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Analysis of the AR/VR Value Chain in China: Is China at the forefront of the industry?

The AR/VR (Augmented Reality/Virtual Reality) hype in China has gone through two waves of growth, despite the current relatively small market size. The market and investment hype in China has waned and returned to a more rational level since the beginning of 2023. This can be attributed to the dismal profitability of internet giants under macroeconomic pressure and the underwhelming sales performance of VR devices.

Exhibit 1: Development stage of the AR/VR Industry in China

China AR/VR hypeSource: Counterpoint Analysis

Nonetheless, China’s national government has recognized the long-term potential of XR (eXtended Reality) technologies, with the XR industry prioritized as one of the top seven key industries to constitute the digital economy of China in the country’s 14th Five-Year Plan.  Recently, CAICT (China Academy of Information and Communications Technology) has also introduced action plans to foster the integration of virtual reality technologies (including augmented reality and mixed reality technologies) and vertical applications from 2022 to 2026.

The development of VR glasses took off in China in 2016, with standalone devices becoming mainstream in 2019. As of 2023, we are seeing the market frenzy for VR devices subsiding, with the industry waiting for the introduction of Apple’s first MR headset. Meanwhile, the development of AR glasses is still at an early stage, with only limited products available in China prior to 2022. However, since 2022/2023, we are seeing more products being commercialized.

Regarding the XR device value chain, Chinese companies dominate in certain technology aspects, such as the optic and display solutions, battery, and ODM & EMS (Original Device Manufacturer/Electronics Manufacturing Services), but still lag behind in the development of SoC (System on Chip), connectivity, memory, as well as some areas in the sensing and interaction technologies.

China AR/VR value chainSource: Counterpoint Analysis

In the following sections of this report, we will present an analysis of the development of China and key Chinese players in the core AR/VR technology domains.

  • SoC: Qualcomm clearly leads with the first-mover advantage

Before 2018, most AR/VR headsets in the market were supported by Qualcomm’s Snapdragon mobile platforms and its bundled XR SDKs. Following the launch of the Snapdragon XR1 Platform,  popular VR headsets both domestically and internationally were predominantly developed on Qualcomm’s dedicated XR platforms.

Compared to Chinese counterparts, Qualcomm’s XR chips offer distinct advantages in terms of computing power, GPU rendering capabilities, connectivity, and the overall hardware-software integration solutions. Chinese companies, including mainland China players Rockchip, Allwinner Technology, Hisilicon, and Taiwanese player MTK, have developed products for AR/VR headsets. However, only MTK’s VR SoC was adopted by leading player Sony, while solutions developed by mainland China companies were primarily utilized in lower-tier devices featuring VR videos.

Apart from MTK, China currently lacks a competitive AR/VR SoC provider capable of challenging the dominance of international players like Qualcomm and Samsung. While Chinese players such as Rockchip, GPT, and Rokid have announced their ambitions to develop more advanced AR/VR chips, it remains uncertain whether or when their efforts will pay off.

Development of players in the SoC technology of AR/VR

Source: Qualcomm, MTK, Hisilicon, Allwinner, Rockchip, Counterpoint Analysis

The following sections of the report will cover our analysis on various AR/VR technology domains, including optic technologies such as Fresnel lens, pancake solutions, birdbath/freeform optics/waveguides solutions, display technologies such as Fast-LCD, OLED, L-COS, Micro OLED, Micro LED, sensing & interaction technologies like rotational and transitional movements tracking of head and controllers, hands recognition, eyes tracking, video see-through, connectivity/memory/battery technologies, ODM/EMS services, as well as the global supply ecosystem and the latest development of Chinese companies in these domains. To access the full report, please click this link, or contact sales@counterpointresearch.com.

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Webinar: Building Resilient Semiconductor Supply Chains

We are coming together with Invest India to hold a webinar on the Indian semiconductor industry.

Title: Building Resilient Semiconductor Supply Chains: The New India Opportunity

Timings:
Series 1: 8th February, 2023 | 11:30 AM (IST)
Series 2: 16th February, 2023 | 9:30 PM (IST)

The webinar will feature presentations by senior government officials and industry experts on the opportunities in the semiconductor industry, ecosystem enablers, incentives and infrastructure in India. We look forward to your participation.

If you are a semiconductor or component manufacturer thinking about setting up a foundry in India, attending this should be high priority.

Book your seat by filling out the form below. Only limited seats available!

Please enable JavaScript in your browser to complete this form.

