Mobile Solutions CI

CES 2012 Day One Device News

Here is my wrapup of the kickoff of CES from a device angle.

Nokia: Dominating the early CES news cycles, Nokia’s Lumia 900 for AT&T.

HTC

• Titan II, an LTE Windows Phone Mango device for AT&T. 4.7" Super LCD display, 16MP wide-angle camera, DLNA and HDMI-out. MSM8255 at 1.5GHz, 9.9mm

Motorola:

• VZW LTE Droid 4 – a slide QWERTY with dual-core 1.2 GHz processor, 1 GB RAM, an 8 megapixel camera w/1080p video, on Android 2.3
• Razr Maxx, a fat (almost 9mm) Razr with extended battery.

Samsung:

• Galaxy Nexus will be one of Sprint’s first LTE phones later this year.
• The Galaxy Note is heavily featured.
• Samsung is also launching Galaxy Tab, it’s 7.7” Android tablet, for Verizon’s LTE network.

LG:

• The Spectrum, a VZW device with IPS screen technology LG has demo’d for us. The Spectrum has a 4.5” 1280 x 720 display, runs Android 2.3, with a 1.5 GHz dual-core Snapdragon processor. The 4.5 inch display is matched perfectly to the 16:9 aspect ratio -- very long phone. It’s bundled with an exclusive ESPN deal to stream full HD 720p video clips to the device through ESPN’s ScoreCenter app.
• Viper, launching on Sprint, an “eco-friendly” phone with extremely efficient charger and made from 35 percent recycled plastics.

Huawei:

• Ascend P1 S, 6.68mm, 4.3 inches Super AMOLED qHD display with Gorilla Glass ( 960 x 540 resolution), TI OMAP 4460 at 1.5 Ghz running Android 4.0 . 8MP camera with LED flash and auto focus, 1.3MP front facing camera. HD video recording at 1080p and HDMI and DLNA. 1GB RAM/ 4 GB ROM with 1800 mAh battery. No carrier partners announced. Target price around $400.
• Ascend P1, same device with 7.9mm thickness and smaller battery.

Pantech: Pantech’s Burst is an Android phone for the budget-conscious, it will launch on AT&T’s network for under $50 with a contract.

 

More thoughts on Google's Motorola buy

I've been too busy to be read very much and therefore haven't found any good commentary on the Google buy of Motorola, which I've been thinking of this week. Here is my overview of the deal from the patent, handset vendor, carrier (distribution), and platform perspectives.

Patents

Most of the commentary asserted Google did this deal to secure patents.

I challenge the idea that Google gained meaningful IP to protect Android partners. Motorola’s patent set was primarily feature-phone based, with many java, RF, and handset navigation elements. However, Google’s Android weaknesses stem from its implementation of libraries and licensing schemas within Linux.

While much of that code is java or java-based it is not a 1-1 with Motorola's patents. Note that Motorola already tried to defend itself from Microsoft’s approaches through reliance upon its patents and Microsoft deemed that defense weak enough to sue. Therefore Microsoft will continue to use lawsuits to threaten and enforce licensing restrictions upon Android licensees.

I expect the Motorola purchase to accelerate and inflame the patent wars with Android. As an example of this, Google may well find itself unable to distribute Android devices in the US when it closes the Motorola deal.

Handset vendors

How will other handset vendors respond?

In the short term, they might not care as much as you'd think. Motorola was losing share quickly anyway.  

In the long term, Google just openly signalled it will be competing with its partners and that they therefore better be prepared to compete back with content and services. There is real likelihood that Samsung and HTC will react quickly --say within 3-6 months-- to this threat. Samsung in particular is behind in this area and willing to spend its way into new business platforms. Willingness to spend combined with the suddenness of Google's move could well prompt Samsung, LG, and HTC into action they would not otherwise take. 

• As I've noted before Samsung has an operating system alternative in Bada. While we are not likely to see Bada in the US within 6-9 months Samsung has the capability of materially affecting Android uptake by further leveraging Bada in non-US regions for the entry-level smartphone consumers.

•  HTC is more likely to partner on the content side as it has better resources and strategic fit with licensing deals.

• LG is too far off the game to have this affect them directly. 

