The state of mobile, Q2 2013

This chart is an attempt to capture the key dynamics in the global mobile business. It shows unit volume, revenue and ASP (average selling price) for the key components of the tablet and mobile phone industries. There's a pretty clear picture:

  • Samsung dominates by volume and leads on revenue
  • 'Other' Android is getting very big (this includes Lenovo etc, of course)
  • Apple continues to sell at much higher prices than anyone else
  • The iPad continues to lead on revenue but probably not on volume (and if it does, it won't be for much longer)

Note that unless explicitly stated otherwise, these are for all handset sales, not just 'smartphones'. Tablets are shown separately. 

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This data contains a fair few assumptions, given the somewhat imperfect nature of disclosure in the industry today:

  • Apple, Nokia and Blackberry disclose all three numbers
  • HTC, Motorola, Sony and LG give handset revenue
  • LG and Sony give smartphone units
  • Samsung gives revenue for a unit that includes handsets, tablets and PCs, but these are pretty small
  • Google gives enough data to estimate total quarterly Android activations and Android tablet activations
  • However, perhaps 80% of Android devices sold in China have no Google services, do not activate with Google and are not included in activation numbers - I've estimated these separately, both for phones and tablets
  • Chinese tablets are - tough - to estimate: they make up half of the 'other tablets' entry and there's a pretty big margin of error on that one 
  • Amazon says nothing at all about the Kindle Fire
  • Windows tablet sales are too small to move the series on this chart
  • Most of the unit data is 'shipped' rather than 'sold', but except for egregious flops this doesn't actually make much difference on this scale, and the Android activations numbers do of course relate to sales.  
  • Etcetera

Polarisation, continued

A simple picture: this is global handset revenue for the major branded OEMs. Samsung and Apple dominate, Apple is very cyclical, everyone else looks very sub-scale. 

(All revenue, not just smartphones. Sony and Blackberry haven't reported their most recent quarters yet.)

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On market share

For the last couple of years, the standard way to look at the progress of the 'platform war' between Apple, Google and the now near-vanquished Nokia and RIM was 'smartphone market share': each platform's share of the share of the phone units sold each quarter that could be defined as 'smart'. The chart looks something like this. 

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There's a fairly simple narrative here: Apple more or less flat for years at or around 20%, Nokia and RIM collapsing, Android (both activated and 'unactivated' - i.e. China) taking all the rest. You can also show it like this: 

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Same data set, different chart.  

However, there's a rather important problem with looking at the data like this: there is no such thing as a 'smartphone market'. Or rather, talking about the 'smartphone market' is like talking about the '3G' market or the 'colour screen phone' market: you're picking out a sub-segment that is going to grow to take over the whole market. And ignoring the growth. 

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All of a sudden, you can see the growth.  

This difference is particularly clear if you focus just on Apple.  To take an analogy from another industry, Tesla's share of the 'electric car' market is probably going to fall over time, as more companies start making electric cars - but that's not the point, because its share of the 'car' market is probably going to grow. 

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The whole mobile phone market is converting to smart. Apple is taking the high end and Android is taking the rest. Both are growing very fast, and Android is growing faster. But what matters is phone  share, not smartphone share. Just to make the point absolutely obvious, this is another way again to look at the market. 

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The fact that Apple is taking the high end means that it has a disproportionate share of revenue and hence profit. Meanwhile, the fact that Samsung has squeezed most of the other branded OEMs down to a size at which it's very hard for them to make a profit means that Samsung and Apple between them make almost all the profit in the mobile handset industry. 
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(This slide is taken from my presentation 'Mobile is eating the world')

At this point Apple advocates can risk getting a little carried away. 'Aha!', they say, 'Apple may only sell 10% of phones but it gets well over the half the profit, so it's winning the platform wars, or at least not losing.' 

Well, up to a point. The objective of any hardware maker is indeed to make a profit, and Apple's doing pretty well there. But it can't really take credit for the poor economic health of so many other OEMs - if anything that's down to Samsung. If there was some consolidation then those companies would be more profitable and Apple and Samsung's profit share would fall - that wouldn't mean their performance was deteriorating.