Here are some insights from our Make in India research and more:

Apple’s Hardware Subscription Plan a Game Changer

Apple is reportedly working on a subscription model for iPhone and other hardware products. The news made headlines across the tech world. Apple’s influence and strength position it to effect a dramatic shift in the way smartphones are sold. A hardware subscription model comes with its own set of opportunities and challenges. While Apple is most equipped to implement such a plan and become immune to industry challenges, others may find it hard to replicate.

A hardware subscription should not be confused with hardware financing or Apple’s annual upgrade program offered in the US — the key difference here is “ownership”. Apple already offers device financing plans in many regions and some carriers also offer the option to lease the device for two years (after which the consumer is expected to return the device or pay the residual value). The value proposition for Apple lies in driving higher stickiness within its ecosystem while enabling faster upgrades. Therefore, bundled subscription plans with the option to pick and choose more than one hardware and service product will give a big boost to Apple’s “power users” which generate a much higher monthly ARPU across the brand’s products and services.

Hardware subscription model: Kill many birds with one stone

Hardware subscription can potentially make Apple immune to key challenges faced by the industry.

Firstly, replacement cycles are getting longer with hardware improvements. The average replacement cycle for iPhone users has increased to more than 30 months. The users are holding on to the devices longer because of their great quality and Apple supporting multi-year updates (at least 3-4 years). Since Apple cannot scale back on this value proposition, which is good build quality and software, it has to find newer ways to increase iPhone sales. Hardware subscription is one way to make sure users upgrade to the latest and greatest devices more frequently.

Secondly, the average selling prices (ASPs) have stabilized. Note that iPhone is not the most expensive smartphone in the market anymore, as it was 4-5 years back. A hardware subscription will allow Apple to minimize the cost of entry for a new user, enabling the brand to target higher ASPs.

Thirdly, Apple’s service revenues have seen significant growth but still accounted for 15.7% of its revenue for Q4 2021. Apple realizes that a “power” iPhone user can generate a much larger “customer lifetime value (CLV)” over a period of time if locked into a subscription bundled with services. According to Counterpoint Research Ecosystem Analysis, Apple can potentially generate a monthly ARPU of ~US$400 or an annual revenue of ~$4800 from a “power user” subscribing to its latest hardware, software and services. Apple’s bundling of services with hardware subscription will guarantee long-term subscription to Apple services with a stable revenue stream and outlook. Note that equity markets hate elements of uncertainty and a stable outlook is highly desired.

Monthly ARPU (Hardware + Services) for Apple Power User ~400

Source: Counterpoint Research Ecosystem Analysis, 2021

Fourth, the smartphone market structure is different across countries. There are three typical models – open-channel market, carrier-driven market with device subsidized and carrier-driven market with device financed. While carriers play a significant role in keeping the smartphone cost down in carrier-driven markets, consumers pay full price upfront in open channel markets. Although third-party financing options are emerging in open channel markets, the uptake for such services is still limited. We believe that the hardware subscription model will have less impact in markets where devices are already subsidized through carriers. But a subscription model will also bring all three types of markets on a level playing field, minimizing the cost of entry and giving another boost to the iOS installed base.

Last but not least, the hidden element and the most promising gameplay here could be a stronger hold of the secondary market, i.e. smartphone’s second life. At present, the refurbished smartphone market is dominated by Apple devices but the whole value chain is heavily segmented. Apple devices manage to grab an attractive value for used phones as well. With power users upgrading more frequently through Apple, hardware subscriptions will complete a full circle, creating an opportunity for Apple to extract full value from the end-to-end device lifecycle. It will enable Apple to control the whole refurbished value chain (right from device collection, grading, repair/refurbishment to resale) and potentially put Grade A devices back into the hardware subscription cycle as refurbished devices. This will also be in line with global sustainability initiatives and boost Apple’s original spare parts program.

Key Implications

Apple’s hardware subscription plan can have a multifold impact across different market elements. Overall, some mobile network operators won’t entirely welcome the news, but this was inevitable. Equity markets will be very happy to see a strong and stable revenue outlook.

Further, end-to-end control of buying and selling experience of hardware, software and services also opens the door for many other opportunities. eSIM and availing financing in-house means it now owns a critical (and previously painful) part of the customer journey.  The initiative dubbed as “breakout” mentioned Apple targeting payment processing, credit checks and many other fintech services. A hardware subscription will lock premium iOS users, allowing Apple to monetize daily financial transactions through a range of its possible fintech products.

A subscription model will establish a stronger relationship with premium iOS users with more frequent transactions compared to the existing one-time purchase transaction. This will have a multifold impact across Apple’s existing and future products, driving a much higher dollar value relationship with its user base.

