Latest from Asymco

1. The Samsung hedge: Estimating Bada for Q2 and hence Samsung's Android shipments

   Research 2 August 2011 #Industry #Market · 28 comments

   The number of Bada phones shipped last quarter is not public, however some assumptions can be made that lead to plausible estimates.

   First, we know that Samsung shipped about 3.2 million smartphones in Q2 2010 and that total included Bada and Android (and perhaps even some Windows Mobile).

   Second, we know that there were about 19.9 million smartphones in Q2 2011.

   Third, Canalys published an estimate that Bada grew by 355% y/y.

   So if we knew how many Bada phones shipped in Q2 2010 we could derive the current Bada shipments and also realize how many of the nearly 20 million smartphones from Samsung were actually Android.

   The clue is in an estimate from December last year that suggested that there would about 5 million Bada shipments in 2010. Coming close to the end of the year, and from Samsung directly, we can be pretty sure the figure is accurate.

   Taking this 5 million and spreading it over four quarters could give us enough of an estimate. That makes 1.25 million quarterly units. If we assume some seasonality or increase toward the end of the year, a Q2 figure of 1 million might be more accurate.

   Therefore, applying the 355% growth rate yields a Q2 2011 estimate of 4.5 million Bada shipments and hence about 15.4 million Android devices from Samsung last quarter.

   Considering the increasing importance of Bada to Samsung, it should be clear that Android is not the only source of growth for the company and its transition of feature phones to Bada as well as Android is a key strategic driver for differentiation vis-a-vis low end entrants.

2. Subscribe to Asymco One for full access to our research.

3. Apple share of phone revenues increased to 28%

   Research 2 August 2011 #Industry · 21 comments

   As previously pointed out, Apple reached two thirds profit share in mobile phone vendors among the eight vendors I track. The following charts shows the historic growth in that share and the share of revenues (including 4 quarter trend line). Revenue share increased to 28% in the last quarter.

   

   The share doubled from Q4 2009. I should also point out that it was the highest of all the competitors. The following chart shows the split over time:

   

   The dedicated smartphone vendors (highlighted with segment bars) are now at 47% of total sales, a significant increase from the 6% share they held four years ago. Another remarkable show of entrant power and incumbent weakness.

4. Subscribe to Asymco One for full access to our research.

5. The end of easy growth in smartphones

   Research 31 July 2011 #Industry · 176 comments

   At the end of last year I was saying that the smartphone boom was a tide that lifted all boats. That is no longer the case.

   

    

   But the big story is that there has been a clear non-seasonal counter-cyclical decline in Nokia and RIM's smartphone performance. RIM's steady rise has come to an abrupt halt. Nokia's decline has accelerate precipitously. So much so that Samsung and Apple have overtaken Nokia and RIM and it looks like HTC will overtake RIM within one quarter and perhaps Nokia as well.

   The fortunes of vendors is now clearly tied to the fortunes of their platform choices. Android has a spotty record with Samsung[1] and HTC having accelerated growth with Android, Motorola and Sony Ericsson have not rallied to a similar degree (though they did remain operational). But it's at least very clear that BlackBerry OS and Symbian are now a burden to their owners.

   The fact that not all vendors benefit from a boom indicates that the early, happy days are over. People are noticing that there is a difference between smartphones and are not buying any and all. An era of competition will follow. I hinted that such a shift would happen when a "tipping point" was forecast and that point has been reached in several mature markets.

   The consequences are that weaker platforms and vendors will come under increasing pressure.

   ---

   Notes:

   1. Samsung decided to stop reporting the number of smartphones they sell. They also refuse to report the break-down between different platforms--they sell Windows Phone, Bada and Android devices. The figure I gave to Samsung is 19.9 million units, higher than 19.0 and 19.3 million from other analysts.

6. Subscribe to Asymco One for full access to our research.

7. The Profit/Phone x Phones Sold Chart

   Research 30 July 2011 #Industry · 28 comments

   The following chart shows the current profit distribution between phone vendors with an eye toward identifying volume dependencies. The vertical axis represents operating profit per phone and the horizontal axis the number of phones sold.