• Now that Palm is off the table, the Motorola deal also pushes several non-mobile players harder into the space (as they cannot risk Google controlling their set-top/ appliance  device footprint) and increases HTC desirability as acquisition target.

Carriers

Verizon: Motorola has been losing share to HTC and a lesser extent to Samsung at Verizon. More importantly, introduction of the iPhone and expansion of “Droid” branding beyond Motorola products has taken the promotional support which Motorola required. Without Verizon’s 100 million dollar campaign behind them Motorola has been in tough shape and needed an exit. Verizon has used the Droid brand to push off core Google services and will now have even more motivation to move away from Google (and Motorola).

All carriers—While a Google phone will have interest to carriers, each carrier has also experienced the risk of this path. With iPhone continuing to command crippling subsidies there will be pushback to resist the same dynamic with Google and Motorola. There will be more support to be gained through partnering with Samsung, LG, and HTC which also serves to at least partially limit or control carrier commoditization (at least relative to a Google produced device).

Platforms:

This deal also signifies an accelerating shift past carriers in the mobile ecosystem. Expect content, app, and service partners to increasingly bypass carriers as the critical path in reaching end customers unless we create more direct partnering models than the current pre-load and per-user license based models predominant today.

On another note, I haven't seen much commentary on the likelihood of successful integration of the Google and Motorola. Google and the devices side of Motorola are a poor cultural fit.

As HP just demonstrated, there has never been a successful integration of service/platform provider and mobile hardware vendor.   Recent examples include HP/Palm, Microsoft/Danger, Nokia/Intellisync/Ovi.

Similarly, competing openly with your own channel has a great chance of failing than succeeding for Google. Google has already stumbled with each one of it’s core Apple competitive entries due to channel and content partner conflicts: TV, YouTube/movie, Music.

Summary

Over the 18-24 month horizon, due to patent risk and channel conflict, I expect at least Samsung and probably HTC and LG to release alternative operating systems to Android (although probably also linux-based and capable of running Android apps) or go deep with Microsoft. This makes RIM a likely takeover target, as its new OS has the most direct path to a cross-platform and tools-ready OS. Ironically, Google just made RIM more valuable than it has been in two years. I still think Windows Phone fails in the market but now it takes longer to do so.

 

Motorola Smartphones In The U.S.: A Rollercoaster | mocoNews

You might well ask what it is that Google sees in Motorola (besides patents). A direct link to Google, by way of ownership, could give Motorola devices the boost it needs to gain more market share again—especially if Motorola finds itself competing against fewer Android devices because of that Google connection.

NPD thinks there could be an opportunity to make more low-cost smartphones to target prepay users, for example. However, if you believe the recent reports about Apple, that’s a market it will be soon targetting, too

via moconews.net

This is not a well thought out argument. Having Google as an owner brings no magic fairy dust to Motorola sales, nor does it suddenly give them a cost structure to profitably compete in low-cost and prepaid segments.

MOT, HTC replace RIM at VZW -- for now

BGR has a post showing RIM's plummet from dominating smartphone share at VZW in 2009. They have been replaced by Android models from MOT, HTC, and Samsung. While this is bad news for RIM it also indicates the Android vendors better have a plan in place for Q1 when VZW pivots its promotion to iPhone. At that point the Android OEMs will see their own negative hockey sticks.

How VZW promotional focus may be mobile's most explosive catalyst

Last week some very interesting news slipped by in the busy holiday rush. At a Credit Suisse briefing Motorola's Sanjay Jah warned that Verizon's competitive actions during the first quarter of 2011 could impact Motorola’s financial results. Sandwiched in to the Q&A of a typically optimistic briefing this is a real eyebrow raiser.

Here are his exact words: "At Verizon, there is a competitive dynamic developing, which may have an impact given our strong relationship with Verizon. I think that may have an impact on our first quarter." (The full webcast is on Moto's investor page)

What Moto is signalling is that VZW’s Droid campaign will take a funding hit as Verizon spends that resource elsewhere. Where else? All signs point to an iPhone CDMA launch at CES and that is the most likely candidate. VZW may have more aggressive marketing and promotion of iPhone than anticipated. I had thought that VZW would basically let Apple do the heavy lifting on the VZW iPhone and not bother to feature it too much--they probably reasoned that most defections had already occurred, the Android superphones are effective acquisition tools for them, so why not continue to focus there and let Apple drive incremental adds without adding painful Capex promotion to an already heavy opex investment.