Internet Service: Xiaomi’s Key Profit Generator

Beijing, Boston, Toronto, London, New Delhi, Hong Kong, Taipei, Seoul – September 1, 2021

Ten years ago, Xiaomi entered the smartphone market with the slogan “best performance-price ratio”. It has done a good job since then, disrupting the market by offering great budget choices. Xiaomi founder Lei Jun has also claimed that the “comprehensive profit margin” of Xiaomi smartphones would not be above 5%. But as a listed company, Xiaomi surely needs a much higher profit margin to please investors. The answer lies in its internet service business unit.

Since Xiaomi went public in 2018, its internet service has made up no more than 10% of the company’s quarterly revenue, but the unit’s profit margins have averaged at 65.12% through Q2 2021. Moreover, 42.74% of Xiaomi’s gross profit is contributed by this unit, according to Counterpoint Research’s latest report ‘Ecosystem Analysis: Xiaomi Internet & Services Segment’.

Gross Profit Margins of Xiaomi and its Business Units

Counterpoint Research Gross Profit Margins of Xiaomi and its Business Units
Source: Xiaomi reports, Counterpoint analysis

Xiaomi’s internet service includes advertainment distribution on its mobile game operation, e-commerce, fintech and other products. Most of Xiaomi’s internet service revenues come from advertisements.

Revenue Share of Advertisements in Xiaomi’s Internet Service

Counterpoint Research Xiaomi Advertisements Revenue Share
Source: Xiaomi reports, Counterpoint analysis

However, the YoY growth of Xiaomi’s internet service revenue slowed to 19.1% in Q2 2021. The YoY growth for the smartphone and IoT businesses was 86.8% and 35.9% respectively during the same period. The average revenue per user (ARPU), the ratio measuring the efficiency of traffic monetization, has been dropping in recent quarters as well, reflecting the difficulties in making profits from the traffic on its smartphones.

Xiaomi’s Average Revenue Per User Declining

Counterpoint Research Xiaomi’s Average Revenue Per User Declining
Source: Xiaomi reports, Counterpoint analysis

Stronger regulations on privacy globally have challenged Xiaomi’s current advertisement model. Mobile game developers such as Tencent and NetEase are demanding more revenue share. Xiaomi users too have been complaining of ads and other services on MIUI.

However, Xiaomi is a step ahead of many Chinese smartphone OEMs. It has formed an ecosystem of its various gadgets and home appliances, from smartwatches and smart speakers to air conditioners and dishwashers. Such an ecosystem gives Xiaomi more opportunities to provide value-added services. Yet, except TVs, Xiaomi has not figured out an efficient way to monetize traffic from IoT products.

The ‘Ecosystem Analysis: Xiaomi Internet & Services Segment’ report combs through Xiaomi’s internet service business unit and breaks down the business model to point out the current difficulties and future opportunities in traffic monetization. The report is available here for subscribing clients.

Background:

Counterpoint Technology Market Research is a global research firm specializing in products in the TMT (technology, media and telecom) industry. It services major technology and financial firms with a mix of monthly reports, customized projects and detailed analyses of the mobile and technology markets. Its key analysts are seasoned experts in the high-tech industry.

Analyst Contacts:

Archie Zhang

 

Follow Counterpoint Research
press(at)counterpointresearch.com       

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Stellantis Bets Big with €30-billion Investment Plan for EV Business

Stellantis, formed in 2021 after the merger of Italian American automaker Fiat Chrysler and France’s PSA, unveiled its electrification plans on July 8. The company will invest more than €30 billion over the next five years to develop new technologies and ecosystems. With electrification of its iconic brands, strategic partnerships for five giga factories, and a dedicated software team, Stellantis is ready to compete against other automakers globally.

Besides using best-in-class full-electrification solutions for its 14 iconic brands, Stellantis will also focus on electrifying its commercial vehicle line-up and rolling out hydrogen fuel-cell medium vans by the end of 2021. By 2025, 98% of all models across the company’s portfolio in Europe and the US will be electric. Stellantis predicts that the sale of its low emission vehicles (BEV and PHEV) will be over 70% in Europe and over 40% in the US by 2030.

Technology Development

Stellantis has unveiled four BEV-centric platforms which will be the backbone of its EVs. The highly flexible design, which allows sharing of components, will enable each platform to support the production of up to 2 million units per year. The platforms will come with three dedicated electric drive modules (EDM). These compact and flexible modules can be configured for front-wheel drive, rear-wheel drive, all-wheel drive and 4xe. The EDMs will house a common scalable power inverter, in-house proprietary controls, and software. The power inverter will be fitted with a selectable power device, either silicon (Si) or silicon carbide (SIC), for better performance. Three family solutions focused on performance, flexibility and efficiency will cater to all its brands across all four platforms. In Europe, these drivetrains will be supplied by NPe, a joint venture between Stellantis and NIDEC. The supply in the US will be done by Stellantis and its strategic partners.

