Tag Archive for 'Windows Mobile'

App Store announcements

Published on May 22, 2009 in Industry. Closed Tags: , , , , , , , , , , , , , , .

It’s been a busy week on App Stores with significant announcements from no fewer than Vodafone, Sun and Qualcomm, plus an analyst update on the Ovi Store from Nokia.

Vodafone

1st out of the blocks was Vodafone, who announced the opening of some network APIs, enabling developers to include them in their applications.

The scope of the APIs is currently:

  • location – mainly of a individual person but it may be possible to get bulk data as would be used for traffic measurement or in a site such as CitySense
  • billing – either for a sale through its forthcoming App Stores, or sale within an application (new levels of a game etc).

On their own, these obviously don’t make an App Store, but Vodafone was clear that this is part 1 of a bigger project and the next phase will involve the launch of “a number of” App Stores to serve the different markets where Vodafone operates.

The scope of the APIs will expand and, although there were no announcements, there are some obvious areas such as messaging, social networking and navigation (Vodafone owns Wayfinder).

The announcement was pitched in terms of enabling developers to write for and then sell to Vodafone’s 289m customers.  While that is an impressive number, it’s clearly not a good idea for each operator to do its own APIs, and this work is part of the Joint Innovation Lab – a collaborative project with Verizon, China Mobile and Softbank in Japan – who have a combined user base of over 1bn.

Vodafone also says it is working closely with the GSMA in the recently announced OpenAPI initiative, but that it needed to go to market now rather than wait for the outcome of that initiative.

Sun

Arguably slow for not having announced plans before now, Sun has said it will announce its Java App Store next month.

Playing the numbers game, Sun estimates that Java is in use by ~1bn users on several billion terminals -  computers, mobile phones and other devices. As with all these estimates, though, this is no more than a veneer because Java (especially on mobile phones) has been allowed to become fragmented – the opposite of what it was supposed to be – and no single application could address that user base.

With that in mind Sun appears to be focusing first and foremost on Java and JavaFX for the PC desktop.  And here the pitch is to enable developers to get direct to the desktop, bypassing “potentially hostile” browsers.

However, the volumes available on mobile are clearly also a large attraction for Sun, though mobile use of Java is the most fragmented and difficult area to serve properly.

Sun looks set to try to position itself in this area as a true independent, cross-platform player with scale that none of the others can match.

That may have some pull with developers but I’m not sure enough consumers know enough about Java for this positioning to work with them.

That means Sun will need to invest heavily in raising consumer awareness of its App Store, or will need to find a way to get it embedded on large numbers of devices.  A further requirement will be to find a way of getting a link to the App Store into the millions of existing phones that already use Java.

None of those is easy or cheap to do.

Qualcomm

Qualcomm’s announcement of Plaza Retail was not widely picked up in the press, but was probably the most important one of the week.

Qualcomm has, through its BREW platform, been enabling mobile operators to sell applications into mobile phones since 2001. Along with Handango it was one of the pioneers of this and it has paid out $2bn to developers since then.

It has now evolved this system into its Plaza Suite, consisting of:

  • Plaza Mobile Internet – a content management and delivery system for Widgets
  • Plaza Retail – a complete infrastructure for operators to set up their own App Store

The pitch to mobile operators is all about having a system that copes with the complexities of running an app store, and dealing with a large array of suppliers and handset models. These include different software platforms, channels, retailers, languages, currencies and settlement options.

It has 3 main components.

First is Connection – the part that serves the developers, handset vendors and content providers who provide applications.

Second is the Management Center – where the mobile operator builds App Stores and fills them with applications. Here Qualcomm offers significant flexibility with segmentation, personalisation, bundles and promotions and analytics. A key part of the personalisation is to use a recommendation engine (technology from the acquisition of Xiam last year) to promote relevant apps to the user.

Third is the Storefront – the part that the end user sees. This offers operators the ability to set up  branded store(s) with a consistent look and feel across devices, that can be managed and updated over the air.

The stores can be viewed in a browser or a widget and Qualcomm is also offering a Plaza handset client.  Initially this is available for BREW / Java plus Blackberry, but there are plans to expand this to include Android later this year, and Symbian, Windows Mobile and Palm during 2010.

Qualcomm has done well to come to market with a fairly comprehensive system at the time when a large number of operators will be looking for an App Store.  Most operators already have some aspects of what Plaza Retail provides running – for example – music downloads, but may not be able to scale those across other forms of content.

The main issues for Qualcomm in trying to take this out beyond its existing 60 or so BREW customers will be to serve the full variety of handset platforms quickly, and not to let operators’ earlier perceptions of BREW influence the discussions strongly.

Nokia

At an analyst event Nokia provided some further detail on its Ovi Store – first seen at Mobile World Congress in February this year and due for launch later this month.

Like Qualcomm, Nokia is majoring on recommendations as a differentiating factor. Unlike Qualcomm (at least for now), the Ovi Store will serve all types of content including music, ringtones, wallpapers, games and other applications. This addresses one key criticism of Nokia having different channels for games, music and other services.

