety of segments.
 
Samsung showed to be number one in all of the large markets such as China, USA, India, Brazil and Russia. It also held an astonishing 65% share of its home country South Korea in August. Sony’s share rose slightly as new products were rolled out and the new branding of Sony Mobile was successful. ZTE and Huawei suffered in the month as fierce competition in its domestic market of China arose.

In September Apple’s new iPhone 5 will be another big factor changing the premium market but the new mid tier will also be growing and it will be untouched by Apple.

The demand in the handset market during July 2012 shrunk compared to June. We measure demand as the amount of handsets sold through the retail channel to subscribers, which is sell through or sell out volume. Due to weak demand in Europe and North America along with the stagnant market in Developing Regions overall Global demand was weak.

Typical seasonality in July is 10% higher than June so this is a bad start for Q3 2012. Sell-through demand usually dictates the sell-in supply one month ahead so there is a high chance of a weak Q3 in terms of handset shipments. Handset inventory has been on the rise for 3 months now.

We estimate sell-in shipments were 129M units only growing a fraction compared to the 127M of June 2012. Handset shipments in 2012 have not exceeded the peak in March when shipments reached 137M units. This is due to the European crisis and the economic downturn in China.

Of the major handset vendors Samsung is still showing relative strength as shipments continue to grow. Galaxy S III is now the bestselling model for Samsung as sales reach 2.7M a month and we calculate this translates to more than 4M sell-in shipments a month. Galaxy S II and Galaxy Note shipments have started to fall in contrast. Galaxy Y and the new Galaxy Ace devices are steady sellers globally. Apple’s iPhone 4S is the top global seller selling close to 6M units a month. Nokia is still struggling with the Lumia smartphone series but the new Asha line up is doing quite well selling 5M units a month now.