More importantly, the point of a platform war is the health of the platform itself, not necessarily the OEMs. Apple's Mac was soundly beaten by Microsoft, not by Gateway 2000 or any of the hundreds of forgotten failed PC clone makers.

That is, it doesn't matter to Google or to Android that Android OEMs are mostly much less profitable than Apple, so long as good Android phones keep getting brought to market (and they do). And the unprofitability of most Android OEMs tells us little or nothing about how much it matters to Apple that there are now a lot more Androids than iPhones out there. 

And then again, all the data we have about the systemically lower engagement of Android users means that 'platform market share' is also an unhelpful metric. 

To put this another way, looking at 'smartphone share' or 'profit share' or 'platform share' all tell you something about the industry, but all three metrics mislead you if you try to treat them as a way to see who's 'winning', because 'winning' means different things for Apple, Samsung or Google. After all, Google may well still make more money from searches on iOS than it does from searches on Android. There's no easy way to fit that into any of these charts. 

Addressable markets for high-end phones

There are all sorts of ways to estimate the addressable market for a high-end phone like the iPhone. One way is to look at price sensitivity, the propensity of lower income groups to spend on expensive entertainment products and how that might be affected by the increasing capabilities of cheaper devices. Another is to look at the mobile operators that do and do not actually offer the iPhone, which gives you a figure for people who cannot in fact buy one, at least on subsidy, even if they want to (assuming they're not willing to switch operator). 

However, it seems to me that the central issue in sales of the iPhone and other high-end models is the availability of subsidies themselves. After all, if a phone is good enough for consumers to want it and the OEM has the scale and budget to provide it (an issue for some) then distribution is just execution and time, not a fundamental constraint. Ability to pay, too, is a moving target: people substitute spending for products they really want, and $600 isn't that much money over two years for a large proportion of the world's population. 

So actually, the real questions are the big numbers: how many people are getting subsidies? How many are buying phones? 

Hence, my first chart shows just how the smartphone install base compares to the total global population. 

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There were about 5.2bn adults on earth at the end of 2012. Of those, around 3.2bn had mobile connections, though not necessarily phones (some people have a SIM but no phone, and many have multiple SIMs, which is why the number of connections is well over 6bn). Within that, roughly 1.1bn had 'smartphones' at the end of 2012, of which around 900m ran either the iOS or Android versions of Unix. (As an aside, it is pretty striking that almost a fifth of the earth's adult population has a Unix box in their pocket.)

So how does that relate to contracts, and hence subsidies? According to my old colleague at The Mobile World, there were around 1.6bn contracts in place at the end of 2012. 

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For now, the overall smartphone base remains below the contract base, though it is growing fast. But the non-contract portion of the world's population is much bigger. If I turn the chart upside-down the point is clearer. 

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At the end of 2012, 2bn adults had yet to buy a mobile connection of any kind, and another 1.6bn were on prepay and not eligible to get subsidies. It doesn't matter how many operators Apple or Samsung puts on distribution: those people are not going to buy a $600 phone.

However, that leaves about 1.6bn who might. 

Apple tipping points - up or down?

In the last quarter of 2012, half of all phones sold on earth were smartphones. Of the rest, a quarter were sold to people with very low incomes, who can only afford $10-$20 for a phone, and the other quarter to people who will eventually afford a smartphone, but only at prices under $150. 

In other words, the top two thirds of the potential market for smartphones is now buying one, and the remaining growth in volume will almost all be at the low end. 

This means that the first phase of the smartphone industry is close to ending: the greater proportion of featurephone buyers have been converted to smartphones. This has happened so fast that perhaps 90% of current Android owners are still on their first one, and 70% of iPhone owners. 

