34 Comments

Summary:

Google’s Android OS was the big mobile story for 2010, thanks to dozens of new devices launched by the likes of Samsung, Motorola and HTC, leading many to wonder how long can iPhone continue to grow. Unlike the skeptics, I believe Apple isn’t done just yet.

verizon-iphone

When it comes to smartphones, the battle is between Apple, Samsung and RIM as they try to chase down Nokia, currently the largest smartphone seller in the world. According to data released by research firm Strategy Analytics, more than 94 million smartphones were sold in the fourth quarter of 2010.

Nokia, which has started seeing renewed demand for its smartphones, thanks to the release of newer models such as the N9, is not completely out of the woods. The company has failed to get a toehold in the U.S. In Europe too, it’s facing enhanced competition from the likes of HTC and Samsung, which are selling Android-based phones.

However, the story for 2011 is going to be the iPhone. Or rather, how big a market share Apple can get out of the global smartphone business. During the fourth quarter of 2010, Apple logged 89 percent year-over-year growth and now has about 17.2 percent of the total smart phone market.

Neil Mawston, Director at Strategy Analytics, added, “Global smart phone shipments reached 293 million units during full-year 2010, almost doubling from 151 million in 2008 and 175 million in 2009, highlighting the rapid growth of this high-value segment. The big three hardware vendors of Nokia, RIM and Apple were less dominant in 2010, as their combined global market share slipped from 73 percent in 2009 to 67 percent in 2010, mostly due to a spike in Android vendors such as Samsung, Motorola, HTC and Sony Ericsson.

Many believe that with the availability of newer, cooler Android devices (at more affordable prices), Apple might no longer experience the wild growth it experienced in first three years of the iPhone availability.

I kind of disagree and believe  the availability of the CDMA version of the iPhone, which is being sold by carriers in India, China and South Korea in addition to Verizon Wireless, will bring a new growth opportunity for the company. The availability of the iPhone will likely limit opportunities for RIM and Motorola on the Verizon network. With the increasing scale, Apple would also become more efficient and contain costs.

In addition, I don’t believe the Android ecosystem will grow at the expense of the iPhone. What we’re seeing is a shift from essentially old click-and-call, non-touch phone paradigm to a touch-driven, Internet and app-centric mobile interface. This shift means we’re going to see a massive number of old phones being replaced by more modern devices — which means both Apple and the Android ecosystem are going to continue growing — probably at the expense of Nokia and RIM.

Even within the Android ecosystem, the winners are going to be players with scale — Samsung, for example — who are going to continue to gain while others such as Motorola, Sony Ericsson and LG will continue to struggle and eventually find them on the wrong side of history. As I pointed out earlier, the smart phone winners are companies which have scale and are vertically integrated.

According to the Gartner Group research firm, in terms of dollars, Apple is the third largest chip buying equipment maker in the world after Hewlett-Packard ( s hpq) and Samsung: Apple snapped up $12.43 billion worth of chips in 2010. That’s about 65 percent more than the $7.52 billion it spent on chips in 2009 when it was ranked as the No. 4 buyer.

That kind of purchasing power ensures Apple maintains an edge over its rivals, especially as supplies for products such as display components tighten. I guess the only company which is able to (and most likely will) compete with Apple effectively is Samsung, which has a vertically integrated supply chain – it makes chips, memory, displays and even owns manufacturing facilities to assemble devices. (from Apple’s iPad Is Everywhere)

With an average selling price of $625 and 29 percent EBIT margins, Apple has a massive monetary advantage, and the company can afford to introduce a lower priced iPhone model at some point in the future, targeting more budget minded smart phone buyers and thus find new growth opportunities.

Related research from GigaOM Pro (subscription req’d):

  1. Hmm, I think your analisys is blind to basic facts that invalidate much of your argument. For one thing, many of the markets where Nokia dominates outside of Europe simply do not have the infrastructure or resourses to enter the Smart-phone wars (smartphones are still only a fraction of total mobile phone sales). In order for Apple or RIM to take a bite off Nokia’s massive markets, they would need to manufacture a handset that could compete with the ubiquitous Series 40.
    Take this into consideration: in India, a cellphone is simply reffered to as “Nokia”, and for the majority of people in developing markets this also holds true: food, texting and air time are basic needs, surfing and apps are not.

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    1. Hamranhansenhansen Saturday, January 29, 2011

      So you are arguing against the World Wide Web and the progress of technology? It may take a little time, but every phone will eventually have the feature set of the 2007 iPhone. The software is already free, because Apple’s browser core is free and open source, which is why it used in Android and many other devices. There are vendors making these phones very cheaply right now, and they will only get cheaper. At some point, the multitouch display becomes cheaper than buttons and switches. Everything is going to no moving parts.

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    2. I couldn’t agree with you more. The age of the mobile-web is here but its not in certain parts of the world; third world countries do not have that privilege.

