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Asymmetric Intelligence

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  1. A preview of Apple's performance in Q2

    Research · 54 comments

    In anticipation of the earnings release tomorrow, I prepared a iPad-enabled audio-visual chart-based discussion of my expectation for product-level performance.

    I discuss six topics in a historic context and the reasoning behind my expectations for the just-ended June quarter:

    1. Units by product line
    2. Unit growth
    3. Gross Margin percent (profitability) by product
    4. Pricing power in terms of revenue per unit sold
    5. Contribution to revenues for each product
    6. Contribution to margin for each product (i.e. profitability)

    The discussion is packaged as a "padcast" which means you need to have an iPad and the Perspective App available on the iTunes App store in order to view the content.

    It's available for $0.99 here.

     

  2. How many Lumia phones were shipped in the US?

    Research · 41 comments

    The US is a crucial market for both Nokia and Microsoft's strategies. This importance was highlighted during the launch at CES in January when not one but three CEOs (Microsoft's Steve Ballmer, Nokia's  Stephen Elop, and AT&T's Ralph de la Vega) were on stage to launch the Lumia. Knowing how well this strategy is working would be very useful to understanding how this market behaves.

    My first take on this was when I asked the question How many Lumia phones were sold in the US? The answer suggested through the combination of survey data from Nielsen and comScore[1] was 330,000. The figure is quite small compared to expectations. As it's so extraordinary, it should be supported by good evidence. Unfortunately the methodology used is weak. The figure itself is probably close to the margin of error of such sampling techniques. It would be nice to have another way to calculate this.

    Today Nokia offered another set of data which might help determine how many Lumia phones were shipped in the US. (Note the shipped versus sold distinction. Companies report shipments while surveys nominally measure consumption or usage.)

    Unfortunately, Nokia did not offer specific data on US shipments. What they did offer was:

    • Global Lumia shipments were 4 million in the last quarter
    • Global average selling price was €186 for a Lumia phone
    • North American[2] phone shipments were 600k. This includes all phone types and all operating systems.
    • North American sales were €128 million.

    That's all we have. So how can this help with the question of US shipments?

    As often happens, it helps to look at the data historically. The following charts show North American shipments and sales with the Lumia launch date highlighted.

    While unit shipments were flat, revenues increased significantly. This suggests that we could plot the average selling price of phones in North America (NA) specifically. I did that in the following chart:

    Here the effect of Lumia is clear. The average revenue per phone in the US (blue line) jumped dramatically after the launch. So much so that it actually overtook the average global ASP for Lumia.

    What we need therefore is a way to estimate the "mix" or percent of smart and non-smart phones sold into North America and derive perhaps the US portion of that and then finally try to separate the Lumia from all the smart volumes.

    To help, I plotted the historic ASP for Smart and non-Smart devices as provided by the company.

    Using a simple formula[3] it's possible to derive the mix which is shown as Green and Blue lines in the following chart.

    Getting estimates for smartphone shipments (blue line) is pretty close to Lumia shipments, but we still have to correct for US/Canada split (estimated at 90:10) and Symbian/WP split among smartphones (estimated 50:50 in Q1 and 20:80 in Q2).

    The result is the red line showing US Lumia shipments. The sum of the two quarters then comes to 630k.

    This is nearly twice the estimate from consumer survey data however I would not draw too many conclusions from this. Mainly because there are many assumptions place in both estimates, but also because there is the distinction between shipments and usage.

    However, it might be safe to say that US install base is somewhere between 400k and 1 million users. Is this good or bad?

    It's good because it's progress and there is some growth. It's bad because it's frightfully small relative to the competition. Nokia itself acknowledges the challenge and states that "We believe the Windows Phone 8 launch will be an important catalyst for Lumia."

    It seems that what Nokia needs most today is time. That is a very expensive asset. Perhaps infinitely so.

    ---

    Notes:

    1. A practice neither company would condone, principally because they are competitors, but also because they use different sampling methods.
    2. North America I take to mean US and Canada. Although geographically, Mexico is part of North America it's usually grouped as part of Latin America as a category. I'd like to get this confirmed.
    3. There are a few implicit and explicit assumptions: (a) Global ASPs are roughly comparable with NA ASPs but (b) smartphone ASPs are higher in NA by about 30%
  3. 5by5 | The Critical Path #46: The Next Victim

    Podcast · 6 comments

    We cover the valuation question regarding Apple and tech in general as seen through investors' eyes. This discussion ranges a bit on P/E compression and the psychology of investors--which might change with Apple TV.

    We also look at who is most vulnerable in the ongoing mobile computing disruption and who are the up-and-coming challengers. Finally, I introduce the Perspective app which I used for all my live presentations.

