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Smartphone Futures 2011-2015

© 2010, Portio Research. All Rights Reserved

1
Smartphone Futures 2011-2015

Portio Research Limited.
Published December 2010 by Portio Research Limited © Copyright 2010...
Smartphone Futures 2011-2015

Contents
Introduction .........................................................................
Smartphone Futures 2011-2015

List of Figures
Figure 1:
Figure 2:
Figure 3:
Figure 4:
Figure 5:
Figure 6:
Figure 7:
Figure...
Smartphone Futures 2011-2015

Figure 52:
Figure 53:
Figure 54:
Figure 55:
Figure 56:
Figure 57:
Figure 58:
Figure 59:
Figu...
Smartphone Futures 2011-2015

List of Tables
Table 1:
Table 2:
Table 3:
Table 4:
Table 5:
Table 6:
Table 7:
Table 8:
Table...
Smartphone Futures 2011-2015

Chapter 1
Introduction

© 2010, Portio Research. All Rights Reserved

7
Smartphone Futures 2011-2015

Introduction
Handset Market Summary
Handset Shipments
Handset shipments are influenced by di...
Smartphone Futures 2011-2015

Figure 1: Handset Shipments – Worldwide (In Million, 2009 – 2015F)

2

2,000
1,687.5

Handse...
Smartphone Futures 2011-2015

Figure 2: Worldwide Handset Shipments — Regional Contribution (In Percent, 2010)

21.0%
13.4...
Smartphone Futures 2011-2015

Figure 3: Worldwide Handset Shipments — Regional Contribution (In Percent, 2015F)

5

21.6%
...
Smartphone Futures 2011-2015

Average Selling Price
Nokia has seen an increase in ASP mainly due to the growth of sales fr...
Smartphone Futures 2011-2015

Handset vendors, according to the varying needs of subscribers in different markets, have
la...
Smartphone Futures 2011-2015

Restructuring of the Mobile Handset Market
With the emergence of new players, the market has...
Smartphone Futures 2011-2015

Figure 7: Market Share of Handset Vendors – Worldwide (In Percent, 2007 – 2010)
24

21.2
19....
Smartphone Futures 2011-2015

Emergence of the Smartphone
The table below depicts the emergence of Smartphones (in terms o...
Smartphone Futures 2011-2015

Figure 8: Smartphone Shipments as a Percentage of Total Handset Shipments – Worldwide ( In
P...
Smartphone Futures 2011-2015

Figure 9: Smartphone Shipments Growth and Smartphone Share Growth as a Percentage –
Worldwid...
Smartphone Futures 2011-2015

The graph below analyses North American handset and smartphone shipments.
Figure 11: Contrib...
Smartphone Futures 2011-2015

RIM
North America continued to be RIM’s key market contributing 46.6 percent to Q3 2010 glob...
Smartphone Futures 2011-2015

Comparison of BlackBerry and iPhone Growth
BlackBerry and iPhone have achieved extraordinary...
Smartphone Futures 2011-2015

Table 9:

Geographical Presence — RIM & Apple (November 2010)
Geographical Presence (Number ...
Smartphone Futures 2011-2015

Figure 13: OS Shipments (In Millions, 2009-2010)

2009

80.9

2010

121.3

Change in Market
...
Smartphone Futures 2011-2015

Comparison of Android and iPhone Growth
The table below compares Android and iPhone on a set...
Smartphone Futures 2011-2015

Threats

• Platform fragmentation: numerous
customised versions depending on
vendors
• A cha...
Smartphone Futures 2011-2015

Chapter 2
Smartphone Market

26

© 2010, Portio Research. All Rights Reserved
Smartphone Futures 2011-2015

Smartphone Market
Despite the worldwide economic slowdown, the smartphone market registered ...
Smartphone Futures 2011-2015

Smartphone shipments during 2010-2015 are expected to grow at an impressive CAGR of
18.1 per...
Smartphone Futures 2011-2015

In 2010, Asia Pacific recorded the largest share – with 33.6 percent – of worldwide
smartpho...
Smartphone Futures 2011-2015

Forecasts for regional contribution to worldwide smartphone shipments during 2015 are given
...
Smartphone Futures 2011-2015

Chapter 3
Smartphone Value Chain

© 2010, Portio Research. All Rights Reserved

31
Smartphone Futures 2011-2015

Smartphone Value Chain
The smartphone market value chain consists of the following stakehold...
Smartphone Futures 2011-2015

Figure 18: Smartphone Value Chain

Development of Device and Network Components
Network Equi...
Smartphone Futures 2011-2015

•

Smartphone Vendors
o To increase their shipment share in the highly competitive market, S...
Smartphone Futures 2011-2015

o

o

o

With the increasing success of Android OS, MNOs are directly partnering with OS
pro...
Smartphone Futures 2011-2015

Chapter 4
Smartphone Vendors

36

© 2010, Portio Research. All Rights Reserved
Smartphone Futures 2011-2015

Smartphone Vendors
Market Share of Smartphone Vendors
The phenomenal growth of the smartphon...
Smartphone Futures 2011-2015

The forecast market share of smartphone vendors during 2015 is given in the chart below.

Fi...
Smartphone Futures 2011-2015

Figure 22: Smartphone Market Share — Asia Pacific (In Percent, Q3 2010)

12.8%
7.7%
5.1%
10....
Smartphone Futures 2011-2015

Figure 24: Smartphone Market Share — Rest of World (In Percent, Q3 2010)

14.6%

21

3.4%

1...
Smartphone Futures 2011-2015

Nokia
Company Overview

Headquarters: Keilalahdentie 2-4, Nokia Group, Finland
Phone: +358-7...
Smartphone Futures 2011-2015

Revenue
Nokia’s revenues for 2008, 2009 and 9-months 2010 are given in the figure below:

Fi...
Smartphone Futures 2011-2015

This market share decline is expected to continue during the forecast period to 2015 primari...
Smartphone Futures 2011-2015

Nokia’s Emergence as a Smartphone Vendor and a Service Provider for the Enterprise
Segment
T...
Smartphone Futures 2011-2015

SWOT Analysis

Figure 28: SWOT Analysis – Nokia

Strengths
• Strong awareness of the ‘Nokia’...
Smartphone Futures 2011-2015

The table below highlights the performance of Nokia across different criteria.
Evaluation Pa...
Smartphone Futures 2011-2015

Apple
Company Overview

Headquarters: 1 Infinite Loop, MS 301-4IR, Cupertino, USA
Phone: +1-...
Smartphone Futures 2011-2015

Revenue
Apple’s yearly revenues for FY 2008, FY 2009 and FY 2010 are given below. 24

Figure...
Smartphone Futures 2011-2015

Uptake for Apple iPhone
Worldwide shipments for iPhone since its launch are given in the fig...
Smartphone Futures 2011-2015

Geographical Presence
North America continues to be the major market for iPhones. Europe, Mi...
Smartphone Futures 2011-2015

