I spent some time thinking about the latest set of data for the U.S. smartphone market. It's no secret that Microsoft (NASDAQ:MSFT) and Nokia (NYSE:NOK) have their work cut out for them in the U.S. Frankly, looking at the numbers it seems unlikely that they will be able to do much more than nip at the heels of the entrenched market share of Apple's (NASDAQ:AAPL) iOS and Google's (NASDAQ:GOOG) Android simply from a sheer weight of the numbers perspective. I also do not think, as I've highlighted before, that large market share in the U.S. is either a near-term goal of Microsoft's or their most likely path to success with the platform.
So, that said, I've run some numbers based on the latest figures from both Comscore, which reports total market share, and Kantar, which reports sales share. First is the good news for Microsoft and Nokia investors, the numbers are rising. Kantar has Windows Phone selling at a 4.1% rate for the 3 months ending in February, up nearly 50% year over year. Comscore's market share data reflects this rise in sale share with a rise in market share from 3.0% to 3.2% in the past three months. The total market expanded at an 8% rate quarter over quarter. So, that breaks down as follows:
# of Units (millions)
Now the bad news. Windows Phone is not rising fast enough to make a dent in the market even though its installed base is rising faster than Android's on a relative basis. While Windows Phone has doubled the rate at which people choose a Windows Phone over a rivals, that number is still just 1 out of every 25 smartphones sold. Now, Nokia CEO Stephen Elop is targeting a 10% market share as his goal.
It's a laudable goal and sounds even reasonable. There's only one problem. To get there Nokia would have to push its sales from around 1 out of every 30 new smartphones in the U.S. - assuming Nokia has 80+% of the Windows Phone market - to 1 in 4. And even then, it will take - at very generous growth rates - more than 2 years to get there. The table below is a scenario I put together to illustrate this point, and this only gets Windows Phone to ~8.5% market share. I have no idea whether this scenario is possible. My goal here is to elucidate the huge first mover advantage that both Android and iOS have in this space
U.S. Smartphone Market Hypothetical Structure (millions)
I'm a fan of the platform and appreciate the work Nokia and Microsoft have done to change the way we look at user interfaces on our phones. Live tiles, strong design choices along with a great use of color make it an engaging experience. But, the truth is that this current hole is a big one and it will take more than just one generation of good hardware to cement the platform's place in the market here.
In Europe, eastern and western, as well as Asia, the growth rates are excellent and the market share numbers are well advanced that of the U.S. with the exception of the other 800 pound gorilla in the room, China. Growth there will need to be on par with what is happening in Europe to become truly bullish on the platform. Without competition from the iPhone on China Mobile (NYSE:CHL) and a full line of Lumia phones to choose from, there is a great opportunity at present.
With Android finally having real competition at all levels of the market we will finally get to see just how loyal many of its users are. The latest smartphone customer satisfaction report from J.D. Power has Apple leading the pack handily, followed by Nokia, Samsung (OTC:SSNLF) and Motorola. BlackBerry (NASDAQ:BBRY) brought up the rear. This bodes well for future growth. Moreover, that study found that 76% of current feature phone users - 42% of which will definitely be upgrading in the next 12 months - will be buying a smartphone.
This is why high-quality budget phones will be so important to determining the next year's growth numbers. I feel very strongly that pay-go and price transparency will play a major role in acquiring these customers. The easy smartphone sales have already been made. This next lot will require more work and lower entry points with better features and service. For Nokia, the Lumia 520 and 720 will be their hero devices, while Samsung and HTC are coming to Sprint (NYSE:S) this quarter and Huawei is bringing the mid-end Ascend W-1 to GSM MVNOs and most likely AT&T (NYSE:T).
The past 3 months through February saw 15% unit sales growth for Windows Phone in the U.S. based on the latest numbers. It will have to double that to begin grabbing market share and prove to developers that the platform is worth their time. With earnings being released on the same day, April 18th is shaping up to be quite a day for Microsoft and Nokia.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I have a Windows Phone.