Platforms and Drivetrain

 

Stellantis will develop a high energy-density nickel-based battery and a nickel-cobalt-free alternative under its dual chemistry battery strategy. These will be available in the market from 2024. This new solution will cut battery pack costs by more than 40% from 2020 to 2024 and by an additional 20% by 2030. To develop the battery production, Stellantis has already invested in three giga factories (two in Europe and one in the US), which will secure a cumulative plant capacity of 130+ GWh by 2025. By 2030, this capacity will go up to 260+ GWh with two more giga factories in Europe and the US. Stellantis has signed an MoU with two lithium geothermal brine process partners in the US and Europe to ensure an unhindered supply of lithium.

Battery Chemistry

 

Ecosystem Plans

After securing the development and production of powertrains and batteries, Stellantis plans to develop a strong ecosystem for its EV business. The partnerships with Free2Move and Engie PS will allow Stellantis to provide customizable bundled charging solutions for both B2B and B2C segments. Jointly, they plan to deploy 5,000 grid integrated fast chargers across 1,500 locations in Europe by 2025, increasing them to 35,000 across 9,000 locations by 2030 across Europe, North America, and South America. Moreover, Stellantis is building a full circular battery recycling strategy for sustainable battery management. With software to manage and monitor battery health, Stellantis will set up 21 repair centres globally by the end of 2021 to provide unique services and solutions to its customers. Batteries not fit for vehicles anymore will be used for charging and energy storage solutions in their second life. With qualified partners, Stellantis will recycle batteries using a new technology that will be able to extract most of the raw materials for their reuse in new batteries. Stellantis is expecting a volume growth of nearly 5,000 batteries per year by 2030 for recycling only in Europe. To support this, battery re-manufacturing units are also planned. Currently, there is only one at Rüsselsheim in Germany.

Circular Strategy

 

Lastly, the company will have a dedicated software development unit that will provide software for better traction control and regenerative braking, superior battery management system and power usage. The new smart cockpit and remote service products are expected to deliver a best-in-class experience.

Several key technology joint ventures, like with NIDEC for e-powertrain; with ACC, TotalEnergies, CATL, BYD, LG Chem and SVOLT for battery cell chemistry and pack production; with Foxconn for the smart cockpit and remote service; and with Free2move and Engie PS for the deployment of charging infrastructure, will not only provide Stellantis the opportunity to leverage its in-house competencies but will also enable it to bring solutions in the market more rapidly and stay ahead of the competition.

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Google Looks to Capture Mid-range 5G Device Market With New Pixel 4a and Pixel 5

On September 30, Google launched two Pixel devices — Pixel 4a 5G and Pixel 5. This follows the August 3 launch of the Pixel 4a (a non-5G version), which is yet to hit the shelves in all its key markets, like India. This means that three Pixel devices will be available for retail in most markets by mid-November, which will be a first for the Google Pixel team.

With its latest Pixel devices, Google has finally managed to make decent upgrades on the hardware. The main focus is obviously the added ‘5G’ support, apart from several other enhancements related to display, camera, battery and on-board storage. On the display side, it includes FHD+ OLED panel and an Always-on Display. While the Pixel 5 features a screen with 90Hz refresh rate, HDR support and Corning Gorilla Glass 6 protection, the Pixel 4a 5G sticks to a 60Hz screen and Gorilla Glass 3 protection. We also finally have the ultrawide camera and new software enhanced features for portrait mode photography. Pixel 5 also includes wireless charging, reverse charging and IP68 dust and water-resistant features that are missing in the cheaper Pixel 4a 5G device. Surprisingly, while the Pixel 5 comes with USB Type-C port for audio and data transfer, the Pixel 4a and Pixel 4a 5G models also come with a legacy 3.5mm audio port. Below is a comparison of the latest Pixel devices in terms of hardware:

Google Continues to Build on its Software Prowess

Google has created its own niche among consumers with focus on photography while leveraging its software prowess. Pixel devices bring the best-in-class Android experience along with in-built AI neural engine that supports various features that might seem slightly distant for many smartphone OEMs.