SWOT Analysis
Figure 33: SWOT Analysis – Apple

29

Strengths

Weaknesses

• Ability to inte...
Smartphone Futures 2011-2015

•

Apple has successfully pushed Apple-branded software and apps, generating new
sources of ...
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  1. 1. Smartphone Futures 2011-2015 © 2010, Portio Research. All Rights Reserved 1
  2. 2. Smartphone Futures 2011-2015 Portio Research Limited. Published December 2010 by Portio Research Limited © Copyright 2010. www.portioresearch.com info@portioresearch.com Disclaimer and Legal Notices Disclaimer Every care has been taken in the preparation of this study to ensure that the information contained herein is accurate, factual and correct to the best of our knowledge, at time of publishing. All opinions, suppositions, estimates and recommendations included in this document are solely the opinions of the authors unless otherwise stated. Portio Research Limited accepts no liability for any loss or damage or unforeseen consequential loss or damage arising from the use of the information contained within this document. The opinions, suppositions, estimates and recommendations within this document cannot be guaranteed, and readers use this information at their own risk. The information published in this document is subject to change without notice at any time, and Portio Research Limited accepts no liability or obligation to inform the reader of such changes. Portio Research Limited do not promote or endorse any specific companies or products, the views and opinions we express in this document are wholly our own assessments, and independent from any external interest or influence. Many terms and phrases and trade names used in this document are proprietary and Portio Research Limited recognises and acknowledges that all trademarks are copyright, belonging to their respective owners. Where possible, this document accords such terms and phrases and trade names to their respective owners. All Rights Reserved. No part of this document can be copied, shared, redistributed, transmitted, displayed in the public domain, stored or displayed on any internal or external company or private network or electronic retrieval system, nor reprinted, republished or reconstituted in any way without the express written permission of the publisher. Forwarding of this electronic document without the correct legal licence is theft. It’s unethical, immoral and against the law. If you have any questions about the legal licence conditions under which this document has been distributed, please contact Portio Research on info@portioresearch.com If you did not buy this document and a colleague or associate has sent it to you, do not assume you are legally entitled to read it, it is your responsibility to ensure you have the correct legal licence to read this document. 2 © 2010, Portio Research. All Rights Reserved
  3. 3. Smartphone Futures 2011-2015 Contents Introduction ..............................................................................................................................8 Handset Market Summary ................................................................................................................... 8 Handset Shipments ........................................................................................................................... 8 Handset Revenues .......................................................................................................................... 11 Handset Market Evolution and Emergence of Smartphones ............................................................. 12 Restructuring of the Mobile Handset Market ................................................................................... 14 Emergence of the Smartphone ....................................................................................................... 16 The Aftermath of Recession ............................................................................................................ 17 A Comparison of Asia Pacific and North America ........................................................................... 18 Regions of Strength ........................................................................................................................... 19 Nokia ............................................................................................................................................... 19 RIM.................................................................................................................................................. 20 Apple ............................................................................................................................................... 20 HTC ................................................................................................................................................. 20 Comparison of BlackBerry and iPhone Growth ............................................................................... 21 The Growth of Android OS (Operating System) .............................................................................. 22 Comparison of Android and iPhone Growth .................................................................................... 24 Smartphone Market ................................................................................................................27 Smartphone Value Chain .......................................................................................................32 Key Players in the Value Chain ......................................................................................................... 35 Smartphone Vendors .............................................................................................................37 Market Share of Smartphone Vendors............................................................................................... 37 Regional Market Share of Smartphone Vendors ............................................................................... 38 Nokia.................................................................................................................................................. 41 Apple.................................................................................................................................................. 47 Research in Motion ............................................................................................................................ 53 HTC Corporation ................................................................................................................................ 62 Samsung............................................................................................................................................ 68 Motorola ............................................................................................................................................. 72 Sony Ericsson .................................................................................................................................... 76 Operating Systems ................................................................................................................81 Market Share of Operating System Vendors ..................................................................................... 81 Regional Market Share of Operating System Vendors ...................................................................... 82 Symbian OS....................................................................................................................................... 84 Apple iPhone OS ............................................................................................................................... 87 BlackBerry OS ................................................................................................................................... 90 Microsoft OS ...................................................................................................................................... 93 Android OS ........................................................................................................................................ 96 Applications and Content Market .......................................................................................101 Apple App Store ............................................................................................................................... 102 BlackBerry App World ...................................................................................................................... 104 Nokia Ovi Store ................................................................................................................................ 105 Google Android Market .................................................................................................................... 106 Symbian Horizon.............................................................................................................................. 107 Windows Marketplace ...................................................................................................................... 108 Positioning of Applications Stores .................................................................................................... 109 Summary and Conclusions .................................................................................................112 Positioning of Smartphone Vendors................................................................................................. 113 Positioning of Operating System Vendors ....................................................................................... 115 Appendices ...........................................................................................................................121 Glossary ........................................................................................................................................ 122 Portio Research Classifications ..................................................................................................... 134 Companies Mentioned in this Report ............................................................................................ 135 About the Authors.......................................................................................................................... 138 Also available from Portio Research Limited ................................................................................. 139 © 2010, Portio Research. All Rights Reserved 3
  4. 4. Smartphone Futures 2011-2015 List of Figures Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Figure 10: Figure 11: Figure 12: Figure 13: Figure 14: Figure 15: Figure 16: Figure 17: Figure 18: Figure 19: Figure 20: Figure 21: Figure 22: Figure 23: Figure 24: Figure 25: Figure 26: Figure 27: Figure 28: Figure 29: Figure 30: Figure 31: Figure 32: Figure 33: Figure 34: Figure 35: Figure 36: Figure 37: Figure 38: Figure 39: Figure 40: Figure 41: Figure 42: Figure 43: Figure 44: Figure 45: Figure 46: Figure 47: Figure 48: Figure 49: Figure 50: Figure 51: 4 Handset Shipments – Worldwide (In Million, 2009 – 2015F) ............................................ 9 Worldwide Handset Shipments — Regional Contribution (In Percent, 2010) ................. 10 Worldwide Handset Shipments — Regional Contribution (In Percent, 2015F) ............... 11 Handset ASPs of Leading Vendors (In USD, Q3 2009 – Q4 2010) ................................ 11 Handset Revenues – Worldwide (In USD Billion, 2009 – 2015F) ................................... 12 Market Share of Handset Vendors – Worldwide (In Percent, 2007 – 2010).................... 14 Market Share of Handset Vendors – Worldwide (In Percent, 2007 – 2010).................... 15 Smartphone Shipments as a Percentage of Total Handset Shipments – Worldwide ( In Percent, 2007 – 2010) .................................................................................................... 17 Smartphone Shipments Growth and Smartphone Share Growth as a Percentage – Worldwide (In Percent, 2007 – 2015F) ........................................................................... 18 Contribution to Total Worldwide Handset Shipments and Smartphone Shipments – Asia Pacific (In Percent , 2007 – 2010) ................................................................................... 18 Contribution to Total Worldwide Handset Shipments and Smartphone Shipments – North America (In Percent , 2007 – 2010) ................................................................................ 19 Worldwide Subscriber Growth – BlackBerry vs. iPhone (In Millions) .............................. 21 OS Shipments (In Millions, 2009-2010) .......................................................................... 23 Smartphone Shipments as a Percentage of Handset Shipments – Worldwide (In Million, 2009 – 2015F)................................................................................................................. 27 Smartphone Shipments – Worldwide (In Million, 2009 – 2015F) .................................... 28 Worldwide Smartphone Shipments — Regional Contribution (In Percent, 2010) ........... 29 Worldwide Smartphone Shipments — Regional Contribution (In Percent, 2015F) ......... 30 Smartphone Value Chain ................................................................................................ 33 Market Share of Smartphone Vendors – Worldwide (In Percent, 2010) ......................... 37 Market Share of Smartphone Vendors – Worldwide (In Percent, 2015F) ....................... 38 Smartphone Market Share — North America (In Percent, Q3 2010) .............................. 38 Smartphone Market Share — Asia Pacific (In Percent, Q3 2010)................................... 