Nokia has written a separate Ovi Store application for its S60 phones, but will use an evolved version of the widget system developed by the Widsets team on S40. These will be embedded on new phones, of course. And in order to make them available on existing phones, Nokia plans to make it so that the next time the user opens the existing Download application, it gets converted into the new App Store application.

Nokia said it will launch with 8 operator deals in place, and 20,000 items on the store for sale to 75 handset models.

The store supports operator billing, although operator billing may not support all price points on the store – so other billing options are also present, e.g. credit cards.

Developers set the prices and decide what billing mechanism to use.  If they use operator billing, the operator takes a cut and the remaining revenue is split 70:30 in favour of the developer.

One criticism of S60 phones is the sheer number of questions, prompts and confirmations you need to respond to if you try to download something.  Nokia has set the Ovi Store up so that these are heavily streamlined for an application bought through the store, aiming for single-click downloads.

Interestingly the Ovi Store supports ad-funded applications, but Nokia currently does not have big plans for using this, saying that the whole area is still rather experimental.

The Ovi Store looks to be a highly capable piece of infrastructure.  In theory the Ovi Store could support non-Nokia phones and enable Nokia to compete directly with Plaza Retail.  When asked about this Nokia said “no plans”.

Where’s the user in all of this?

It’s clear that users of non Apple or Blackberry phones will shortly face an array of App Store options and potential confusion.  But actually this is no different from walking into a mall to buy a pair of jeans.

I expect we’ll fairly quickly see a lot of information surfacing about the quality of the different App Stores, the way they work, the prices across them and so on.

I also think that the recommendation side will start to become important quickly, and the quality of the recommendation algorithms will become an important success factor.

Without having tried the various Apps Stores, it’s obviously not possible to assess how good they are on this.  But, from what’s come out so far, they’re generally set up with the retailer’s needs as the highest priority so that they can organise promotions, design categories, set up the “aisles” for good product placement, segment their user base and so on.  i.e all the traditional retail functions for marketing and selling to your users.

So far so good.  But users who have a bad, frustrating or disappointing experience with an App Store will tend not to visit it often or ever again.  That means the recommendation engines may have only 3 or 4 visits per user as input before they have to work well enough to give users what they want. That’s a tall order.

So I think we’ll also need to see more functionality built in for the user, so that they can take control of the experience more.  Things like RSS feeds (Apple has made a start on these), setting up your own categories of things you’re interested in, responding directly to recommendations (as you can with Pandora’s music service) and so on.

Handset vendors in Q1 ’09: signs of improvement but it’s too early for optimism

Published on May 1, 2009 in Vendors. Closed Tags: , , , , , , , , , , .

Now that the vendors have all reported Q1 results we can take stock of how the recession is affecting the handset market and how the players are faring relative to each other.

My view at the end of Q4 was that the market would get somewhat worse before getting better, and this is what has happened so far.

Volumes fell sharply

Market estimates for Q1 cluster around 250m units, down from around 300m in both Q3 and Q4 last year.

The graph shows the sum of Nokia, Samsung, LG, Sony Ericsson, Motorola, ZTE, Apple, RIM and HTC. I am not currently able to get Huawei numbers.

As I mentioned with the Q4 results, the last quarter of ’08 did not have a seasonal spike, so was a good 40m units down on normal trends.  Q1 has taken a further 50m phones off the market, roughly 20% decline, when the seasonal norm is -13% in Q1.

Within that the influence of the Top 5 (Nokia, Samsung, LG, Sony Ericsson, Motorola) is slowly declining as the key smartphone vendors (Apple, RIM, HTC) have grown, although the Top 5 still take 89% share of this group.

Individually the vendors had very different fortunes from Q4:

  • Nokia:                -18% to 93.2m
  • Samsung:          -13% to 45.8m
  • LG:                      -12% to 22.6m
  • Motorola:           -23% to 14.7m
  • Sony Ericsson:   -40% to 14.5m
  • ZTE:                    -30% to 10m
  • RIM:                    +16% to 7.8m
  • Apple:                -13% to 3.79m
  • HTC:                   -35% to 2.4m

All segments of the market, including smartphones, declined in volumes during Q1 and almost all the vendors took a hit. Latin America and MEA were the worst hit regions, although all but Asia Pacific were down.

According to various vendors the major reason for the decline in volumes was not so much a fall in end user demand, but a reduction of inventories in the sales channel.  Nokia estimated that the level fell from 5-6 weeks of stock to 4-5 weeks, i.e. 16-20% of volumes. Of course, once Christmas and the Chinese New Year were past, there was also a seasonal dip in consumer demand.

There is a feeling that the inventory reductions are now done and that any further reduction would mean that the channels cannot function effectively. The good news is that this should mean Q2 is much more stable.