   

   The area of each vendor bar is therefore the total operating profit that vendor captured. A vertical (portrait) orientation implies high profitability with relative low volume while a horizontal (landscape) orientation implies a high volume/low profitability focus.

   The other important observation is that bars can also be negative. Those vendors' names are listed below the bars rather than within them.

   You can also compare the chart with the one from last quarter:

   The Rawr Chart | asymco

8. Subscribe to Asymco One for full access to our research.

9. Apple captured two thirds of available mobile phone profits in Q2

   Research 29 July 2011 #Industry · 81 comments

   The major publicly traded phone vendors have all reported results for the second quarter. Based on the data available so far we can begin putting together a picture of the market.

   The first picture I'll draw is usually the last: profitability. The following chart shows operating profit from the sale of mobile phones among the eight vendors I follow (Nokia, Samsung, LG, Sony-Ericsson, Motorola, HTC, Apple, RIM).

   

   This quarter saw a slight sequential decline in overall profit for the sector, but four vendors did not manage a profit from selling phones. Nokia, Motorola, Sony-Ericsson and LG all saw losses. The other vendors split the slightly decreased pie with Apple getting two thirds of it (66.3%)

   This share is up from 57% in Q1 and 50% in Q3 and Q4. Samsung's share went to 15%, though that's not a peak level historically. In Q1 2008 the company was at 21%. RIM was at 11%, a level in a range that has been unchanged for three years. Finally, HTC captured 7.4%, a new high and an increase from 6% since last quarter.  The profit share chart follows:

   

   The ranking chart for profitability follows:

   

   Finally, the "before-and-after" view of profit capture showing the change in profit share over a four year period.

   

    

   The story remains largely unchanged from last quarter: Three companies which captured 11% of the profits before the modern smartphone era started (four years ago!) now capture 84% of the profits. Only one global brand phone vendor selling non-smart voice-oriented feature phones is still profitable however, as we shall see later, the only reason profits still exist for any vendor is due to the strength of their smartphone portfolio.

10. Subscribe to Asymco One for full access to our research.

11. The Verizon small bang

    Research 27 July 2011 #Market · 50 comments

    As Verizon has reported iPhone sales for one and a half quarters, it's time to try to discern the impact on the product. There were several hypotheses floating around prior to the "big bang" of Verizon.

    Some assumed that there would be a large migration away from AT&T and that AT&T iPhone sales would slump. Others that there would be no Verizon iPhones volumes at all because there were so many Android users already converted. There were also suggestions that the iPhone would explode in growth with two major operators carrying it.

    What really happened?

    The first chart shows historic AT&T activation with Verizon activations added. It also shows sales to "none of the above", namely non-US sales of iPhones[1].

    

    AT&T iPhone activations show no significant impact from Verizon and Verizon itself shows a modest start to sales[2]. What did not happen is an exodus from AT&T. We also did not see a rejection of the iPhone by Verizon customers long exposed to anti-iPhone Droid advertising. We also did not see a considerable impact of Verizon on growth.

    Verizon did contribute (4.5 million Verizon iPhone users is nothing to sneeze at)  but the contribution was to a degree that was nowhere near a big bang.

    That was because the real big bang was from the rest of the world. The same data in the first chart is shown below as a stacked area chart and a share chart. Had Verizon not come on board the business would still have grown year-on-year over 100% (and sequentially).

    

    The US activations have been decreasing as a percent of total iPhones sold. Before Verizon came online, the US share was decreasing (from an average of 45% share in 2008 to 33% in 2010). After Verizon, the US continues to slide to an average of 30% share (two quarters).

    

     After waiting nearly four years, American observers of the iPhone could perhaps be excused for their obsession on the impact of expirated AT&T exclusivity. But the real impact is that by the time it came, it was moot.