39 Smartphone Market Share — Europe (In Percent, Q3 2010).......................................... 39 Smartphone Market Share — Rest of World (In Percent, Q3 2010) ............................... 40 Revenue by Business Segments — Nokia (In USD Billion, 2008, 2009 & 9M 2010) ...... 42 Regional Break-out of Smartphone Shipments — Nokia (In Percent, Q3 2010) ............. 43 Nokia’s Business Development during September 2009 – September 2010 .................. 44 SWOT Analysis – Nokia .................................................................................................. 45 Revenue by Business Segments — Apple (In USD Billion, FY 2008 – FY 2010) ........... 48 iPhone Shipments – Worldwide (In Million, Q2 2007 – Q3 2010) ................................... 49 Growth in iPhone Users (In Million, Q2 2007 – Q3 2010) ............................................... 49 Regional Break-out of Smartphone Shipments — Apple (In Percent, Q3 2010) ............. 50 SWOT Analysis – Apple .................................................................................................. 51 Revenue by Business Segments — RIM (In USD Billion, FY 2009 – H1FY 2011) ......... 54 Growth in BlackBerry User-Base .................................................................................... 57 Regional Break-out of Smartphone Shipments — RIM (In Percent, Q3 2010)................ 58 RIM’s Business Development During March 2006 – September 2010 ........................... 59 SWOT Analysis – RIM .................................................................................................... 60 Revenue — HTC (In USD Billion, 2008 – 9M 2010) ....................................................... 63 Regional Break-out of Smartphone Shipments — HTC (In Percent, Q3 2010) ............... 64 HTC’s Evolution from ODM to OEM................................................................................ 65 SWOT Analysis – HTC ................................................................................................... 66 Revenue by Business Segments — Samsung (In USD Billion, 2008 – 9M 2010) .......... 69 SWOT Analysis – Samsung ............................................................................................ 70 Revenue by Business Segments — Motorola (In USD Billion, 2008 – 9M 2010)............ 73 SWOT Analysis – Motorola ............................................................................................. 74 Revenue — Sony Ericsson (In USD Billion, 2008 – 9M 2010) ........................................ 77 SWOT Analysis – Sony Ericsson .................................................................................... 78 Market Share of OS by Shipments – Worldwide (In Percent, 2010) ............................... 81 Market Share of OS by Shipments – Worldwide (In Percent, 2015F) ............................. 81 Market Share of OS by Shipments — North America (In Percent, Q3 2010) .................. 82 © 2010, Portio Research. All Rights Reserved
  5. 5. Smartphone Futures 2011-2015 Figure 52: Figure 53: Figure 54: Figure 55: Figure 56: Figure 57: Figure 58: Figure 59: Figure 60: Figure 61: Figure 62: Figure 63: Figure 64: Figure 65: Figure 66: Figure 67: Figure 68: Market Share of OS by Shipments — Asia Pacific (In Percent, Q3 2010) ...................... 82 Market Share of OS by Shipments — Europe (In Percent, Q3 2010) ............................ 83 Market Share of OS by Shipments — Rest of World (In Percent, Q3 2010) ................... 83 Regional Break-out of Symbian OS Shipments (In Percent, Q3 2010) ........................... 85 Regional Break-out of Apple iPhone OS Shipments (In Percent, Q3 2010).................... 88 Regional Break-out of BlackBerry OS Shipments (In Percent, Q3 2010)........................ 91 Regional Break-out of Microsoft OS Shipments (In Percent, Q3 2010) ......................... 94 Regional Break-out of Android OS Shipments (In Percent, Q3 2010)............................ 97 Apple’s App Store Growth (July 2008 – October 2010) ................................................ 102 Break-out of Available Applications by Type – Apple App Store (In Percent, October 2010)............................................................................................................................. 103 Break-out of Available Applications by Type – BlackBerry App World (In Percent, October 2010)............................................................................................................................. 104 Break-out of Available Applications by Type – Nokia Ovi Store (In Percent, October 2010)............................................................................................................................. 105 Break-out of Available Applications by Type – Google Android Market (In Percent, October 2010) ............................................................................................................... 106 Break-out of Available Applications by Type – Windows Marketplace (In Percent, October 2010)............................................................................................................................. 108 Break-out of Available Mobile Applications by Free and Paid Application Type – The US (In Percent, July 2010) .................................................................................................. 110 Positioning of Smartphone Vendors.............................................................................. 114 Positioning of OS Vendors ............................................................................................ 115 © 2010, Portio Research. All Rights Reserved 5
  6. 6. Smartphone Futures 2011-2015 List of Tables Table 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7: Table 8: Table 9: Table 10: Table 11: Table 12: Table 13: Table 14: Table 15: Table 16: Table 17: Table 18: Table 19: Table 20: Table 21: Table 22: Table 23: Table 24: Table 25: Table 26: Table 27: Table 28: Table 29: Table 30: Table 31: Table 32: Table 33: Table 34: Table 35: Table 36: Table 37: Table 38: Table 39: 6 Handset Shipments — Worldwide (In Million, 2009 – 2015F) ............................................. 9 Market Share of Handset Vendors — Worldwide (In Percent, 2007 – 2010) ................... 15 Emergence of the Smartphone.......................................................................................... 16 Regional Break-out of Smartphone Shipments — Nokia (In Percent, Q3 2010) ............... 19 Regional Break-out of Smartphone Shipments — RIM (In Percent, Q3 2010) .................. 20 Regional Break-out of Smartphone Shipments — Apple (In Percent, Q3 2010) ............... 20 Regional Break-out of Smartphone Shipments — HTC (In Percent, Q3 2010) ................. 20 Smartphone Shipments — RIM & Apple (In Million, 2005 – 2010) .................................... 21 Geographical Presence — RIM & Apple (November 2010) .............................................. 22 An overview of Android and iPhone – November 2010 ..................................................... 24 Smartphone Shipments — Worldwide (In Million, 2009 – 2015F) ..................................... 28 Key Players in the Smartphone Value Chain..................................................................... 35 Smartphone Shipments and Smartphone Market Share — Nokia (2009 – 2015F) ........... 42 Smartphone Shipments and Smartphone Market Share — Apple (2009 – 2015F) ........... 48 Smartphone Shipments and Smartphone Market Share — RIM (2009 – 2015F).............. 54 BlackBerry Subscriber Base Growth (FY 2002 – FY 2006) ............................................... 55 BlackBerry Subscriber Base Growth (FY 2007 – Q2FY 2011) .......................................... 56 Smartphone Shipments and Smartphone Market Share — HTC (2009 – 2015F) ............. 63 Smartphone Shipments and Smartphone Market Share — Samsung (2009 – 2015F) ..... 69 Smartphone Shipments and Smartphone Market Share — Motorola (2009 – 2015F) ...... 73 Smartphone Shipments and Smartphone Market Share —Sony Ericsson (2009 – 2015F) .. ..................................................................................................................................... 77 OS Shipments and OS Market Share — Symbian (2009 – 2015F) ................................... 84 OS Shipments and OS Market Share — Apple iPhone (2009- 2015F) ............................. 87 OS Shipments and OS Market Share – BlackBerry (2009 – 2015F) ................................. 90 OS Shipments and OS Market Share — Microsoft (2009 – 2015F) .................................. 93 OS Shipments and OS Market Share — Android (2009 – 2015F) ................................... 96 Android OS-based Smartphone Releases in 2010 (As of October 2010).......................... 98 Most Popular Paid and Free Applications, Apple App Store (The US, October 2010) .... 103 Most Popular Paid and Free Applications, BlackBerry App World (The US, October 2010) . ................................................................................................................................... 104 Most Popular Paid and Free Applications, Nokia Ovi Store (The US, October 2010) ..... 105 Most Popular Paid and Free Applications, Google Android Market (The US, October 2010) ................................................................................................................................... 106 Most Popular Paid and Free Games, Google Android Market (The US, October 2010) . 107 Most Popular Paid and Free Applications, Symbian Horizon (Worldwide, October 2010)..... ................................................................................................................................... 107 Most Popular Paid and Free Applications, Windows Marketplace (The US, October 2010) . ................................................................................................................................... 108 Application Downloads for Major Application Stores ....................................................... 109 Strategies of the top smartphone vendors ....................................................................... 112 Key Weaknesses to Top Smartphone Vendors ............................................................... 113 Total Number of Smartphones by Vendor ....................................................................... 114 Comparison of Smartphone Vendors based on Selected Parameters ............................ 118 © 2010, Portio Research. All Rights Reserved
  7. 7. Smartphone Futures 2011-2015 Chapter 1 Introduction © 2010, Portio Research. All Rights Reserved 7
  8. 8. Smartphone Futures 2011-2015 Introduction Handset Market Summary Handset Shipments Handset shipments are influenced by different factors, such as mobile penetration in a given geography, subscriber additions in a given period, and handset replacement rates 1. Rising mobile penetration increases the subscriber base, which fuels the demand for handsets; and higher penetration rates also impact replacement rates. However, an increase in subscriber base does not always translate to an upward trend in handset shipments, as was the case during the recent recession. During a recessionary period, there is typically a downward trend in replacement rates, as subscribers do not replace their existing handsets as fast as they otherwise would. During 2009-2010, the total worldwide handset shipments recorded an impressive growth of 12.2 percent year-on-year. Customer spending on handsets is expected to increase in the coming years, primarily due to: • • • • Implementation of new technologies (3G, 4G/LTE) in key geographies including North America, Europe and Asia Pacific. Availability of new devices with better features and designs. There have been numerous product launches in the last year from key vendors including Apple, RIM, Nokia, HTC, Samsung, Sony Ericsson and Motorola – at varying price points. Availability of wide device portfolios across different markets, as vendors enter into region-wide partnerships with MNOs to launch their products across multiple geographies. With the increasing popularity of Android OS, there has been rising demand for Androidbased handsets. With a combination of the above factors, handset shipments are expected to grow at a CAGR of 6 percent during the period 2010-2015 to reach 1,752.4 million handset shipments by end2015. The next figure provides worldwide handset shipments for the period 2009-2015. 1 8 Replacement rates: This is the frequency at which mobile subscribers substitute their old handsets with new ones. Higher replacement rates result in growth in demand. An average replacement rate of 50 percent means average replacement time for handsets is 2 years. © 2010, Portio Research. All Rights Reserved During 2009-2010, the total worldwide handset shipments recorded an impressive growth of 12.2 percent yearon-year
  9. 9. Smartphone Futures 2011-2015 Figure 1: Handset Shipments – Worldwide (In Million, 2009 – 2015F) 2 2,000 1,687.5 Handset Shipments (In Million) 1,600.3 1,600 1,375.4 1,307.9 1,752.4 1,481.7 1,165.6 1,200 800 400 0 2009 2010 2011F 2012F 2013F 2014F 2015F Year Source: Portio Research Ltd. F – Forecasted Handset shipment forecasts for different regions are given in the table below, as are respective Compound Annual Growth Rates (CAGR). The Rest of World region will witness the highest growth in handset shipments during 2010-2015, followed by Europe. Table 1: Handset Shipments — Worldwide (In Million, 2009 – 2015F) 3 Handset Shipments (In Million) 2009 2010 2011F 2012F 2013F 2014F 2015F CAGR (In Percent, 2010-2015F) Asia Pacific 521.4 580.9 587.4 614.1 670.5 705.8 740.7 5.0 Europe 226.5 275.0 306.2 338.4 363.5 377.3 379.3 6.6 North America 143.0 174.7 188.2 202.5 213.0 221.1 228.6 5.5 Rest of World 274.6 277.3 293.7 326.7 353.4 383.3 403.7 7.8 Total 1165.6 1307.9 1375.4 1481.7 1600.3 1687.5 1752.4 6.0 Region Source: Portio Research Ltd. Regional contributions to worldwide handset shipments during 2010 are given in the next figure. Asia Pacific is the largest market—accounting for 44.4 percent of 2010 shipments. 2 Note: This report was written in the fourth quarter of 2010. As such, quoted full year 2010 figures throughout this report use data collected from the first three quarters of 2010 and estimations for the fourth unavailable quarter. 3 Note: The total may not be equal to sum of regional numbers due to rounding-off errors. © 2010, Portio Research. All Rights Reserved 9