It’s now clear that Sony Ericsson’s meteoric decline is at least as much to do with its portfolio as market conditions. And, although Motorola’s figures deteriorated further, it accidentally regained 4th place in the rankings as Sony Ericsson suffered.

The smartphone segment was especially interesting.  According to Nokia estimates smartphone volumes shrank 25% in Q1 from 48m to 36m.

  • RIM did very well, seeing success with the Bold and Curve 8900. It said that it had seen the worst of the channel inventory reduction in Q4 so had a better time in Q1.  It took significant share in the smartphone segment.
  • Apple gained a lot of publicity for producing good corporate results but the iPhone only followed seasonal norms, even though Apple continued its geographic expansion. Nonetheless it did pick up some market share.
  • Nokia, though disappointed with its reduction in volumes, gained market share. It is enjoying success with the 5800, shipping 2.6m of that device alone in Q1 and more flagship devices are due shortly
  • HTC suffered delays on new products on top of the market decline

If Nokia’s estimates are correct then Nokia, RIM and Apple grew their share from 55% to around 70% of the segment – and that means it was a bad quarter for Windows Mobile for which figures are not reported (but can be glimpsed in HTC’s volumes).

Average sale prices show a mixed picture

Within the big 5 vendors ASP stabilised for all except Nokia.  That is not necessarily a good thing.

The stable ASP comes from 2 things: a reduction in average price for smartphones (we know this from RIM, Apple and HTC), and a change in the product mix towards higher end phones.

The second of these is the more worrying.  Part of it comes from reductions in regions where lower priced phones ship in large volumes.  But part also comes from lack of mid-range sales.  Several vendors are still guilty of having poured their effort into high-end phones and neglecting the mid-range.  This is changing now, with LG and Nokia particularly, but the effects are still visible.

Nokia’s ASP continued downward – slightly ahead of trend – as it felt price pressure across the whole range.

The smartphone vendors RIM, Apple and HTC all saw small (a few %) declines in ASP thanks to increased competition in the segment.

Revenue

The big losers on revenue from Q4 08 were Sony Ericsson (-40%), HTC (-33%), Nokia (-25%) and Motorola (-23%).

Rates of decline like these have seen other industries reaching for Government bail-outs in recent months.  Not true in mobile so far.

Samsung and LG were helped, as in Q4, by weakness in their home currency and both posted only a small decline.

Having said that, Samsung is actively making it difficult to extract handset revenues now since its re-organisation at the end of last year. The telecoms division reported only a small drop in revenues, but using ASP x shipments shows that Samsung’s phone revenues dropped by 15% – greater than seasonal norms and much nearer to the performance of the other major vendors.

RIM lifted its revenue 28% from Q4 off the back of strong shipments.

Apple’s sales slid 15%.  Apple takes iPhone revenue over 24 months, but reports its cash sales figure.  That figure would have been slightly better, but for the fact that (like last year) it stopped recognising revenue on new iPhone sales in mid-March when it released the software development kit for the new version of its iPhone operating system.  It will resume revenue recognition when the new software starts shipping – understood to be some time in June.

Profitability

To the industry’s credit, the profitability picture shows that the early steps the handset vendors took to reduce costs are starting to pay off and that profitability in handsets is stabilising. With a couple of notable exceptions.

Nokia in particular did well to stabilise its operating margin in the face of a sharp volume and revenue decline. LG’s margin has held up thanks to seasonally normal shipments and a slightly higher ASP. I don’t believe Samsung’s improvement – it is based on the telecoms division’s margin because no figure is reported for handsets. HTC and RIM are both slipping from their early 2008 highs, but are still generating enviable margins. Motorola has sort-of stabilised its margin, but in an area that no-one wants to visit … except that Sony Ericsson is sliding at alarming speed into the same territory.

The harshest test here is to look at average operating profit per phone. And there are three levels running in the market at the moment:

  • RIM and HTC, focusing on higher end devices, are in the €45-60 per device band.
    RIM lifted its figure slightly in Q1, HTC took a 14% hit.
  • Nokia, LG and (if I’m right about their figures) Samsung are generating around €6 operating profit per device. Nokia was down slightly, LG up slightly, Samsung up a healthy jump from €1.5 in Q4
  • Motorola and now Sony Ericsson are losing €25-26 for every phone sold
    Motorola has been dropping since late 2006 and is still sliding. Sony Ericsson had a catastrophic Q1, continuing a very steep slide since Q4 2007, and taking them down to the same level.

Where next for Q2

There are some good signs in all this.

First it looks as though the market has now stopped falling in an uncontrolled way, and that Q2 should be altogether more stable than the last half year.

That will be true unless consumer demand sags significantly. There seems to be a growing mood of optimism on this, mainly thanks to the recovery of the stock markets in the last couple of months – maybe the downturn is nearly over?

I personally think it would be reckless to plan on this basis, but it will be good to adjust to a new reality around current levels.

Second, the vendors are all scaling their businesses down and it’s starting to work for those with a sound position.

