RBC Dominion Securities Inc. Mike Abramsky (Analyst) (416) 842-7840 mike.abramsky@rbccm.

com Paul Treiber, CFA (Associate) (416) 842-7811 paul.treiber@rbccm.com

Wireless Industry
The New World Order
Smartphones – and Challengers - To Take Global Share
We believe smartphones represent the next wave of computing, and are truly “3C” devices – embodying the convergence of communication, computing, and content. In this report, we size the smartphone market, which we view as large, nascent, and underpenetrated. We also forecast the vendor landscape; predicting vertically integrated “challengers”, like Apple, RIM, Palm, and possibly others, will take significant market share from some incumbent cellphone, PC, and consumer electronics vendors. Others that, in our view, are positioned to benefit include: 1) carriers that “get it”; 2) smartphone suppliers/partners; and, 3) emerging/transplanted web, software, content, and media businesses.

August 18, 2009 This report is priced as of market close August 17, 2009 ET. All values in U.S. dollars unless otherwise noted. For Required Conflicts Disclosures, please see page 90.

Smartphones: The Next Wave of Computing. We believe smartphones represent the next wave of computing, leading to mobile experiences both consumer and business users crave. Unlike tethered TVs, PCs, and desktop phones, smartphones offer the convenience of going everywhere and, as such, may become the next web, a mass medium, the principal way millions communicate, email, browse the Web, compute, listen to music, play games, watch TV/movies, get news, stream radio, interact, transact, do business... and, in some ways do all of these better. Smartphone Market: Huge, Nascent, and Underpenetrated. We are raising our smartphone forecast due to: 1) the expected global shift by millions upgrading to smartphones for email, browsing, applications, and content; 2) smartphones’ potential to take market share, not only from voice and/SMS cellphones, but also from PCs, TVs, consumer electronics, and Internet markets – collectively representing over 2 billion users. We are raising our smartphone penetration forecast to 35.1% of global handsets or 504 million units (395 million prior) by calendar 2012. Additional revenue upside may come from new services (carriage fees, advertising, subscriptions, transactions, etc.) and revenues shifting from traditional media (TV, newspapers, web, etc.). Data is Hard: Challengers to Dominate. Due to important differences from the PC, cellphone, and Internet markets, iconic smartphones are difficult to make, distribute, sell, and support. Thus, we predict a select group of challengers will dominate the smartphone market, given their deep vertical integration (e.g., software/ hardware/ service ownership) and “special sauce” through which they create unique, iconic smartphone experiences – i.e., making complexity simple. We believe successful challengers may double or triple their revenues by 2012. Some Incumbents to Face Challenges. We believe some incumbent cellphone/PC/consumer electronics companies (e.g., Nokia, Motorola, Dell, HP, Sony, Sony Ericsson, and LG) will face challenges and lose market share competing in the smartphone space – held back by technology, cannibalization, and organizational, customer, and shareholder barriers. These issues are not insurmountable; other incumbents may successfully evolve and compete. Raising Price Targets. The shift to the next wave of computing will likely develop over the next several years. In our opinion, the emerging leaders in the smartphone market such as Research in Motion Limited (NASDAQ: RIMM; $70.72; Outperform; Above Average Risk), Apple Inc. (NASDAQ: AAPL; $159.59; Outperform; Above Average Risk), and Palm, Inc. (NASDAQ: PALM; $13.23; Outperform; Speculative Risk) represent compelling investment opportunities which warrant investor attention. We are raising our price targets on RIM from $100 to $150, on Apple from $190 to $250, and on Palm from $18 to $25, justified by increased market shares which, as visibility improves to the huge smartphone opportunity, offer upside to financials and potential multiple expansion.

Wireless Industry

August 18, 2009

Table of Contents
The New World Order.................................................................................................................... 3 The Rise of the Mobile Data Consumer ...................................................................................... 15 The Global ‘Data Gap’.................................................................................................................... 19 Mobilization of Business ................................................................................................................ 21 Sizing the Smartphone Market.................................................................................................... 23 Huge, Nascent, Underpenetrated .................................................................................................... 23 Consumer versus Business.............................................................................................................. 25 International Smartphone Forecast ................................................................................................. 27 Smartphone Market Segmentation ............................................................................................. 33 Challengers To Dominate Smartphone Markets........................................................................ 37 Some Incumbents To Face Challenges........................................................................................ 49 Vendor Share Outlook.................................................................................................................. 57 Apple............................................................................................................................................... 58 RIM................................................................................................................................................. 59 Palm ................................................................................................................................................ 60 HTC Corporation ............................................................................................................................ 61 Nokia............................................................................................................................................... 62 Samsung.......................................................................................................................................... 63 Motorola ......................................................................................................................................... 64 Sony Ericsson ................................................................................................................................. 64 Other Vendors (PC, Phone, etc.)..................................................................................................... 65 Mobile OS Share Outlook ............................................................................................................ 66 Google Android .............................................................................................................................. 67 Microsoft......................................................................................................................................... 69 Symbian .......................................................................................................................................... 70 Other Platforms............................................................................................................................... 71 Smartphone Market Profitability................................................................................................ 72 RBC CM Smartphone Margin Outlook .......................................................................................... 74 Smartphone Market Scenario Analysis ...................................................................................... 76 Raising Targets ............................................................................................................................... 78 Derivative Smartphone-Related Markets ................................................................................... 83 Companies Mentioned .................................................................................................................. 84 Company Descriptions.................................................................................................................. 84 Glossary ......................................................................................................................................... 85 Required Disclosures .................................................................................................................... 90 Disclaimer....................................................................................................................................... 92

2 Mike Abramsky

August 18, 2009

Wireless Industry

The New World Order
“We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” - Roy Amara, engineer, futurist The Next Wave of Computing. As profound as the historic technology shift from mainframes to PCs, we believe smartphones (connected mobile devices with 2G, 3G, 4G, Wi-Fi, etc.) with advanced PC-like features, QWERTY input, unique form factors, personalization, advanced software, integrated and third-party applications, represent a transformational evolution in the technology landscape – the “next wave of computing”. Smartphones have the potential to unleash novel, rich, computing experiences – enhanced with the convenience of mobility (location, communication, awareness, presence, proximity, and immediacy) – leading to the next level of consumer computing, the next level of doing business. Smartphones: Converged Devices. Smartphones offer improved ways to communicate and connect (email, instant messaging, social networking, multimedia messaging, etc.); browse and search the Internet with the richness of a desktop; entertain (music, movies, games, pictures, videos, etc.); interact and collaborate (blogs, MySpace, Twitter, Facebook, Flickr, etc.); organize life and work (calendar, contacts, notes, PIM, etc.); transact (search, browse, shop, buy, bank, etc.); find and guide (location-based applications, local search, directory services, mapping, etc.); stay informed (news, alerts, weather, traffic, etc.); mobilize the office (corporate email, corporate applications, private branch exchange (PBX) integration, mobile desktop, etc.) and do thousands of things we haven’t yet thought of or foreseen. Advances in network and handset technology are allowing smartphones to deliver on the promise of “converged” portable computing devices, with high-resolution, interactive displays, longer battery life, faster processors, greater storage, multimodal wireless technologies (2G/3G, GSM/CDMA, Wi-Fi, Bluetooth), media features (higher quality cameras, speakers, music players, etc.) and other features (GPS, etc.).
Exhibit 1: Smartphones: The Next Wave of Computing
• Hardware – Fast processor, multimodal wireless voice/data technology (3G, 4G, Wi-Fi, etc.), highresolution screen, QWERTY input, touchscreen, high capacity memory and/or SD card, high-resolution camera, headset jack, GPS, Bluetooth, other (accelerometer, ambient light), voice/data integration features (contact/phone integration, email/web/phone integration, etc.), sealed or removable battery. Software – Data-centric operating system, UI, powerful, personalizeable, third-party application integration, other embedded applications (PIM, contacts, calendar, etc.), email client, web browser, bundled apps, App Stores, other; For enterprise users, security and manageability. Style, fashion, form factor – QWERTY, touchscreen, candy bar, flip, slider, as appropriate to market, geography. Messaging/Data Capabilities – Integration with popular consumer email platforms (Gmail, Hotmail, Yahoo Mail, AOL), Cloud services (e.g., Mobile Me for Apple, MyPhone for Win Mobile, etc.), popular enterprise messaging server platforms (Exchange, Notes, IMAP, POP3). Mobile Web - Dedicated mobile browsing capable of properly delivering a desktop-like browsing experience, supporting forms, CSS, JavaScript, Flash, Ajax. Multimedia/music/video experience – Mobile media players (audio ,video, movies) with support for popular media formats, and integration with jukeboxes / online stores (e.g., iTunes, Windows Media, Amazon MP3 store). Apps/Developers – Thriving application ecosystem and developer community, developer-friendly SDK, application stores, one-click search/buy enablement, etc. Content – Wide breadth of leading/popular content and applications, critical mass of applications and content to support competitive user experience, OTA/sideloading capabilities for transferring content (music/video) from PCs, support for carrier-branded stores and applications (e.g., turn-by-turn navigation). Enterprise Features – IT manageability/control; ROI and TCO leadership; IT level security; integration with popular enterprise apps (SAP, Oracle, Microsoft, BI, ERP).

• •

• •

• •

Source: RBC Capital Markets

Mike Abramsky 3

VAX). Newton Messagepad and Palm Pilot..3 28. But it was the PC that upended the computing industry in a few short years. including the Sharp Wizard. Exhibit 3: How Iconic Innovations Accelerated Global Technology Markets 1. MS-DOS.g. with netbooks (small ultra-light laptops) jumping from 0% of laptops in CY07 to >15% in CY09.1 14. Organizers. the PC. 2009 160 Launch of the Launch of the Apple iPhone 140 120 Smartphone Units (MM) 100 80 60 40 Mobitex RIM 950 and launch of the Symbian-based Nokia 9210 Communicator Launch of the BlackBerry SureType keyboard Launch of the first Smartphone with voice Handsprint Treo 180 Launch of the Windows Mobile 5 based Motorola Q -with push email.. Commodore 64. launched in 1982.9 126. four discrete technology markets – PC and computing. because they represent the convergence of these four technology markets – adding the convenience of being able to go everywhere.200 1. the Internet.1B 4 Mike Abramsky .8 83. add-ons. was arguably the best selling computer (17M total units sold) in the early 1980s. Popular applications like Lotus 1-2-3 and word processing from MultiMate and WordStar (later Microsoft Word) popularized the PC. In our opinion.but inspired subsequent copies.0 20 0. The early PC looked nothing like it does today – embodied by the $400 do-it-yourself Altair launched in 1975 . wireless phones – have grown via transformational innovations. it has been iconic. Over the last five decades. Commodore. also emerged but only a few survived.3 57.g. the cellphone. Laptops became popular in the early 1990s with the launch of the Apple PowerBook 165c which brought color VGA screens. Compaq and Apple. consumer electronics.1B users globally by 2008. each successively attracting larger markets and users. mainframes dominated computing in the 1950s. and Microsoft standards PC-DOS and Windows accelerated growth and software momentum. 164. DEC PDP-11. the iPod – that have accelerated market expansion and shifted market share from incumbent vendors to new challengers. with its standard architecture.1B 1. Internet.0 0 2000A 2001A 2002A 2003A 2004A 3. with early leaders Digital Equipment and Burroughs (and later IBM) ceding ground to new challengers like Dell. with 64K RAM and Microsoft Basic. etc. was a seminal industry event. personal data assistants small enough to ‘fit in your pocket’. and Radio Shack. laptops are expected to rise to >50% of PC shipments. Amiga.Wireless Industry Exhibit 2: Global Data-Centric Smartphone Milestones and Evolution Launch of the first touchscreen BlackBerry August 18. The launch in 1981 of the IBM PC. PC and Computing – Complex and massive. which grew from <10M users in the early 1980s to 1. In 2009. Total # of 2008 Users: 1.6 7. followed by the minicomputer (e. smartphones are uniquely transformational. Software developers shifted their sights to the PC. Eyeing the growing PC market. and upgradable components. ergonomic keyboards and mouse positioning. transformational technology innovations – e. upgrades.5 2005A 2006A 2007A Source: RBC Capital Markets estimates Transforming 4 Previously Discrete Markets In the past. debuted in the late 1990s.000 PC Users (MM) 800 600 400 200 0 1980 1985 1990 1995 2000 2005 2008A 2009E 1. multiple contenders like Wang.

August 18. many struggling early on to find successful marketing and financial models. along with initial broadcasts in the late 1940s put television on the ‘must have’ list. Yahoo – in some cases cannibalizing brick-andmortar businesses. the Atari 2600 ushered in home video gaming. the home gaming market has grown to more than 250M users in 2008.6B in 2008. Businesses rushed to develop an online presence.500 2. Internet – Initially developed for military and academic purposes. to be usurped by digital cameras from Fuji. The post-war (1948-49) boom. cannibalized paper correspondence and fax. over 125M digital cameras were sold in 2008. and Kodak which transformed the industry. Mass market adoption further accelerated with the bundling of Microsoft’s Internet Explorer 4 with Windows 98 in 1998. Total # of 2008 Users: 2. With Google search popularizing the Web. with advertisers experimenting to leverage the new medium.4B 2. Canon. Motorola. Sony PlayStation. viable advertising models and popular portals/destinations emerged – Ebay.000 1.5M units in 2003 to 55M units in 2008. Penetration grew from 9% of households in 1950 to 86% in 1959. Nikon. with total users estimated at more than 200M in 2008. but it was Sony’s Walkman launched in 1979 which broke records.000 Internet Users (MM) 1.6B 2. Proliferation of high-speed Internet connections from cable and telcos helped further accelerate adoption as they vastly improved the user experience (56K dialup modem vendors quickly commoditized – 3COM/US Robotics. and Nintendo Wii. Cameras also grew popular with consumers. as was its famous unwinding in 2009. Nintendo Gameboy popularized the handheld gaming market. 100M in 1993 and eventually reaching 385M total unit sales in 2009. with sales reaching 6M units in 1999 and exceeded film camera sales in 2004. Microcom). starting with the Polaroid Land Camera in 1972. Telebit. Apple’s $399 iPod digital media player in 2001 and its iTunes PC jukebox/store popularized MP3 usage. AOL’s acquisition of Time Warner in 2000 was a watershed event marking the ascendance of the Web as a business power.4B Consumer Electronics Users (MM) Mike Abramsky 5 2005 . RCA and Philco. Sega Genesis. selling 10M units in 1984. Hayes. With gaming consoles. Sony’s introduction of the first portable transistor radio in 1960 ushered in low-cost. which produced images instantly following capture. Priceline. combining simplicity and immediacy.000 500 0 1980 1985 1990 1995 2000 Wireless Industry 1. like Nintendo (NES). iPod sales rose from 1. began to accelerate in adoption. Amazon. which started off slowly. Released in 1977.500 1.6B 2. hypertext links – Tim Berners-Lee at CERN in 1989. with sets from Admiral. Web usage rapidly grew from 45M users in 1995 to 400M users in 2000. Xbox. Web pages continued to grow from 26M in 1998 to 1B in 2000 to 1T by 2008.g..000 500 0 1980 1985 1990 1995 2000 2005 3. Email.500 1. with hits like ‘Space Invaders’ driving total console sales to 8M units by 1984 and eventually reaching 30M total units sold. new Internet-based businesses. Following releases of iTunes for Windows and a 40GB iPod. Total # of 2008 Users: 1. Emerson. and subsequently quadrupled to 1. Consumer Electronics – Consumer electronics usage emerged in the 1920s with the first AM radio broadcast. 2009 2. Internet usage began to proliferate with transformational innovations which improved usability (e. portable consumer electronics. the Mosaic browser and Netscape Navigator – Marc Andreessen in 1993 and 1994). Film-based compact and SLR (Single Lens Reflex) cameras dominated the industry.