  10. 10. Smartphone Futures 2011-2015 Figure 2: Worldwide Handset Shipments — Regional Contribution (In Percent, 2010) 21.0% 13.4% 44.4% Asia Pacific 21.2% Europe North America Rest of World Source: Portio Research Ltd. Owing to a large subscriber base, Asia Pacific is expected to be the region with the highest contribution towards worldwide handset shipments during the period 2010-2015. However, its share in total shipments is expected to decrease from 44.4 percent in 2010 to 42.3 percent by-end 2015. The major reasons associated with the decline include slowing growth in the subscriber base, lower regional handset replacement rates, and the increasing popularity of dual/triple-SIM handsets. In India, for example, the share of multiple-SIM handsets increased to 38.5 percent of total handset shipments in Q2 2010, up from under 1 percent in Q2 2009. 4 Between 2010-2015, handset shipments in Europe and North America are expected to grow at CAGRs higher than that for Asia Pacific: 6.6 percent and 5.5 percent respectively. The main drivers for this higher growth are new network technologies in the market, which are boosting the demand for high-end handsets and are increasing replacement rates (compared to Asia Pacific). The arrival of Android OS has resulted in increased sales of Android-based handsets by vendors including Motorola, HTC, Samsung and Sony Ericsson. Rest of World—comprising Latin America, the Middle East and Africa—is expected to grow at a CAGR of 7.8 percent during 2010-2015. Growth will be driven primarily by an increase in the subscriber base, coupled with a wide availability of handsets from leading vendors, including Apple and RIM. The forecasts for regional contributions to worldwide handset shipments during 2015 are given in the following figure. 4 Source: http://teck.in/multi-sim-mobile-phones-38-5-of-total-handset-sales-in-india.html 10 © 2010, Portio Research. All Rights Reserved Between 2010-2015, handset shipments in Europe and North America are expected to grow at CAGRs higher than that for Asia Pacific: 6.6 percent and 5.5 percent respectively
  11. 11. Smartphone Futures 2011-2015 Figure 3: Worldwide Handset Shipments — Regional Contribution (In Percent, 2015F) 5 21.6% 13.0% 42.3% 23.0% Asia Pacific Europe North America Rest of World Source: Portio Research Ltd. F – Forecasted Handset Revenues Worldwide handset revenues are derived from handset shipments and their Average Selling Price (ASP). Higher ASPs are attributed to increasing shipments of high-end handsets. The overall ASPs of leading handset vendors are depicted in the graph below. Figure 4: Handset ASPs of Leading Vendors (In USD, Q3 2009 – Q4 2010) 240.8 250 223.0 230 208.9 ASP (in USD) 210 192.0 190 150 130 110 207.0 169.0 170 90 104.0 70 80.9 Q3 2009 Nokia 200.0 174.9 148.8 124.0 119.0 198.7 148.8 115.0 106.0 82.2 Q4 2009 Motorola 116.0 108.0 117.0 107.0 79.6 80.9 Q1 2010 Q2 2010 Samsung 125.0 122.0 109.0 112.0 83.9 86.0 Q3 2010 Sony Ericsson Q4 2010 LG Source: Portio Research Ltd. By end-2010, worldwide handset revenues rose by 19 percent year-on-year, due to factors including an increase in ASPs of key vendors, rising smartphone shipments, increasing sales of Android-based handsets, and successful launches of high-end devices by prominent vendors. Revenue growth is forecast to stabilise during 2010-2015, with ASPs anticipated to fall in the long-run because of saturation in the handset market. 5 Note: The total may not add up to 100 percent due to rounding-off errors. © 2010, Portio Research. All Rights Reserved 11 Revenue growth is forecast to stabilize during 2010-2015, with ASPs anticipated to fall in the long-run because of saturation in the handset market.
  12. 12. Smartphone Futures 2011-2015 Average Selling Price Nokia has seen an increase in ASP mainly due to the growth of sales from high-end handsets launched during 2010. The ASPs of Motorola and Sony Ericsson have seen rapid increases since late 2009 primarily due to their focus on high-end handset shipments based on Android OS – including the Droid series (Motorola) and Xperia series (Sony Ericsson) Samsung’s ASP has also increased, for the most part due to strong smartphone sales on the back of more high-end smartphone launches. Apple and RIM are excluded from this analysis of overall handset ASPs, as they are only present in the smartphone segment. Worldwide handset revenues for 2009-2015 are shown below. Figure 5: Handset Revenues – Worldwide (In USD Billion, 2009 – 2015F) Handset Revenues (In USD Billion) 200 160 140.3 149.0 169.1 158.6 6 175.9 180.2 2014F 2015F 118.0 120 80 40 0 2009 2010 2011F 2012F 2013F Year Source: Portio Research Ltd. F – Forecasted After a sharp year-on-year decline of 18.5 percent during 2008-2009, handset revenues are expected to show a CAGR of approximately 5.1 percent between 2010 and 2015. Handset Market Evolution and Emergence of Smartphones Mobile services have transformed from an era of only providing voice and messaging services to a new generation of value-added services including games, video messaging and location–based services to name a few. This evolution is attributed to factors including: • • • • 6 Increase in demand for mobile connectivity Product availability through vendors, MNOs Evolution of network and handset technologies MNOs promoting value-added services that can increase their ARPUs Assumptions: Handset revenue forecasts have been calculated based on the handset shipment forecasts and expected Average Selling Price for handsets. 12 © 2010, Portio Research. All Rights Reserved
  13. 13. Smartphone Futures 2011-2015 Handset vendors, according to the varying needs of subscribers in different markets, have launched handsets with appropriate features and at different price points. Based on pricing and accompanying features, handsets can be classified into the following categories: • • • Low-end handsets: These are targeted at subscribers who require basic functionalities, such as voice and SMS (text messaging). Mid-range handsets: In addition to basic features, these handsets have functionalities such as a mid-resolution camera, music player, MMS capability (multimedia messaging), and provision for external memory. High-end handsets: This segment includes the following: o Feature phones: Feature-phones are handsets with a browser (primarily based on embedded J2ME and BREW platforms) to enable access to web based e-mail, and sometimes have embedded applications for social networking, instant messaging (IM) and mobile banking. These phones often come with high resolution cameras, GPS and innovative multimedia features. o Smartphones: The major differentiating factor between a smartphone and a feature phone is the presence of an Operating System (OS). The OS, through its Application Programming Interface (API), enables subscribers to install and remove third-party applications. Smartphones generally have large displays and faster processors, and their operating systems are better integrated with the handset's User Interface than Java applications. Handset vendors worldwide are looking to make their products more appealing by enhancing them with more features. Some features of high-end phones are now available in mid-range handsets as well; and some features of mid-range handsets are being embedded in low-end handsets. As a result, boundaries are blurring. And, as we’ve written before, with handset vendors and MNOs planning to provide more features at affordable prices, moving to featurephones and smartphones might prove to be a natural progression. Smartphones have been developed to address the growing consumer demand for seamless PC-like Internet experiences, and requirements for better processing capabilities to support multi-tasking. Value added and Internet-based services cannot realise their full potential on mobile handsets without a capable smartphone manufacturing ecosystem with the ability to provide rich user-experiences. Providing rich user-experiences is significant because the services launched over smartphones have generally been seen and used before on PCs, and if the user’s experience does not match or come close to their prior PC-based experience, the services might not gain traction over mobile handsets. Furthermore, there are incentives attached with the launch of these services on mobile platforms and this drives players to invest in research and development for smartphones. The primary driving factors are as follows: • Better margins in selling high-end handsets • Addition of features and capabilities to handsets increases the replacement rate and, as a result, the demand for new handsets (this factor is more important for pushing sales in saturated markets) • Adding differentiating factors keeps handsets ahead of the competition • Additional revenue generation channels by embedding applications onto the handsets Key Observations Significant developments in the worldwide handset market over the past few years have radically changed the shape and future course of this industry. Developments that have fundamentally altered market dynamics include the gaining prominence of iPhone and now Android-based devices, as well as Nokia’s declining smartphone market share. The following section briefly discusses such developments and their impact. © 2010, Portio Research. All Rights Reserved 13 Smartphones have been developed to address the growing consumer demand for seamless PC-like internet experiences and requirements for better processing capabilities to support multitasking
  14. 14. Smartphone Futures 2011-2015 Restructuring of the Mobile Handset Market With the emergence of new players, the market has undergone major changes in terms of key vendor positioning. Over the years, these new players emerged as a major threat to incumbents by increasing their market shares through, for example, new product launches, exploring geographies, and strengthening application portfolios; vendors who remained static amidst these market changes lost market share. The section below lists vendors who lost/ gained market share during 2009-2010. Handset Vendors Losing Market Share Motorola and Sony Ericsson have seen sharp decreases in market share during the period 2007-2010, with Motorola’s share falling from over 13.9 percent in 2007 to 2.7 percent by the end of 2010. Market leader Nokia has been facing intense competition from Apple and RIM in the high-end handsets segment, and other new and existing players for their mid and low-end handsets. Figure 6: Market Share of Handset Vendors – Worldwide (In Percent, 2007 – 2010) 45 37.0 38.6 38.4 36.3 Market Share (In Percent) 36 27 18 13.9 8.3 9 4.9 8.7 8.0 4.7 0 2007 2008 2009 3.4 2.7 2010 Year Motorola Nokia Sony Ericsson Source: Portio Research Ltd. Handset Vendors Gaining Market Share Samsung, RIM and Apple experienced steadily increasing market share during the period 2007-2010. Samsung has the second largest handset market share worldwide after Nokia, having held this rank since 2007 when it overtook Motorola. RIM and Apple are expected to see further growth, driven by new product launches at regular intervals, expansion in to new geographies, and multiple partnerships with MNOs worldwide. Samsung’s recent decision to shift to Android-based devices is expected to support its ongoing growth. 14 © 2010, Portio Research. All Rights Reserved RIM and Apple are expected to see further growth, driven by new product launches at regular intervals, expansion to new geographies, and multiple partnerships with MNOs worldwide
  15. 15. Smartphone Futures 2011-2015 Figure 7: Market Share of Handset Vendors – Worldwide (In Percent, 2007 – 2010) 24 21.2 19.5 Market Share (In Percent) 20 16 17.6 19.6 18.6 16.1 14.2 16.2 12 10.1 8 7.1 4 1.1 0.5 2007 Samsung 2008 LG 3.7 3.0 1.9 1.2 0 9.4 8.3 3.7 2.2 Year 2009 RIM 2010 Apple Others Source: Portio Research Ltd. The table below highlights the market shares of handset vendors during 2007-2010 and changes in their market share from 2009 to 2010 in percentage points. Table 2: Market Share of Handset Vendors — Worldwide (In Percent, 2007 – 2010) Market Share (In Percent, 2007-2010) 7 2007 2008 2009 2010 Change in Market Share (In Percentage Points, 2009-2010) Nokia 38.4 38.6 37.0 36.3 -0.7 Motorola 13.9 8.3 4.7 2.7 -2.0 Samsung 14.2 16.2 19.5 21.2 +1.7 LG 7.1 8.3 10.1 9.4 -0.7 Sony Ericsson 8.7 8.0 4.9 3.4 -1.5 RIM 1.2 1.9 3.0 3.7 +0.7 Apple 0.5 1.1 2.2 3.7 +1.5 Others 16.1 17.6 18.6 19.6 +1.0 Handset Vendor Source: Portio Research Ltd. 7 Note: Compiled market shares may not add up to 100 percent due to rounding-off errors © 2010, Portio Research. All Rights Reserved 15