In fact Samsung has publicly said that it now sees a good opportunity to take market share in 2009 and plans to “navigate the downturn at full throttle” by launching lots of new products, especially in the low- and mid-tiers. This is good fighting talk but it could become difficult if currencies swing against them.

Both Sony Ericsson and Motorola have cut costs further, but not enough to be profitable.  Both are betting on volume-led recoveries during the rest of 2009. As I have said before, this looks optimistic and neither has any room in its strategy for anything to go wrong.

Given that volumes and margins are slipping in the very busy top-end smartphone segment, and that Nokia is still hugely dominant at the low end, I believe the rest of 2009 will be won or lost in the mid-range.

That area is increasingly being populated with smartphones – attractive but more expensive to build and support. Plus you really need an App Store and some services to get the most out of them.

None of the vendors is today really good at producing mid-range smartphones, as well as selling consumer applications and providing attractive consumer services to go with them. Nokia is going there fast; rumours suggest Apple may start to bring the iPhone down the range mid-year. Others are not there yet.

Qualcomm at Mobile World Congress

Published on March 11, 2009 in Vendors. Closed Tags: , , , , , , , , .

This is a late final post from Mobile World Congres to cover Qualcomm, who had a big presence at the show.

One of their main messages was that the growth of cellular data is pushing the industry into investing for capacity as the first priority over speed at all points of the supply chain. And many of their announcements reflected that.

Another important direction in its product line was to provide smartphone chipsets at lower cost, supporting the move by most handset vendors to push smartphones down the price points.

The third key announcement was the smartphone chipset deal with Nokia, covered in a previous post.

On the capacity side Qualcomm announced its 8XXX family of chipsets which provide a progression of higher data rates on mobile broadband from 28 Mbits/s to the phone (and 11 Mbits/s up from the phone), through 42 Mbits/s to the phone (11Mbits/s up) using HSPA+, and on to a 4th generation “LTE” chipset due for production in 2011. The LTE chip is pin-compatible with its predecessor, so handset vendors can design their phones now and upgrade to LTE later. It also announced a Femtocell (home access point with a cellular radio inside) based on HSPA+ for sampling in H2 2010.

In Qualcomm’s view operators will deploy HSPA+ and LTE primarily in traffic hotspots to increase capacity and enable operators to provide an improved and more consistent user experience, rather than getting into a speed race with each other.

With the higher speeds come improvements in the applications processing that the chipsets are capable of, with HD video encoding and decoding at 1080p as a key areas.  This echoes announcements by other players such as TI at the show.

On the cost saving front it announced its MSM 7227 chipset, due for shipment in 2010, supporting Windows Mobile, LiMo and Android operating systems and enabling mass market smartphones at <$200. This is important, if not as soon as many would like, because smartphone capabilities are being pushed down the range quickly now and do incur higher bill of material costs.

For me, though, one of the most interesting aspects was seeing Qualcomm giving Its Mirasol displays more publicity at the event.

Mirasol is a technology that reflects light off the display, creating colours in the same way that a butterfly’s wing does. Unlike an LCD or OLED display, once an image has been written to a Mirasol display, it requires very little current to sustain the image on the screen. And, because the display works with reflected light, it gives more consistent contrast in a range of lighting conditions than normal phone screens, so needs less support from the backlight.  Together these two things mean that the power budget for the display can be reduced drastically – claimed to be around a 90% saving.

To date Mirasol displays have only gone into production in monochrome, but are used in a variety of devices.  The prize, of course, is to get high volumes in colour displays. Althought current colour samples shown at MWC are not yet as vivid as as LCD and OLED displays, they are a significant improvement on those from last year, and the technology is clearly progressing.  Qualcomm is building a plant to produce colour displays of up to 4″-5″ and will start production later this year.

It was also able to announce its first major phone vendor – LG – as a customer for Mirasol although no timescales and few details were given.

If Qualcomm can get Mirasol right it should be in a very strong position to serve not just phone vendors, but a wide range of consumer electronics devices, opening up a substantial new business.

Sony Ericsson unveils new strategy at MWC ’09

Published on February 24, 2009 in Vendors. 2 Comments Tags: , , , , , , , .

Sony Ericsson’s press conference at Mobile World Congress last week disappointed quite a few people for having so few phone announcements in it.  But it did have 1st details of the company’s revised strategy.

Expectations were set by last year’s bumper announcement of 9 new phones. But this year SEMC annnounced only two new phones, although it said that of course there are others due out this year that it was just not announcing that day including an Android device.