However. logging into online bank accounts for checking balances and paying bills – all on a single device Multimedia Information Apps and Games Navigation Commerce Source: RBC Capital Markets 6 Mike Abramsky . Competitors and carriers followed Apple’s lead. Nokia 7110 in 1999) offered limited (WAP. etc. i-mode in Japan) and SMS. listening to the radio • Browsing news. The mobile GSM wireless network standard was adopted by most global networks. yielding new. raising broader interest in smartphones. The Handspring Visor and Treo phones emerged in the late 1990s and helped popularize the smartphone with email and PIM features. popularized the mobile web. Wireless Phones – In 1983. and costing $4. added new features. followed by BlackBerry’s 5810 and 6210 voice/data smartphones. Total # of 2008 Users: 3. In Europe.000 2. The integration of these four previously discrete technology markets in smartphones creates a “mobile mashup” – the convergence of these technologies to become greater than the sum of their parts. While previous phones (e. and uploading photos and other data to social networking websites (e. reference. Motorola released the DynaTAC handheld mobile phone. In late 2004. etc.. With the release of its Nokia 1011 in 1992. Facebook. UMTS and EV-DO launched in 2001 and 2002 in Japan and Europe (2004/2005 in North America). Digital-based 2G networks like TDMA. browsing. which went on to sell more than 110M units. like ringtones. Nokia launched the Mobira Talkman in 1984 and the more portable Mobira Cityman in 1987. watching YouTube videos. smartphone users more than quadrupled to 165M in 2008 from 40M in 2006. its first GMS handset. and as a result.000. like Ericsson with its T28. Nokia continuously reduced the size and cost of its phones. convenient user experiences. compelling. and accelerating expansion and global adoption.Wireless Industry August 18. Yellow Pages) • Using personal/lifestyle apps like finance. capable of supporting both voice and data services. Global mobile phone users grew to nearly 180M in 1998.000 0 1980 1985 1990 1995 2000 2005 3. the first clamshell mobile phone with vibrating alert. Motorola introduced the RAZR. SMS and IM. adoption of mobile data – particularly. and Sony with its Z5 and Z7. offering significantly higher spectrum efficiency and call quality. travel. Motorola introduced the sleek Star-Trek-like StarTAC in 1996. the world’s thinnest handset (13mm). changeable faceplates and games (‘Snake’ was launched on the Nokia 6110 in 1997).g. blogs. launched new designs. turn-by-turn directions • Using a single device to make payments in-store.000 Phone Users (MM) 3. appealing to millions of new buyers. Other vendors launched popular designs. Mobile subscribers in the US grew from 200k in 1983 to more than 2M in 1989. Exhibit 4: Greater Than The Sum of its Parts Categories Communication Examples • Making phone calls. health and fitness. productivity. Twitter) • Listening to music. 3G networks like HSDPA. iDEN and CDMA launched in the early 1990s. it was the launch of Apple’s iPhone in 2007 – arguably the most significant event in smartphone history.) mobile web experiences and others offered integrated music/media (e. local search (e.g. which combined its legendary email with integrated voice handsets. mobile applications and advanced mobile phone MP3 experiences to new levels with its integrated iPod media experience.g. watching downloaded movies and TV.. Playing games • Personal navigation. sending emails. Sony W800 Walkman). mobile email – in North America and Western Europe did not occur until the emergence of iconic data devices like RIM’s BlackBerry – starting with the chubby 850 Wireless Handheld in 1998 – with its unique Crackberry mobile email experience. sports scores.7B 4. MySpace..g. 2009 4.7B Source: RBC Capital Markets 4 Technology Markets + Mobility = Smartphones Greater Than the Sum of its Parts.g..000 1. weighting 28 ounces. beyond proprietary mobile services (e. weather forecasts. 10 inches high..

Just as Internet connectivity (ISPs via telephone or cable) enhanced the PC experience. find.. resources immediately Two-way immediacy • Where? When? Why? How? • Indispensable mobile information kiosk • Peers/colleagues can contact users • Emergencies. Direction Location Proximity Capture data (e. Speed. goes everywhere Examples • Can’t take a laptop to a sporting event or into a formal meeting • Personalized mobile companion -> wristwatch & wallet replacement • Dynamic search of interest/ attractions/ retail stores/etc. smartphones make these four formerly discrete technology experiences richer and more convenient by adding mobility – which offers users portability. 2009 Wireless Industry Convenience of Mobility.. • Friend location. presence-based mobile marketing • Dynamic.) in proximity to event or place Immediacy Always On Access answers. Coffee shops send coupons to attract nearby buyers. location-based social networking • Adapt content based on location • Location-based mobile marketing/commerce • E.g. GPS. etc.g.g. Exhibit 5: Added Convenience of Mobility Mobility Adds Portability ‘Pocketable’. proximity. presence. etc. banking to ATM. time-sensitive requests Source: RBC Capital Markets Mike Abramsky 7 . Bar code or image-based data capture transactions User-generated content captured on location Proximity to event E. shows/movie theatres offer discounted tickets to unfilled seats to people walking by • • • • • Transaction in proximity to purchase. immediacy.August 18. location. video/camera.. save GPS location when park car Presence Identifies activity and presence Location. activity-based. and always on functionality. content.

8 Mike Abramsky . the Mobile Web on smartphones is likely to usher in new industries and businesses. Added Value of Mobility • • • • • • • • • Presence Location. community Rate the bus stop you are standing at Rate the best fast food hot dog stand around Who wants to buy tickets? Who needs a ride? Who just had an accident (tow trucks. Expedia. hotels. contacts. gaming. etc. movies. rental firms. direction Voice communication Proximity Portability – goes everywhere Rich web browsing Video/camera/Bluetooth Purchases Voice communication. Priceline. rich web. unleash new business models – the next eBay. MLS. etc. insurance companies. GPS. PIM. online collaboration Enhanced User Experiences • Mobile web which leverages location. Amazon. content Mobile commerce. Ticketmaster. IM. messaging. purchases. proximity and community Presence and location-based PIM Community and instant messaging (IM) combined with location. mobile payments Portable video Upload video and pictures to file sharing and social networking websites GPS integration with mobile web. • • Location-based services Mobile marketing Video capture for on spot transactions. 2009 • • • • • • High-End Feature Phones • Communications. video. activity. Laptops • Applications. restaurants -> local community in proximity is huge) Call – see pictures of everyone in one mile that express interest Want to party? See. Open Table. speed. • • • • Consumer Electronics • Music.Wireless Industry Exhibit 6: Smartphones Enhance Tethered Technology Experiences Tethered Usage Unconnected Desktop PCs. content and applications Deliver and capture data in proximity to event or place – banking. Location-based collaboration User-generated content– can deliver and capture data in proximity to event or place – banking. email. and Google. community Examples • • • • • August 18. purchases. etc. Just as the Web ushered the birth of new business models like eBay. Amazon. or Google – creating new wealth for entrepreneurs and investors. call all at once • • Source: RBC Capital Markets The Next Web The Mobile Web is the Next Web. etc.

make online reservations Take picture of a barcode and book hotel online Receive news relevant to current location Have pictures taken during vacation automatically upload to Facebook View pictures and video from other users in your network from within a certain proximity Download content on the go. purchases. other details Client is able to email and IM sales people when they are out of the office Sales person is notified that a client is at the same conference Sales person looks up transaction records and account stats on the go Users are able to email and IM other users when they are out of the office User is notified when someone in their network is at the same conference Travel Expedia. search Open Table • • Google. Flickr Content Netflix. other large physical goods Walking past stores – what sales are on? Driving around for garage sales Take a picture – how much it is? Can I buy it cheaper on the Web? Can I get it on eBay for cheaper and nearby? Ticketing Ticketmaster Deliver and capture data in proximity • to event or place – banking. with seamless synchronization with home PC Presence-based gaming. pricing. Travelocity • Restaurant reservations Portals.August 18.com • • • Business connections and community LinkedIn • • • Continuous two-way communication & collaboration with contacts and leads • Presence-based notification of nearby contacts • Mobile search of contacts and related data Continuous two-way communication & collaboration with contacts Presence-based notification of nearby contacts • • Source: RBC Capital markets Mike Abramsky 9 . seat map. content Examples • • • • Wireless Industry Buying a car. iTunes • • Real estate MLS • Lead generation Salesforce. 2009 Exhibit 7: Mobile Web Business Models That Could Yet Emerge Web Business Model Community global peer-topeer transactions Online retailing Web Examples eBay Mobile Web Business Models Could Yet Emerge • • Amazon • • • • • Presence-based person-to-person market and transactions New communities based on mobile Mobile transactions Location-based services Mobile marketing Video capture for on spot transactions. sharing and viewing Presence-based communities Portable video. take picture and identify location – see features. can buy tickets immediately. find out availability. get reviews and descriptions of restaurants. stores – what sales are on? Take picture of a barcode and book hotel online Pass by hotel. local search Proximity-based filtering news and content Mobile content uploading. other content GPS integration with mobile web. Yahoo • • • • • • • • • • • • User-submitted video YouTube. community Proximity-based notification and marketing of available flights and hotel rooms Proximity-based notification and marketing of restaurant availability Mobile search. pass restaurants. mobile content updates for gaming. room rates and book room As walking down street. community rankings. apps When driving around a neighborhood. see houses for sale within your budget See a house for sale – bring up features. content and apps Presence-based notification of properties under defined criteria • • Walking past theatre – get availability.

as they have in Asia where 24 million users executed 240 million mobile payment transactions in 2008. newspapers. some advertising spending may transition from traditional media (e. because they are “3C” – the convergence of communication. a media-centric user could use a media tablet peripheral. cellphones and music. privacy preference. given the diversity of functionality demanded by different activities (i. activities (it is still not universal to watch movies or stream radio on PCs. • Mobile Marketing.) is an inconvenience. etc. set top box or PC as the holy grail of ‘converged home entertainment’. using the PC while streaming radio. immediate need. content – smartphones represent the first opportunity to converge formerly discrete media on a single device – i. objective. However. even if you could. update. stream radio. it may be the smartphone that becomes a hub (or remote control) for a user’s content. Prior media (radio. etc. with their always on wireless connectivity and other capabilities.e. Internet.g. TV. and store some of a user’s content locally. smartphone vendors. archive.) – along with voice phones and cellphones – while offering some convergence (e. or shop on TV. This is compounded by the need to have multiple wireless subscriptions and multiple content/data/application stores for each device. Regardless of where a user's content resides. with a larger screen. versus their PCs or TVs or newspapers or radios) listen to music. Thus. get news. Similarly. and subsidize the cost of the device and service. watch TV/movies.). or reading the newspaper with TV or radio on). or while at home on their TV (synced with smartphone). Smartphone consumers may browse. PVRs. purchase. etc. phones. smartphones may enable advertisers to reward realtime behavior – based on a user’s activity. go to this restaurant at this location. targeted mobile marketing based on activity. Unlike other media. representing another source of revenue. even transfer and exchange content to other devices/accessories/peripherals – and other mobile users. 10 Mike Abramsky . or use a laptop while at a concert. mouse). to watch movies or view photos – at home on the wall or on the go on a plane – with less bulk and cost. proximity. time. etc. use apps. playback on the device). objective.. one-to-many... it’s inconvenient to make phone calls every day with a laptop. and in some ways do these better. By adding an inexpensive computing peripheral (keyboard. smartphones have the potential to become a hub for all a consumer’s content – regardless of source or location.e. carrying around multiple devices (PCs. this dealer. information and other services. But because they are connected constantly as well as personal and portable. surf the Web. watch. • Smartphones + Peripherals. by serving as the hub for other computing. computing. smartphones can reduce the need.g.Wireless Industry August 18. gaming and media peripherals. it’s the smartphone which can untether it for them. location – visit this store. direct mail. etc. etc. Smartphones already manage content subscriptions. or read/compose email on a PC while in a meeting. collaboration. interfacing (at home or remotely) to PCs. SlingBoxes. and personal navigation may become far richer than today. TiVOs. which may help enrich carriers..). applications. drawing upon the smartphone’s connectivity and resources. smartphones possess the power to become the way some consumers may principally (i. While many have pointed to the TV. or to make calls on PCs. Internet) to mobile. 2009 A Next Mass Medium 3C Convergence. do email.. smartphones can provide much richer information for advertisers to target marketing with potentially much more impactful results (mobile coupons are just the beginning. and still use the smartphone’s mobile data connection (via wireless tether) to draw on the same content. cost and inconvenience of carrying multiple devices. etc. TV. a gaming user could use a gaming peripheral with controls tied to the smartphone. It’s unlikely we will ever see one converged device addressing all user needs.. Likewise. However. Examples may include: • Content Hub. Even with advanced computing capabilities.. content downloads. downloads and playlists.g. mobile electronic wallets and mobile transactions have not caught on yet in North America with traditional mobile phones. digital set top boxes. (some of this is already happening on BlackBerries and iPhones). nor is it convenient to do full word processing on a handset).e. etc. etc. combined with the convenience of going everywhere users do. a smartphone can serve as a mobile PC or laptop at a far lower cost with less bulk. radio. content servers. remain discrete. storage. An HBO subscriber for example might access content while on the go (e. With smartphones as the hub for content. screen. With smartphones. As well.