We have seen previous Pixel devices offering some distinctive features such as live captions, active edge assistant, AI-based on-device Google Assistant, Titan M security chip, the Shazam-like ‘now playing feature’, the car crash feature and much more. This is apart from its dominance in capturing the most natural photographs, along with features such as Astro photography and dual exposure control, which make us count Google Pixel devices among the best photography smartphones. The new range of Pixel devices continues to build on these capabilities apart from new additions such as night sight with portrait mode, portrait light (AI-based enhancements that can be applied to existing photo library), cinematic pan, extreme battery saver, hold for me, and much more. But unfortunately, Google did not emphasize enough on such features which make it stand apart from other smartphone OEMs.

The 5G factor

Google has managed to add ‘5G’ capability in its Pixel range of devices at the right time. The industry is at an inflection point for 5G device democratization over the next few quarters. Google has entered the 5G device race right before the Apple announcements in this regard, which are expected in a few weeks. While Apple is likely to become a major catalyst for 5G device adoption, Google has made a very smart move when it comes to pricing. Google’s top-of-the-line Pixel 5G is likely to compete against the lower-end iPhone 12 devices or existing Samsung Note 20/S20 devices. The new devices come with Snapdragon 765G SoC rather than the top-of-the-line Snapdragon 865+ SoC. This means that Google is not trying to compete with the super-premium flagship ranges from Apple and Samsung, but rather focusing on the mid-range and affordable premium price segments while leveraging its software prowess as the main selling point.

Having said that, it seems the Pixel 4A 5G supports sub-6 5G bands only, while the Pixel 5 supports both – sub-6 as well as mmWave. This means that an unlocked Pixel 4A 5G device bought from Google Store will not be able to provide a full 5G experience over the course of years. That is why Verizon announced a separate SKU, being called Pixel 4A 5G UW. It is priced at $599 (i.e. an additional price delta of $100, which the industry calls as “mmWave tax”) while the Pixel 5 will still be sold at $699. With only a $100 price difference between the two devices, it makes the Pixel 5 a much better choice.

The 5G capability will enable Google to upsell its content and services such as Stadia, YouTube premium, storage and much more, going forward.

Still a Device for Premium Markets

Google has been very selective in picking its key markets. Google Store lists nine countries that will be selling the Pixel 5 and Pixel 4a 5G devices — US, Canada, Japan, UK, Germany, France, Ireland, Australia and Taiwan. But it may likely add more countries such as India, Singapore, Italy and Spain, which currently sell previous generation Google Pixel devices.

Google was not able to sell the Pixel 4 and 4 XL devices in India due to its Soli Radar chip on the front, which utilized the 60GHz frequency band banned for commercial use in India. It seems Google has finally removed the Soli Radar chip and the Pixel range can now be sold in India.

Google would be keen on capturing a pie in the European market in absence of Huawei, but it is likely to face tough competition from other Chinese OEMs. Google does have an edge in terms of brand equity, but it needs to build strong carrier partnerships and have a sturdy pricing and promotion strategy to capture the opportunity. As we write this article, we can already see some price aberrations across different Google stores.

Source: Google Canada Store (Prices in CAD)

After currency conversion, Pixel 5 is priced at $599 in Canada, making it $100 cheaper compared to its retail price in the US. We delved further into this and found out that Pixel 5 is actually a sub-6 only device for every country other than the US. Therefore, there will be some price differentiation across these markets. Although Google Store drives only a fraction of Google Pixel sales, the bottom line is that Google must have a sturdy pricing and promotion strategy across regions, especially in carrier channels.

The Google Ecosystem

Google has plenty of room to grow given its control over the connected ecosystem, which goes beyond just smartphones. It is a major competitive advantage over any other smartphone OEM and positions Google to offer the best Android user experience, optimized and customized for each user.

The Pixel devices just need to strike the right chord among users with a hardware strategy that is sturdy, consistent and competitive in terms of specifications. Google has definitely moved closer to that goal with the new range of Pixel devices, but it needs to further strengthen and stimulate its sales and marketing efforts at the ground level in key markets.

Building Better AR Products: ARIA Summit Highlights

ARIA stands for Augmented Reality in Action and is a leadership summit held yearly at the MIT Media Lab. The summit is sponsored by Kopin, a leader in wearable display solutions that has been in the market for over 30 years. Kopin is known for making the $400,000 helmet that F-35 pilots wear and also offers a vast array of enterprise wearable display and microphone solutions.

Whereas VR, or virtual reality has gotten immense hype, AR is often seen as the forgotten stepchild of the field or is even used interchangeably with VR! This is why ARIA came about as a way to showcase innovative augmented reality solutions that are currently under development as well as those already in the market. The summit featured talks from industry leaders from companies such as Google, PTC, Magic Leap, Bose, and Kopin, while also showcasing work from educational institutions such as MIT and Harvard.