      Nokia manufactures phones that offers basic cellphone needs as you mentioned and that’s what accounts for a majority of their profits

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    3. Apple isn’t interested in taking market share from Nokia. Apple is not the kind of company that will ever produce a cheap model for the sake of making a cheap model, nor for the sake of capturing a market. The prices of the iPhone may drop as manufacturing is streamlined, but Apple isn’t going to create a low-cost device to go after that segment of the market. It runs counter to its corporate culture.

      RIM, on the other hand, could be interested in going after emerging markets. However, the real player here will be the inexpensive Android devices. The Android platform is going to enjoy near ubiquity, but the quality of devices will vary quite considerably. In effect, Android is the Windows of smartphones.

      It’s going to be everywhere, and quality will be considerably inconsistent between devices. And, unfortunately, the OS will be worse off for it as well. Nokia is dead in the water at this point – unless it migrates to Android, of course.

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  2. Would you wear a QR code on your t-shirt? Even if it bragged about your iPhone…? http://bit.ly/geTFTw

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  3. Hi,

    I have a couple of questions I would like to understand => of this 293 million smartphone, what is the geographical distribution? where are they concentrated.

    Secondly, a comment about India and China and their CDMA market – its been relegated to minority players in both countries. Please check – China Mobile with TD-SCDMA (there is no TD iPhone), and China Unicom with WCDMA occupy 90% of the 3G market. Keep in mind 3G is being released in china only 1 year ago! starting of 2009. China Telecom which is using CDMA, is really no where to be found in CDMA market! except in voice only phones! (as most valley blogger call gave them a stupid name, dumbphones).

    Also about India, only Reliance now has CDMA in India, Last I checked Indian operators are not giving subsidies and India is a business of open channel retail for mobile phones, packages or deals or contracts are very rare and barely enforceable in India. So I am not sure how many mid 20′s to early 30′s are going to afford to buy a iPhone for 699$ which is like almost one months for well to do techies in that 20s age group!

    So if iPhone get share it will get only outside of India and China as result of releasing CDMA version!

    So guys, please focus only market you know very well – valley and usa! don’t speculate on other countries without even giving it a thought!! Sorry for this, but I have noticed GigaOm has a habit of including other markets without knowing anything about them.

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  4. Also one more comment, In China PC penetration is pretty good. but still majority dont have their own PC and using it via internet cafe, schools etc. similar to India.

    And requiring users to use itunes to activate the freaking device for which you paid 699$ – is kind of ridiculous. I want to power it on and start using! Sorry but this kind of making users slaves works only in USA! and may be a little in europe!

    Who the help knows about iTunes in China and India, (in china may in the 8 big metropolis only – but that also sporadic mac users)…

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    1. Hamranhansenhansen Saturday, January 29, 2011

      Apple activates iPads in-store if you simply ask.

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  5. Apple Turnover Friday, January 28, 2011

    I hope Apple never introduces low-cost model iPhones to the masses. Apple needs to keep doing what it is doing. When an iPhone becomes a year older, just lower the price. If anything, they should offer something like an iPhone Pro for road warriors and those that are willing to pay for special edition version. Leave those cheap-ass smartphones to Android and Nokia users. Good for Google with their world domination of the smartphone market. Let Google’s Android partners keep building cheaper and cheaper smartphones. Maybe they’ll succeed in putting every company not using Android OS out of business. Not every company has to have that type of philosophy. I’d rather Apple stick to high-quality and good customer service and charge a premium for it.

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    1. Rofl, you do realize that Apple essentially sells cheap $200 phones for $600, right? Typical clueless Apple fanboy zombie, mistakingly thinking that being overcharged for overpriced products by your company of choice is the same thing as getting high-quality products.

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      1. Apple attracts the best developers to its platforms, and as most consumers have figured out with the iPhone, in the end that’s all that matters.

        Android devices will always be ahead of the iPhone in terms of hardware because Apple prefers yearly product cycles. That’s indisputable.

        However, iOS is still a goldmine for developers. Furthermore Apple has quietly cultivated a very healthy design and development culture for iPhone and iPad. And that is what is going to continue to drive Apple’s success in the mobile space.

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    2. Hamranhansenhansen Saturday, January 29, 2011

      They already have a low-cost phone for the masses: iPod touch. The $229 model comes out to $9.54 per month over a 2 year lifespan. You have FaceTime, Skype, Safari, email, and hundreds of thousands of other apps.

      Of course the downside is no 3G, and that is a big downside. Adding that to an iPad costs $130 more plus $25/month. That would put an iPod touch 3G at $959 over 2 years, or free-with-contract and $40/month, same price as a feature phone.

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  6. @sranha

    I wonder how well you know the Indian market if you don’t then don’t try to talk as if you know.

    Btw India has a population of 1.3B and has a huge middle class so go figure.