most of which was SMS marketing. activities.). etc. en mass or one-to-one – with congregants. interests. books. U. video content currently provided from PC users onto popular destinations such as YouTube or social networking sites.). business leaders. Video content from smartphones could match.4 $28. etc. mobile search.8 $12. etc. – regardless of location or device. It may be sooner than expected when politicians. Micro-blogging services (e. Transcending traditional “one-to-many” media channels.5% of total advertising ($650 billion). this creates significant opportunities for user-generated content yet to emerge.0 $17. advertising. Similar to the path of online advertising. constituents.7 $10. as well as popular smartphone applications that dynamically and easily capture user-generated content. allowing users to collaborate dynamically and locally with peers – on content. (out of a $295 billion total U. Reach Out And Touch Someone.4 US Advertising Market ($B) Source: Interactive Advertising Bureau (IAB) Mike Abramsky 11 . educators. Internet. smartphones with their technology capabilities and personalization have the power to become a “one-to-one” mass media. at location. • • Replaces Your Wallet Shift of Revenues to Mobile.August 18.S..). Advertising Market (2008) TV Networks Newspapers TV Distribution Online Radio Directory Consumer Magazines Trade Advertising Out of Home $0 $5 $7. In our opinion. contextual advertisements.4 billion in 2008. and is now the fourth largest category of advertising in the U. in our opinion. we believe mobile advertising will quickly accelerate as users transition from traditional media to mobile. along with mobile’s additional value to advertisers (location. 2009 • Wireless Industry Mobile Peer-to-Peer Collaboration. rather than third-party journalist impressions. Higher quality digital cameras.S. use the power of smartphones to communicate – interactively. location-based collaboration.2 $10 $15 $20 $25 $30 $35 $40 $45 $13. etc.2 $23. advertising market). politicians are already using YouTube and blogs to reach out to constituents. etc. This extends to all platforms – whether it be MSN Messenger on a home PC or Facebook on a smartphone while sitting at the bus stop. online advertising grew from $4. just the beginning of mobile peer-to-peer collaboration. presence. etc. It took several years before Internet advertising began to cannibalize existing media – but it eventually did.S. religious leaders. Twitter) on smartphones unleashed firsthand reporting from people attending an event. transactions. entertainers. immediacy.8 $34. Exhibit 8: Addressable U. cable. with revenues shifting from traditional media (TV. employees. subscriptions. regulators. radio. SMS and voice communications on mass market handsets are. activity. Explosion in User-Generated Mobile Content. In 2008. create and upload content. smartphones facilitate real-time.) to mobile media (SMS.6 billion in 1999 to $23. or by a 20% CAGR.S. users are often challenged to capture and share usergenerated content. May Take Time.g. worldwide mobile advertising was just over $3 billion or less than 0. For example. etc. Future upside to smartphone hardware/service revenues (at high margins) may come from future smartphone services (carriage fees. discussions. But Huge Potential. or even eclipse. Although mass market phones have the capability to record video and audio. all combine to enhance the smartphone user’s power to immediately. GPS and compass sensors.4 $39.

or $9/subscriber/year. carriers can have their own currency and points system (e. Instant messaging platforms like Windows Live Messenger. social networking. Personal navigation for smartphones (with built-in GPS) is another significant driver of smartphone adoption. social networking. blogging. Instant messaging. and the surging popularity of innovative mobile applications. games and other apps. nearly 50 million Japanese consumers (50% of total) use their mobile phones to make mobile transactions or redeem mobile coupons. for example. 2) increasing popularity of constantlyconnected activities like IM. We see the pace of innovative mobile applications accelerating given: 1) rising customer demand for mobile versions of desktop and web-based applications. etc. a marketing/sales channel to rival TV – even better when combined with location. and blogging are applications with the potential to significantly increase consumer smartphone penetration. standardization on Sony’s FeliCa mobile payments system. share files/pictures. free service credits versus money). Japan has been ahead of the market in mobile commerce owing to early deployment of 3G networks. from 103 million in 2007. with more than 350 million users. owing to high uptake of mobile data services.) and related advertising to handsets. vendors can also directly transact with millions on the wireless network. following the launch of the iPhone App store in July 2008. in just over one year since release. in our view. location awareness. loyalty cards. iPhone’s App store already has over 65.Wireless Industry August 18. AIM. Mobile transactions in Asia-Pacific and Japan more than doubled to 240 million in 2008. print. strong uptake of DoCoMo’s i-Mode mobile data services. location-based services. Osaifu-Keitai – DoCoMo’s mobile payment platform based on FeliCa – is the premier mobile payment system in Japan. scanning the barcode in an advertisement will transfer a mobile phone user to an online website where they can complete an order for the product. airline tickets and for other uses. Mobile advertising revenue in Japan was $1 billion in 2008. and DoCoMo’s aggressive strategy to accelerate mobile payments (large number of compatible storefronts. compelling services. With the shift away from traditional media (TV. The mobile content and applications market is only just beginning to emerge. where social networking applications proliferate and users can make use of mobile features like photo uploads.5 billion downloads. Only launched in 2003/2004. As a result.S. personal navigation. The smartphone becomes not only a shopper’s aid but also a dynamic catalog. in addition to other features) have achieved widespread penetration. we believe only smartphones with data plans can offer a compelling mobile user experience. BlackBerry app store in April 2009. ease of use). smartphones / high-end mobile phones. photo albums. Internationally. etc. equating to 33/user/year. attracting more than 400 million active users. In mobile payments. hence the value-add of smartphones. a possible significant business case for wireless operators. and status updates. and there have been more than 15 million downloads (more than 50% of all users) of social networking apps like Facebook or MySpace for BlackBerry. 3) broader availability of developer tools. Social Networking. Carriers can bypass Visa. chat. Barcode scanning has become a means for advertising and gathering information. where mobile phones can be used as electronic money. Specific areas of mobile content and applications include: • IM. music.g. The increasing prominence and use of IM and social networking sites to communicate and coordinate with friends are raising the demand to maintain continuous connections with IM and social networking platforms. electronic tickets. For example. social networking sites like Facebook and MySpace (where users maintain profiles/web pages. presence.000 apps and achieved over 1. with users able to justify a smartphone purchase as replacing a standalone 12 Mike Abramsky . 5) demand for Internet radio. and Yahoo! Messenger (allowing users to chat. 4) higher uptake of smartphones.1 trillion purchase value (accounting for 31% of all purchases) were made in the U. Navigation increases the appeal of smartphones as a “converged” device. and share videos) have already gained significant popularity. Japan an Example. the Facebook app is the second most popular downloaded app for iPhone. • Personal Navigation. during 2007. membership cards. For example. When integrated with carrier billing systems. video conference. 2009 Transformation to Commerce. Nearly 24 billion credit card transactions with a $2. Although some traditional mobile phones are integrated with large IM platforms and social networking sites. Mobile Content and Applications The Mobile Content and Applications Market is Still in Early Stages and Underpenetrated. MasterCard and banks and become their own integrated billing provider for transactions and services.. and.

share and store data on Google servers) launched in 2006. Smartphone browsers. and Amazon remotely deleting books from its Kindle ebook reader it was not legally authorized to provide. just as gaming consoles launched innovative games. web-based hosted Office Suite (that can be accessed from anywhere via a web browser and where users can collaborate. the Mobile Web with the power of portability. is an example of Google’s effort to transform the computing experience via the cloud. Games and Productivity Applications. and productivity applications like dictionaries. services. etc. Pac-Man.. The cloud is a general term used when data. activity. offering the ease of tapping vast resources immediately and conveniently. convenience. Two recent examples include Apple's blocking of Google Voice application (offering free SMS and cheap long distance calls). new formats. and news readers are enhanced via the smartphone experience. either way these issues are likely to play a significant role in evolving mobile content models and businesses. need. copyright and content ownership rights have already begun to assert temselves into mobile content and applications. Yet this is only the beginning. like Google Maps or BlackBerry Maps. Google’s Chrome OS. user interface (UI) on smartphones (like Apple’s Multi-Touch). are provided over the wireless network – versus from software locally installed on a PC using local storage or accessed from land-based networks. Games. and Super Monkey Ball. navigation innovations. Also Google Docs. rights management. ease and satisfaction of spontaneously browsing and buying music and other content while mobile will shift the smartphone to a media hub for managing content and playback on other peripherals (e. attractions.) • • Hands Off My Content. The Cloud May Transform the Mobile Smartphone Experience. Smartphones go beyond simple maps. mobile browsers of the future may evolve to advantage the mobile medium. features. Initially popularized by Apple’s iPhone. the smartphone user experience is expected to increasingly leverage “the cloud”. And. a free. at home. Well-known games like Guitar Hero. a recently announced browser-centric PC Operating System.August 18. downloadable multimedia and content is now moving to mobile. to paid turn-by-turn navigation apps. Browsing. and in the case of BlackBerry. bandwidth consumption). customization. 2009 Wireless Industry GPS device. mobile content or applications is not yet clear. While the extent to which these issues might support or hinder innovation in smartphones. storage and content can all be accessed from the cloud. the convenience. Multimedia and Mobile Content. becoming far different than today. in the car. optimized for mobile usage.g. The Cloud Adds the Cloud. because of the potential enhancement to the mobile user experience. applications and content. just as the Web spawned multi-player gaming and virtual worlds. social networking and other applications. multimedia and other mobile content should remain a top driver of smartphone uptake and data services. are now replicating a desktop browsing experience adapted for the mobile world (navigation. tip calculators and expense trackers have sprouted up overnight. Mike Abramsky 13 . adapting and customizing to the convenience of the user based on interest. offers an alternative to PC-based Microsoft Office. etc. The cloud also means applications (accessed via a browser) might not need to be customized to each device. proximity. etc. news readers for popular sites like CNNmobile or CNBC. As it has with the iPhone and iTunes. along with services such as storage. simplifying and reducing development costs.). The cloud may become an increasingly significant dimension of smartphone functionality over time. productivity applications. location. Browsing. geo-tagged photos. with some applications generating over $1 million in download fees in a short time from launch. With the growing pervasiveness of wireless networks. Examples include free mapping applications. etc. The smartphone browsing experience may become so satisfying that some users may justify switching from PC browsing to smartphones. The practical realities of privacy. Applications. like the Internet where browsing matured and integrated new innovations that became commonplace (speed improvements. processing. like TeleNav GPS Navigator or TomTom for the iPhone. functions. with innovative applications that integrate the user’s current location with searches for restaurants. represents another opportunity for new gaming experiences.

etc. instant collaboration) Entertainment . posts. discounts/coupons for nearby customers Business – real-time lead generation .mobile music mashup in the audience e. payments. and raise carrier resistance to cloud-based computing.location. power consumption). Hypothetically.rent and try as you walk by. Social networking (live proximity discussion.subscribe. smartphones could be thinner. safety.. 14 Mike Abramsky . photos. processing power. etc. to home security systems. playlists Help. video.g.easier sharing of user-generated content (blogs. yields better battery life Data storage (media. comments. discussion threads. calendar.health. consumers may resist migrating personal and corporate data to the Web. other information) Device backup (contacts. videos.g. However. 2009 • • • • • • • Real-time information (weather. news. lighter.g. pull resources. DVRs.) Shopping . support (how do I do this?) Location-based marketing . etc. adapts to location and interest Gaming . the speed. Source: RBC Capital Markets Practical Realities. etc. financial data) Real-time collaboration (email.. IM. stability. captures opportunity Live on site: posts. As well.. coverage and bandwidth constraints of mobile networks could undermine the cloud-based user experience.pulls in resources. blogs) Ease of use (apps always up-to-date) Off-device processing (complex functions and searches performed at the service). ticket info after walking the theatre district) Remote access: e. using the cloud.ad-hoc multi-player Community Content . PCs. and less expensive to make (less storage. traffic.Wireless Industry Exhibit 9: The Cloud May Further Transform the Computing Experience Cloud Enhancements to Mobility: Examples: August 18. calendars. memory. pictures.) Developer apps would not need to be customized to each device • • • • • • • • • • • Traveling . docs. info (e. Assistance .

000 4. digital cameras (125 million units per year). At the end of calendar 2008. Other Markets… Lots of Growth Potential 8.000 7.6 billion Internet users.713 6.123 915 3.596 1.500MM Internet Users 1. and 1. 2009 Wireless Industry The Rise of the Mobile Data Consumer Larger Than the Phone Market. market share and profits from not only the 1 billion unit+ per year handset market – but also from the PC market (300 million units per year).713MM Consumer Electronics 2. Because of their convergence capabilities.671 530 480 368 165 Source: RBC Capital Markets TV Mike Abramsky 15 .000 5. given that globally there are 3. revenues.123MM Data-Centric Smartphone Users 165MM Mobile Phone Install Base 3.000 2. 2. only 2.August 18.000 0 Population Telephone Total PCs Newspaper Circulation Broadband Data-Centric Internet Subscriptions Smartphone Subscribers Subscribers World Mobile Users Lines Users 1.000 Install Base (MM) 6. personal gaming devices (37 million units per year).1 billion PC users.000 3. A huge market opportunity for smartphones exists. 1.7 billion mobile phone subscribers. we believe that smartphones possess the ability to capture users. TVs (200 million units per year). personal media players (230 million units per year). the difference being multi-user households and Internet cafes). Exhibit 10: Global Data-Centric Smartphone Addresses More than the Phone Market PC Install Base 1. portable navigation devices (32 million units per year) and other formerly discrete market segments.596MM Source: RBC Capital Markets Huge User Opportunity. Exhibit 11: 2008 Global Data-Centric Smartphone Users vs.5% of the ~7 billion people in the world had smartphones and 24% had Internet access (only 8% are Internet subscribers.000 1.5 billion consumer electronics users.