In the keynote speech, Kopin CEO and Chairman Dr. John C.C. Fan spoke about five core rules for creating successful wearable AR experiences. In the next few paragraphs I will highlight these rules and showcase several companies who are following these principles that were present at the summit.

Rule 1. Humans First – Tech Second

Successful wearable AR products must be able to solve for the question, “why should I wear this?”. Adoption of new devices can only happen if a consumer is willing to wear the device. It must be comfortable; it must be fashionable. Without these drivers, innovations won’t be accepted. While Google Glass was a great example of a product that was designed for comfort in mind, it was not fashionable at the time. One could argue that Google simply miss-timed the release of their device, as now wearable AR devices are becoming more and more in style. Google X’s Jay Kothari gave a talk on how Google Glass has evolved over time and what current use cases the technology is still being used for.

Rule 2. The Virtual World Cannot Overwhelm the Physical

There are countless demos / mockups out there that showcase the power of AR and they all seem to cram as much information as possible onto a display. Augmenting our reality does not mean overtaking the reality one is in, and a product must have that in mind. Kopin showcased its Solos smart glasses for cycling as an example of Rule 2. As cyclists are often elite athletes, they will have a good idea of what stats they want on their display and can customize their experience to their liking. The glasses will only show the most important information to a cyclist. This way they have fewer distractions and can still focus on their physical surroundings.

Rule 3. Maintain Situational Awareness

As humans we want to always be aware of our surroundings. We like to see, hear, touch, smell, and taste things around us. Buildings products that keep our sense of awareness intact is important and sets up certain design criteria that should be followed. Sight and sound are the most important of these two and should define how we interact with augmented reality. See the above example again as a reference.

Rule 4. Voice is the New Touch

In our physical world our voice is the most important way to communicate. While we have been using the mouse and keyboard for many years, they have been compromises to our true communication capabilities. Thus, focusing on voice as the channel for communication in AR is key. Spatial is a company that has burst out of stealth mode recently who showcased their vision of AR to create a better collaboration tool at ARIA. Spatial transforms any work-space into a shared augmented reality where people can communicate, brainstorm, and collaborate on ideas using shared walls and other visual aids. While Spatial still uses laptops and smartphones as part of the collaboration effort, it also has an emphasis on voice / voice commands. Just like in the actual physical world, the AR world should integrate voice as a primary tool of communication and engagement.

Rule 5. Balance Design with Benefits

In any product, there needs to be a trade-off between the design, the functionality, and the aesthetic look. Over-designing a product with unnecessary features will not lead to customer uptake. There should be specific benefits that motivate people to adopt an AR product which they will willingly use for extended periods of time. For example, most people do not think of Bose as an AR company. However, one could argue that they have been in the AR business for a long time already. Augmented reality does not just stop at voice or sight; hearing is another sense that can be augmented. This is where Bose has come out with a new “hearable” device called Bose Frames which were presented at ARIA. These sunglasses come with head movement sensors, speakers, and a microphone to take calls. The frames are both stylish and functional and don’t over promise on their benefits. The glasses protect your eyes and the speakers allow you to listen to music. The hearable AR space is largely nascent, but Bose is already thinking of using the Frames as a way to explore cities better through tracking head movements combined with GPS to give users accurate information on buildings, streets, monuments that are right before their eyes. While there are several more AR use cases promised in the future (games, fitness, travel), the Bose Frames have done an excellent job at balancing design with benefits.

These five rules focused on wearable AR products, however the lessons can be applied to AR applications as a whole. AR can have powerful implications on future developments in education, medicine, journalism, and even analytics. However, the design of the product and the benefits the solution will bring must always be seen in the context of our own reality and how it fits into our own world. Keeping this in mind will help drive adoption and user uptake as well as push the boundaries of AR forward in the future.

iPhone :: A Decade of Billions

On June 29th 2007, Apple first begin selling its then iconic smartphone the “iPhone” which with multiple iterations transformed Apple into one of the richest enterprises on the planet. The leaders in the pre-iPhone era surely launched touchscreen phones that were somewhat smarter for the time with hosts of productivity features powered by Palm OS or Windows Mobile OS. But the amalgamation of finger based touchscreen, slicker software (iOS) in iPhone buoyed by the growing ecosystem of third party developers creating innovative applications was the game changer for Apple. Lots has changed in the last ten years, as the mobile phone industry has undergone dramatic shifts with advent of iPhone as well as the simultaneous ‘democratisation’ of smartphone by Google’s Android platform and its derivatives.

iPhone undoubtedly is the most popular, revenue generating and profit making hardware ever made by any technology company. Apple has grown a massive cash cow:

  • Cumulative iPhone Units Sold: 1.17 Billion
  • Cumulative iPhone Revenues: US$ 775 Billion
  • Cumulative iPhone Profits: US$ 250 Billion

Over the decade since iPhone and iOS, Apple has amassed more than 2.5 million applications on its App Store via 16 million registered developers and in the process paid out more than US$70 Billion to developers and seen more than 180 billion app downloads. Apple’s services from iCloud to Music to Maps to iMessage have millions of users with Siri seeing almsot 400 million active users globally. With the advent of iOS11 and thus ARKit, Apple aims to be the number one player in Augmented Reality space as it expects iOS11 roll out to reach more than 200 million iOS users in just a few months after launch.