But Jha's comments make me rethink that reasoning. Verizon's  CEO is keynoting CES and expected to announce iPhone at that time, so that is another indicator it will be a higher than expected priority for VZW.

What Jha, who will be CEO of Motorola Mobility as a standalone business in Q1, is experiencing is exactly what RIM went through. The tremendous drive of the Curve to become America's number one smartphone--and leading device overall for at least a quarter or two--would never have happened without VZW putting both demand generation and the huge BOGO campaigns behind it.

When RIM lost priority at their number one customer many analysts hit the panic button and said RIM would have a tough time recovering. The next quarter RIM reported continued growth and everyone forgot about it. But go back and look at RIM's financial filings the past three years and a clear story emerges that this was indeed a killer for RIM--their US consumer growth stalled as a result and they have not recovered a year and a half later.

RIM's subscriber acquisition numbers have been relatively flat over the past year. Their quarter-on-quarter growth rate was a steady 15-18% for years but has been 10, 12 and 10% over the last three quarters. The percent of devices sold to new customers has plunged to 37%! I estimate their their NA growth rate has dropped from 11, to 8, to 5, to 2% the past several quarters. It's falling off the cliff. 

RIM can't change that momentum with business as usual, and neither can MOT. Two years ago $50M was a huge device launch budget. A year ago $100M was the benchmark. After Samsung's GalaxyS you could argue $150M is table stakes now. With every holiday season bringing $1 billion in combined promotion it all seems to cancel itself out and the one to make it above the noise is the hero attached to VZW's incremental commitment.

When RIM lost it's promotional hero status to Droid, it's US subscriber numbers tanked. MOT will be hit similarly hard. Both of those companies are now literally struggling for survival. Jha said Moto was working to reduce the impact of losing priority at VZW by expanding its smartphone distribution with the other Tier1 US carriers, which is fancy talk for "we'll do better at AT&T".

But that is unlikely to have any impact as AT&T doesn't follow the same advertising and promotion model. Apple is actually a proof point of this as their ad budget for iPhone has to compensate by reaching $400-500M levels. They can afford this because in their business model promoting the OS platform works across product lines, but no one else is really built that way.

With it's number one market share in the biggest smartphone market in the world, and in the biggest economy by far, I believe VZW is the most impactful catalyst in the wordwide smartphone ecosystem.

Signals of an iPhone release at CES continue

BGR is reporting news which indicates Apple is clearing inventory.

RadioShack announced a limited-time promotion on Friday that offers a $50 discount on Apple’s iPhone 4 or iPhone 3GS. The promotion applies to brand new devices, requires 2 yr agreement, and the offer is valid from December 4th through December 11th. Pricing:

iPhone 3GS: $49.99
iPhone 4 (16GB): $149.99
iPhone 4 (32GB): $249.99

Can OEMs sustain Android market share with balanced product portfolios?

ABI Research has its marketshare reports out through Q3 of 2011. I had been looking at some other internal data on the same subject and was interested to see that ABI claims HTC, Samsung, and Apple all continue to take share from RIM and Nokia--mostly Nokia. HTC escaped much notice in the report but I was struck by the different path it seems to have taken to continue winning share.

HTC marketshare growth comes without a single iconic device associated with it. Samsung has the Galaxy S, Motorola has the Droid, and even Nokia with all of its OS platforms has tried to focus attention on a single reference device. Same with RIM. While these vendors have had different degrees of success it seems to me that only HTC is choosing to continue with a portfolio approach on the device side and focus marketing on its brand instead.

I wonder if this is accurate. Are the heavily promoted HTC devices similar enough that they share a common physical ID with consumers? I’d actually argue no, although if you are a diehard smartphone person the finish details definitely speak HTC to you.

The next question I have is whether this is a purposeful long term strategy and position of HTC or whether it is simply the result of a quarter by quarter focus. Only HTC knows that.