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    1. Hamranhansenhansen Saturday, January 29, 2011

      Generalizing about India and China is hard because even if only a small fraction of India or China has equivalent demographics to the US, that small fraction could be bigger than the entire US.

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    2. Hi Adam,

      My intention is not to oppose your point of view but I think that @sranha is correct.

      Though India is a huge market, Nokia still rules with nice looking and “value for money” phones…

      Iphone was launched with few carriers in India (approx. 2 yrs back) and it met with luke warm response becuase of its price barrier.

      At similiar price of Iphone, an average consumer would like to own a PC in india (still a huge growth market) and Iphone remains a luxury (unlike US).

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  7. “And requiring users to use itunes to activate the freaking device for which you paid 699$ – is kind of ridiculous.”

    This complaint is a version of iPhone fruitcake – there’s apparently one person who thinks connecting an iPhone to iTunes is a chore, and the complaint gets recycled over and over across various blogs.

    Seriously, dude, what part of 50 million iPhones sold in 2010 do you not understand? EVERY one of those phones was activated via iTunes once, but that didn’t seem to stop it’s growth.

    It’s a wonder that you aren’t complaining that you need an Internet connection to download Windows security patches for PCs when Microsoft should take pity on those without Net connections and supply a free patch DVDs each month. It’s 2011, not the 1990s.

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  8. more people chose the many kinds of Android phones over the iPhone, since iPhone is overhyped and overpriced

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    1. Hamranhansenhansen Saturday, January 29, 2011

      Yawn.

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  9. Hamranhansenhansen Saturday, January 29, 2011

    Apparently Apple’s 2011 chip order from Samsung is bigger than what Samsung will make for itself. I think what is happening is the iPod market is taking over the phone market. Apple, Samsung, and everybody else. Modern smartphones are just iPods with phones in them. Huge battery, ARM SoC, flash storage, touch interface, audio video … that is all the same as an iPod.

    Apple’s new touch-based iPod nano was very interesting, because they are extending their iPod OS to have iOS-like features. If they put a phone in there and sold it free with contract, what happens then? Nobody thought they would do iPod shuffle with no display and no click wheel. An iPhone nano could track a few years behind iPhone, adding features from the bigger phone as they go.

    Another interesting idea is an iPod touch with 3G and a $30 data plan and FaceTime, which is VoIP. In other words, an iPad nano. At $229 and $30 per month, you are in the wheelhouse of a lot more users. Now that Apple has no carrier exclusivity, they could explore this. What if this September we see iPod touch 3G on T-Mobile, free with contract and $40 per month for unlimited data?

    Apple seems to have a million options based on the strength of their technology, and the high demand for their products, while everyone else is playing catch-up. Even Android v3 still won’t have a modern GPU-based display layer, like a 2003 Mac and all iOS devices that have existed. And nobody but Apple has mobile native C apps, like a PC. Their technology lead is huge. Microsoft said at CES that in 2 years they hope to have NT ported to ARM, which is where OS X was in 2007.

    And finally, iOS is so sticky. iPhone users will continue to buy iPhones next time out, because it spoils you for other phones.

    So I think you are right, much more growth to come for Apple.

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    1. An iPod touch with integrated 3G (and a corresponding data-only plan) would be compelling – but I’m dead certain that Apple’s agreements with AT&T and/or Verizon excludes such a move.

      You’re bumping up against one of my favorite ideas – a national carrier-sized footprint of wireless data access, regardless of hardware. As much as I would like to see Apple *or* Google pull such a move, I don’t see either of them spending that much cash, or fighting the regulatory battles that would come with it.

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    2. blah..blah..blah.. iPhone sucks, Android stomps all over it

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  10. The iPhone is expensive. So are cars like BMW, BEnz and Porsches. I hope the iPhone remains a classy phone and never become a cheapy. Also, do not say the iPhone isn’t worth it when you have not owned and used one yourself.

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    1. Absolutely agree with don here…
      there are a few things in life which are referred to as: “acquired taste in life”. not everyone should have them… cause then they wouldnt remain a taste… an iphone is such a device. I really hope and wish Apple doesnt do what nokia does: create useless shit devices and think they can rule the world creating phones for the Asian beggars. Absolutely disgusting Marketing campaigns in India, one should see… its like bloody non-sense. Anyways, thats the reason, now they are losing market share and sliding downhill.

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      1. The iPhone a classy device? Are you kidding – you can get for £50 on a two year £35 a month contract here. To be honest, its starting to get a bit of a reputation as the chav phone.

        @Subhasish Ghosh

        Wow! Elitist and racist. Classy!

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    2. I have owned one and it is an excellent gadget but total crap as a phone, very poor sound quaility for voice call, you never really appriciate how poor the call quaility on an iphone is untill you go back and user another phone such as a nokia or samsung. When my contract is up I will be upgrading to something cheaper and better, 2 years ago there was no choice now I have plenty of options available.

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