The two new phones are:

  • W995 – video powered Walkman – a new multimedia slider top-end feature phone, familiar proprietary software, 8.1 MPixel camera, 2.6″ screen, good integration with Facebook and blogging software, with a range of ways for media to get into and out of the phone, due out in H1 2009
  • IDOU – a new top-end smartphone, based on Symbian software, with a new Sony Ericsson user interface, 12.1 MPixel camera, 3.5″ 16×9 touch screen, due out in H2 2009

Both phones set out to unite Sony Ericsson experiences previously split between Walkman, Cybershot, messaging- and gaming-optimised devices. According to Steve Walker, VP of Product Portfolio, a significant segment of people liked the idea of the branded experiences but didn’t see why they had to choose one or the other.  In doing this Sony Ericsson is following the path Nokia took with the N95 two years ago, later also trodden by Apple and Samsung.

This is not just a defensive move by Sony Ericsson. It is also consistent with the new strategy, which Sony Ericsson explained like this.  The objectives are:

  • secure its position and customer base
  • find new revenue opportunities, especially with services
  • sustain its brand position (a “loved” brand)
  • evolve the brand to become “the communication entertainment brand”

The last bit is part of what SE now describes as “Entertainment Unlimited” in which communication and entertainment are not just 2 functions in the phone but, thanks to good integration, have a multiplier effect so that the whole is more than the sum of the parts.

Impenetrable jargon?

Certainly. But it does incorporate the growing notion that social networking is like a social economy in which the more you share, the more you get back. You need to take an active part to get the most out of them, i.e. communications and sharing of content (entertainment) are tightly linked.

In practice SE plans to address this by:

  • uniting the experiences into single devices
  • improving the sharing of experiences by allowing easy up- and downloads of various forms of media
  • broaden the connectivity by doing more with DLNA

On DLNA the company launched its MediaGo software which is aimed at upgrading the sharing experience in the home.  It allows file transfer to and from your PC / server and takes care automatically of different screen sizes, DRM rights etc. It enables you to share media with your PS3 and other DLNA devices over WiFi, though details of this are not available yet.

MediaGo is apparently one output of a project called Sony United which runs across the various divisions of Sony and is aimed at pulling the user experiences together.

On services Sony Ericsson’s strategy will be to:

  • be the best at integration with the handset
  • provide backwards compatibility, so earlier phones can take advantage of new services
  • collaborate with operators

It announced plans for a Summer launch of PlayNow Movies, a new subscription service allowing users to download movies through the PC onto the phone.

Analysis: In assessing this we need to remember that Sony Ericsson is in financial trouble. Although it has set out plans for saving money and is enjoying a good run with the X1 and C905 Cybershot, it was losing €11 per phone shipped in the last set of results.

I buy the “Communications Entertainment” notion and agree that consumer behaviour is pushing quickly in that direction, so Sony Ericsson is doing the right thing here. But it’s clear that other vendors are also onto this.

Having said that I buy it, I also believe that this direction will force all vendors into complete re-write of the core functions of the phone – the Contacts, Messaging, Calendar and Gallery at least. And I also think that re-writing these should bring a big change in the philosophy of the user interface (UI).  In a later discussion Steve Walker broadly agreed with this line of thought, although current announcements give no clues about where Sony Ericsson is taking it.

It’s also good to start seeing more of the linkage with other parts of Sony Corp.  Along with Samsung, Sony should be one of the big and agenda-setting players in home networking and DLNA, which it is not today.

Where I am less convinced is in seeing only top-end phones announced from Sony Ericsson. This year we’ll see the top end very crowded indeed and smartphone functionality pushing down the range.  Sony Ericsson has not yet shown any response to this.

I also dug a bit deeper into the costs of running with multiple operating systems (its own OSE, Windows Mobile, Symbian and Android).  Steve Walker’s response is that having a choice of these allows a company like Sony Ericsson to focus less R&D on the core of the OS, and more on the user experience.

That may be right, but Sony Ericsson now has its own UI on OSE (as well as the Sony cross-media bar), a different one on Windows Mobile, is developing a different one again on Symbian for the IDOU and will need something on Android to differentiate from the large number of expected Android launches later this year.

Is it wise to have 4 incompatible “differentiated user experiences” across different software platforms? Is there any move to harmonise them? What are the extra costs of developing and maintaining these (especially if we’re heading into a major re-design soon)? Not clear at this stage.

Sony Ericsson is still uncomfortably dependent on a few hit models, and has very little wriggle-room. It really cannot afford to put a foot wrong at this stage.

Mobile World Congress ’09

Published on February 24, 2009 in Industry. Closed Tags: , , , , , , , , , , , , , .

It’s proving harder than I expected to round up MWC 09 – the mobile industry’s biggest trade show – this time around.  This is partly because I spent most of my time either in small meeting rooms with no windows or rushing to the next small meeting room with no window. Not enough time to browse. It’s also partly because there was no single overriding theme of this year’s conference – instead there was progress on a large number of fronts.

Actually I think that last point is a good thing. The cellular industry could rightly be criticised for the way it  jumped from Next Big Thing to Next Big Thing through the early part of this decade, without spending long enough on each to get it set up correctly, see consumer behaviour adapt and build up a reasonable business.

One of the strongest themes this year was, unsurprisingly, smartphones with lots of support from the applications, App Stores and services that go with them.