2 Massive Replacement Cycle.8 165. and will exceed PC sales in just three years.600 1. Growing at a CAGR of 62%. There is a massive global shift underway from voice-only phones (including SMS) to smartphones.0 42. Exhibit 13: Global Data-Centric Smartphone Shipments to Exceed Voice Handsets by 2014 1. We estimate annual global data-centric smartphone shipments will exceed those of voice handsets within the next six years.003 783 724 650 650 Voice-Only Phone Units Source: RBC Capital Markets estimates Global Data-Centric Smartphone Units 16 Mike Abramsky .1 553.1 247.400 1.2 22. 2009 Global Secular Upgrade Cycle to Smartphones. In the past 18 months. an estimated 63 million mobile phone users upgraded to smartphones in 2008. more people globally have upgraded from voice to smartphones than in the past six years.200 Units (MM) 1.113 952 966 947 933 127 165 250 376 504 674 804 944 1. from approximately 15 million upgrading in 2005.800 1.5 102.Wireless Industry August 18. Exhibit 12: Surging Global Data-Centric Smartphone Users 900 800 700 Smartphone Users (MM) 600 500 400 300 200 100 0 2004A 2005A 2006A 2007A 2008A 2009E 2010E 2011E 2012E Source: RBC Capital Markets estimates 766.7 374.3 7.000 800 600 400 200 0 2008A 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 1.

mobile browsing and mobile applications is expanding the smartphone market into new segments (youth. mobile music. trusted purchasing experience. These buyers are seeking user-friendly. etc. camera.August 18. location-based services. small businesses. 4) the momentum of mobile application platforms and the proliferation of third-party mobile applications. students. multimedia messaging (photo. social networking.). 5) an increasing buyer interest in customization (third-party applications. as the growing global adoption of mobile email. BlackBerry Bold Rising demand for mobile email and mobile browsing. As a leading indicator and precursor to mobile data adoption. software. and “hip/cool” differentiated brands.). etc. etc. women. game console. 2) the proliferation of mobile email and mobile browsing. camera. etc. etc. IM. games. game console. the convenience and productivity of continuous connectivity for email. media player. etc. etc. location-based services. Exhibit 15: ‘Perfect Storm" Driving Smartphone Adoption • • • • • • • • Source: RBC Capital Markets Powerful. 6) lower handset/data plan pricing trends globally. 2009 Wireless Industry Exhibit 14: Global Data-Centric Smartphone Shipments to Exceed PC Shipments by 2011 400 350 300 Shipments (MM) 250 200 150 100 50 0 2005A 2006A 2007A 2008A 2009E PCs 2010E 2011E Smartphones Source: RBC Capital Markets estimates "Perfect Storm". software. music. video. 7) faster 3G networks. Mobile Data Devices and Usage Leaps. more powerful. video. mature users. the penetration opportunity remains huge. media player. iconic smartphones like the Apple iPhone. growing from 7.. multimedia messaging (photo. video.). social networking. While the early-adopter smartphone base has been business users and early consumer adopters. etc. social networking. etc.) Mobilization of business New Segments Driving Adoption.9% of total global mobile phone subscribers (or 110 million 3G subscribers) in calendar 2003 to 19. They also crave distinctive designs. Momentum of mobile applications platforms and proliferation of third-party mobile applications Increasing buyer interest in customization (third-party applications. superior user experiences. mobile phone subscribers with 3G devices/services (those who only have 3G devices. iconic smartphones. and fingertip access to information from mobile browsing.6% (or 727 Mike Abramsky 17 . media-centric experiences. and anywhere/anytime multimedia downloads. etc. and.). location-based services. mobile music.). 3) a growing interest in multimedia messaging (photo.) More affordable handset/data plan pricing trends globally Faster 3G networks and carrier focus on data Device convergence (GPS. music. not necessarily a mobile data plan) have risen 50% annually. vertical markets. This massive upgrade cycle is being driven by a “perfect storm” comprised of: 1) cheaper.). 8) device convergence (GPS. 9) the mobilization of business. games.

etc.11 $15. email usage.99 $44.80/user/month to ~$14. Key drivers of this data growth were rising mobile messaging (text). 18 Mike Abramsky .00/user/month to ~$3. OTA (over-the-air) downloads and streaming content.66 $43. Data ARPU 50 Service ARPU (per mo) 40 30 20 10 0 2004A 2005A Data ARPU Source: RBC Capital Markets $45.Wireless Industry August 18. video. etc. far outpacing the 11% increase in mobile voice revenue.49 $3.50 $11. applications (social networking.16 $3. while voice ARPU fell from $21. Exhibit 16: Global Voice vs. video.28 $17.81 2006A 2007A Voice ARPU 2008A Exhibit 17: North America Voice vs.49 $3.09 $39.00 $3. and content downloads (ringtones.80/user/ month.). web browsing. And more users are starting to use more data: from 2004 to 2008.08 $42.50/user/month over the same period. location services.32 2006A 2007A 2008A Voice ARPU “Data-Centric” Smartphone Users Our smartphone market forecasts exclude voice/SMS-only users (such as those who just use highend feature phones or smartphones for voice only. We expect global mobile data traffic to grow at a CAGR of 131% from 2008 to 2013. carrier mobile data revenues (which include SMS/MMS messaging) rose 30% annually from $62 billion (12% of total revenue) in 2004 to $182 billion in 2008 (21% of total revenue). web browsing. SMS and PIM features) and focus on those users using data plans (or other connectivity such as Wi-Fi) to utilize connected.10 $3. etc. 2009 million 3G subscribers) in calendar 2008. global data ARPU rose from $3. Data ARPU 25 Service ARPU (per mo) 20 15 10 5 0 2004A 2005A Data ARPU Source: RBC Capital Markets $21.07 $8.60 $2.91 $6.96 $14.80 $19. Accordingly.38 $3. Consuming More Data. data services: wireless email. media.).

etc. Amazon MP3 store. and applications. others) and application stores (iTunes App Store. and for personal entertainment.seeks integration of work functionality and data with personal data and applications. Thus.frequently uses mobile email. China and Indonesia. along with seamless integration from third-party media stores (e. 122% in Russia.g. phone reliability. mobile applications and content – bypassing PCs and tethered Internet altogether. etc. applications.. PIM. Mike Abramsky 19 . one-click search/buy. representing a 47% CAGR. mobile browsing.August 18. • • • • • • Source: RBC Capital Markets The Global ‘Data Gap’ Large International Smartphone User Opportunity. news updates. For Work . video. email/web/phone integration. pictures. BlackBerry App World.4% of phone users in calendar 2008 (an estimated 165 million users) to 15. Also seeks easy usability for sophisticated data functionality. Mobile Media/Content/Apps Consumption – uses music.g. to avoid carrying multiple devices.4% by calendar 2012 (an estimated 766 million users). Google Android Market. In many countries. heavy web browsing. IT ‘approved’ integration with work email and servers. etc.1B units CY08 4% CY08-CY12E CAGR Smartphones DataCentric 165M users and 127M units CY08 41-47% CY08CY12E CAGR 220M users and 140M units CY08 Source: RBC Capital Markets estimates 165M Global Data-Centric Users. battery life. Data-Centric Connected Functions . and 39% in Africa – well beyond the penetration of landline phones and Internet users.) to create user content and message content via SMS. applications. where PC and Internet penetration is low.) and data capture (GPS data. Reliable Data Experience – demands data devices that deliver high productivity. Voice/Data Integration – relies on tight integration of voice and data features phonebook/phone/contact integration. real-time weather and mapping. content downloads. voice/SMS phones have extremely high penetration rates. smartphones have the opportunity to become the first and primary exposure for millions of consumers to the Internet. social networking. etc. etc.5B users and 1. serviceability. picture/video capabilities. etc. messaging/phone integration. contacts. navigation. 24% in India. nine of the 10 countries with the fastest mobile phone subscriber growth are emerging markets like India. Internationally. push-based content. iTunes. messaging.. sufficient storage. people in emerging markets are still buying mobile phones at an unprecedented rate – 45% of people in China own mobiles. Exhibit 19: RBC Capital Markets Data-Centric Smartphone User Definition • Data Services – uses carrier data services or other connectivity for mobile email and messaging. blogging. we see “data-centric” smartphone user penetration growing from 4. etc. email. Despite limited disposable income. RealNetworks Rhapsody. social networking. content. email. notes). synchronized PIM (calendar. MMS. security. 2009 Exhibit 18: Global Data-Centric Smartphone Users Global Mobile Phone Users Wireless Industry Smartphones Users Voice-Only 3. Windows Marketplace for Mobile) Content creators – utilizes applications (e.

6% 123.2% 31.6% 70.1 17.8% 30.8% 31.6 97.2 599.1% have Internet access.6% 32.3% 5.6% 45. Nigeria Bangladesh Russia Philippines Source: RBC Capital Markets CY08 Mobile Phone Subs (MM) 282.5 50.8% 0.5 Mobile % of Population 24.8 60.3 CY08 Mobile Phone Net Adds (MM) 100. users may bypass PCs altogether and upgrade directly to smartphones.7% 64. just 1.1% 11.9% 2.4% 5. As the global upgrade cycle to data progresses. given the large number of non-North American phone users who don’t have TVs and PCs.2% 50.4 116.7% 87.4 43.5% 13.7 135.1 27.0 13.4% Landline % of Population 3.9% Internet Subscribers % of Households Source: RBC Capital Markets.9% 23.2% 2.8% 122. although 24% of people in India have a mobile phone.0% 50.4% 11.5% 65. and can’t afford Internet connectivity.1% 1. The smartphone opportunity internationally can be viewed as massive.4% 2. International Telecommunications Union 20 Mike Abramsky .0 15. Exhibit 21: Data Gap in Top 10 Fastest Growing Mobile Phone Countries (2008) India Indonesia China Brazil Canada United States France United Kingdom 24. For example.0% 21.8% The Growing International ‘Data Gap’ is Massive.5 18.4 12.2% 23.Wireless Industry Exhibit 20: Top 10 Fastest Growing Mobile Phone Countries Country India China Indonesia Brazil Pakistan U.5% 87.8% Mobile % of Population 30.S.0% 4.0% 70.3% 1.6% 93.6 261.2% 27.9 38.5 173. 2009 Internet Subscribers % of Households 1.7% 51.2% 45.5 24.9% 0.7% 52.1% 21.8% 0.4% August 18.1% 0.8% 1.3 87.6% 26.

as well as ROI of office/mobile phone integration which reduces infrastructure and telecom costs when employee communications and data go through a single handset) and improved productivity (and thus lowered labor and other costs) on key strategic processes core to company strategy. The mobilization of enterprises is expected to continue. 2) lower priced smartphones and mobile data plans. as deployment of mobile email and enterprise applications expands beyond key executives to mobile professionals and ultimately many rank-and-file employees. vertical applications for various industries and company applications. In our view. up 57% from 8 million enterprise smartphone users in calendar 2005 or 2. field service. Mike Abramsky 21 . Pivotal. reducing costs and increasing revenue generation. 2009 Wireless Industry Mobilization of Business Broader and Deeper Enterprise Adoption. with its enterprise functionality and features/content. or 6. real-time access to mobile data via smartphones. customer relationship management (CRM). wireless email solutions like the BlackBerry remain nascent and underpenetrated. 4) lower cost and similar/better functionality versus laptops for mobile employees.com).0% of total enterprise email users. 2007) is expected to be increasingly compelling and justifiable: • Hard dollar returns (justified by the reduced cost of providing smartphones versus more expensive laptops for employees. In our view. mobile VPN (remote network access). and email. and. superior management and security along with future productivity innovations to enterprise.1% of total enterprise email users. most knowledge workers who currently are provided a phone and a PC should be eligible for a mobile device. and better customer service (using data and tools on site or with the customer to solve problems). include increased revenue from capturing more sales by having updated data. 5) lower corporate telecommunications costs through PBX integration (combining cellphone and desktop phone into one device). servers. or 18% of the estimated 165 million global smartphone users. ultimately. RIM. and in our opinion will remain a priority for corporations looking to mobilize solutions which are easy to deploy and provide rapid productivity gains. and the collection of employee-generated content improve real-time feedback and decision-making both by mobile employees as well as management. Drivers of enterprise mobile email and smartphones include: 1) improved productivity and responsiveness. 3) compelling mobile enterprise apps (like SAP. document workflow and collaboration. like enterprise resource planning (ERP). Cognos. five-month payback. Despite their high visibility within business. sales force automation (SFA). Other soft dollar returns include improved sales productivity. In an increasingly competitive world where businesses are pursuing workforce productivity advantages to remain competitive. given the rising productivity benefits of providing these voice/data devices to employees. mobile/PBX integration (desktop/mobile phone). Drivers of enterprise smartphone adoption include: productivity and return on investment (ROI) of mobile business email and desktop/mobile integration.August 18. Oracle. PCs. Business datacentric smartphone users (typically larger enterprises. • Soft dollar returns. Still Underpenetrated. and the promise of “mobilizing” the corporate desktop. the potential benefits of wireless enabling the enterprise may become as profound as the historically realized benefits of fax machines. desktop applications. The convenient. smartphone growth in business is expected to continue to be healthy. The ROI of smartphones (238% ROI. networking. content and tools on location to identify and capture more prospects and raise sales conversion rates. deployment of enterprise applications. 6) rising international corporate email usage. Enterprise email users have grown to 490 million in calendar 2008 from 389 million in calendar 2005 (8% CAGR) on growing international corporate email usage. according to Ipsos Reid BlackBerry ROI Study. should continue to remain the brand of choice. Productivity Benefits. Salesforce. small to medium businesses (SMBs) and executives whose smartphone usage is primarily business related and whose service is often expensed) rose from 3 million in calendar 2004 to 30 million in calendar 2008. We estimate there were only 30 million enterprise smartphone users in calendar 2008. We believe.