Apple still has lots of tricks up it sleeves to keep its loyal base interested in its products, offerings and ecosystem.

JioPhone: Accelerating India to Cross The 4G Chasm

The most disruptive 4G operator in India Jio, part of Reliance Industries, announced a category of 4G Feature Phone “JioPhone” which is essentially basic feature phone on steroids today on July 21 at the company’s Annual General Meeting (AGM). A brief analysis on this important development

  1. This is as disruptive as the first 100M subscribers Jio raced to in just six months and will help Jio to potentially attract another 100M from rival’s total base of more than 400M 2G subscribers.

  1. Reliance Jio has well thought through the overall value proposition of this offering to accelerate the next wave of 4G subscribers on its network and in process potentially connecting next half a billion users to internet over the next few years who cant afford or doesn’t want to upgrade to a smartphone form-factor.
  2. The so called JioPhone will come in a candybar form-factor with an alpha-numeric keypad maintaining the same usability, however, features a 2.4″ QVGA color display, larger battery, expandable memory, voice commands to control specific “smartphone-centric” functions, pre-loaded Jio ecosystem and other apps while also sporting NFC to enable Jio’s mobile wallet “JioMoney” ambitions
  3. Further, JioPhone subscriber can subscribe to the highly affordable a INR 153 (US$2) pack per month for access to unlimited calling and data, very much inline with average ARPU for Indian mobile phone user.
  4. Furthermore, the users with an additional accessory can stream the live TV content app “JioTV” to their old or new TVs consuming content on a bigger screen for just INR309 (US$4) /monthBrilliant move to enhance the “internet consumption” use-case and make JioPhone a virtual Set-Top-Box (STB).
  5. Putting icing on the cake, the JioPhone will cost Rs 0 (US$0) though with a catch where user will have to pay INR 1500 (US$23) refundable deposit which can be released after 36 months, very smart as it ensures a “lock-in” to the Jio network and ecosystem.

This is a truly disruptive offering with Jio aiming to make almost 5 million units available every week as we believe this will be in very high demand. Having said that, Reliance Jio will have to be careful on few fronts – product quality of this device, Quality of Service (QoS) blanket coverage right to tier-3-4 towns where most of the demand will come from as well as from component supply especially for the low-configuration memory in this device.

We have deep dived into how much this opportunity is from potential TAM demand side as well as supply side constraint perspective and how Jio can drive this into a sustainable and disruptive business model in our exclusive report (see here).

Global Smartphone Shipments Back to Double Digit Growth

Smartphone shipments set a first quarter record clocking 375 million units, growing 11% annually

New Delhi, Mumbai, Hong Kong, Seoul, London, Buenos Aires – May 3rd, 2017

According to the latest research from Counterpoint’s Market Monitor service, global smartphone shipments grew 11% in Q1 2017 compared to Q1 2016.  This is a stark contrast from the -2% decline Q1 2016 endured.

Commenting on the findings, Jeff Fieldhack, Research Director at Counterpoint Research said, “The industry recorded its slowest smartphone growth in 2016, however, we estimate the smartphone segment will bounce back registering 6-8% volume growth during 2017. The major factors driving growth this year will be the proliferation of LTE networks in emerging markets and the roll-out of Gigabit LTE networks in established markets. Operators will benefit from getting as many compatible devices onto these networks as possible.  In addition, the launch of innovatively designed flagships from Samsung, LG, Apple and others sporting bezel-free displays, Gigabit LTE support, AI capabilities and other features will drive the upgrade cycles higher during the year.”

Commenting on the findings, Tarun Pathak, Associate Director at Counterpoint Research said, “While the global smartphone segment is about to witness growth, most of this growth is driven by only a few geographies such as India, Middle East & Africa, and small parts of Asia and Europe. These high growth markets were earlier driven by growth from local kings, which are now facing tough competition from Chinese brands that are venturing outside of their own domestic market in search for growth. So, we estimate these local kings, feeling the pressure, will adopt a similar strategy and subsequently expand outside their home markets. However, these Chinese brands come with a strong supply chain ecosystem backing and thus are at an advantage to put pressure on the local kings’ growth prospects.”