  16. 16. Smartphone Futures 2011-2015 Emergence of the Smartphone The table below depicts the emergence of Smartphones (in terms of functionality) over the years. Table 3: Emergence of the Smartphone Vendor Smartphone IBM Simon Nokia 9000 Communicator Launch Date August 1994 September 1996 Description Simon is a touch-screen phone that combined the features of a mobile phone, pager, FAX and PDA Main applications include Fax, SMS, E-mail, Digital camera connectivity, Smart messaging, Web terminal, Contacts, Notes, Calendar, Calculator, World time clock, Composer This was the first phone in North America that came on Palm OS Kyocera QCP 6035 April 2001 RIM BlackBerry 5810 April 2002 The Palm OS system benefits from the integrated cell phone by utilizing it as an attached modem The most popular feature on the device is the "Push E-mail Support” Introduced in 2005, the N-Series platform gave a new definition to digital media Nokia Apple Google N-Series (N70, N90, N91) iPhone G1 Android April 2005 June 2007 September 2008 Some of the prominent features include megapixel camera, Carl Zeiss optics, support for 3G, external memory card slot and MP3 player iPhone revolutionized the smartphone industry with new takes on the touchscreen concept, mobile browsing, and the installation of third-party software (Apps) The "Open-source" nature of Android prompted handset vendors to shift to the Android platform and launch more "customized" devices for end users Source: Portio Research Ltd. 16 © 2010, Portio Research. All Rights Reserved
  17. 17. Smartphone Futures 2011-2015 Figure 8: Smartphone Shipments as a Percentage of Total Handset Shipments – Worldwide ( In Percent, 2007 – 2010) Smartphones as a Percentage of Total Handset Shipments (In Percent) 40 Android-based phone Launched 30 20 iPhone Launched 23.1 10 10.5 12.2 2008 2009 29.5 39.7 14.7 2007 26.3 36.1 32.8 0 2010 2011F 2012F 2013F 2014F 2015F Year Source: Portio Research Ltd. F – Forecasted The Aftermath of Recession The market registered an increase in year-on-year smartphone shipments growth, from 16.4 percent in 2009 to 76.5 percent at end-2010. Factors fuelling this growth include increasing disposable incomes, new technologies, new product launches and availability of products in key geographies, vendors focusing on expanding their distribution networks, and subsidies from MNOs. In 2009, smartphones’ contribution to total worldwide handset shipments increased by 2.6 percent; in 2010 it increased by 8.4 percent. The next figure highlights smartphone shipments growth during the period 2007-2015. © 2010, Portio Research. All Rights Reserved 17 In 2009, smartphones’ contribution to total worldwide handset shipments increased by 2.6 percent; in 2010 it increased by 8.4 percent
  18. 18. Smartphone Futures 2011-2015 Figure 9: Smartphone Shipments Growth and Smartphone Share Growth as a Percentage – Worldwide (In Percent, 2007 – 2015F) 90 10 75 66.7 8 8.4 Recession 60 6 45 3.2 30 3.2 22.8 15 2.6 1.6 2009 3.2 21.0 19.8 3.3 3.6 16.2 14.1 2014F 2015F 4 2 16.4 2008 19.5 3.2 Smartphone Share Growth (In Percent) Smartphone Shipments Growth (In Percent) 76.5 0 0 2007 2010 2011F 2012F Smartphone Shipments Growth 2013F Smartphone Share Growth Source: Portio Research Ltd. F – Forecasted A Comparison of Asia Pacific and North America In this section, Asia Pacific, the region with the largest subscriber base, is compared with North America, the region with the highest smartphone penetration. The graph below analyses handset and smartphone shipments in Asia Pacific. Figure 10: Contribution to Total Worldwide Handset Shipments and Smartphone Shipments – Asia Pacific (In Percent , 2007 – 2010) 46.0 50 37.0 40 35.9 33.6 30 30 20 40 39.1 44.7 41.4 44.4 20 10 10 0 Share in Smartphone Shipments (In Percent) Share in Total Handset Shipments (In Percent) 50 0 2007 2008 2009 2010 Year Share in Total Handset Shipments Share in Smartphone Shipments Source: Portio Research Ltd. Although the Asia Pacific region has observed an increase in its share in total worldwide handset shipments over recent years, its contribution to worldwide smartphone shipments is declining. This is primarily due to lower replacement rates of smartphones, and slower progress on new technology upgrades. 18 © 2010, Portio Research. All Rights Reserved
  19. 19. Smartphone Futures 2011-2015 The graph below analyses North American handset and smartphone shipments. Figure 11: Contribution to Total Worldwide Handset Shipments and Smartphone Shipments – North America (In Percent , 2007 – 2010) 31.1 29.0 30.7 32 24 10 17.0 12.4 5 13.5 16 13.4 12.3 8 0 Share in Smartphone Shipments (In Percent) Share in Total Handset Shipments (In Percent) 15 0 2007 2008 2009 Year Share in Total Handset Shipments 2010 Share in Smartphone Shipments Source: Portio Research Ltd. North America witnessed relatively stagnant growth in handset shipments during 2007-2010. However, in contrast to Asia Pacific, its share of worldwide smartphone shipments has grown in this period. The main reasons associated with this growth include higher replacement rates for smartphones, rapid advancement of technology, and availability of new products. Regions of Strength Smartphone vendors worldwide are trying to increase their share in the smartphone market. Although each vendor is trying to maximise market share worldwide, each vendor has created particular pockets of influence. The following section explains these pockets of influence for the four major smartphone vendors worldwide. Nokia In Q3 2010, Asia Pacific was the largest smartphone market for Finland-based Nokia. Asia Pacific accounted for 44.5 percent of Nokia’s worldwide smartphone shipments. Nokia’s differential advantage in the region is attributed to its market segmentation and wide range of products, and high brand perception. Unsurprisingly, Nokia tops the list of preferred smartphone brands in several major markets of Asia Pacific. Asia Pacific accounted for 44.5 percent of Nokia’s worldwide smartphone shipments Europe is another important smartphone market for Nokia, accounting for 39.2 percent of the vendor’s worldwide smartphone shipments in Q3 2010. Nokia’s stronghold in the region can be attributed to its solid distribution network and highly-regarded brand image. Table 4: Regional Break-out of Smartphone Shipments — Nokia (In Percent, Q3 2010) 8 Regions Vendor Europe Nokia Asia Pacific North America Rest of World 39.2 44.5 0.8 15.5 Source: Portio Research Ltd. 8 Note: The regional break-out of shipments for each vendor is calculated on the basis of total shipments in the quarter, the total shipments in the region, and other information related to market presence of each of the vendors in different regions. This is an estimated market share © 2010, Portio Research. All Rights Reserved 19
  20. 20. Smartphone Futures 2011-2015 RIM North America continued to be RIM’s key market contributing 46.6 percent to Q3 2010 global BlackBerry shipments; growth in this region can be attributed to the gaining traction of prepaid plans. The contributions from Europe and Asia Pacific also increased year-on-year due to increasing product availability through a greater number of distribution partnerships and expanding distribution networks. Table 5: Regional Break-out of Smartphone Shipments — RIM (In Percent, Q3 2010) 9 Regions Vendor UK RIM Asia Pacific North America Rest of World 20.7 14.9 46.6 17.9 Source: Portio Research Ltd. Apple Aided by great brand recognition, Apple enjoyed continued success with the iPhone in North America. New product launches at regular intervals and the availability of a wide array of applications in its App Store has helped Apple maintain market share in the region. At the end of Q3 2010, North America contributed 43.3 percent of total iPhone shipments. To increase its market share in Asia Pacific and Europe, Apple has been aggressively partnering with multiple MNOs to ensure increased product availability. Table 6: At the end of Q3 2010, North America contributed 43.3 percent of total iPhone shipments Regional Break-out of Smartphone Shipments — Apple (In Percent, Q3 2010) Regions Vendor Europe Apple Asia Pacific North America Rest of World 19.9 21.3 43.3 15.6 Source: Portio Research Ltd. HTC The arrival of Android OS has boosted sales of HTC smartphones in North America. North America contributed more than half of HTC’s total smartphone shipments in Q3 2010. The latest move to launch Windows 7 phones might further stimulate shipments in this region. The share of shipments from Europe and Asia Pacific is expected to increase with the gaining popularity of Android OS. HTC’s strategy has been building and strengthening relationships with MNOs in the regions that will help in increasing shipment volumes in these regions. Table 7: Regional Break-out of Smartphone Shipments — HTC (In Percent, Q3 2010) 10 Regions Vendor Europe HTC Asia Pacific North America Rest of World 20.6 17.6 54.4 7.4 Source: Portio Research Ltd. 9 Note: Compiled regional break-out of smartphone shipments may not add up to 100 percent due to rounding-off errors 10 Note: The regional break-out of shipments for each vendor is calculated on the basis of total shipments in the quarter, the total shipments in the region, and other information related to market presence of each of the vendors in different region s. This is an estimated market share 20 © 2010, Portio Research. All Rights Reserved
  21. 21. Smartphone Futures 2011-2015 Comparison of BlackBerry and iPhone Growth BlackBerry and iPhone have achieved extraordinary growth rates since their launch. RIM launched its first BlackBerry smartphone in 1999 and Apple its iPhone in 2007. The figure below compares the performance of RIM and Apple through the growth of their user base Figure 12: Worldwide Subscriber Growth – BlackBerry vs. iPhone (In Millions) 11 72 62.0 BlackBerry CAGR (2007-Q2 2011) = 69 percent 63 50.7 Users (In Million) 54 41.3 45 36 35.5 22.3 27 18 9 7.3 0.5 0.1 0.2 1999 2000 2001 0.9 2.2 2003 0.3 2004 4.5 14.8 12.7 iPhone CAGR (2007-Q3 2010) = 253.9 percent 3.7 0 2002 2005 2006 2007 2008 2009 Q2 2011 Period BlackBerry Apple Source: Portio Research Ltd. The table below mentions the smartphone shipments for RIM and Apple during 2005-2010. Table 8: Smartphone Shipments — RIM & Apple (In Million, 2005 – 2010) Smartphone Shipments (In Million) Vendor 2005 2006 2007 2008 2009 2010 RIM 4.0 6.4 13.8 24.9 32.4 48.1 Apple NA NA 3.7 13.7 22.4 49.4 Source: Portio Research Ltd. Geographical Presence BlackBerry devices have been in the smartphone market for more than ten years, whereas iPhones have been around for only three years now. While Apple out-shipped RIM in 2010, BlackBerry presently retains a larger geographical footprint than the iPhone. As of November 2010, BlackBerry was available in over 140 countries worldwide and the iPhone was available in 101 countries. The geographical presence of BlackBerry and iPhone is shown below. 11 Note: Financial year for RIM concludes at end-February; FY 2010 denotes the period from March 2009 to February 2010; Q2 FY 2011 denotes the period June to August 2010. © 2010, Portio Research. All Rights Reserved 21
  22. 22. Smartphone Futures 2011-2015 Table 9: Geographical Presence — RIM & Apple (November 2010) Geographical Presence (Number of Countries, Nov 2010) Smartphone Europe Asia Pacific North America Rest of World Total BlackBerry 41 22 2 75 140 iPhone 36 14 2 49 101 Source: Portio Research Ltd. During mid 2008, Apple announced a shift in its distribution strategy to focus on tying up with multiple operators in key geographies. This ongoing strategy is set against a backdrop of increasing competition from Android devices. Though RIM scores higher than Apple with regard to distribution tie-ups, Apple is expected to reduce the lead in the coming years. Some examples of such multi-operator agreements include: • Australia: Vodafone and Optus • Austria: Orange and T-Mobile • Canada: Rogers Communications, Fido Mobile, Bell, Telus Mobility • France: Orange, Bouygues Telecom, SFR • Italy: Telecom Italia and Vodafone • North America: AT&T, Verizon Wireless (Verizon deal is effective from January 2011) • Portugal: Orange and Vodafone • Switzerland: Orange and Swisscom • UK: O2, T-Mobile/Orange (UK operations of Deutsche Telekom and France Telecom merged in November 2009) The switch from the one-operator-per-country model has worked well for Apple. A case in point is France, where iPhone sales increased significantly after launching with Bouygues Telecom and SFR in April 2009; Orange had previously been the sole French MNO offering iPhones. The Growth of Android OS (Operating System) The growth stories of Android-based devices and iPhone are quite similar with respect to phenomenal increases in handset shipments after launch. The iPhone provided a fresh dimension to the mobile experience by building an App Store consisting of a wide array of applications. Android has given this space a further boost by building an open source platform where developers can build and upload applications without stringent filtering rules. The open source nature of Android has been highly successful, and has led prominent vendors to alter allegiances from their existing OS (most notably Symbian) to the Android platform. The growth of Android has come at the expense of other leading OS vendors’ market shares – including Symbian, RIM and Microsoft. The figure below shows Android OS shipment growth, compared to other leading OS vendors. 22 © 2010, Portio Research. All Rights Reserved Apple announced a shift in its distribution strategy to focus on tying up with multiple operators in key geographies. This ongoing strategy is set against a backdrop of increasing competition from Android devices
  23. 23. Smartphone Futures 2011-2015 Figure 13: OS Shipments (In Millions, 2009-2010) 2009 80.9 2010 121.3 Change in Market share percent 20092010 Symbian 32.4 48.1 -7.1 BlackBerry 22.4 49.4 -3.0 Apple iOS 3.3 Android 8.1 42.7 9.4 Windows 15.1 12.6 20.6 20.5 -2 -0.6 Others Source: Portio Research Ltd. As observed from the figure, Android OS shipments have grown at the expense of leading OS vendors including Symbian, RIM and Windows. © 2010, Portio Research. All Rights Reserved 23