We saw smartphone announcements or launches from no fewer than Nokia, Samsung, LG, Sony Ericsson, HTC (with Vodafone), Huawei, ZTE and Acer. These announcements stretched from the super high end (Sony Ericsson IDOU with a 12 Mpixel camera) all the way down towards the low end of the mid-range (Nokia 6303 Classic at €135).

Android-powered smartphones were less in evidence than many had hoped for although there were announcements from Samsung, HTC, Huawei, and Acer while Sony Ericsson said it would announce Android phones later. It’s now clear that H2 this year is when we’ll see more.

Windows Mobile 6.5 was launched, sporting several improvements to the UI, the menu system and a much-needed overhaul to the browser. No phones will be available using it until Q4, though. In spite of the slow evolution and rumours of its uncertain status within Microsoft, Windows Mobile is still commanding support with LG announcing that it is majoring on the platform, Acer and ZTE both launched a number of WM devices.

The Symbian Foundation demonstrated its momentum by announcing 14 new members including GPS chipmaker SiRF, MySpace, HP, Qualcomm and SanDisk. It also picked up a €500m loan from the European Investment Bank.

App Stores were in evidence with announcements from Nokia, Microsoft and China Mobile. Symbian  mentioned that they are also doing considerable work in this area behind the scenes on the back-end – “App Warehousing” on behalf of other companies who may run their own retail store including Symbian apps. The Nokia store, interestingly, will be built on recommendations – a nice differentiator if they can make it work well. We didn’t end up with a mall full of App Stores out of the show, but it’s clear there’s a lot more to come in this area during 2009, leading to a messy mapping across handset vendors, software platforms and developers.

One of the key drivers behind the development of smartphones and core phone software is of course social networking.  It was good to see the INQ1 walk off with the Phone Of The Year award, showing that you don’t have to have a smartphone to do this stuff well. It was also very interesting to see other related developments, for example:

  • Ericsson Multi-Media making several moves in this area to provide back-end support for operators’ in interacting with social network services
  • Nokia’s beta version of Contacts on Ovi, which is today frustratingly limited but points clearly towards a whole new approach to handling your social network from your phone (more on this in a later blog)
  • Neustar shifting its ground from instant messaging to supporting a richer variety of communication types, feeding a presence-enabled contacts book in the phone
  • Sony Ericsson announcing its new strategy based on the philosophy that the combination of communications and entertainment (through increasing levels of sharing) is more than the sum of the parts

As a result of social networking I think we are at the start of a profound set of changes in the way that phones work, with the biggest impact to be felt in the core phone functions and the user interface.

A few other key items from the show:

  • Verizon announced the winners of its contract awards to roll out the new LTE network – big winners were Alcatel-Lucent and Ericsson, with Nokia involved in the core network too.
  • The GSMA set a target date of 2012 for a universal charger (based on micro-USB connectors), with support from 17 companies – about time too, consumers would say
  • Several approaches to contactless charging were on show – the Palm Pre with inductive charging and Qualcomm with magnetic resonance
  • Qualcomm’s Mirasol displays got a bit more airplay with an announcement that a new fab is being built later this year to move into volume production with colour displays, and another from LG that it is committed to working with Qualcomm to bring Mirasol displays into phones
  • TI – who showed their mini DLP projector on a reference design last year – lined up a number of real products that were already using it

And finally – the recesssion.

On the Monday morning at the start of the show it was eerily quiet and the signs were not good for a strong turn-out. However, it picked up and I understand – from talking to the GSMA – that numbers were strong. It looks as if people made shorter trips to the show and that means the big losers would have been the Barcelona hoteliers, whose rates were just silly.

It was really good to see that the cellular industry is not sinking to its knees under the economic conditions.  In fact the opposite seems to be true.  Large operators and the GSMA joined in saying that cellular is one of the few industries that can help lead countries out of recession – although they were light on details of how that might happen. Of course there’s some positioning going on here, with major decisions on regulation and spectrum looming in most areas.

But I also discussed this theme with a couple of mobile banking companies (Fundamo and Redknee) and they put the view that there’s nothing like a good recession for triggering reviews of legacy systems to see if lower cost ways of serving the population can be found.  In their opinion we should see many opportunities for mobile players to make big strides in helping other industries during the coming years.

Either way the message from the industry was that it must not slow down its growth plans.

Samsung Q4 08: loss-making for the first time

Published on January 23, 2009 in Vendors. Closed Tags: , , , , , , .

Samsung’s results today tell a familiar story as recession hits demand and profits weaken.

Overall the company booked net sales of KRW 18.45 tn, up 15% over the year but down 4% on Q3. Operating profit continued its slide from KRW 1.02 tn in Q3 to KRW -0.94 tn, the first time Samsung has ever reported a quarterly loss since it started quarterly reporting in 2000.

For handsets Samsung has been coy this quarter, saying only that shipments were up “in the range of 2%” sequentially and, as usual, not giving operating profit figures. This means it shipped roughly 53m phones, which is growth of 14% over the year.