Commenting on vendor performance during the year Research Analyst, Shobhit Srivastava, noted, “Only three brands out of the top 10 clearly outgrew the overall market — OPPO, vivo and Huawei. These brands have reached dominant positions in their home market putting immense pressure on Samsung and Apple.  However, the second half of 2017 will be a strenuous time for these challengers as Samsung and Apple leverage their vertical expertise to churn out two of the most unique and highly desirable flagships.”

Market Summary

  • Smartphone shipments reached 375 million units in Q1 2017. The smartphone market grew 11.2% annually.
  • Smartphone penetration reached over 80% of the mobile phones shipped in the quarter.
  • Top 10 brands contribute to almost 73% of the smartphone volumes in Q1 2017.
  • Premium segment ($400 above) smartphones now contribute to almost 20% of the global smartphone market. However, the segment declined annually due to softness in iPhone volumes and controlled inventory of the Samsung flagship Galaxy S7/S7+ ahead of Galaxy S8 series launch.
  • The ‘affordable premium’ segment $300~$399 was the fastest growing smartphone segment during the quarter mainly driven by OPPO, vivo and Samsung A series smartphones.
  • The $100~$199 price segment has quickly become the sweet spot across the pre-paid developed and emerging markets. This segment accounts for one in three smartphones shipped globally, registering a healthy 28.8% growth in Q1 2017.
  • The $100~$199 price segment is mainly driven by Samsung’s J series, Huawei’s Honor series, OPPO’s A series and Xiaomi’s Redmi series smartphones. Together these brands accounted for almost half of the volumes of the price segment.

Exhibit 1: Global Smartphone Shipment Growth by Price Band – Q1 2017

OEM Performance Insights

  • Samsung regained the top spot from Apple in Q1 2017 due to higher than expected shipments of 80 million smartphones. We believe Samsung ended the quarter with significant inventory of the new A series and older J series smartphones.
  • However, the flagship inventory was streamlined during the quarter building a stronger base for the promising Galaxy S8/S8+ launch in Q2 2017.
  • Samsung led the smartphone market by volume with a market share of 21% in Q1 2017. Its smartphone shipments recorded a marginal growth of 1% annually during the quarter.
  • Coming off a strong holiday season quarter, Apple shipped 50.8 million iPhones, down 1% annually. The iPhone shipments were below market expectations considering the strong demand for the new iPhone 7 series compared to the iPhone 6S series.
  • Apple has yet to reach the peak Q1 2015 quarter shipment levels which it saw with the iPhone 6 series.
  • Softness in China remains the key factor holding back Apple’s iPhone growth.
  • Huawei shipped record first quarter shipments of 34.6 million units, up 22% annually. According to our monthly Market Pulse report for Q1 2017, Huawei, like Apple, registered a healthy sell-through clearing most of the excess shipments at the end of Q4 2016.
  • During the quarter, Huawei launched its latest flagship, the P10. This should help Huawei increase its share in the premium smartphone segment, which stood at 6% at the end of Q1 2017.
  • However, looking at the latest bezel-less flagship launches from the vertically integrated Korean vendors, Huawei will face tough competition in flagship segment.
  • OPPO and vivo were the fastest growing brands during Q1 2017, continuing the strong momentum of the second half of 2016.
  • China, India and SEA remain the key growth markets for these brands. The companies captured one of the top three spots in most of these markets.
  • Both OPPO and vivo have been successful in driving the high tier ($300~$399) price segment by offering affordable premium smartphones with innovation across design, camera and battery technologies.
  • LG registered 14.8 million smartphone shipments in Q1 2017 with strong performances in North America, LATAM, and Korea. The company’s shipments grew 9.6% annually in the first quarter.
  • The mid-tier K series smartphones were the major driver for LG during the quarter.
  • Xiaomi shipped 13.2 million smartphones, capturing 3.5% market share of the global smartphone market in Q1 2017.
  • India was the bright spot where shipments grew 283% during the quarter, which somewhat offset the continuous decline in its home market. Redmi Note 4 was the key volume driver for the company during the quarter.
  • ZTE had a relatively softer quarter with 3% annual growth. The company registered growth in some markets such as North America.
  • The performance in Western Europe, MEA and Asia was weak during the quarter.

Exhibit 2: Global Smartphone Shipments Volume Share – Q1 2017

Source: Counterpoint Research: Quarterly Market Monitor Q1 2017

For press comments and enquiries please reach out to analyst (at) counterpointresearch.com

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