2009 Immediacy: 2.200 voice calls per year.125/yr Workflow: 38% increase in team efficiency. applications and other functionality will rise in importance for the ‘productivity-centric’ market segment (of which business users – enterprises. value = $16. value = $3. Additionally. While browsing.0% 4. manageability.0% 2.1% 7.0% 0. battery life. superior security. value = $7. reliability. in our view.0% 3. Exhibit 23: Global Enterprise Email Remains Underpenetrated 600 500 400 300 200 0. where SMS has been the dominant messaging medium but where users are now evolving to embrace mobile email. Favoring RIM.400/yr BlackBerry TCO (total cost of ownership): $1. through offering IT (a key gatekeeper for business penetration).0% 1.0% Corporate Email Users Source: RBC Capital Markets % Enterprise Smartphone Users 22 Mike Abramsky % Enterprise Smartphone Users Corporate Email Users (MM) .0% 5.). etc. and consumers combining work/business use – comprise a significant portion). particularly outside North America. messaging simplicity/power..0% 2.0% 6. which robust mobile business email users crave.9% 5. messaging/data/voice integration.315 per user per year ROI and payback period: minimum of 238% ROI and 5 months (based on $50k salary) Source: Ipsos Reid BlackBerry ROI Study. RIM should maintain its competitive advantage.Wireless Industry Exhibit 22: ROI of a BlackBerry Deployment • • • • • Personal productivity: 250 hours per user per year.9% 100 0 2003A 2004A 2005A 2006A 2007A 2008A 0.500 time sensitive emails and 1. etc. SMBs. This global trend continues to favor RIM. keyboard design.0% 6.4% 2. mobile email is expected to remain a prioritized requirement for these market segments for smartphones. given its sustained competitive advantage in providing a superior “Crackberry” mobile email experience and related experience advantages (reliability.815/yr August 18. 2007 Email Remains the Killer App.

Raising Smartphone Forecast.2 4.6% prior).8 1. from 4. GPS. in countries where PC and Internet penetration is low.g.9% 2012E 766. Facebook. smartphones could have the opportunity to become the first and primary exposure for millions of consumers to the Internet. Internationally. email.. and others segments (e.) as users switch to smartphones.g. portable media.4% prior).4% 18.0% % of Total Mobile Phone Users 2006A Global Data-Centric Smartphone Users (MM) % of Total Mobile Phone Users 42. TVs (200 million units per year). digital cameras (125 million units per year).August 18. digital cameras.1% 2008A 165. messaging. 5) greater variety of smartphones from manufacturers.6% 11. Internationally. 4) increasing consumer smartphone awareness and retail shelf space. vertical market reader.7 11. peripherals.0% % of Global Mobile Phone Users 16.0% 2.. etc. Exhibit 24: Global Data-Centric Smartphone User Forecast (% of Total Mobile Users) Global Data-Centric Smartphone Users 900 800 700 600 (MM) 500 400 300 200 100 0 2006A 2007A 2008A 2009E 2010E 2011E 2012E 3. 2009 Wireless Industry Sizing the Smartphone Market Huge. media. Nascent. We expect smartphone units to rise to ~504 million by calendar 2012 (395 million prior). the smartphone will be their first introduction to the Internet. Underpenetrated Larger Than the Phone Market. thus. MySpace.5 6. apps. consumer electronics (e. personal gaming devices (37 million units per year)..g. market share and profits from not only the 1 billion unit+ per year handset market – but possibly also from the PC market (300 million units per year).4% of phone users in Mike Abramsky 23 .0% 6. We are raising our global smartphone user estimate to ~766 million by calendar 2012 (622 million prior).3 3. email. Because of their convergence capabilities. mobile applications and content – bypassing PCs and tethered Internet altogether. representing a CAGR of 41% (33% prior) and 35. 2) better smartphone capabilities and user experience (e.9% 15. We . see “data-centric” smartphone user penetration growing at a CAGR of 47%.4% 6.0% 8.1% 8.6% 4.0% 10.4% Source: RBC Capital Markets estimates 165 Million Global Data-Centric Smartphone Users Growing at 47% CAGR. etc.4% of total mobile phone users (12.6% Global Data-Centric Smartphone Users (MM) 2007A 102.0% 14. voice/SMS and broadband replacements. Amazon Kindle. portable navigation devices (32 million units per year) and other formerly discrete market segments.1% of global mobile phone handsets (24. personal media players (230 million units per year). and social networking (e..1% 2010E 374.1 8. portable gaming.6% 2011E 553.1 15. we estimate that millions of global users will shift to smartphones over the next decade due not only to the strong global replacement cycle as buyers upgrade from voice-only/SMS phones to smartphones.). revenues. etc.4% 2009E 247. Our revised forecast contemplates: 1) more aggressive carrier smartphone promotions (higher subsidies. 3) higher landline.1% 1. portable navigation. and. but also due to market share gains from PC.g.). we believe that smartphones possess the ability to capture users.).0% 4. lower mobile data pricing). etc. rich browsing. With 56% of the world’s population already using mobile phones.0% 0.0% 12. Twitter. for many users. representing a CAGR of 47% (39% prior) and 15.

Looking out further. digital cameras.e. we see smartphone shipments rising to ~800 million units by calendar 2014.. along with the growth in applications and proliferation of new designs and functionality.5 28.4% by calendar 2012 (an estimated 766 million users). GPS.1% CAGR 41.).2% % of Total Addressable Market (TAM) 2009E 164. from ~127 million sold in 2008 to an estimated 504 million units by 2012.2% Source: RBC Capital Markets estimates Smartphones to Exceed Voice-Only Phones in 2014. interfaces.5% 2012E 503. which makes upgrades more affordable. units shipped globally are expected to expand four times (41% CAGR) between calendars 2008 and 2012.Wireless Industry August 18.8 10.9 35. Exhibit 25: Global Data-Centric Smartphone Unit Forecast (MM) 600 Global Data-Centric Smartphone Units 500 400 (MM) 300 200 100 0 2008A 2009E 2010E 2011E 2012E 40% 35% 30% 25% 20% 15% 10% 5% 0% % of Total Addressable Market (TAM) Global Data-Centric Smartphone Units 2008A Global Data-Centric Smartphone Units % of Total Addressable Market (TAM) 126. media players. 24 Mike Abramsky . form factors. Under our datacentric smartphone definition. i. smartphone buyers tend to upgrade faster than regular phone buyers since technological improvements (like 3G) provide more urgency to upgrade and subsidies are greater. Our view is that at the early innovation stage.8% 2010E 250. Our outlook calls for data-centric smartphone units to rise from 10% of the total addressable market (TAM. 127 Million Global Data-Centric Smartphone Units Growing at 41% CAGR. 2009 calendar 2008 (an estimated 165 million users) to 15. total mobile phones sold) in calendar 2008 to an estimated 35% TAM by calendar 2012. exceeding voice-only phones.to 24-month replacement cycle – faster than the three to five years (average) in the mobile phone market.9 14.4 20. etc. This assumption is based on the fast pace of smartphone innovation (3G. Our outlook is based on an 18.6% 2011E 376.

2% 2016E 60.5% 30% 45% 60. 2009 Wireless Industry Exhibit 26: Long-Term Global Forecast: Data-Centric Smartphones vs. Mike Abramsky 25 . we estimate 104 million (82%) were sold to consumers and 23 million (18%) to business users. On a unit basis.6% 2015E 59.5% 2012E 35.3% Source: RBC Capital Markets estimates Consumer versus Business Consumer Smartphone Units to Grow at 43% CAGR.7% 60% 15% 0% Voice-Only Phone Units 2008A Smartphones as % of Total Phones 10.7% 75% % of Total Addressable Market (TAM) 59.6% 14.000 800 600 400 200 0 2008A 2009E 2010E 2011E 2012E 2013E 10.600 1. out of an estimated 127 million data-centric smartphones sold globally in calendar 2008.1% 2013E 46.800 1. The consumer smartphone market is expected to grow materially faster than the business market over the next four years and be seven times as large. This is expected to rise to 438 million units sold (87%) to consumers by calendar 2012. with 66 million units sold to business users (13%) for a 30% CAGR.8% Global Data-Centric Smartphone Units 2010E 20.8% Smartphones to exceed 50% of total units CY2014 2014E 2015E 2016E % of Total Phones 2014E 52. Voice-Only Phones (MM) 1.2% 2009E 14.200 Units (MM) 1.August 18.1% 28.3% 35. ort a 43% CAGR.6% 46.400 1.2% 20.6% 2011E 28.2% 52.

applications. Business . a group expected to rise to ~100 million by calendar 2012 (13% of total) or a 35% CAGR. form factors.9 164.1% CA GR 43.6% 2011E 2012E % of TAM 2011E 320. 2009 40% 35% 30% 25% 20% 15% 10% 5% 0% 2010E Business 2009E 136. we estimate over 80% (~136 million) were consumers. given the larger size of the potential consumer market.2% 104.1% 41.6 250. where consumers represent a larger portion of the market. earlier penetration of smartphones in businesses versus consumers.5 503. etc.Wireless Industry Exhibit 27: Global Consumer vs.1 28. larger enterprises. This figure is expected to rise to ~667 million in calendar 2012 (87% of total) or a CAGR of 49%.9 35. iconic devices.5 28.8 42.8 10.8% 2010E 207.5% 2012E 438. Our outlook calls for faster growth in consumer data-centric users versus business users. mix-shift from voice-only to smartphones.2% Consumer Smartphones Users to Rise at 49% CAGR. Out of 165 million total estimated datacentric smartphone users globally in calendar 2008.9 14.8 126. 26 Mike Abramsky % of Total Addressable Market (TAM) .Units (MM) 600 Global Data-Centric Smartphone Units 500 400 (MM) 300 200 100 0 2008A 2009E Consumer 2008A Consumer Business W orldw ide % of Total A ddressable Market (TA M) Source: RBC Capital Markets estimates August 18.0 56.4 65.0 22. favorable factors for consumer growth (pricing.3% 30. There were ~30 million business data-centric smartphone users (18% of total) – typically.4 20.) and international expansion. SMBs and executives whose smartphone usage is primarily business and whose service is often expensed – in calendar 2008.5 376.

3 247. • Global proliferation of fast 3G networks that significantly improve the user experience of mobile browsing.1 553.2 4. “Slider” smartphone with slide out keyboard. entry-level and pre-pay smartphone data plans aligned to local buyer preferences (e. We expect the data-centric smartphone market opportunity to rise globally.000 currently to 1 million by the end of calendar 2009. TMobile G1) into Europe and Asia. Indonesia BlackBerry subscribers are expected to grow from 300. Orange UK launched prepaid BlackBerry data plans at £5/month). iPhone. and.g. • Availability of region-specific and language-specific third-party apps and services.. Mike Abramsky 27 % of Total Mobile Phone Users . • Introduction of lower cost.9% 2012E 666.4% 2009E 204. • Increased focus on data by international carriers (e.1 15. email.1 8.g.. and innovative data plans.. BlackBerry Storm. along with iconic phones with localized form factors (e.7 165. according to Indonesia’s Department of Communication and Information Technology).7 11. 2009 Exhibit 28: Global Consumer vs.g. multimedia viewing.7% International Smartphone Forecast International Market User Forecast. • Rising awareness and distribution of iconic smartphones (e.2 43.5 6.6 83. driven by: • Global adoption of mobile data services like web browsing.Users (MM) Global Data-Centric Smartphone Users (MM) 900 800 700 600 500 400 300 200 100 0 2008A Consumer Consumer Business W orldw ide % of Total Mobile Phone Users Source: RBC Capital Markets estimates Wireless Industry 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2009E Business 2008A 135. given aggressive competition between mobile operators.6% 2011E 470.5 29. navigation.5 99.3% 46.6 766.August 18. rising consumer BlackBerry appeal and desire. and touchscreens). in January 2009.6 374.1% 2010E 2011E 2012E % of Total Mobile Phone Users 2010E 310.g. with growth expected to be greater in emerging markets as users experience the Internet for the first time through a smartphone – includes over 300 million “experimenting” with mobile email in late calendar 2007. and downloads..5 63.4% CA GR 48. Business . and apps.9% 35.

2009 North America (38% CAGR) Data-Centric Smartphone Data-Centric Smartphone 350 300 250 200 150 100 50 350 300 250 200 150 100 50 - Western Europe (43% CAGR) Users (MM) Users (MM) 153 43 180 43 CY08 CY12E CY08 CY12E Data-Centric Smartphone 350 Users (MM) 300 250 200 150 100 50 - Asia-Pacific (54% CAGR) 306 RoW (51% CAGR) Data-Centric Smartphone 350 300 250 200 150 100 50 - 55 Users (MM) 127 25 CY 08 CY 12E CY08 CY12E Source: RBC Capital Markets estimates Mike Abramsky 28 .Wireless Industry Exhibit 29: International Data-Centric Smartphone User Penetration (% of Total Mobile Phone Users) August 18.

6% New innovative Smartphones.2 14. advanced multimedia.8% 5.5 1. competition fro m mass market phones with 'good enough' social netwo rking and messaging features. per capita income limitations.4% 42. proliferation of 3G networks. Symbian introduces compelling mobile data services. consumer electronics spending slowdown. social networking.9 554. proliferation of 3G networks.5% 58. Western Europe Total Mobile Phone Users (M M) Smartphone % of Mobile Phone Users Data-Centric Smartphone Users (MM) 498.8% 2. competition fro m mass market phones with 'good enough' social netwo rking and messaging features. navigation. Availability of local region content and apps. Source: RBC Capital Markets Research estimates Mike Abramsky 29 . broad distribution of Android devices.7 32.4 368.4 511. speed of Smartpho ne component cost reductions and introduction of low cost 'emerging markets' Smartphones. IM.953.5% 86. greater penetration of MS Exchange and Lotus Notes for business users.627.5% 180.). new innovative Smartphones.0% 115.1 13. 2009E 2010E 2011E 2012E CAGR Adoption Drivers August 18.).5% 54.1 23.5% 225.6% 5. social networking.3% 93.2 25. social networking.4 525. collaboration (email.6 53.5 3. lower data pricing and subsidized device pricing. Asia -Pacific Total Mobile Phone Users (M M) Smartphone % of Mobile Phone Users Data-Centric Smartphone Users (MM) 1.2 10. collaboration (email.3% 86.7 1.7 1.1 11. sustained high data plan pricing due to network capacity constraints. etc.7 5. competition from mass market phones with 'good eno ugh' social networking and messaging features. lower data pricing and subsidized device pricing.5 1. increasing user desire for mobile browsing. lower data pricing and subsidized device pricing. navigation. Consumer electronics spending slowdown. IM. sustained high data plan pricing due to network capacity constraints.0% 83.5% 152.7% Mobilizatio n of local region content and apps.0 2.3 1.697. competition from mass market phones with 'good eno ugh' social networking and messaging features. lower data pricing and subsidized device pricing.557.1 349.5% 127. new innovative Smartphones.7% 57. sustained high data plan pricing due to network capacity constraints.8 5. navigation. Symbian introduces compelling mobile data services.7 3.143.2% 57.469. Symbian introduces compelling mobile data services.351. reduction in data roaming fees. 2009 Potential Adoption Inhibitors Consumer electronics spending slowdown.6 2. greater awareness/distribution of BlackBerry and iPhone.4 41.8 33. advanced multimedia. increasing user desire fo r mobile browsing. collaboration (email.3 42.1 332.8 7.5 2.7% New innovative Smartphones.Wireless Industry Exhibit 30: International Data-Centric Smartphone User Penetration (% of Total Mobile Phone Users) and Drivers International Smartphone User Penetration (% of TAM) 2008A North America Total Mobile Phone Users (M M) Smartphone % of Mobile Phone Users Data-Centric Smartphone Users (MM) 296.9% 10. advanced multimedia.8% 24.7 7. navigation. increasing user desire for mobile browsing.8% Mobilizatio n of Asia-Pacific content and apps.0 18. IM.5% 126.0% 305.9 37.). collaboration (email. per capita income limitations. increasing use of Smartphones to replace Internet cafes.9 16.).6 8. etc. speed of Smartpho ne component cost reductions and introduction of low cost 'emerging markets' Smartphones.753.8 540.5% 146. broad distribution of Android devices. greater awareness/distribution of BlackBerry and iPhone. Availability of Asia-Pacific content and apps. etc.5 1. IM.560. consumer electronics spending slowdown. sustained high data plan pricing due to network capacity constraints. advanced multimedia. social networking. etc. Rest of the World (RoW) Total Mobile Phone Users (M M) Smartphone % of Mobile Phone Users Data-Centric Smartphone Users (MM) 1.3 50. broad distribution of Android devices.7 314.7% 43.6% 38.360.7 1. increasing user desire for mobile browsing.

