Sector Overview: Handsets 11 comments
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An IDC report released last week said that the mobile phone market would slow down in 2009, with mobile phone volumes expected to decline 1.9% due to the global economic crisis. However, the converged device market is still expected to grow, although at a slower pace of 8.9% in 2009. IDC expects the handset market to recover by 2010, with the converged device market expected to return to 24% growth and mobile phones to about 5% growth. Let’s take a closer look.
In its release, IDC said that the downturn should not last beyond 2009. However, with emerging markets maturing, it expects that mobile phone market growth will not reach the levels experienced prior to the decline.
U.S. and Worldwide Mobile Phone Shipment Growth by Device Type, 2008–2010
| Region | Device Type | 2008 | 2009 | 2010 |
| USA | Converged Mobile Device (Smartphone) | 75.7% | 3.1% | 28.2% |
| Traditional Mobile Phone | -9.8% | -11.6% | -8.8% | |
| Total Market | -0.3% | -8.7% | -0.7% | |
|
|
| ||
| Worldwide | Converged Mobile Device (Smartphone) | 26.9% | 8.9% | 24.0% |
| Traditional Mobile Phone | 4.6% | -3.5% | 5.0% | |
| Total Market | 7.1% | -1.9% | 7.7% |
Source: IDC
In another report, Gartner says that smartphone sales in Q3 were weak at 36.5 million units, up just 11.5% versus 15.7% growth in the previous quarter:
Company | 3Q08 Sales | 3Q08 Market Share (%) | 3Q07 Sales | 3Q07 Market Share (%) | 3Q08- 3Q07 Growth (%) |
| Nokia | 15,472 | 42.4 | 15,964 | 48.7 | -3.1 |
| Research In Motion | 5,800 | 15.9 | 3,192 | 9.7 | 81.7 |
| Apple | 4,720 | 12.9 | 1,104 | 3.4 | 327.5 |
| HTC | 1,656 | 4.5 | 1,315 | 4.0 | 25.9 |
| Sharp | 1,239 | 3.4 | 1,535 | 4.7 | -19.3 |
| Others | 7,626 | 20.9 | 9,643 | 29.4 | -20.9 |
| Total | 36,515 | 100.0 | 32,753 | 100.0 | 11.5 |
Source: Gartner
What is striking from these figures is the tremendous market share gain by Apple (AAPL), which tops my Top Handset Stocks list. From just 3.4% last year, its market share has grown 327% to 12.9%. Clearly, the subsidized price and international launches, apart from the user interface, OS and enterprise features have helped the 3G iPhone gain handset market share. Though competitors are coming up with touch screen models, they don’t seem to match the simplicity of the iPhone’s UI quite yet. Recent earnings coverage is available here. The stock is down almost 50% from last year and is currently trading around $89 with a market cap of about $79.5 billion. It hit a 52-week low of $80 on November 20. Speculation, however, runs rife about Steve Jobs’ succession planning (or lack thereof).
Another strong performer has been Research in Motion (RIMM), whose market share grew 82%. Over the past year, RIM has been trying to strengthen its presence in the consumer market, and currently about 45% of its BlackBerry customer base is non-enterprise.
RIM reported its third quarter results on Thursday. Its Q2 earnings coverage is available here. Revenue for Q309 was up 66.3% y-o-y and 7.9% q-o-q to $2.78 billion on shipment of 6.7 million units. The total BlackBerry subscriber account base now stands at 21 million, up about 14% q-o-q. Net income was $396.3 million, or $0.69 per share versus $370.5 million, or $0.65 per share last year. Adjusted net income was $477.3 million or $0.83 per share. Analysts expected earnings of $0.81 per share on revenue of $2.83 billion. RIM ended the quarter with $2.49 billion in cash.
RIM released its touch screen model, Storm, with Verizon (VZ) last month, and there were quite a few technical problems with the release. Although these have been solved with a software update, there have been stories of exceptionally high return rates. However, Verizon has gone on record to say that Storm has the lowest handset return rate. Earlier in the month, RIM had lowered its guidance for Q3, therefore, Q4 guidance was a pleasant surprise for investors.
The company expects Q4 revenue between $3.30 and $3.50 billion and EPS in the range of $0.83-$0.91 per share. Analysts estimate $3 billion in revenue and EPS of $0.83. The stock has fallen over 60% over the year and is currently trading around $38 with a market cap of about $22 billion. It hit a 52-week low of $35.76 on December 2 after RIM lowered its guidance.
OS | 3Q08 Sales | 3Q08 Market Share (%) | 3Q07 Sales | 3Q07 Market Share (%) | 3Q08- 3Q07 Growth (%) |
| Symbian | 18,179 | 49.8 | 20,664 | 63.1 | -12.0 |
| Research In Motion | 5,800 | 15.9 | 3,192 | 9.7 | 81.7 |
| Mac OS X | 4,720 | 12.9 | 1,104 | 3.4 | 327.5 |
| Microsoft Windows Mobile | 4,053 |
11.1 | 4,180 |
12.8 |
-3.0 |
| Linux | 2,622 | 7.2 | 2,884 | 8.8 | -9.1 |
| Palm OS | 780 | 2.1 | 383 | 1.2 | 103.3 |
| Others | 361 | 1.0 | 345 | 1.1 | 4.6 |
| Total | 36,515 | 100.0 | 32,753 | 100.0 | 11.5 |
Source: Gartner
Let us now look at the market leader, Nokia (NOK) whose share has declined by about 3%. Its iPhone challenger, Tube, just doesn’t seem to have any differentiating features to stop its share slide. Although Nokia is not willing to lower its prices, it should at least work on innovating its products and the OS. In July, it bought Symbian, but even Symbian’s market share is sliding. From 63.1% last year, its share is down to less than 50%. It has N97 lined up for release in 2009, which hopefully, should deliver the goods. Recent earnings coverage is available here.