    It would be a mistake to look upon Q1 and Q2 and say that the explosive growth was due to Verizon or the end of US exclusivity.

    The global market is far greater than the US and the iPhone business has simply grown to reflect that.

     

     

    ---

    Notes

    1. Non-US sales are total iPhones sold minus activations in the US. There is the possibility that some of the unactivated phones were activated on T-Mobile or that there is some delay between purchase, channel inventory and activation, but the time frame shown should smooth out any of the noise.
    2. What we don't know is what was the impact of iPhone sales start on Verizon's other smartphone platforms. Unfortunately, Verizon does not report overall smartphone sales/activations so we can't conclude directly that iPhone has slowed other platforms on Verizon. Some other data (NPD, Changewave, ComScore) do indicate some slowing in Android growth in the US but we have no definitive data to prove it.

12. Subscribe to Asymco One for full access to our research.

13. Visualization of Apple's Income Statement

    Research 27 July 2011 · 12 comments

    This graphic representation of the current and year-ago sources of income and sources of expense for the company shows how the business evolved in the last year.

    The colored segments in the first column are Gross Margin contributions per product for Calendar Quarter 2, 2010. The white segments are cost of sales for those products. These costs are combined in the second column and the operating expenses are shown in the third column, taxes in the fourth and Net Income is shown in the fifth.

    The same information is shown for Calendar Quarter 2, 2011. Click for larger view (1440 x 873 pixels)

    

    The increase in the first columns is the "top line" growth and the increase in the last (fifth) columns is the "bottom line" growth

    Similar charts for the last few quarters are shown here:

    Combating superlatives fatigue | asymco

    Summary view of Apple’s income statement [Updated] | asymco

    Describing Apple’s growth, cost structure, product-level and overall profitability in a self-explanatory chart | asymco

14. Subscribe to Asymco One for full access to our research.

15. Apple has moved on

    Research 26 July 2011 #Market · 36 comments

    When Apple changed its name from Apple Computer to Apple Inc. they signaled that their business has moved on. We can say it's to devices or to mobile computing or to the Post-PC era. To understand that this is not a shift driven only by wishful thinking we can plot the change in volumes for the platform-based devices Apple sells.

    

    The stack of products is shown in an increasing level of mobility. At the bottom is the non-portable desktop Mac, above are Mac portables (laptops) followed by the iPad, iPhone and iPod touch. The mobile computers Apple sells are explosively more popular (and important).

    To gauge importance consider the following chart which shows the unit values above multiplied by the average price they are able to obtain for a picture of the sales mix.

    

    (I also added Peripherals, Music and Software sales as well as iPod (non-touch) for a complete split of revenues).

    Mobile computers are now well above half the revenue base for Apple. Finally, if we consider the contribution to profitability of each product line, we can see how iOS-enabled products (as a proxy for mobile computing) have become the vast bulk of profit creation for Apple.

    

    By this metric, we can see that mobile computing (as opposed to portable or immobile computing) is driving 80% of Apple's profitability. This 80/20 mix of mobile/non-mobile should put aside any doubts that Apple has moved on to be a business oriented around mobility rather than traditional computing.

    This cannot be said for many of Apple's contemporaries. Microsoft derives negligible revenues from mobility. Neither does Intel, nor Dell or HP and even Google's revenue lines don't make mention of mobile income.

    In fact, the only companies which do have mobile revenues as 80% of their income are those dedicated to telecom markets. Namely, Nokia, Motorola, Sony Ericsson, RIM et. al. But, as we shall see in the quarterly mobile market overview, few of Apple's mobile-focused competitors are doing well.

    So Apple is a unique company that has made the transition from one industry to another and, in so doing, captured the bulk of the profits. In passing, I should also mention that the traditional Mac business is still doing well and, by some measures, is capturing the bulk of the PC hardware profits.

    So the key to much of assessing Apple's value and opportunity should be based on this new market (mobile computing) rather than the traditional competitive landscape of PCs and operating systems. The company has moved on, now we wait to see how long before analysis of the company follows.