Germany and Italy) was ranked at 17% of users “experimenting with mobile email” versus 12% of users in North America.8% 53. or a 54% CAGR. Thailand.7% Source: RBC Capital Markets Research estimates 30 Mike Abramsky .7 165.1 86. representing a 53% CAGR. Indonesia.6 billion mobile phone subs).. which represents a CAGR of 43%. Exhibit 31: International Data-Centric Smartphone Market Forecast – Users 900 Data-Centric Smartphone Users (MM) 800 700 600 500 400 300 200 100 0 2008A 2009E North America 2010E Western Europe 2008A North America Western Europe Asia-Pacific Ro W Worldwide 42. which is expected to rise to ~153 million in calendar 2012 (42% penetration) or a 38% CAGR.4 billion total subs).3 553. Spain.4 54. but are expected to grow rapidly. Africa. including Latin America. Russia. growing to ~306 million users by calendar 2012 (13% of 2.3 766.4 billion total subs) to ~127 million by calendar 2012 (8% of 1.1 2011E 115.7 billion total subs) or growing at a 51% CAGR. Western Europe (U. We estimate Western Europe data-centric smartphone users at ~43 million in calendar 2008 (9% penetration).9 225. rising to ~180 million in calendar 2012 (33% penetration). and Singapore among others) at ~55 million data-centric smartphone users in calendar 2008 (3. An estimated 11% of mobile users in China and 84% in Japan were “experimenting” with mobile email. we estimate there were ~43 million users in North America (14% penetration).5 247. Eastern Europe.8% of 1.Wireless Industry August 18. Australia.4 93.5% of 1. France.0 86. Asia Pacific and Rest of the World Markets. Considered a leading indicator of data-centric smartphone growth.7 374. Out of 165 million total data-centric smartphone users globally in calendar 2008.K. suggesting a strong emerging Asia-Pacific data-centric smartphone opportunity. • We estimate Asia-Pacific (including Japan.5 57. Regions outside North America and Western Europe accounted for an estimated 79 million data-centric smartphone users in calendar 2008 or 48% of total.7 43. 2009 North America and Western Europe.6 127.7 2012E RoW 2012E 152.4 126.1 57.9% 50.3 305.8% 46.6% 42.2 2009E 58. Korea. and the Middle East) to grow from ~25 million data-centric smartphone users in calendar 2008 (1. New Zealand.5 2011E Asia-Pacific 2010E 83.5 24.1 CAGR 37.5 38. India. China.9 180. reaching 433 million users or 57% of total datacentric smartphone users by calendar 2012.8 146. • We estimate RoW (Rest of the World.

2% 2009E 36.8 20.9 14. representing a CAGR of 33%. Korea (45 million subs. as these users – already familiar with text entry – begin to seek to enhance their mobile experience beyond voice/SMS by adding mobile email and browsing features.3 SMS/subscriber/day). representing a CAGR of 46%.9 376. developing nations are high users of SMS.1 199. with a high percentage of ‘grey market’ devices.2 164. Our outlook calls for North American data-centric smartphone unit sales to rise from 31 million units in calendar 2008 (18% of TAM) to 98 million units (64% of TAM) in calendar 2012. but remain difficult to crack for some smartphone manufacturers.8 155.8 10.6 SMS/subscriber/day.0% 43.August 18.8% 2011E Asia-Pacific 2010E 54. due to: • Cheap knockoffs/counterfeits.8 66.5 250.1 99.0 58.6% 2011E 76. China.2 26.8 38. smartphone units are expected to rise from 31 million units in calendar 2008 (17% of TAM) to an estimated 120 million units in calendar 2012 (71% TAM). With 2.3% 40.6 126. smartphone units are expected to increase from 21 million units in calendar 2008 (5% of TAM) to an estimated 87 million units by calendar 2012 (23% TAM).5% 2012E RoW 2012E 98.1% 41. many iPhone clones offering a similar multi-touch UI have come onto the market. or at a 43% CAGR. In Western Europe. ahead of Western Europe at 1.2 120. sending 1.5 503.6 58.8 35. for example. Exhibit 32: International Data-Centric Smartphone Market Breakdown – Units 600 Data-Centric Smartphone Units (MM) 500 400 300 200 100 0 2008A 2009E North America 2010E Western Europe 2008A North America Western Europe Asia-Pacific Ro W Worldwide % of Total Addressable Market (TAM) 31.0% 46. Japan: Huge but Tough to Crack. China (estimated 600 million mobile phone subs and adding approximately 100 million per year). 2009 Wireless Industry International Unit Shipment Forecast.1% CAGR 33.1 85.4 20. This suggests a large opportunity for smartphone growth. mobile messaging is hugely popular around the world.3 43.1 31.4 SMS/subscriber/day (versus North America at 4.5 trillion SMS messages and 50 billion MMS messages sent in calendar 2008. In Asia-Pacific. In other regions (RoW). China Mobile’s “Redberry” is a clone of RIM’s BlackBerry push email service at a fraction of the Mike Abramsky 31 . single-digit growth) and Japan (110 million subs.5 28. we expect data-centric smartphone units to rise from 44 million in calendar 2008 (9% of TAM) to an estimated 199 million units by calendar 2012 (27% TAM). With approximately 700 SMS/subscriber sent in calendar 2008 (an average of 2/subscriber/day). or at a 40% CAGR.2% Source: RBC Capital Markets Research SMS: The Global Leading Indicator for Mobile Data. affirming the long-term opportunity for smartphones and mobile data.0 86. Korea.9 35. single-digit growth) present attractive long-term growth opportunities for data-centric smartphones.

• Favoritism.g. barriers and bias towards local solutions.Wireless Industry August 18. fueled by the iPhone fever there. Owing to its early deployment of 3G networks in 2001 and launches of mobile services like HTML web browsing. iPhone and BlackBerry). given low disposable income. and recently in Australia.). Indonesia (estimated 120 million subs). • Unique cultural differences. the Asia-Pacific market represents a large opportunity. up from 67% in 2006. social networking. Japan was one of the earliest adopters of mobile Internet. data plan uptake in these regions significantly lags North America and Western Europe. interest in mobile services (email. the deployment and promotion of Telstra’s 3G network. limited integrated services available on smartphones and other factors.. ticket booking. The success of mobile data in Japan is primarily due to NTT DoCoMo’s i-mode and KDDI’s EZWeb. sports results. leading to the launch of BlackBerry in South Korea (iPhone and other smartphone launches are still pending).. Smartphone penetration in AsiaPacific is expected to rise over time. unlocked Apple iPhones – minus warranty and some features – are commonly sold in China via the black market. however. Australia (estimated 23 million subs).). Taiwan (estimated 24 million subs). Outside China. 2009 price. Smartphones are an attractive status item in other Asia-Pacific countries like Indonesia. and Emoji (picture characters or emoticons) support.g. weather forecasts. along with competitive entry-level data pricing..S. eliminates the cost of using Internet cafes). 32 Mike Abramsky . Japan: Leading the World in Mobile Data. with more than 90% of the estimated 110 million mobile phone subs using mobile data services. brand recognition (e. South Korea has remained largely closed to foreign phone manufacturers due to regulations mandating all mobile phones support Korea’s proprietary WIPI (Wireless Internet Platform for Interoperability) standard. with high sales of Symbian (e. browsing and productivity user experiences. lacking local preferences for features like TV viewing. 3G penetration in Japan rose to 93% of total subscribers in calendar 2008. etc. with relatively comparable levels of disposable income. • Lower disposable income for mobile data services (ARPU in China is approximately $10/month versus $52/month in the U. However. etc.g. Mobile data represented 37% or $23 billion of total service revenue in Japan in calendar 2008. Japan is one of the leading regions in mobile data. and mobile TV. Foreign smartphones have previously struggled in Japan. Other Asia-Pacific Opportunities. the Philippines. called "Ai Feng" ("Love Craze"). Thailand. up from 28% or $17 billion in calendar 2006. Nokia N96 or E71) and Windows Mobile smartphones featuring large digital cameras or robust media players. Data-centric smartphone penetration in Australia and New Zealand is expected to be similar to North American and Western European trends. email. IM.. for example. given the compelling services offered by smartphones versus the low wireline Internet access (e. embedded chips enabling mobile payments. Thailand (estimated 60 million subs). Hong Kong. including India (estimated 280 million subs). the Philippines (estimated over 60 million subs). recent smartphones like the iPhone and BlackBerry Bold are rising in popularity given their superior multimedia. games. and Hong Kong (estimated 10 million subs) among others. the requirement was abolished in April 2009. Taiwan. Korea and Japan.

smartphone vendors. While difficult to accurately predict what other segments may emerge and their significance or sustainability. 2009 Wireless Industry Smartphone Market Segmentation Smartphone Segmentation. limiting the vendor field. leading to speculation that other contenders (challengers or incumbents) will face an uphill battle to lead the smartphone market – or. age. conversely. and RIM with its message-centric BlackBerry platform.. and. texting. and other productivity-enhancing functionality before other features. and other stakeholders. While some view the smartphone vendor landscape as already “set” with RIM and Apple the leaders. and.g. 4-5 Smartphone Leaders. etc. rather than supporting 10 to 20 or more vendors and segments. developers. collaboration. (Amazon’s Kindle wireless eBook reader. while perhaps not reflecting a discrete market segment. has staked out the “media-centric” segment – users who prize media and content before other features – while RIM has staked out the “productivity-centric” segment – users who prize push email. sex. we believe market segmentation in smartphones will continue. illustrates how new market segments served by new vendors remain possible). non-intimidating) smartphones that sell sustainably.) but by common smartphone buying/usage behavior and prioritized preferences. in our view. Our view is different. Some valid segments which could emerge include: • PIM-centric – users who prize personal organization above other features.August 18. we believe it is early in the smartphone race and that significant evolution of the vendor landscape could lie ahead. including: a) the complexity of making iconic (craved. dominated by four to five leading smartphone vendors. we believe Apple and RIM have staked out two smartphone market segments. underpenetrated smartphone market for perhaps two or three other leading smartphone vendors to emerge. b) wireless carriers’ inability to support or subsidize more than one or two smartphone OSs or iconic handsets each. Thus. work/life integration. we think the smartphone market (at least for the next few years) will evolve into discrete market segments. “media-centric” and “productivity-centric”. Likely Market Segments. books. d) the size of segments sufficient as to be commercially attractive to carriers. While many contenders will rise and fall. that Apple and RIM’s competitive advantages will diminish as competitors flood the market. while other smartphone market segments (some of which haven’t emerged yet) represent significant new opportunities ahead.).. • Cloud-centric – users who prize the cloud-centric smartphone user experience. It is our view that only a select few smartphone vendors possess the necessary and sustainable competitive advantages (versus some incumbents or lower-cost challengers) to dominate the market. 20-30% of the total smartphone market). <5% global share). While we agree (as discussed in the “Challengers to Dominate Smartphone Markets” section) that only a handful of smartphone vendors possess the skills to dominate the market. gaming. Apple. Some of these segments (and vendor shares) may become large (e. we believe there is room in the nascent. Mike Abramsky 33 . who also can only support two to three platforms. Apple has been successful with its media-centric iPhone platform that incorporates iTunes. while others may remain niche (e. etc.g. c) iconic smartphone platforms gaining a critical mass of developers and content. • Specialized (video. We define smartphone market segments not by user type (geography. we foresee the market supporting four to five because of the unique ‘gating factors’.