It is currently trading around $16 with a market cap of about $59 billion. It hit its 52-week low of $12.08 on November 21.
Palm (PALM) also reported its Q2 results on Thursday, and they were disappointing. Revenue declined 45% to $191.6 million. Net loss widened to $506.2 million or $4.64 per share, the company’s sixth consecutive quarterly loss. Excluding charges, net loss was $80.2 million or $0.73 per share. Analysts expected losses of $0.36 per share on revenue of $228.1 million.
Although the success of Centro seemed to help Palm in its turnaround early in the year, Centro sales have slumped due to stiff competition from the low-priced 3G iPhone, as well as from RIM. It has one last hope, its new OS, Nova, due for launch next month. It has been more than a year since Jon Rubinstein joined Palm as executive chairman. There are high hopes for the man who brought the iPod to life, and next month we will know where Palm is headed. The stock is trading around $2 with a market cap of around $241 million. On December 2, it hit a 52-week low of $1.14.
There are two likely acquisitions in the sector in 2009: Palm and RIM. Dell (DELL) needs a handset business, and may acquire one of the two companies. Another possible acquirer is HP (HPQ). It will be interesting to track the evolution of the industry which will most likely become the biggest provider of computing access to the next billion.
Disclosure: None
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This article has 11 comments:
I would just like to point out the iPhone App Store, because it's, to use this overused phrase, a game-changer. Apple has positioned iPhone not as a typical mobile device, but rather as a software platform that can be modified however the user wants to use it. I think that you can't miss this development because it's where everyone will want to be in 2 years, and Apple is already there.
Apparently Apple has an unsatisfied and highly vocal customer in Walid, who is a fervent Nokia supporter. Hopefully they will develop technology that's worthy of your passion, but I wouldn't bet on it given their general complacency.
I guess your last attempt at this wasn't overt enough, huh?
Say...why can't Dell contract with HTC just like Palm does?
Oh...nevermind!
i can only add that it's all about the OS and the itunes store and apps...and an innovative instrument that isn't really a phone, but rather, a computer in your pocket. most of the people i give a gift to want an itunes gift card...i was happy to oblige since i own stock in the company. their ages are from 8 to 68! it's a lousy economy and market, but Apple will make it...probably the others will through 2009, but not as well.
On Dec 23 02:31 PM who wrote:
> I truly don't believe most owners of smartphones are used to their
> max functionality, hence its not about specs but more about the kool
> factor.
Should be good for Nokia!
If Nokia continues to copy the iPhone long enough they may eventually come out with something close to an iPhone killer. Maybe one that's a bit thinner than the present brick they're trying to pass off an iPhone contender. Nokia makes some gorgeous handsets, but they should stick to cramming in as many hardware features as possible and label it a wonderfully full featured handset. Just stay away from saying it's as good as an iPhone.
www.youtube.com/watch?...
On a recent posting on the Scobleizer blog, Robert Scoble made some comparisons between the iPhone and the N97
1. It does 16:9 video. The iPhone doesn’t even do video. So, how can you go to a Daft Punk concert and record it to taunt your friends?
2. It has a 5 megapixel camera. The iPhone only has 2, and the quality isn’t even close. The camera also has a dual LED flash, so you can take pictures in the dark where the iPhone can’t.
3. I can type three Facebook status messages on the N97’s nice QWERTY keybord in the time that I can type two on the iPhone.
4. It does copy and paste, so you can copy URLs to send to your friends. The iPhone can’t do that.
5. It has replaceable batteries so you can charge up three batteries and Facebook for days, while the iPhone needs to be hooked back up to the wall for recharging after a few hours.
6. The GPS device does turn-by-turn and has a built in compass, so you’ll get to your parties faster than with the iPhone, which doesn’t have a compass and doesn’t do turn-by-turn.
After some testing and usage of the phone all the reviewers can't help but sing the praise. They can't get enough of the N97 which is not only going to be a good looking phone it will also stand out with the high-end build.
On Dec 23 07:58 PM Constable Odo wrote:
> That's right! Nokia blows...
>
> If Nokia continues to copy the iPhone long enough they may eventually
> come out with something close to an iPhone killer. Maybe one that's
> a bit thinner than the present brick they're trying to pass off an
> iPhone contender. Nokia makes some gorgeous handsets, but they should
> stick to cramming in as many hardware features as possible and label
> it a wonderfully full featured handset. Just stay away from saying
> it's as good as an iPhone.
> www.youtube.com/watch?...;feature=related<br...