If all of these assumptions are true it will be most interesting to watch how successful this strategy will be going forward. My hope is that it is a purposeful bet and that it works if for no other reason than it seems so rare to find a company which considers the marketplace, takes a long term position on how to play it, then executes consistently against that.

CTIA Fall 2010 Notes: Motorola device portfolio rounds out

Motorola is really beginning to spread their portfolio more broadly. The announcements at CTIA fall 2010 are coming thick and fast:

Moto is launching three MOTO Blur devices on ATT at 79, 99, and 129 which are similar to TMO devices already announced and will also be launched in holiday window. Moto has created a clear strategy of choosing one touch only, one touch with qwerty slideout, and one messaging-centric form factor. All of these are consistently one version of Android back. It will be interesting to see if that is a demand killer or totally irrelevant--particularly in this year when the Android OS cycle compressed. There is also a touch-only Blur device on 2.1 launching on VZW.

As a side note, Google is really killing its OEM partners with this totally random and always late release cycles for Android.

A lot of industry watchers have been waiting for an Android device to go head to head with RIM, and now MOT has one which RIM's number one partner and customer, Verizon, is promoting.  This will be a good validation test for demand from current Blackberry users for similar device on android.

 

Flagship products increasingly important to mobile vendors

The mobile industry value chain is going through some rapid shifts. Big players are choosing vertical integration in very different ways to compete.

As earnings announcements roll in across carriers and OEMs it's interesting to see how dependent the industry is overall on a flagship, high margin products. Nokia's defenders often site its dominant share in mobile handsets across regions, but look at Samsung's earnings coverage and Motorola's to see how much good high volume at low margin does you in this business:

"Hard on the heels of Motorola, Samsung announced a record second quarter, up 83% year-on-year to $3.61bn. However, despite the launch impact of its Galaxy S Android family, its first serious assault on the open smartphone sector, this was too late to affect Q2, and handsets actually weighed on the profit figure, with the surge coming mainly from memory chips and LCD screens. "

Motorola's successes were similarly dependent upon high-end flagship devices.

However, one wrinkle for Samsung is that their form of vertical integration allows them to profit in different parts of the value chain even as their mobile unit suffers from the collapse of pricing power to mid (and even formerly high-end) tier smartphones.

"Robert Yi, head of investor relations, said in a statement: "In the second quarter, our component businesses performed very strongly, yet it was a more challenging quarter for our set businesses" (phones, TVs and appliances). The smartphone boom may not deliver significant growth for Samsung's mobile unit until Q3 or later, as its Galaxy S takes hold, but it is already boosting sales of Flash memory chips, a key element in the chip unit's strong performance."

Note that while Nokia, and at a different scale and to a lesser extent RIM, still play effectively in the smartphone space by vertically integrating supply chain and distribution, their focus is to control costs and see the benefit in margin (handset ASP). Samsung abstracts this further by taking margin profit down at the component level.

For Samsung "average selling prices fell amid intense price competition, making it urgent that Samsung shifts its product balance further towards the high end. Like Nokia and unlike most other rivals, its economies of scale and broad channels enable it to compete profitably at the low end, but so far it has been a small player in smartphones. "

The most vertically integrated of all, of course, is also the most successful right now. Apple.

All vendors and providers should be planning for rapidly falling ASP and consumer-facing pricing for flagship products. Where will profit, and margin, be sustained for the different players?

Smartphone market share trends stable in Q4 2009

Strategy Analytics reports that smartphone sales are picking up again. It attributes Nokia's continued strength in non-US regions to the E-series, which is interesting. Mail for Exchange and a QWERTY driving more smartphone sales than Ovi?

If this is true than I wonder how long before the form factor defines that segment more than the smart/feature phone distinction. Because if people are buying E Series because it is messaging centric then it competes with RIM smartphones and LG and Samsung feature phones. RIM and Nokia both will have trouble commanding "smartphone" premiums for messaging optimized devices unless they can tie them to rich services which happen to use email and messaging for delivery.  

ABI reported similar numbers to SA as reported in the WSJ. Apple's iPhone grew year-on-year and has just over 15% market share. It's incredible to think Apple will be half the size of Nokia in the smartphone segment with basically one model!

Android's gains are somewhat masked in both reports as they focus on the vendors more than the OS layers.