    I'll post more about Perspective in the future as it will be my platform for publishing complex or rich data.

    via 5by5 | The Critical Path #46: The Next Victim.

  4. From bad to worse and from good to great

    Research · 122 comments

    A year ago I noted that Apple could buy most of the mobile phone industry with cash on hand (excluding Samsung's operations).

    Since then Apple's cash has grown significantly and the value of all phone vendors except Samsung has gone down significantly. The following chart shows the year ago and present day estimated market value of the industry participants.

    Phone brands other than Samsung and iPhone have seen a reduction in market value of a combined 47%. That's actually being quite generous since I'm valuing Motorola and Sony's businesses at their acquisition prices. The operations of both those companies have continued to stagnate.

    Based on the same multiple of estimated earnings Samsung grew its value by 157% and iPhone by 114% (note this excludes iPad).

    In absolute terms the iPhone franchise created $244 billion in value while Samsung created $83 billion. The others destroyed $37 billion.

    The good news is that the industry has had net value creation--always a healthy sign that innovation is being valued and absorbed.

    The bad news is that there is vast income inequality. The rich are getting richer and the poor are getting destitute. This is an unhealthy sign. The concentration of power and wealth may indicate a peaking of experimentation and discovery of new opportunities.

    Also noteworthy is that almost all the value from the Android ecosystem is concentrated in Samsung. I did not include Google in this analysis since its mobile is so small as to be not visible in its accounting. A separate analysis of Android economics shows that Google's benefit from the platform is modest. In contrast, Samsung, and Samsung alone, is benefitting greatly. It could even be said that today Samsung is the only Android profit engine.

  5. How many Lumia phones were sold in the US?

    Research · 156 comments

    Nielsen and comScore survey US consumers through different methodologies, however they both try to paint a picture of the smartphone patterns of ownership and consumption.

    I regularly report on comScore's data as it's published on a monthly basis. Nielsen offers updates on a quarterly basis but there is more detail.

    The latest report (for Q2) shows smartphone shares by both platform and vendor. The following graph is a treemap built with the Nielsen data:

     

    The same data is also plotted below as a pie chart:

    I also added the latest comScore mobiLens data in the pie chart to the right.

    Note that both surveys agree in the main on the largest platforms. The difference seems to be within a reasonable margin of error. The details available in the Nielsen data are perhaps also interesting. The various Android OEM shares as well as the division between Windows Mobile base and Windows Phone (7) base could provide some insight. Nielsen's total Windows base adds up to 4.5% while comScore reckons on 4%. Within that total, Nielsen breaks out 3.2% for Windows Mobile and 1.3% for Windows Phone. Within the Windows Phone total, HTC and Samsung are shown as having 0.5% and Nokia 0.3%.

    If we then use comScore's figure for total smartphone users (110 million) then the data would suggest that there are 330k Lumias in use in the US. This would have been accummulated over a sales period of about four months.

  6. Waiting for Godot

    Research · 45 comments

    Gartner has published preliminary PC unit sales for Q2. The data from Apple's Mac sales has not been published yet but based on some estimates, we can draw a partial picture of the personal computer market.

     

    My estimate is that the Windows PC market fell by 1% while the Mac market grew by 15%. Gartner reports an overall flat market. I'll leave out the iPad for the time being, and show the growth of the Mac vs. Windows:

     

    In terms of individual vendors vs. each other, the patterns are as follows:

    It's perhaps a bit early to tell, but if the Windows PC market continues to slow or contract, it may be possible that HP and Dell will cede their market share leadership positions to Lenovo and Acer. Already "Others" account for as many units as HP and Dell put together.

    If we are to believe the analyst community reflects consensus, the industry, in the aggregate, continues to treat the potential for disruption from devices as unlikely. There always seems to be a wrinkle, a quirk, or an exceptional circumstance that is to blame. I won't get into all the excuses given by analysts for the slowing of PC sales but will point out that there's been a series of initiatives put forward by the industry to act as "catalysts" for growth. So far they have not worked. The current expectation is that Windows 8 will reverse this trend.

    Perhaps. But perhaps the relief, if it comes at all, will be temporary.

    [UPDATE: Due to a data error, the drop in Windows was overstated in the initial version of this post as 10%. It's been corrected to a drop of 1%]

  7. The poetry of Steve Ballmer

    Research · 120 comments

    Steve Ballmer July 9th, 2012 on competing with Apple:

    We are trying to make absolutely clear:
    We are not going to leave any space uncovered to Apple
    We are not.
    No space uncovered that is Apple’s
    We have our advantages in productivity
    We have our advantages in terms of enterprise management, manageability
    We have our advantages in terms of when you plug into server infrastructure in the enterprise.
    But we are not going to let any piece of this [go uncontested to Apple]
    Not the consumer cloud
    Not hardware software innovation
    We are not leaving any of that to Apple by itself
    Not going to happen
    Not on our watch.