  24. 24. Smartphone Futures 2011-2015 Comparison of Android and iPhone Growth The table below compares Android and iPhone on a set of features including market dynamics, growth, SWOT analysis and future outlook. Table 10: An overview of Android and iPhone – November 2010 Android iPhone Owner Google Apple Entry Strategy Through acquisition of Android in 2005 Building on success of key product portfolio including iPod, Mac and iTunes Total Shipments 42.7 million (end 2010) 49.4 million (end 2010) Popular Vendor Tie-ups HTC, Motorola, Sony Ericsson, Samsung, LG Exclusive to Apple Popular Handsets Motorola Droid, HTC Desire, Samsung Galaxy, Sony Ericsson Xperia X10 iPhone 4, iPhone 3GS Mobile Applications 109,415 341,997 Strengths Weaknesses Opportunities 24 • • • • Google brand Choice of a wide variety of devices Open source platform Over 109,415 applications in a short time (from launch till date) • Developer-friendly OS (in terms of submitting new applications) • Multimedia Support: unlike the popular iTunes application and market place, Android doesn’t have a central or cohesive source of multimedia support • Reliance on hardware makers for upgrades: though OS updates are available from Google, it is up to the vendors to test the functionality of the upgrades on their devices • Lack of Enterprise support • Multi-vendor tie-ups • Huge opportunity in Tablet and Ebook reader space • Smartphone market has a huge growth potential owing to technology advancements • Ability to integrate complete value chain of design, OS development, hardware, application software, and services to come up with innovative and appealing products • Brand loyalty to Apple, and large base of users of other Apple devices, such as Apple iPod, iPad and MacBooks, who might be potential iPhone purchasers • Lack of product diversification and high pricing compared to the competition • Low penetration in the enterprise segment • Delay in product availability across regions, as exclusive partnerships might hamper the growth • Departure from the singleoperator to multi-operator distribution in some countries is expected to increase its market share • Leveraging expertise in the consumer segment to tap the emerging consumer-centric applications market © 2010, Portio Research. All Rights Reserved
  25. 25. Smartphone Futures 2011-2015 Threats • Platform fragmentation: numerous customised versions depending on vendors • A change in iPhone’s distribution strategy (wide network of MNOs in key geographies) might have a huge impact on the market Market Dynamics Android has been gaining OS market share at the expense of Symbian, RIM and Microsoft, since its launch in 2008 iPhone has been facing intense competition from RIM and Android Distribution Strategies Built on an open source platform, Android is available to a wide network of vendors and developers. iPhone’s distribution started on the basis of “exclusivity”. Currently, the phone is available with multiple operators across geographies • Additional vendors are expected to release Android-based phones Future Outlook • The recent decision of Samsung and Sony Ericsson to shift from Symbian to Android has further fuelled the market for Android phones • Stringent norms for developers might force them to shift to Android • Expansion of direct sales is affecting the distributor business • The number of competitors is expected to markedly increase. Apple’s new releases of iPhones over the years have only been in terms of software upgrades and new features, but no new products. • Apple might need to diversify their product portfolio to withstand the competition from Android and other smartphone vendors. Source: Portio Research Ltd. The following chapters cover the developments in the smartphone market. We have discussed the current market size and expected growth in the smartphone market during 2009-2015 in Chapter 2. The evolution of the smartphone market and the changing scenario of the smartphone value chain have been discussed in more detail in Chapter 3. © 2010, Portio Research. All Rights Reserved 25
  26. 26. Smartphone Futures 2011-2015 Chapter 2 Smartphone Market 26 © 2010, Portio Research. All Rights Reserved
  27. 27. Smartphone Futures 2011-2015 Smartphone Market Despite the worldwide economic slowdown, the smartphone market registered a modest growth rate of 16.4 percent during 2008-2009. In 2010, smartphone shipments grew at an impressive rate and were the growth driver for the rebound in 2010’s total handset shipments. The worldwide handset market witnessed a year-on-year growth of 12.2 percent during 20092010, primarily driven by 76.5 percent y-o-y growth in smartphone shipments during the same period. This massive growth in smartphone shipments is a result of increasing demand for smartphones in the western markets of North America and Europe. Also, the emerging markets of Asia Pacific and Latin America are seeing rising smartphone demand, due to the wide availability of affordable smartphone devices and supported applications. The share of smartphones as a percentage of total worldwide handset shipments is showing an upward trend, as depicted in the figure below. Figure 14: Smartphone Shipments as a Percentage of Handset Shipments – Worldwide (In Million, 2009 – 2015F) Share of Smartphone Shipments (In Percent) 39.7% 40% 36.1% 32.8% 35% 29.5% 30% 26.3% 23.1% 25% 20% 14.7% 15% 10% 5% 0% 2009 2010 2011F 2012F 2013F 2014F 2015F Year Source: Portio Research Ltd. F – Forecasted Smartphones accounted for 23.1 percent of worldwide handset shipments during 2010. This share is expected to grow to 39.7 percent by end-2015. Smartphones now have a wide appeal to users worldwide, with their attractive features and availability of innovative applications. These high-end smartphone applications and services can provide higher ARPU to operators, and hence MNOs are teaming with leading vendors to bring new smartphones into the market. Prominent examples of such partnerships include RIM and Apple who are associated with leading mobile operators worldwide to launch their handsets. The market is expected to witness more of these types of launches from other leading players including Nokia, Samsung and Sony Ericsson in the coming quarters. © 2010, Portio Research. All Rights Reserved 27 Smartphones accounted for 23.1 percent of worldwide handset shipments during 2010. This share is expected to grow to 39.7 percent by end-2015
  28. 28. Smartphone Futures 2011-2015 Smartphone shipments during 2010-2015 are expected to grow at an impressive CAGR of 18.1 percent, compared to a CAGR of 6.0 percent for total handset shipments worldwide. Smartphone shipments from 2009 to 2015 are given in the figure below. Figure 15: Smartphone Shipments – Worldwide (In Million, 2009 – 2015F) 800 Smartphone Shipments (In Million) 695.1 700 609.3 600 524.3 500 437.6 361.7 400 302.6 300 200 171.5 100 0 2009 2010 2011F 2012F 2013F 2014F 2015F Year Source: Portio Research Ltd. F – Forecasted The table below provides the regional split of worldwide smartphone shipments. Table 11: Smartphone Shipments — Worldwide (In Million, 2009 – 2015F) 12 CAGR (In Percent, 2010-2015F) Smartphone Shipments (In Million) Region 2009 2010 2011F 2012F 2013F 2014F 2015F Asia Pacific 61.5 101.8 124.5 148.6 184.4 217.4 254.1 20.1 Europe 44.4 83.0 107.5 140.9 170.8 192.4 210.3 20.4 North America 53.3 93.0 101.6 111.4 121.6 130.4 139.2 8.4 Rest of World 12.3 24.8 28.1 36.7 47.5 69.0 91.5 29.8 Total 171.5 302.6 361.7 437.6 524.3 609.3 695.1 18.1 Source: Portio Research Ltd. 12 Note: The total may not be equal to the sum of individual components due to rounding-off errors. 28 © 2010, Portio Research. All Rights Reserved
  29. 29. Smartphone Futures 2011-2015 In 2010, Asia Pacific recorded the largest share – with 33.6 percent – of worldwide smartphone shipments. The growth in the Asia Pacific region is expected to be driven by China, where the major operators are involved in the deployment of 3G and above networks. North America amassed the second highest contribution with 30.7 percent of 2010 worldwide smartphone shipments. Regional contributions to worldwide smartphone shipments during 2010 are given in the figure below. Figure 16: Worldwide Smartphone Shipments — Regional Contribution (In Percent, 2010) 13 27.4% 30.7% 33.6% Asia Pacific 8.2% Europe North America Rest of World Source: Portio Research Ltd. Asia Pacific is forecast to be the dominating market in terms of smartphone shipments during the period 2010-2015, with the market anticipated to grow at a CAGR of 20.1 percent during this period. The European region is also expected to sustain steady growth during 20102015, with a CAGR of 20.4 percent. The Rest of World region will help drive smartphone shipments uptake with the strongest growth rate of 29.8 percent, during 2010-2015, as Internet-based services on mobile handsets begin gaining traction in the region. North America, although having the highest smartphone penetration, will witness the slowest regional growth with a CAGR of 8.4 percent. 13 Note: The total may not add up to 100 percent due to rounding-off errors. © 2010, Portio Research. All Rights Reserved 29 Asia Pacific is forecast to be the dominating market in terms of smartphone shipments during the period 2010-2015, with the market anticipated to grow at a CAGR of 20.1 percent during this period
  30. 30. Smartphone Futures 2011-2015 Forecasts for regional contribution to worldwide smartphone shipments during 2015 are given in the figure below. Figure 17: Worldwide Smartphone Shipments — Regional Contribution (In Percent, 2015F) 14 30.3% 20.0% 36.6% Asia Pacific 13.2% Europe North America Rest of World Source: Portio Research Ltd. F – Forecasted 14 Note: The total may not add up to 100 percent due to rounding-off errors. 30 © 2010, Portio Research. All Rights Reserved
  31. 31. Smartphone Futures 2011-2015 Chapter 3 Smartphone Value Chain © 2010, Portio Research. All Rights Reserved 31
  32. 32. Smartphone Futures 2011-2015 Smartphone Value Chain The smartphone market value chain consists of the following stakeholders: • Device and network component manufacturers • Operating system (OS) vendors • Smartphone vendors • Third-party application developers • Mobile network operators The increasing demand in the Smartphone market has led to the entry of new players across the value chain and has intensified market competition. In addition to the new market entrants, existing players expanded their horizons by venturing into new areas of business (e.g., ZTE and Huawei launching handsets, HTC planning to launch their App Store etc.). • • • • • • • Original Design Manufacturers (ODMs) are looking to become Original Equipment Manufacturers (OEMs). HTC is a case in point MNOs and Equipment Manufacturers are launching their own branded handsets either on their own or through tie-ups with handset vendors. This trend has been observed in the key markets within Asia Pacific and Europe. OEMs associating themselves with multiple OS providers to provide more choice to the end user With Apps taking centre stage, OEMs and OS vendors are looking at pre-sales integration of third-party applications and content by embedding them into their smartphones MNOs expanded their role from “Service providers” to “Solution Providers”; they are partnering with OS vendors to launch their own App stores OS vendors are providing more freedom to the developer community by way of transparent procedures for selecting or rejecting an app, easing stringent rules etc Due to the above activities, the role of developers is slowly transforming from being “mere contributors” to “business partners” With the arrival of Android OS, the smartphone value chain has seen cosmetic changes in terms of OEM and OS partnerships. The figure below depicts the role performed by players in the smartphone value chain. 32 © 2010, Portio Research. All Rights Reserved The increasing demand in the Smartphone market has led to the entry of new players across the value chain and has intensified market competition
  33. 33. Smartphone Futures 2011-2015 Figure 18: Smartphone Value Chain Development of Device and Network Components Network Equipment Manufacturer Content Providers Integration OEM (Smartphone Vendors)/ODM Operating System Vendor Pre-sales Integration Pre-sales Integration Chip Vendor Third Party Software/Applications Developer Development of Customised Applications Partnerships with MNOs MNO Customised OS App Store for MNO’s Subscribers MNO App Store Direct Sales Direct Download Subscriber (Consumer/Enterprise) Source: Portio Research Ltd. The salient features of the smartphone value chain and the scenario at various levels of this value chain are explained below: • Device and Network Components Manufacturers o The handset industry is primarily vertically integrated. Vendors control the steps in the production and distribution of products and services and intend to increase their influence in the market. With the emergence of specialists for various production and distribution steps, the industry is looking to move out of the vertical integration paradigm. o OEMs are tending to outsource components of the phone to specialised companies called ODMs. o Hardware innovations alone do not have the ability to provide adequate product differentiation and hardware is likely to be commoditised quickly in the current market scenario. Systems integration and supply chain efficiency are likely to become the effective differentiators in the quickly changing market environment. © 2010, Portio Research. All Rights Reserved 33 Hardware innovations alone do not have the ability to provide adequate product differentiation and hardware is likely to be commodotised quickly in the current market scenario