The second phase is ongoing replacement: what are those people's second and third phones? As the industry moves on from converting featurephone buyers to fighting for replacement purchases, what happens to value? Growth for any given manufacturer necessarily becomes a matter of taking sales away from other smartphone manufacturers, not featurephone manufacturers (i.e. Nokia). Moreover, Moore's Law is at work, driving down prices; you can now get a 4.5" dual core Android phone from Huawei for just $200, and one from a generic Chinese manufacturer for $120-$150. 

This is clearly a challenge for any handset OEM, but especially for one at the high end. There are fewer and fewer new high-end buyers coming into the market and the ones you sold to in the past may increasingly be tempted by ever improving cheaper phones. So a high-end phone maker risks losing sales if it stays at the high-end, or losing margin if it makes cheaper phones, or both. 

In case it isn' t obvious, this is the essence of the bear story for Apple. There's lots of froth and nonsense swirling around as well, but this is a perfectly coherent and intelligent story. It isn't that Apple is losing sales to Android (it isn't, at least not yet) - it's that the high-end market itself may be close to tapped out. 

Of course, the big problem with calling a structural change like this is timing. Blackberry provides a perfect example. It was easy to say that the iPhone and Android would destroy that business, but when? The chart below shows the moment when Blackberry sales started falling, but there's no terribly obvious reason why it was that quarter and not six months earlier or later. People lost a lot of money shorting RIM in 2010, when the threat from the iPhone looked obvious. 

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This timing issue prompts a lot of the fevered atmosphere around Apple. This quarter might be down because of timing and product cycles, or a combination of other non-structural short-term issues, and the growth might zoom onwards. But on the other hand, we might be at that May 2011 moment,  and everything from now on might be downwards. 

What makes this really fun, of course, is that though we are clearly at the end of one phase of market development, the scenario outlined above isn't remotely the only possible one. Hence the volatility: is this just another cyclical downturn (in revenue, gross margin, unit sales or whatever indicator you want to look at), or is this the moment of collapse? Because Apple is cyclical, and has been increasingly so. Is the dip this quarter the dip before another jump upwards, or the start of a slope downwards? 

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Smartphones sales may be approaching saturation (especially in the USA), but iPhone sales at the end of 2012 were just 10% of global phone sales - and 17% of global contract sales, which is more relevant since it reflects the subsidised market (of course, the possible decline of subsidies is another, rather separate bear story for any handset sold for over $200).

Is 17% the total potential market for a premium phone? Will market share only move from $600 phones to $300 phones, and never the other way? That might be the case if phones were fungible commodities, but they clearly aren't - otherwise $600 Android phones wouldn't sell at all. It is entirely possible that the premium phone market is here to stay, and that it could expand significantly. 

So, it is possible that we are approaching a tipping point, with the phone business moving into a post-saturation, deflationary environment in which premium phones are a rapidly shrinking market. In this case, each hint of a slowdown is another piece of the mosaic showing the imminent collapse. But it is also possible that Apple will retain its 20% share of smartphones indefinitely, or even grow it, even at a $600+ ASP. Don't worry. It'll all be clear in a few years. 

As an aside, it's not quite clear what all this will mean for Apple, but it should be very clear what it means for any mid-tier Android OEMs...

iPhone market share in the USA: 50% of Q1 sales

An experiment of sorts: today I published a very detailed report for Enders Analysis on the iPhone’s market share in the USA. Enders is a subscription business, so I can’t post it all here, but I’ll be sharing some of the more compelling charts over the next few days. Today: smartphone market share. 

Since the US operators disclose their iPhone unit sales and their smartphone bases, and AT&T, Verizon Wireless and T-Mobile disclose total smartphone sales as well, you can make some pretty good estimates as to where the market is going - far better than relying on panel data, as some of the more widely-quoted stats do. 

So, this is my starting point: 

Roughly 50% of all the smartphones sold in the USA in Q1 2012 were iPhones. This is very different to the global picture: 

Android is outselling iPhone by more than 2:1 on a global basis. But in the USA, Apple is massively outselling Android. That has obvious implications for where (mainly US-based) developers should be placing their efforts. 

Tomorrow, the install base, and what effect expanded distribution has had.