    Steve Ballmer, July 2010 on competing with Apple's iPhone and iPad:

    Today, kind of I'd say one of the top issues on my mind, let alone on your minds, one of the top issues on my mind, is, hey, there is a category that we've had Windows on for actually a long time. We've had Windows 7 on, tablets and slate machines now for a number of years, and Apple has done an interesting job of putting together a synthesis and putting a product out, and in which they've -- they sold certainly more than I'd like them to sell, let me just be clear about that.

    We think about that. We think about that in competitive sense. And for us, then, the job is to say: Okay, we have a lot of IP, we have a lot of good software in this area, we've done a lot of work on ink and touch and everything else -- we have got to make things happen. Just like we had to make things happen on netbooks, we've got to make things happen with Windows 7 on slates. And we are in the process of doing that as we speak. We're working with our hardware partners, we're tuning Windows 7 to new slate hardware designs that they're bringing them to market. And, yeah, you're going to get a lot of cacophony. There will be people who do things with other operating systems. But we've got the application base, we've got the user familiarity. We've got everything on our side if we do things really right.

    So, we think about these devices and I don't think there really is one size that fits all. I don't think everybody wants a slate. I've been to too many meetings with journalists who'd spend the first 10 minutes of the meeting setting up their iPad to look like a laptop...

    Laptops actually are well designed for a lot of things. I notice they are all light. In fact, if you look around this room, they all weigh zero pounds, because they're just sitting on the table, you are not holding them and you don't set them up when you want to type, and they prop up -- they have good attributes. But some people are going to want that form factor. Some people are going to want probably a screen that they take with them and maybe they throw it back into the keyboard. Some people are going to want a device that is screen and keyboard that spins around for inking purposes. Some people are going to want things very light or very cheap or very expensive or very powerful. All of those things are going to be important, and we've got a push right now -- right now -- with our hardware partners.

    ... We're coming full guns. The operating system is called Windows. No -- there's -- let me be unambiguous. A new Windows Phone for screen sizes that, let me just say, are, you know, sort of bigger than three or four inches -- the answer is Windows Phone. We are in the game. We're all in the game today with Intel architecture machines. We've got improvements coming from Intel. We're driving forward. We're unambiguous about that. Now, where we'll go and what's going to matter -- I said also in my remarks that in no way will we allow hardware to be the impediment. We will embrace what we need to embrace over time in terms of hardware evolution.

    But you say to me are we going to see slate? Yes. What processor are they going to have? They are going to have an Intel architecture processor at least in any foreseeable future. Are they going to run Windows? Yeah. Will it be tuned? Yes! And we are going to sell like crazy. We are going to market like crazy. We have devices that will run more applications, that have as much content, that have anything you want on the planet.

    And we have an ecosystem of developers that know how to write applications for that thing. Believe me, as I think everybody knows, you can buy two PCs for the price of one iPad -- two netbooks today for the price of one iPad. So, people are sitting there over-celebrating BOM costs and blah, blah, blah. We and Intel can get our job done and know how to make money. There's good money for everybody in the ecosystem to go make.

    I talked about power. We've got work we have to do with hardware partners, with Intel. There's certainly some work to be done there. And over time where we go is where we go. But at least in the timeframe that which anybody does these models, for example, let's go. Let's go and we'll be in market as soon as we can with new devices, whether that's, you know, really, really soon or just really pretty soon. I'm going to wait until I have the device that I want to hand you and tell you to go use, or a collection of devices. I think that would be the appropriate time to say it is time. But it ain't a long time from now. Pardon my English...

    On the netbook, nor the slate, if it's two weeks one way or the other, or it's a month, I mean, let's not speculate, let's merely say when you get your Windows 7 machine, it will print. Let's just start with that. I mean some people actually like to print every now and then. Ours will print. I'm not trying to say that other guys aren't doing good work. I'm not saying that. We've got to ‑‑ come on, every day. Every day you come to work you have to prove yourself, prove yourself, prove yourself. We'll prove ourselves. ...

    I relish the competition. I relish holding up those couple of machines today that I wanted to hand you. It's not today. I'll relish doing it tomorrow. Bring on ‑‑ particularly if with the application base, with the tools that we have, with the user understanding and momentum and everything going on, we can't compete with ‑‑ particularly whatever the weird collection of Android machines is going to look like, shame on us.

    Apple is Apple. They're always a little tougher to compete with. They're a really good competitor, and tend to be a really high-priced competitor. People worried a little bit about our bottom costs. They've got a lot of margin in those devices, which creates a lot of room in which to operate. Okay. We've competed with Apple before. I talked about that.