The average sale price fell 10% sequentially to $122, which took revenues to KRW 3.21 tn. This is year on year growth of 32%.

Sales were down in all divisions except Telecom (mostly handsets). Telecom was also the only division that made an operating profit, although that was down 69% sequentially to KRW 0.16 tn. This left an operating margin for the division of just 2%.

For the year the company grew its revenues by 15% to KRW 72.95 tn, while operating profit sank 30% to KRW 4.13 tn.  Handset shipments for the year were almost 197m, just shy of the 200m target the company had set. Revenues grew 28% to KRW 23.58 tn and the Telecom division’s operating income rose 10% to KRW 2.37 tn.

The company surprised no-one with its explanation of the Q4 performance, saying, ”The global economic slowdown had an adverse effect on consumer purchases of electronics goods in the fourth quarter.”.  The outlook for performance to get worse during Q1.

Earlier this week the company announced a big re-organisation and management shake up in response to the slide in performance.

Analysis: In handsets the company has been on an impressive charge over the last two and a half years, steadily scaling the business up, producing more winning models, broadening the portfolio and picking up market share relentlessly and quickly. It has overhauled Motorola for the #2 spot and pulled out a big lead from Sony Ericsson and LG.

To its credit Samsung continued to grow shipments during the latter part of last year, doing well for such a broad-based supplier to hold volumes slightly better than flat, unlike Nokia which saw a dip in Q4.

Samsung did see particular weakness in developed markets with a lack of holiday period demand, and also weaker sales into channels in some emerging markets because of credit issues.

Offsetting those it saw strong demand for touch-screen and smartphones, as well as mid-range cameraphones in emerging markets.

In Q4 Samsung’s average sale price (ASP) fell 10% (though it rose slightly in € terms),  which is partly due to the mix of products shifting towards the lower end, partly currency related and also partly down to competitive pricing pressure.

In H2 of last year some competitors accused Samsung of buying market share and sacrificing profit to do so. The company said that – although handset sales were up – they were lower than expected, but there was a large increase in SG&A for the group.

The competitors also said that “economic gravity will apply to them eventually” and we are seeing that happen now.

The handset group’s operating profit has been in decline all year, with operating margin sinking from a healthy 16% at the start of the year, to 8% in Q3 and now to 2%. This might be sustainable if other divisions were profitable and could subsidise the growth, but they are not.

The company’s average profit per phone dropped from €6 to €1.62, not as sharp a decline as LG experienced, but still taking it down to dangerously low levels.

So what to expect for 2009?

Like everyone else, Samsung expects the handset market volumes to shrink by 5-10% in 2009 but reckons it can grow its shipments to over 200m, lifting market share to around 17%. To achieve this it plans to:

  • Continue to expand in smartphones, adding Android to its existing line up of Windows Mobile and Symbian S60 software platforms. Interestingly its earnings release shows that it also believes subsidies will rise on smartphones in 2009, which is questionable
  • Strengthen relationships with carriers in developed markets
  • Use its 3G portfolio position to compete more strongly in China and India as they roll out 3G networks
  • Strengthen its low-end portfolio in order to defend and build volumes in emerging markets.

It is also starting to move away from just being a hardware vendor, having recently set up a developer forum, and is exploring opportunities in services.

These are all good things to do for a company trying to build market share and chase down Nokia. But you get little sense from Samsung of what choices have been made in this climate and, importantly, what they have decided not to do. I would be surprised if it can afford to do all these things during 2009, and I would expect significant rationalisation of the portfolio in some areas.

Another key factor for 2009 will be the re-organisation, which splits the company into 2 major divisions. One is Device Solutions, responsible for the semiconductor and LCD businesses. This will be headed by existing CEO Lee Yoon-woo.

The other is Digital Media and Communications which brings together TVs, mobile phones and other consumer electronics devices. It will be headed by GS Choi and – finally – it holds out the hope of greater integration across the product lines.

Finally? Well, when you think about how people use their media across consumer electronics devices, there are not many companies who are in a really good position to provide a high quality and consistent user experience across a wide range of devices. They are Sony + Sony Ericsson, Samsung and, to a lesser extent, Panasonic.

Frustratingly with Samsung you have the impression that their divisions have not even discussed the idea, never mind done anything about it. As a result  people who have made most headway in the area (though not really a lot) include Sony, Nokia, Microsoft and lots of smaller companies such as Sling Media. Hopefully we will now see Samsung get hold of this.

But embarking on that joined-up thinking across a wide range of product lines will not be easy at a time when demand is collapsing and your profits have evaporated.

Sony Ericsson loss-making for Q4 08

Published on January 21, 2009 in Vendors. 1 Comment Tags: , , , , , , .

Sony Ericsson reported its Q4 and 2008 results last Friday, and they’re not good.

It shipped 24.2m phones, down 21% year on year and 6% on Q3.