16. Subscribe to Asymco One for full access to our research.

17. How we do all this will never be the same

    Research 25 July 2011 #Market · 36 comments

    In a new ad for the iPad Apple once again makes the case that the tablet is a good substitute for a PC in a number of use cases (and permits some new ones.)

    We'll never stop sharing our memories. Or getting lost in a good book. We'll always cook dinner and cheer for our favorite team. We'll still go to meetings, make home movies, and learn new things. But how we do all this will never be the same.

    This belief that the iPad "cannibalizes" the PC is a powerful concept. The growth of the PC has certainly been affected. But has the Mac's growth also been affected?

    Tim Cook seems to think so. In the earnings call he said:

    In terms of cannibalization, we do believe that some customers chose to purchase an iPad instead of the new Mac during the quarter, but we also believe that even more customers chose to purchase an iPad over Windows PC. And as I've said before, there's a lot more of the Windows PC business to cannibalize than the Mac.

    If we look at the behavior of Mac vs. iPad, the following chart may be useful:

    

    First off, we can observe that since introduction, iPad has always sold more units than the Mac. Now it's selling more than twice as many units and the revenue from those units is higher than those of the Mac. The other line to look at is the growth (y/y). During the time that the iPad has been shipping, the Mac growth has been declining.

    Yes, it's still growing at five times the rate of the PC market (and 7.5 times the rate of Windows only PCs), but the iPad phenomenon is indeed affecting the Mac.

    With the launch of Lion, Apple is clearly showing that there is dramatic improvement potential in traditional personal computing. But increasingly the improvements are "borrowed" from touch interfaces. Clearly, as the ad implies, computing will never be the same again.

18. Subscribe to Asymco One for full access to our research.

19. Apple's share price (adjusted for earnings and growth) reaches new low

    Research 25 July 2011 #Market · 30 comments

    After Apple reported earnings growth of 125% its share price dropped to a P/E of about 15. This reduction in valuation is part of a trend I've written about for over a year so there were no surprises. The first chart below shows how the stock has traded between increasingly lowered P/E bands.

    As the second chart shows, not only is the P/E ratio declining, but when seen against the trailing twelve months (TTM) average growth rate, the P/E/TTM ratio is now at the lowest since the great recession (around 0.17--a value of 1.0 is a rule of thumb for "fair value" in a growth stock).

    

    Those values include cash. Excluding cash, the P/E as of Friday was 12.4. On a forward basis (my estimate--which has shown be be conservative lately) the P/E is around 7.

    Perhaps some day in the future investors will come around to looking at Apple as a growing company, but there has been no such inclination for over two years. As I've pointed out numerous times, growth and valuation are moving in opposite directions.

    

    The only correlation to the stock price has been found on the balance sheet, not the income statement. Looking again at the relationships between cash and the stock price, we see a clear relationship (r squared of .9)

    

    After a lapse during the first quarter, the relationship that has been in place since October 2008 is returning.

    Note the formula of the trendline which allows some interesting guesses on what the stock price will be. For example, putting $95 in cash per share results in a share price of $500. Let's see if the relationship holds until then.

     

20. Subscribe to Asymco One for full access to our research.

21. A princely sum

    Podcast 20 July 2011 · 146 comments

    Apple's cash and marketable securities increased to $76,156,000,000. The increase was 15% sequentially or $10.4 billion in three months. That's the equivalent of an increase of $11 per share (to a current $81.2/share.)

    The composition and growth of liquid assets is shown in the following chart:

    

    There is little I can think to say about this that hasn't already been said (see last Critical Path show.)

    Except maybe that the amount is now nearly 16% higher than three months ago. And that the amount added last quarter is higher than the amount on hand 4.5 years ago. And that the cash added is higher than Google's overall revenues in the quarter.

    ---

    Footnote:

    In Q1 2009 the company's share price briefly traded at $78. A buyer of shares at that price will have recovered their investment in retained earnings in nine quarters.