Market segment focus – a key to smartphone leadership – means declining to try and be all things to all people (“that’s not what we choose to do”). operating systems. however. innovative. whereas media-centric smartphones may disproportionably feature premium multimedia and content (like high-end gaming). choosing instead specific designs. it is their execution of smartphone features. Productivity-centric smartphones from RIM may disproportionately offer applications and content that improve personal productivity. software and content versus RIM’s differentiated choices of the same). Function Follows Market Focus. form factors. although all leading smartphone platforms will likely share similar popular applications and content. mobile browsing. wireless email. content. content. applications. functionality. in our view.g. features. 2009 Source: RBC Capital Markets Form. in order to deliver differentiated. For example. form factors. 34 Mike Abramsky . applications and related services which differentiate them. etc.. driven by each vendor’s unique philosophy and market focus (e. Apple’s choice of its designs. each may specialize in featuring certain applications and content prized by their target audiences. simple. form factors.). Smartphones and services from leading vendors targeting these different market segments may share common characteristics (cellphone. powerful user experiences best suited to the desires of their target market.Wireless Industry Exhibit 33: Smartphone Market Segmentation August 18. functionality. etc. application types.

and content for the device. than media-centric users. including support for third-party consumer email platforms.. Cloud-centric users are data-centric users who are heavy web users.. Media-centric users are attracted to data-centric smartphones with powerful media players. as is integration with popular enterprise messaging and security standards.e. MMS. movie and picture capabilities. and are looking for a smartphone to mobilize social networking. Scope of content (music. Work-email integration is a consideration. location-based search) and Wi-Fi improves connectivity in areas with low network coverage. web apps and services. applications and content. movies. Cloud-centric users are attracted to smartphones with tight integration with a broad number of web-based email platforms. RealNetworks Rhapsody. Media-centric users are satisfied with casual data entry (versus frequent email. etc. Seamless integration with thirdparty multimedia stores and web sharing sites. while still prizing data experiences and voice. along with more purposedriven web browsing (i. along with related service costs. 2009 Candidate Segment Definitions Wireless Industry Media-centric users are data-centric users who. social networking websites... Cloud-centric users may prioritize both a tactile QWERTY keyboard for rapid data entry and usage. GPS and Wi-Fi are prioritized. given the need for a fast web-browsing experience. etc.. some Web use . which offers better tactile feedback (e. 3G. for voicemail systems. are key purchase requirements. but users are willing to accept ‘functional’ capabilities in these areas as a tradeoff for productivity-centric advantages. movies. and multimedia capabilities. Personalization is prized by these users particularly for media-centric functionality. and are interested in the reliability/robustness/versatility of the smartphone’s messaging and PIM capabilities. such as powerful media players. seeking information for productivity versus casual surfing). Integration of work use. Flash. applications and content along with related service costs.g.g. Amazon MP3 store. high-resolution digital cameras). IM. and web services. Work-email integration is a requirement for these users.August 18. notes) with wireless synchronization are more important to these users.) and sufficient storage and battery life. games. Heavy email/messaging users may prefer a QWERTY keyboard. Cost/pricing/features of productivity features.g. more frequently using email. are key purchase requirements. web-based email. primarily acquire a smartphone for superior multimedia and content experiences. like typing URLs or searches or typing new phone #s). instant messaging systems. serviceability and battery life are more important. photographic capabilities (e. Cost/pricing/features of multimedia features. applications. sufficiently available scope of music. storage. messaging). Work-email integration is a Mike Abramsky 35 . and others).g. as productivity-centric users depend more on their smartphones to support their work-related needs first before play. such as via a sleek UI and intuitive media player and web browser. For personal entertainment and other experiences.. and a compelling “casual” web-browsing experience.g. like Flickr. music. emerging location-based services enhance the cloud experience (e. but not a requirement. with these users taking full data plans. Productivity-centric users seek speed and productivity for data entry and usage (such as offered by a tactile QWERTY keyboard. along with a large touchscreen for a superior browsing experience or improved usability of web apps (e. form-filling. Phone reliability. thirdparty productivity apps. Productivity-centric users are data-centric users who still prize multimedia and voice. iTunes. applications) and mobile web browsing remain important. along with rich and powerful web browsing (support for Java. games. functionality and data with personal data/life on a single device is often also a high priority for message-centric users. willing to trade off speed and productivity (via a virtual keyboard for example) for elegance and simplicity in multimedia usability and design. messaging. BlackBerry Storm’s clickscreen or slide-out QWERTY keyboard).). seamless integration with third party multimedia stores (e. along with features like attachment viewing/editing. Features such as PIM (calendar. contacts. are a priority. these users prize powerful picture/video capabilities (high-resolution cameras. but are primarily interested in their smartphone’s data capabilities to improve personal productivity. Google Docs).

Navigation devices don’t have QWERTY keyboards. high resolution digital camera). PIM-centric users may prioritize a tactile QWERTY keyboard for rapid data entry and usage. applications and content are key purchase requirements. in some cases. but allows for full page text reading. but not a requirement. Amazon Kindle). are key purchase requirements. Amazon Kindle has a large form factor (10.2" x 0. but not a requirement for these users. Lotus Notes. and navigation users get traffic updates over the air.Wireless Industry August 18. Integration of work use. iPod Touch users can download apps and multimedia. 2009 consideration. navigation. For example. applications and content along with related service costs. and Groupwise). and seamless integration with third-party multimedia stores are a consideration. etc. along with basic email integration. Cost/pricing/features of multimedia features. mobile data is crucial for the full experience. Amazon Kindle users can purchase books over the air. and integration with enterprise messaging systems (like MS Exchange. such as book reading. and notes. calendar. 36 Mike Abramsky . Multimedia capabilities such as powerful media players. multimedia. Cost/pricing/features of multimedia features. gaming. Specialized users prize features that materially improve the user experience for the specific task.g.. the cost of mobile data service is built into the up-front cost of the device (e. applications and content along with related service costs. to organize their lives. PIM-centric users seek smartphones with robust mobile/connected PIM features and usability.. While users’ needs are as diverse as the tasks. Cost/pricing/features of multimedia features. for these users.4" x 7. functionality and data is important to PIM-centric users. are key purchase requirements. For example. photographic capabilities (e. Specialized users are data-centric users who prefer a mobile device designed for a particular task.g. enterprise/vertical market processes.38"). instead relying on touchscreens for infrequent data input. PIM-centric users are data-centric users who rely heavily on traditional personal information management features like contacts.

Motorola. among others. and support – along with cultural. we believe challengers like RIM.What Makes Their Products So Special? In our view. it is Apple and RIM’s ability to create simple. unique. • Deep Vertical Integration: Smartphone vendor ownership of hardware. email. margins. distribution (i. Some incumbents. but we estimate many were sold without mobile data plans). manufacturing. addictive and non-intimidating mobile data experiences users love/crave. Overcome Intimidation. differentiated. given their unique ability to create compelling. RIM . We believe that leading smartphone vendors possess two unique competitive advantages: 1) Create The Crave: Innovative. phone. • Enterprise: Mobile data represents heightened security and manageability challenges for enterprises – even more than traditional on-premise networks. • Carrier Networks: Smartphone experiences are often undermined by the spectrum. etc. thermostat. sell. their phone is their lifeline and they are afraid of making a mistake. multimedia iPod and Apps experience of the iPhone. (Nokia shipped 10 million+ units of smartphones like the N95. and organizational advantages. network. taking market share from incumbent vendors such as Nokia. and HP. non-intimidating user experiences. convenient. why do I need mobile email? mobile browsing? mobile apps?") in switching from voice to smartphones. These differences (wireless versus PC/Internet) include: • Constraints: The constraints of mobile devices. LG Voyager. are two examples of unique iconic smartphone experiences that millions of consumers worldwide recognize and seek out. thus. many feel powerless when they can’t use the technology of their car. execution.. as for many. and subsidies. 2) Overcome Intimidation: Overcome the fear the mass market holds for technology. will dominate the smartphone market. In our view. Beyond early adopters. Leading smartphone vendors master the carrier channel to address legacy issues which can undermine user experience. Apple. carrier). Data is Hard. . make it difficult to innovate and engineer delightful. including battery life and small-screens. But Very Few Have Sold 10 Million+.) have sold well initially to early adopters. stereo. engineer. reaching mass markets is challenging. Most consumers globally feel intimidated by complex technology. market. Samsung. and coverage constraints (for data) of mobile networks. distribute.and. However. carrier leverage. and support than traditional voice/SMS cellphones or PCs. intuitive and elegant UI – along with the safe Apple in-store buying experience – the iPhone Mike Abramsky 37 . however. Apple. ATM. Sony Ericsson. software. PC or Internet markets make data-centric smartphones more difficult to design.. O2 XDA.g. manufacture. RIM and Apple have been successful in overcoming buyer inertia ("I use SMS and am happy. car stereo. Dell. software and services combined is a requirement and a competitive advantage. who may face challenges growing their smartphone franchises. satellite radio. Smartphones that appear complex and intimidating exacerbate these fears. because most smartphones don’t sustainably delight and entice millions of users with their unique user experiences. wireless hardware. Samsung Blackjack and Instinct. computer. sales. Sony. are rewarded by market share. and possibly Palm and Google.e. sales subsequently stalled as mass market buyers never materialized. and most smartphones are too complex and intimidating to millions of users who are only comfortable with knowing how to use simple cellphones. iconic user experiences. With its simple. The reliable ‘Crackberry’ email experience of the BlackBerry. VCR. programmable coffeemaker.August 18. in an oft-repeated pattern. Motorola Q. Many Can Sell 1 Million Smartphones. etc. addictive smartphone experiences craved by the mass market.. customer loyalty. design. may be able to address their challenges and succeed in the market. and the compelling mobile browsing. LG. TV remote. Those smartphone vendors well positioned to lead the industry possess unique competitive advantages and skills versus incumbent vendors in hardware. simple. 2009 Wireless Industry Challengers To Dominate Smartphone Markets Vendor Share Shifts Expected. Internet. roaming. Important differences from the traditional cellphone. Create the ‘Crave’. Many smartphones (e.

RIM’s integrated email. and intuitive – and works. shouldering a higher burden of their own tech support. RIM and Apple also control related services (Apple iTunes/Web. RIM. BlackBerry’s user experience is simple. RIM’s network operating center (NOC)). Deep Vertical Integration "My aim is to make things as simple as possible. While “make it simple” sounds easy and obvious.” “I want to get my email and mobile web but I’m scared to try it. Exhibit 34: Intimidation Factor Particularly an Issue with Smartphones The ‘Intimidation’ Factor: “I know how to use a phone – but I’m scared of that complex-looking smartphone. push-based messaging is critical because it provides immediacy to messaging information. It is the artful and clever engineering of both software and hardware together that Apple and RIM use to create their distinctive delightful. Consumers like the proprietary integration between iTunes. etc. applications are appealing over more complex alternatives – because of their ease. the experience improves and adds additional value as the user gains expertise with the smartphone. marketing. powerful." – C. because it demands the discipline. adoring customers. • RIM provides its ‘Crackberry’ email experiences via push-based messaging and single inbox synchronization in a seamless. addictive user experiences. software development kit (SDK). e. but not simpler than that. etc. a key characteristic of leading smartphone vendors is deep vertical integration: their control over all aspects of the user experience – software. Simplicity also means discoverability. This goal is further complicated by engineering within the aforementioned constraints and complexities of wireless data handsets. Ceram Making complex technology simple is among the rarest and most difficult challenges in technology. and BlackBerry has similarly overcome IT fears of security. secure fashion. etc." – Albert Einstein In our view.” “What if I forgot how to use it? What if I make a mistake and screw up my phone?” “My phone is my lifeline — I want a smartphone that I’m not afraid of. which others (including Microsoft) have attempted but not yet duplicated. and support. Apple and Palm control both hardware and software (UI. and end up being forced to raise a fuss just to get the customer service they deserved in the first place. bundled applications. secure.. • Apple provides its multi-touch browsing experience via the integration of both software and hardware technologies. required a significant learning curve (with a thick instruction book to match). and those vendors (like Apple) who exemplify “ease of use”. even distribution. in the enterprise. iTunes Store and iPhone/iPods because it works so well and seamlessly. 2009 overcomes these fears. 38 Mike Abramsky . shuffled between support personnel. Some of their best products demanded too much “tinkering” on behalf of the user. judgment and vision of creating only those features that the consumer will embrace and use – while saying “no” to many others. are richly rewarded by millions of loyal.” Source: RBC Capital Markets The Power of Simplicity "I am sorry this is such a long letter. More functional than elegant.g. OS. contact. Just Say “No”. I did not have the time to write a short one. welcomed by frustrated owners seeking support who hate being put on hold. While it sounds easy. power and reliability. calendar. many technology vendors in many industries have tried and failed. which offer reliable UI – critical for a seamless desktop-like mobile browsing experience. and mobile users do not need to initiate a connection to the server to check important messages – the messages find them." – Mark Twain "Genius is the ability to reduce the complicated to the simple.Wireless Industry August 18. hardware and related services. Always-on. carrier networks.). etc. Simplicity extends to sales and support as well. it is very difficult to do. and detracted from (versus enhanced) convenience. were non-intuitive in achieving important tasks.W.

bandwidth constraints. In the case of BlackBerry. processing. and Webkit-based browser. horizontal integration helps drive down costs and increases flexibility in producing products for multiple markets off common components and suppliers. etc. over deep vertically integrated vendors. and other constraints of smartphones demand tight integration between the software and hardware in order to overcome these constraints while still offering superior. or want push email –or even 3G data –both of which consume processor cycles. Sony PlayStation 3. its software and compression protocols are also designed to avoid taxing overstressed wireless networks. in addition to storage limitations. support and use common industry suppliers) have proven successful in the PC and high-end cellphone markets. in our view. email. in our opinion. etc. mass market. • Craved User Data Experiences Are Challenging. which place special demands on smartphone hardware and software to accommodate data-centric functions like browsing. leading to reduced costs. interface. iconic smartphone user experiences. • Data Network Challenges. combining/adding multiple capabilities (webcam. along with its fast. Smartphone software for example needs to assure it doesn’t drain the battery or overly tax the processor. However. • Microsoft has evolved its portable Windows Media strategy (formerly similar to its mobile strategy) from licensing (e. OS. scale and standardized user experiences.). and printers). and not crash or freeze or drop calls. Smartphone designers tightly engineer both the hardware and software to meet selected user data experience requirements for a specific target market. and high-speed connections. Third-party web services are tightly integrated into WebOS’s UI and developers can access innovative WebOS features like Synergy and notifications. engineers have the luxury of power. Controlling software. multi-touch WebOS user interface. given the higher complexity of software and network instability. be more challenging to achieve where the OS and software is provided by a third-party. With the desktop PC. PlaysForSure) to a vertically integrated Zune media player and marketplace. Other vertically integrated systems also have emerged under similar constraints in related markets: • Amazon Kindle’s book selections are proprietary format only (AZW) running on its Kindle reader and not other readers (Sony. These constraints include the unique power consumption of data devices. Mike Abramsky 39 . Apple designed the iPhone with advanced 3D graphics (to appeal to the gaming and youth market). display space. to which smartphones are more prone. input peripherals. Smartphone designers must contend with spotty data network coverage. This is more challenging to achieve when the OS and software is provided by a third-party.August 18. horizontal business models (where vendors outsource software.. and efficient design of its OS. given: • Data Demands Special Skills over PCs and High-End Feature Phones. non-intimidating software and hardware design. etc. friendly. acceptable battery life through specific hardware choices (processor. data roaming challenges and inconsistent data connectivity. downloads. APIs and SDK. such as when users check their emails frequently causing the screen to consume power. over deep vertically integrated vendors. sound systems. where users intuitively flick. Given that smartphones are at the early stage in their innovation cycle. The power. graphics. this cutting-edge user experience will. memory. In the high-end feature phone market. which voice/SMS mobile phones don’t face to the same extent. Navigation is intuitive with “cards” and multi-touch. • Nintendo Wii. service and hardware together helps develop smartphones designed to manage these network issues for data and optimize the user experience. memory). Why Might Vertically Integrated Smartphone Vendors Initially Win? Traditionally. responsive. manufacturing. Palm also possesses the “special sauce” of compelling. Xbox360 and other gaming systems all have proprietary OS and their own proprietary online forums and marketplaces for community. horizontal integration in smartphones increases the challenges of developing sustainable. iconic user experiences which are both compelling and simple. scroll and zoom. high-end feature phones also do not need to contend with the constraints of data. Voice-centric.g. multitasking constraints. 2009 • Wireless Industry Palm delivers a compelling and unique ‘PIM-centric’ experience via Palm’s ‘Synergy’ user data unification and universal search capabilities. For example. and applications.