    We've been competing with Macs, and I notice in this audience you get one profile for the 93 percent of people almost who agree with us every day about laptops. We're going to have things that should be interesting to them. That doesn't mean it's not going to be exciting. That doesn't mean you're not going to have to pay attention to shareholders. It certainly means we've got to pay attention. But, at the end of the day kind of what makes life kind of interesting, kind of fun, and you're going to see very interesting things.

    Steve Ballmer, January 2007 on competing with Apple's iPhone and iPod:

    Right now, well let’s take phones first Right now we’re selling millions and millions and millions of phones a year. Apple is selling zero phones a year. In six months they’ll have the most expensive phone by far ever in the marketplace and let’s see. You know what’s so special...? Let’s see how the competition goes.

    In the case of music and entertainment players Apple absolutely has the preeminent position We said we want to be in this market. There’s a lot of reasons why. There’s synergy with other things that we’re doing. We’ve got some neat innovations. In particular, what we’re doing with community, with wireless networking. And we came into a market in which they’re very strong and we took, you know, about, by most estimates, I would say we took about twenty, twenty-five percent of the high-end of the market. We weren’t down at some of the lower price points but for devices 249 dollars and over we took, you know, let’s say about twenty percent of the market. So I feel like we’re in the game. We’re driving our innovation hard. Ok, we’re not the incumbent. He’s the incumbent in this game but, uh, at the end of the day he’s gonna have to keep up with an agenda that we’re gonna drive as well.

  8. Why the iPhone matters: 8 questions for Horace Dediu

    Research · 6 comments

    John Cox of Network World:

    We asked him eight questions about the five-year impact of Apple's iPhone, and he replied from his iPad.

    Q: Five years ago, people actually began to get their hands on the Apple iPhone. There were other smartphones; no prior phone products from Apple; there was no App Store, no apps "ecosystem." So what accounted for its initial success with consumers?

    Read my answer and the entire interview here:

    Why the iPhone matters: 8 questions for Horace Dediu

  9. Building and dismantling the Windows advantage

    Research · 327 comments

    When the Macintosh was launched in 1984, computers running the MS-DOS operating system were nearing a dominant position in the market. Having launched in 1981 as the IBM PC, they were quickly cloned and four years later "PCs" were selling at the rate of 2 million/yr.  The Mac only managed 372k units in its first year.

    In other words, PC was outselling the Mac by a factor of nearly 6. It turned out to be a high point. The ratio by which the PC outsold the Mac only increased from there.

    When Windows 95 launched in 1995 it negated most of the advantages of the ease of use of the Macintosh and the PC market took off. The ratio reached 56 in 2004 when 182.5 million PCs were sold vs. 3.25 million Macs.

    During the second half of the 90s it was already clear that Windows won the PC platform war. Windows had an  advantage that seemed unsurmountable.

    I should point out that this ratio between platforms is not just an exercise in arithmetic. It's a measure of leverage. The advantage of dominance is realized in an ecosystem which creates lock-in and additional economies in marketing. Ecosystems become self-perpetuating and there is a tendency toward monopoly. The stronger you are, the stronger you get.

     Then, in 2004, something happened.

    Although PC volumes continued to grow, they did so more slowly and the Mac grew faster. What coincided with this was the emergence of portable computing. The MacBook became easily differentiable as a "better" laptop. It was not faster, did not have more storage or any key metrics being used to sell PCs. It was just better as an integrated product. The integration manifested itself through a sense of quality and robustness as well as intangibles like aesthetics and "feel". I wrote about this a few years ago.

    As a result the Mac began to whittle down the advantage Windows had. The ratio  of Windows to Mac units shipped fell to below 20, a level that was last reached before Windows 95 launched. It's as if the Mac reversed the Windows advantage. This was an amazing turnaround for the Mac.

    But the story does not end there.

    If we consider all the devices Apple sells, the whittling becomes even more significant and the multiple drops to below 2. Seen this way, Post-PC devices wiped out of leverage faster than it was originally built. They not only reversed the advantage but cancelled it altogether.

    Considering the near future, it's safe to expect a "parity" of iOS+OS X vs. Windows within one or two years. The install base may remain larger for some time longer but the sales rate of alternatives will swamp it in due course.

    The consequences are dire for Microsoft. The wiping out of any platform advantage around Windows will render it vulnerable to direct competition. This is not something it had to worry about before. Windows will have to compete not only for users, but for developer talent, investment by enterprises and the implicit goodwill it has had for more than a decade.

    It will, most importantly, have a psychological effect. Realizing that Windows is not a hegemony will unleash market forces that nobody can predict.