Average sale price was €121, flat year-on-year but up on Q3 thanks to higher-end new products and currency movements. That showed through in net sales which rose 4% on Q3 to €2.9bn, but were down 23% over the year.

But gross margin collapsed to 15% thanks to higher component costs, foreign currency movements and material write-downs. Higher R&D also affected operating income which was -€133m (-5% operating margin) excluding restructuring charges of €129m.

For the full year 2008 Sony Ericsson shipped 96.6m phones, down from 103.4 in 2007.  Its revenue was €11.24bn, a drop of 13% on 2007, while its operating profit was -€113m (-1% margin) having fallen from €1.54bn (11.9%).

President Dick Komiyama said that the market has been greatly affected by the downturn and described 2008 as a “tumultuous year” with a “very challenging fourth quarter”. He also said that the previously announced “alignment” programme (restructuring) was on track and that Sony Ericsson would seek a further €180m per year in cost savings, without incurring any further restructuring costs beyond those already announced.

Analysis: Last quarter I thought Sony Ericsson had stopped the rot, although I did say that demand in Q4 was a big question mark. It’s now clear that Q4 was harsher than expected, but not all of this is recession related.

On the new products side there is some good news. Sony Ericsson paid tribute to the positive contribution in its sales from the C905 Cybershot 8 Mpixel phone – a class leader – and the Xperia X1.  I’ve heard very mixed stories about the X1, and we understand that Sony Ericsson will not be working with HTC for the X2, but it clearly made some impact.

Less good news then must come from other devices launched during the year by Sony Ericsson, especially in the mid-range.

The mid-range of phones has dipped a lot because of so much attention on top-end devices in 2008. Not enough attention has gone into the portfolio at the €150-200 price points.

Sony Ericsson did launch some mid-range devices in the year, but clearly nothing that provides a solid upgrade path for those who bought their Nokia 6300 (or similar) 15-18 months ago. In fairness Sony Ericsson is not the only guilty vendor here.

The company said that consumer demand suffered a rapid deterioration in Q4, but this is not wholly convincing. I have spoken to a few operators who said that (in Europe at least) consumer demand only really fell right at the end of the quarter – they claim they would have sold more if they’d had a stronger mid-range portfolio.

Sony Ericsson has made its own move into services with its PlayNow plus service and PlayNow arena music store. The execs declined to give any revenue figures for these but did say they had made a positive contribution in Q4.

Looking at the regions there is a very mixed picture. Sony Ericsson had earlier announced a big push into N.America as part of its 2008 strategy and this had some effect with revenue growing by 24% to €2.56bn in the Americas region. But this €0.5bn gain failed to offset losses of almost €2bn in EMEA (18% drop to €6bn) and Asia (24% drop to €2.7bn).

The costs were hit by restructuring charges, higher component costs for top-end phones and high turbulence on foreign exchange. Together with lower volumes, this hit the margins hard.

The restructuring programme aims to save €480m per annum. Here Sony Ericsson is being cleverer than Motorola because – at current sales levels – this would be profitable. But only thanks to the additional savings announced this time around.

Dick Komiyama said that SEMC would now have an aggressive push into the high-end from here on. This is on the basis that the high-end consists of several product segments and that Sony Ericsson’s brand positions them well to play there.

The company has joined the Open Handset Alliance and is planning an Android phone during 2009. It has said it will stick with Windows Mobile in at least some of its Xperia range. And it also proclaimed support for Symbian.

His comments have been interpreted as Sony Ericsson giving up on lower price-tiers, even though he was at pains to deny this. It’s more a question of emphasis in the R&D, driven by the aim to get back to good margins.

It’s certainly right for them to have a strong presence in the smartphone sector, something Sony Ericsson has missed since the P910. But I have three concerns about the timing of this:

  • The smartphone segment is very crowded, and is getting more crowded. It is also very expensive to play in and heavily dependent on success in the collapsing US market
  • Supporting 3 complex operating systems is no small undertaking – even if 2 of them are “free”. No-one is claiming economies of scope here. Sony Ericsson’s R&D has already risen 18% in 2008 and will need to go higher to make a good go of it
  • Vendors will find that operators are less willing in this economic climate to subsidise expensive phones to the degree we have seen over the last 2 years

I would have expected a more tempered statement on smartphones, with a stronger commitment to the mid-range – here the company said only that it would be “more focused”. For example it might be a good idea to try creating a truly large market for PlayNow plus and arena, looking to work with operators and give Nokia a hard time after its lack of success with Comes With Music.

Mr Komiyama said that Sony Ericsson’s estimate of the world market for 2008 was 1.19bn phones, up 6%.  He believes the market will get worse in the 1st half of 2009 before starting on a recovery after that. Overall he expects the market to shrink 5% by volume in 2009.

Mr Komiyama also said that one key cost saving option they still have up their sleeve is to exit some geographic markets.  He made it clear that they are not currently planning to do this, and gave no priorities on it.