  34. 34. Smartphone Futures 2011-2015 • Smartphone Vendors o To increase their shipment share in the highly competitive market, Smartphone vendors are providing more choice to customers by partnering with multiple OS vendors. o The success of Android OS, the launch of the latest OS from Microsoft – Windows 7, and the launch of an updated Apple iOS has indeed helped vendors in expanding their product range. o With the help of these OS partnerships, vendors are focusing on providing more inbuilt applications on their handsets as a key differentiating factor in the highly competitive environment. o Smartphone vendors intend to leverage their expertise in developing handsets and Application Programming Interfaces (API) to provide rich mobile user experiences. o While iPhone has succeeded in providing a new dimension to the mobile web, Android is helping smartphone vendors by offering ‘customisation’ as a differentiating factor. • MNOs o The role of MNOs has become vital in the face of increasing competition in the smartphone market. o Smartphone vendors are trying to strengthen their distribution network by partnering with prominent MNOs across all major geographies. o Some MNOs have expanded their role by introducing more products and services under their brand. They are launching their own app stores, as this arrangement enables them to exercise greater control over the service delivery and management process, and to strike better revenue sharing deals for sales through their networks. o Saturated markets (in terms of mobile penetration) have resulted in MNOs transforming themselves from ‘service providers’ to ‘service enablers’. • • 34 Operating System Vendors o The evolution of OS to ‘open-source’, with Android OS, has removed the barriers for handset vendors, and now they can launch products on multiple operating systems. o To tap the revenue generating potential of applications and services, there is a need for openness when developing operating systems in the mobile space. o The open source approach is already being followed by the LiMo Foundation (supporting Linux-based operating systems for mobile devices), Android and the Symbian Foundation for platform and applications development. o The open-source approach is gaining prominence in the market due to the customisation factor, expected availability of a greater number of apps, and partnerships with vendors to create new revenue models. o The emergence of Android has significantly altered the ecosystem, with more and more handset vendors partnering with Google, for Android OS. o The operating system and user interface components are separating, and the user interface is emerging as a key differentiator for the user experience. Therefore, the importance for developing compelling user interface components is increasing and there is a need for separating it from the operating system. Application Developers and Content Providers o The role of developers is transforming from ‘Contributors’ to ‘Business Partners’, mainly due to the intense competition in the market. o Currently, one of the key differentiators between Apple OS and Android OS has been on the quality of apps. While the market perceives Apple App store to provide high quality apps (due to the stringent filtering rules), Android is yet to attain a similar standing. Though Android is slowly catching up with Apple in terms of total number of applications, it still has a long way to go in terms of gaining popularity as a preferred app store. Developers have a key role to play in this. o With easing restrictions in open source platforms, developers can now submit higher numbers of applications to the OS. © 2010, Portio Research. All Rights Reserved Smartphone vendors are trying to strengthen their distribution network by partnering with prominent MNOs across all major geographies
  35. 35. Smartphone Futures 2011-2015 o o o With the increasing success of Android OS, MNOs are directly partnering with OS providers to launch their own brand products and to provide customised app store websites for their customers. The smartphone application market is expected to a play a much bigger role in the future in terms of  Defining new revenue sharing models  Developing new categories of applications according to demand and usage  Providing more customisable features Players in the smartphone value chain—such as Apple, RIM, Google, Nokia, Microsoft, Samsung and HTC—are increasing their efforts for content development and are facilitating development and distribution of applications. They provide software development kits to the developers to develop applications compatible with their platforms. They then make applications available for download through their ‘Application Stores’. Key Players in the Value Chain Table 12: Key Players in the Smartphone Value Chain Smartphone Vendors Operating System (OS) Vendors Applications Stores Nokia Symbian OS Apple App Store Research In Motion (RIM) BlackBerry OS BlackBerry App World Apple Apple iPhone OS Nokia Ovi Store HTC Corporation Microsoft OS Android App Market Motorola Android OS Windows Mobile Market Place Samsung Linux OS Symbian Horizon Sony Ericsson © 2010, Portio Research. All Rights Reserved 35
  36. 36. Smartphone Futures 2011-2015 Chapter 4 Smartphone Vendors 36 © 2010, Portio Research. All Rights Reserved
  37. 37. Smartphone Futures 2011-2015 Smartphone Vendors Market Share of Smartphone Vendors The phenomenal growth of the smartphone market has been driven by the ever increasing popularity of smartphone devices in the developed markets of the US and Europe, along with increasing penetration in the developing markets of Asia Pacific and Rest of World regions. The market is witnessing intense competition among smartphone vendors, particularly after the arrival of Android-based phones. In order to differentiate themselves from the competition, vendors are focusing on product innovations, to offer attractive and unique features in their devices, along with aggressive marketing to increase device uptake. New smartphone launches from leading vendors including Nokia, Samsung and LG are driving smartphone prices down towards mid-tier price points, further promoting market growth. Nokia, Apple and RIM are the current top-3 vendors in the smartphone market. The market share of smartphone vendors during 2010 is given below. 15 16 Figure 19: Market Share of Smartphone Vendors – Worldwide (In Percent, 2010) , 15.9% 16.3% 8.2% 7.6% 4.4% 33.9% Nokia Apple 13.6% RIM HTC Samsung Motorola Others Source: Portio Research Ltd. 15 16 Note: Market shares of Palm and Sony Ericsson are included in ‘Others’. Note: The total may not add up to 100 percent due to rounding-off errors. © 2010, Portio Research. All Rights Reserved 37
  38. 38. Smartphone Futures 2011-2015 The forecast market share of smartphone vendors during 2015 is given in the chart below. Figure 20: Market Share of Smartphone Vendors – Worldwide (In Percent, 2015F) 15.8% 11.0% 10.0% 18.8% 5.9% 4.0% 9.0% 25.5% Nokia Apple RIM HTC Samsung Motorola Sony Ericsson Others Source: Portio Research Ltd. F – Forecasted Regional Market Share of Smartphone Vendors In some cases, the regional market shares of the leading smartphone vendors vary significantly from their worldwide market shares. Regional leadership is dependent on several factors, including consumer purchasing behaviour and purchasing power in a particular geography, distribution agreements between vendors and regional operators, and the range of mobile services available to customers etc. The figures below depict the market share of leading smartphone vendors in North America, Asia Pacific, Europe and Rest of World. 17 18 Figure 21: Smartphone Market Share — North America (In Percent, Q3 2010) , 15.9% 0.9% 24.2% 33.0% 26.2% Apple RIM HTC Nokia Others Source: Portio Research Ltd. 17 Note: The market share for different vendors in the region is calculated by the total shipments in the quarter in the region and shipment data as available for different vendors. This is an estimated market share. 18 Note: The total may not add up to 100 percent due to rounding-off errors. 38 © 2010, Portio Research. All Rights Reserved
  39. 39. Smartphone Futures 2011-2015 Figure 22: Smartphone Market Share — Asia Pacific (In Percent, Q3 2010) 12.8% 7.7% 5.1% 10.7% 50.4% 9.0% 4.3% Nokia Apple RIM HTC Sharp Fujitsu Others Source: Portio Research Ltd. 19 20 Figure 23: Smartphone Market Share — Europe (In Percent, Q3 2010) , 14.3% 12.8% 7.1% 53.1% 12.8% Nokia Apple RIM HTC Others Source: Portio Research Ltd. 19 Note: In Figures 22 and 23, the market share for different vendors in the region is calculated by the total shipments in the quarter in the region and shipment data as available for different vendors. This is an estimated market share. 20 Note: The total may not add up to 100 percent due to rounding-off errors. © 2010, Portio Research. All Rights Reserved 39
  40. 40. Smartphone Futures 2011-2015 Figure 24: Smartphone Market Share — Rest of World (In Percent, Q3 2010) 14.6% 21 3.4% 14.9% 39.3% 27.8% Nokia Apple RIM HTC Others Source: Portio Research Ltd. 21 Note: The market share for different vendors in the region is calculated by the total shipments in the quarter in the region and shipment data as available for different vendors. This is an estimated market share. 40 © 2010, Portio Research. All Rights Reserved
  41. 41. Smartphone Futures 2011-2015 Nokia Company Overview Headquarters: Keilalahdentie 2-4, Nokia Group, Finland Phone: +358-718-008-000 Fax: +358-718-038-226 Website: www.nokia.com st Financial year-end: 31 December Revenue: USD 13.2 billion (Q3 2010) Revenue growth: 3.0 percent (Y-o-Y in USD, Q3 2010); 5.0 percent (Y-o-Y in EUR, Q3 2010) Smartphone Market Share: 32.7 percent (Q3 2010) • • • • • Founded in 1865, Nokia entered the telecom equipment market in 1960. Nokia delivered its first GSM network in 1989. It launched its first GSM handset in 1992. In collaboration with Hewlett Packard, the company launched the Nokia Communicator line in 1996. Nokia is the world’s largest manufacturer of mobile handsets. Through Nokia Siemens Networks, it also provides infrastructure and associated services in conjunction with Siemens. Since its acquisition of Navteq in July 2008, Nokia has provided digital maps. At the end of Q3 2010, the company had around 128,237 employees across 120 countries worldwide. Business Segments Nokia’s business operations are categorised into the three segments as mentioned below: • Devices and Services: The division is responsible for managing the mobile device portfolio of Mobile Phones, Smartphones and Mobile Computers, besides developing a world class suite of internet services under the Ovi brand. • Navteq: Through Navteq, Nokia acquired a strong position in digital map information and location-based services for: o Automotive navigation systems o Mobile navigation devices o Internet-based mapping applications o Government and business solutions • Nokia Siemens Networks: Formed in April 2007, ‘Nokia Siemens Networks’ (NSN) is a business entity that combines Nokia’s network business with Siemens’ carrier-related operations, for both fixed and mobile networks. NSN provides: o Wireless and fixed network infrastructure o Communication and network services platform o Professional services to operators © 2010, Portio Research. All Rights Reserved 41 Through Navteq, Nokia acquired a strong position in digital map information and location based services.
  42. 42. Smartphone Futures 2011-2015 Revenue Nokia’s revenues for 2008, 2009 and 9-months 2010 are given in the figure below: Figure 25: Revenue by Business Segments — Nokia (In USD Billion, 2008, 2009 & 9M 2010) Revenues (In USD Billion) 80 0.5 70 22.5 60 0.9 50 17.5 0.9 40 11.5 30 51.6 20 38.7 27.2 10 0 2008 2009 9M 2010 Period Navteq NSN Devices and Services Source: Portio Research Ltd. Worldwide Smartphone Shipments and Smartphone Market Share Table 13: Smartphone Shipments and Smartphone Market Share — Nokia (2009 – 2015F) Smartphone Shipments and Smartphone Market Share (2009-2015F) Nokia 2009 2010 2011F 2012F 2013F 2014F 2015F Shipments (In Million) 67.7 102.5 116.5 139.5 151.7 168.2 177.1 Market Share (In Percent) 39.5 33.9 32.2 31.9 28.9 27.6 25.5 Source: Portio Research Ltd. • In Q3 2010, Nokia shipped a record 26.5 million smartphones worldwide, an increase of 62.6 percent year-on-year. Nokia’s smartphone market share for 2010 is 33.9 percent—a decrease over its market share in 2009. 22 Smartphone shipments are expected to grow at a CAGR of nearly 11.6 percent from 102.5 million in 2010 to 177.1 million in 2015. • • Geographical Presence Nokia had a worldwide smartphone shipment market share of approximately 32.7 percent during Q3 2010, down from 37.8 percent in Q3 2009. 22 Note: In our previous report – “Smartphone Futures 2009-2014”, Nokia’s 2008 market share was mentioned as 36 percent, as this figure was given by one of the data sources we used. However, we have since determined that Nokia’s 2008 smartphone shipments of 60.5 million translated to a 2008 market share of 41.1 percent. 42 © 2010, Portio Research. All Rights Reserved Smartphone shipments are expected to grow at a CAGR of nearly 11.6 percent from 102.5 million in 2010 to 177.1 million in 2015.
  43. 43. Smartphone Futures 2011-2015 This market share decline is expected to continue during the forecast period to 2015 primarily because of increasing competition from leading vendors including Apple and RIM, and the rising popularity of Android-based phones across different regions. Nokia continued to dominate the Asia Pacific and Europe smartphone markets during Q3 2010. The figure below provides the shipment break-out for all regions Figure 26: Regional Break-out of Smartphone Shipments — Nokia (In Percent, Q3 2010) 23 39.2% 0.8% 44.5% 15.5% Total Shipments = 26.5 million Asia Pacific Europe North America Rest of World Source: Portio Research Ltd. 23 Note: The regional break-out of shipments for each vendor is calculated on the basis of total shipments in the quarter, the total shipments in the region and other information related to market presence of each of the vendors in different region. This is an estimated market share. © 2010, Portio Research. All Rights Reserved 43
  44. 44. Smartphone Futures 2011-2015 Nokia’s Emergence as a Smartphone Vendor and a Service Provider for the Enterprise Segment The figure below depicts Nokia’s business development during 2009-2010, highlighting its efforts to expand its presence at various levels of the smartphone value chain. Figure 27: Nokia’s Business Development during September 2009 – September 2010 FY 2009 (Sept 2009-December 2009) Development of Products and Services  Nokia launches Nokia Messaging in Indonesia (Telkomsel), Poland (Orange), Hungary (T-Mobile)  Nokia partners with SAP and Giesecke & Devrient to establish a new global business providing brand protection services  Nokia launches 5330 Mobile TV edition  New product launches: X6, 7230, 6700 Slide, N900 (US), E72  Nokia launches its first TD-SCDMA mobile handset - 6788 - in China FY 2010 (Jan 2010-Mar 2010)  Completes the acquisition of Novarra  Skype was made available for Nokia Smartphones at Ovi Stores  Nokia launches Nokia Messaging in Turkey (Turkcell),  Nokia forms Wireless Education venture with Pearson in China FY 2010 (Apr 2010-Jun 2010)  Enters into a partnership with Yahoo! to bring integrated web services to customers across the globe  Launches Ovi Life Tools in China  Announces the launch of the N8 smartphone on the new Symbian 3 platform  Acquires Metacarta Inc. FY 2010 (Jul 2010-Sep 2010)  Starts shipment of N8 smartphones  Global alliance with Intuit to create Mobile Marketing services for small businesses  Completes the acquisition of Motally Inc.  Sells Wireless Modem business to Renesas Electronics  Launches “Touch and Type” design with X3 Source: Portio Research Ltd. 44 © 2010, Portio Research. All Rights Reserved
  45. 45. Smartphone Futures 2011-2015 SWOT Analysis Figure 28: SWOT Analysis – Nokia Strengths • Strong awareness of the ‘Nokia’ brand worldwide • Market leader in the worldwide smartphone market (33.9 percent for 2010) • Leader in the Asian and European markets; highest market share in handset shipments worldwide • Efficient distribution network, especially in emerging countries Opportunities • The success of N8 can determine the future of the Symbian 3 platform • Growth in emerging countries, where it has an unrivalled presence • Capitalise on brand and market share to establish interactive relationships with consumers Weaknesses • Infrastructure business: merger with Siemens has not produced the expected results • Low influence in the US and Japan • Decreasing popularity of Symbian OS • Facing component constraint from component providers • No plans to partner with Android OS Threats • Fierce competition from Android OS • Vendors dumping Symbian for Android • Carriers constantly lobbying to reduce subsidies in order to stay competitive • Convergence of Mobile and PCs has led to competition from new quarters; prominent players in this segment include Apple, RIM and Dell Source: Portio Research Ltd. Strategies and Future Outlook • • • Nokia has responded to the competition from Android-based devices with the launch of its N8 smartphone, which was developed on the Symbian 3 platform. Nokia is planning to launch more phones based on Symbian 3. To support the expansion of the Ovi Suite, in April 2010, Nokia acquired MetaCarta Inc. (geographical intelligence technology and expertise) and Novarra Inc. (Mobile browser and Services platform). In a significant move to bolster the presence of Ovi on the Web, in May 2010, Nokia entered into an alliance with Yahoo! to leverage Yahoo’s strength in the areas of Email, Instant messaging, Maps and Navigation services. Competitive Landscape • • In addition to fierce competition from Apple and RIM, Nokia is facing serious competition on the operating system (OS) front, with a steady growth in Android-based handsets. Samsung and Sony Ericsson have also announced their plans to end their association with the Symbian platform, to instead support Android. © 2010, Portio Research. All Rights Reserved 45
  46. 46. Smartphone Futures 2011-2015 The table below highlights the performance of Nokia across different criteria. Evaluation Parameter Nokia Popularity in enterprise segment Popularity in consumer segment Success in distribution of service and applications 46 © 2010, Portio Research. All Rights Reserved
  47. 47. Smartphone Futures 2011-2015 Apple Company Overview Headquarters: 1 Infinite Loop, MS 301-4IR, Cupertino, USA Phone: +1-408-9961010 Fax: +1-408-9960275 Website: www.apple.com th Financial year-end: 27 September Revenue: USD 20.3 billion (Q4 FY 2010) Revenue growth: 66.4 percent (Y-o-Y for Q4 FY 2010) Smartphone Market Share: 17.4 percent (Q3 2010) • • • Apple was established in Cupertino, California in April 1976 and incorporated in January 1977. Apple and its wholly-owned subsidiaries design, manufacture, and market Mac computers, portable digital music players, and mobile communication devices; and sell a variety of related software, services, peripherals, and networking solutions. The company distributes its products worldwide through its online stores, its retail stores, its direct sales force, and third-party wholesalers, resellers, and value added resellers. It sells to consumers and enterprises, educational institutes, and government enterprises. Business Segments Apple’s revenues are generated through sales of its products and services in different consumer categories, such as computers, music devices and smartphones, and related services and software. Its products and services are given below: • Devices o Mac Computers and Accessories – Includes desktop products (iMac, Mac mini, Mac Pro, Power Mac, and Xserve product lines) and portable products (MacBook, iBook, MacBook Air, MacBook Pro, and PowerBook product lines) o iPod – Includes iPod Classic, iPod Nano, iPod Shuffle, and iPod Touch o iPhone – Includes iPhone (launched in June 2007), iPhone 3G (launched in July 2008), iPhone 3GS (launched in June 2009) and iPhone 4 (launched in June 2010) o iPad – Tablet (launched on 27 January 2010) o Apple TV – A set-top video device aimed at pushing sales of content from iTunes to high-definition (HD) TVs • Software: Includes Apple-branded operating system and application software, thirdparty software, AppleCare, and Internet services. • Other content related products and services: This segment focuses on providing content related products and services, such as iTunes and iPod services and Apple App Store. © 2010, Portio Research. All Rights Reserved 47
  48. 48. Smartphone Futures 2011-2015 Revenue Apple’s yearly revenues for FY 2008, FY 2009 and FY 2010 are given below. 24 Figure 29: Revenue by Business Segments — Apple (In USD Billion, FY 2008 – FY 2010) 25 Revenues (In USD Billion) 70 9.3 60 5.0 50 40 30 20 10 7.9 0.0 7.2 1.8 9.2 0.0 25.2 6.8 8.3 8.1 14.3 13.9 17.5 FY 2008 FY 2009 FY 2010 0 Period Mac Computer iPod iPhone iPad Other products and services Source: Portio Research Ltd. Worldwide Smartphone Shipments and Smartphone Market Share Table 14: Smartphone Shipments and Smartphone Market Share — Apple (2009 – 2015F) Smartphone Shipments and Smartphone Market Share (2009-2015F) Apple 2009 2010 2011F 2012F 2013F 2014F 2015F Shipments (In Million) 22.4 49.4 61.5 76.1 95.4 113.3 130.7 Market Share (In Percent) 13.1 16.3 17.0 17.4 18.2 18.6 18.8 Source: Portio Research Ltd. • • Apple had shipped 14.1 million smartphones at end-Q3 2010, an increase of 90.5 percent year-on-year. Apple’s smartphone shipments are expected to grow at a CAGR of approximately 21.5 percent during 2010-2015. 24 Note: Financial year for Apple ends on 27 September; FY 2010 denotes the one year period ending on 27 September 2010. 25 Note: Other products and services include: music related products and services, Apple-branded and third-party displays, wireless connectivity and networking solutions, hardware accessories, Apple-branded OS and application software, third-party software, AppleCare, and Internet services. 48 © 2010, Portio Research. All Rights Reserved
  49. 49. Smartphone Futures 2011-2015 Uptake for Apple iPhone Worldwide shipments for iPhone since its launch are given in the figure below. Figure 30: iPhone Shipments – Worldwide (In Million, Q2 2007 – Q3 2010) 16 14.1 14 Shipments (In Million) 12 10 8.8 6.9 8 6 4.4 4 2 2.3 1.1 0.3 1.7 8.4 Q1 2010 Q2 2010 7.4 6.0 5.2 3.8 0.7 0 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q3 2010 Quarter Source: Portio Research Ltd. The figure below depicts the growth of Apple iPhone users since its launch in June 2007. Figure 31: Growth in iPhone Users (In Million, Q2 2007 – Q3 2010) 70 Launch of iPhone 4 (Jun-2010) iPhone Users (In Million) 60 40 Launch of iPhone 3G (Jul-2008) 30 10 62.0 50.1 50 20 26 Launch of iPhone (Jun-2007) 0.3 1.4 3.7 14.8 Launch of iPhone 43.0 3GS (Jun-2009) 33.3 28.3 18.6 20.9 10.4 6.1 5.4 0 Q2-07 Q4-07 Q2-08 Q4-08 Q2-09 Q4-09 Q2-10 Quarter Source: Portio Research Ltd. 26 Note: The calculation of the iPhone user base incorporates the factor of replacement of previous versions of the device after the launch of new versions. © 2010, Portio Research. All Rights Reserved 49
  50. 50. Smartphone Futures 2011-2015 Geographical Presence North America continues to be the major market for iPhones. Europe, Middle East and Africa are the other major markets in terms of shipments. Apple also made significant strides in Asia Pacific, which has long been a Nokia stronghold. Figure 32: Regional Break-out of Smartphone Shipments — Apple (In Percent, Q3 2010) 27, 28 43.3% 19.9% 15.6% 21.3% Total Shipments = 14.1 million Asia Pacific Europe North America Rest of World Source: Portio Research Ltd. 27 Note: Financial year for Apple ends on 27 September; FY 2010 denotes the one year period ending on 27 September 2010. 28 Note: The total may not add up to 100 percent because of rounding-off errors. 50 © 2010, Portio Research. All Rights Reserved
  51. 51. Smartphone Futures 2011-2015 SWOT Analysis Figure 33: SWOT Analysis – Apple 29 Strengths Weaknesses • Ability to integrate complete value chain of design, OS development, hardware, application software, and services to come up with innovative and appealing products • Lack of product diversification and high pricing compared to the competition • Brand loyalty to Apple, and large base of users of other Apple devices, such as Apple iPod, iPad and MacBooks, who might be potential purchasers for iPhone Opportunities • Departure from the single-operator to multi-operator distribution in some countries is expected to increase its market share • Leveraging expertise in the consumer segment to tap the emerging consumer-centric applications market • Reselling refurbished iPhones might be an area of potential opportunity* • Low penetration in the enterprise segment • Delay in product availability across regions, as exclusive partnerships might hamper the growth Threats • Strong growth in Android-based handsets has intensified competition • Expansion of Apple’s direct sales is perceived to be negatively affecting distributors’ business • Patent infringement for the product and features used by iPhone may cause a leakage in revenue flow for Apple Source: Portio Research Ltd. Strategies and Future Outlook • • Focus on retail business: The shift in focus from single operator to multi-operator (in a country) is seen as a significant move to attract more retail customers. Packaging of products and solutions: Apple App store is equipped to offer a wide selection of third-party hardware, software, and various other accessory products and peripherals to complement Apple’s own products. At present, Apple is offering more applications than any of its competitors. In addition to being a differentiator, the App Store is also contributing significantly to Apple’s revenue. Competitive Landscape • • • 29 Apple has been successful in making inroads in to the market share of leaders, such as RIM in North America, and Nokia in Europe and Asia Pacific. With the success of Android-based phones from vendors including Motorola, HTC and Samsung, Apple is witnessing a slight stagnation in sales and the market shares of iPhone. Android-based phones are posing a threat to iPhone in the near to long term. Apple has successfully launched new products from time-to-time, in a bid to cross sell its products and thus strengthen its position in the market. Recent offerings include the iPad, which generated ‘record sales’ after its launch at the beginning of 2010. *Note: Refurbished Apple products are returned to the company for quality testing and are then resold at a lower cost. In China, Reuters notes that prices for major refurbished products range from USD 44 (308 Yuan) for an iPod Shuffle to more than USD 2,047 (14,000 Yuan) for an iMac. © 2010, Portio Research. All Rights Reserved 51 Apple has been successful in making inroads in to the market share of leaders, such as RIM in North America, and Nokia in Europe and Asia Pacific.
  52. 52. Smartphone Futures 2011-2015 • Apple has successfully pushed Apple-branded software and apps, generating new sources of revenue through iPhones. With easing of regulations on developers and following transparent procedures for selecting or rejecting the apps, the iPhone App Store is expected to drive the revenues in the highly competitive market. The table below highlights the performance of Apple across various criteria. Evaluation Parameter Apple Popularity in enterprise segment Popularity in consumer segment Success in distribution of service and applications 52 © 2010, Portio Research. All Rights Reserved

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