For example. but with inferior battery life and bandwidth efficiency. new markets using judgment (versus market analysis or surveys or their largest customers or an ROI analysis. reviewers or journalists. Leading smartphone vendor cultures are oriented around developing new innovations that create new markets (versus enhancing existing ones). • RIM’s BlackBerry OS. Some of Palm’s management (including CEO Rubenstein. application store. etc. Software. RIM. nor planning processes or marketing studies. Even successful challengers sometimes initially resist or miss new innovations and products that represent sharp industry or architectural shifts. simplicity) to execute and deliver their technology. intuitive. Apple and RIM develop smartphone innovations for nascent. it’s the software that is the personality and the soul. In our opinion. Through their success in predicting consumer trends. tightly integrating software and hardware on the Mac. making craved smartphones is in fact an unique art. wireless hardware and design skills. Blaze Their Own Path. requiring the combination of cuttingedge and unique software. including its innovative user interface.Wireless Industry August 18. coupled with their unique skills (crave. successful smartphone leaders like RIM and Apple believe that they are better at predicting what customers want in the future. successful smartphone vendors don’t primarily take future product directions from carriers – nor from industry experts or market research firms. SDK. the body and the brain of a smartphone. marketing and distribution of the new products. nor from investors. having developed their smartphone software and operating systems independently and from the ground up. incorporating innovations like Synergy user data unification. Design: An ‘Art’. they retain their advantage by recognizing their error and shifting rapidly to move in the new direction (Apple portable video and Netbooks. agility to adapt to changing markets. they create. What makes great hardware with software is not the latest technology. nor popular technology pundits.) regarding what technology consumers will or will not value in the future. and network bandwidth efficiency. Failures are viewed as opportunities to learn about what works in the market. 40 Mike Abramsky . competitors. Google and Palm have prior advantages in this area. etc. What sustains successful smartphone vendor advantages is their ability to make sound predictions of future market need. While maintaining carrier relationships. HTML email and touchscreens). Competitors have attempted to emulate RIM’s continuous push email experience. mobile browsing. The successful. iconic products thus developed are often in hindsight called "brilliant vision". software and NOC technology were developed by RIM and are tightly integrated to deliver its legendary ‘Crackberry’ always-on instantaneous messaging experience. emerging opportunities – despite unclear market size or justification. Apple. but the difficult decisions and process of resolving many possible features down to those essential features that make the hardware and software simple and intuitive yet powerful and discoverable – and then designing those selected features to work together elegantly and intuitively so that the experiences are addictive. RIM attachment viewing. universal search and multi-tasking. followed by reattempts at success. design. Innovations like RIM’s BlackBerry or Apple’s iPod and the iPhone are examples of RIM and Apple acting on their judgment regarding what mobile road warriors or music lovers would want in the future – before these markets even existed. 2009 Creating the Future Leading Smartphone Vendor Skill: Creating The Future. • Apple’s iPhone OS uses the software kernel (core code) from its Mac OS X (desktop OS). high battery life. “learn by doing” approach that often shifts gears as new markets develop and their learning about new markets improves. leveraging its “PIM-centric” legacy into its WebOS smartphone platform. along with robust security. • Palm developed its WebOS from the ground up. particularly in nascent markets that have little or no near-term ROI and for which there is little available demand or market research. However. Apple leveraged its prior experience and success. Hardware. to create the iconic iPhone user experience. While seemingly easy. willingness to iterate through failure to success. Sometimes these successful vendors use a more instinctive. rather than chase. but can sometimes be more iterative behind the scenes than realized. financial or industry analysts. ex-Apple) have prior experience in tightly integrating software and hardware to create unique computing user experiences. While hardware and design is the beauty.

particularly at the early stage of evolution of a new computing platform. Similarly. music players.. including revenue share and costs to develop and support (standard revenue share is now 7080%.).).). 4G. Leading smartphone vendors become adept at engineering “converged” portable computing devices. Wi-Fi. partially because of a thriving software application and developer ecosystem atop Windows. or iTunes/media/content). • Consumer engagement on the platform (e. Apple’s App Store and Apps can be viewed as a by-product of a thriving developer ecosystem. speakers. etc. accelerometers. along with iconic Windows-based applications (spreadsheet. Because software and application developers – particularly consumer developers – can’t afford the cost and effort to develop (and sustain development and support for) multiple smartphone OSs and platforms. track wheel for onehanded navigation and data retrieval. smartphone vendors must master the technical complexities of integrating new hardware. etc. for example. Small details that perfect the data experience become prized skills. went through many iterations to make it usable and compact. Bluetooth.g.. Developers! Developers! Developers! A Thriving Developer Ecosystem Matters. Great Smartphone Software = A Great SDK. marketing support. Despite skill disadvantages in software. applications. iPhone/iPod Touch have 45 million users double the install base of Sony PS3). before iPhone’s App store. despite its proprietary format. iPhone’s soft keyboard utilizes its breakthrough multi-touchscreen and predictive algorithms to correct typing errors to deliver a “good enough” experience for its media-centric users who are willing to trade off a tactile QWERTY keyboard for a larger screen. such as power management. In addition. developer tools and resources. HSDPA. which has a strong. For example. the BlackBerry keyboard. faster processors. These choices can make or break the success of an OS and a developer. and wireless protocols and standards. standard programming languages.August 18. • Visibility to consumers amidst other applications (a drawback of Apple’s App Store given large number of apps). leading smartphone platforms will develop a sustainable ecosystem of mobile applications and developer ecosystems atop popular Mobile Operating Systems. • Broad distribution through app stores to reach entire install base (as opposed to fragmented through third parties). greater storage. most cost-effective and powerful development tools. A strong developer SDK includes such capabilities as: Mike Abramsky 41 . like Android. Challengers have developed wireless hardware technology skills unique to smartphones and data.. 2009 Wireless Industry Some horizontally integrated vendors may yet succeed. data network coverage/spectrum constraints and wireless security. Smartphone Vendor Hardware Skills. miniaturization. antenna design. HTC has built promising software capabilities. some incumbent vendors may successfully upgrade their software skills to become smartphone leaders. EV-DO. media features (higher quality cameras. powerful SDK with good tools and thus is a favorite of developers everywhere on the Web. multimodal wireless technologies (EDGE. favoring first-mover platforms with a critical mass of users that can support sufficient application sales (e. OS support. legacy Palm OS. processing power. developer-friendly and supported SDKs that make development easy and cost-effective on their platform. competitors have tried but have been unable to reliably engineer and optimize their smartphones to provide similar battery life to the BlackBerry. Successful smartphone challengers offer powerful. etc. with high-resolution. Microsoft dominated the PC platform.g. interactive displays. access to APIs.g. History has shown that developers care less about standards and more about which platform has the easiest. word processing) that popularized the PC platform. to enhance the user experience. Winning developers to a smartphone OS means offering: • Greatest # of "eyeballs" or addressable market. revenue share was only 50%). maximum developer profitability. • Ease of app development (e. they often make choices regarding which platforms they will develop applications for.) and other capabilities (GPS. developing innovative and unique UI layers on top of third-party operating systems. including key position and shape. and integrated shortcuts via software. A good example is Adobe Flash. etc.

content. etc. hardware. Tools and widgets that are “drag and drop” easy to use and test. sales. • Handset subsidies. like the Motorola RAZR. Orange SPV. handsets.g. pricing. Pre-iPhone and BlackBerry.. have historically been structured to sell profitable service contracts and assumed handset upgrade cycles versus getting new users onto iconic handset platforms for life. to make it easy to develop compelling and elegantly formatted applications. Easily allow development on UIs that run uniformly across multiple devices and platforms offered by the smartphone vendor – without having to redevelop the application for each device. That help developers utilize hardware capabilities. Web standards such as Flash. carrier-branded devices like the T-Mobile MDA. Some long-standing wireless carrier strategies. tools. We believe this is because wireless carriers – accustomed to specifying features. are utilized where reasonable. software. AT&T Tilt. Verizon XV6700..). come from attracting competitor data subscribers. and commoditization of voice revenues. may include: • Carriers historically made final decisions on features. 42 Mike Abramsky . 2009 Ability for developers to leverage existing software skills to develop and migrate apps. That are WSYWYG (what you see is what you get) via emulators. Data is Hard.5 million units in calendar 2008). have only sold a limited number of their designed and branded smartphones (e. etc. • • Mastering The Carriers Carrier Focus on Data. tax battery life. or selling new data services which are highly profitable. This includes innovating unique approaches to sales and support to provide more hand-holding for complex smartphones. cache. new carrier growth and profitability now must. This may mean convincing carriers to evolve – even abandon – time-tested product. which face challenges adapting to smartphones. leading smartphone vendors face special challenges when working with wireless carriers.. often using marketing analysis and ROI – prioritizing new features.g. Clear “rules” assuring applications don’t inappropriately use off-limit phone functions. processor cycles – or access inappropriate functions. data caps and MB overages versus “unleashed” data experiences) and often designed to avoid hitting network bandwidth constraints (prior to the iPhone. in an easy and optimized manner.. which lower device pricing in a “razor/blade” fashion. etc. pricing for handsets and plans. etc. hardware features. applications. While it would seem logical that carriers and leading smartphone vendors would thus be strong allies in pursing data opportunities. in part. and make quality control easy. and develop a less intimidating sales/support process. storage. sales. Motorola Q.Wireless Industry • • • • • August 18. consume bandwidth. support. as carrier business models – historically successful with high-end feature phones – sometimes raise challenges when selling smartphones in large volumes to the mass market. Convince or Coerce.g. applications. Many carriers who successfully defined and sold tens of millions of voice/SMS phones. etc. and timing of voice/SMS handsets – face skill gaps in their abilities to similarly define and differentiate “hit” iconic data-centric smartphone user experiences (software. in many cases. pricing and marketing strategies in order to successfully sell smartphones to the mass market. been initially priced for profitability versus for optimal smartphone user data experiences (e. branding. support) like the iPhone and BlackBerry. JavaScript. • Data plans have. services to maximize near-term growth and profitability. and Sprint PPC-6800 which in total sold an estimated 2. Vodafone VDA. smartphones had never sold more than 10 million units per a single new model (e. pricing. basing decisions off previously successful handset strategies. data plans were approximately $60/month and often involved data caps and overage charges). With the saturation of voice subscribers in many markets globally. GPS. pricing.) – to “create the crave”. Leading smartphone vendors must master the ability to convince (or coerce) wireless carriers to adopt their vision of future smartphone experiences (software.

given that it is software that differentiates the less-compelling smartphones (those with less elegant and inconsistent UIs. While Apple made some early missteps (e. favoring their application stores. hardware. and resources. etc. Even with initially high.) is becoming increasingly key to the smartphone experience. iconic smartphone experiences. etc. however – despite advantages such as integrating payment with their bills – we predict these will not be as well received by consumers as app/content stores directly offered by smartphone challengers and ultimately will cede to the smartphone vendors. network. historic consumer electronics launches. discouraging developers and limiting consumer uptake. Beyond the innovations. are challenged in envisioning and specifying innovative. as well as network upgrades (e. many wireless carriers – used to specifying the latest “checklist” of hardware features in next generation handsets – in our opinion. applications. etc. touchscreen. 2009 • Wireless Industry Carriers have long allocated “hero positions” – promotions.. Carriers – reluctant to open their networks to third-party applications/content – often prioritize their own content and app “storefronts”. warranty. in their view. unsubsidized pricing ($499/$599). UI. AT&T also agreed to invest in updated iPhone marketing.August 18. visual voicemail. activation. marketing and distribution shelf space – to those handset vendors which. subsequently over 80+ carriers sold another 21 million phones worldwide (with subsidized pricing). Carrier sales and support infrastructure – designed for feature phones – has not been well equipped to sell or support the elevated complexity of smartphones which involve software. applications. and thus end up limiting selection and distorting market-driven demand. branding. offered maximum near-term growth and profitability. content. rich mobile browsing. inventory. Wi-Fi. AT&T saw in the iPhone itself (UI. apps and content partners. Apple’s unmatched consumer computing brand.g.). slow distribution expansion). iPod/iTunes. and application issues. Mike Abramsky 43 .. marketing and pricing (hardware and unlimited data plans). pricing. visual voicemail). which convinced AT&T (and subsequently other carriers) to allow Apple unprecedented control over iPhone user experience. • Lacking Software Skills. Apple’s strategy worked: AT&T sold over 5 million iPhones in the first year. Apple Changed Everything. The launch of iPhone on AT&T in June 2007 forever altered carrier smartphone practices. This has resulted in some carriers launching poorly-designed storefronts or awkward apps/content stores. consumers worldwide overwhelmingly voted with their wallets for the iPhone and iPod Touch experience. or instituting inappropriate app/content pricing. features.g. app store. Many carriers today continue to try to prioritize and update their own application/content stores. service and support processes. Particularly. However. and other subtle but critical usability deficiencies) from the “hit” mass-market successes like iPhone and BlackBerry. loyal customer base. sales.. exclusive distribution. Software (OS. making the iPhone the most successful smartphone launch in history with 21 million+ units shipped in first two years as well as matching or exceeding (despite narrower distribution) other iconic. These carrier challenges also extend to selecting “hit” content and applications.

As shown in Exhibit 37. the limited data capacity of 3G networks. 2007. where the buyer now needs to contact a new party. because when a smartphone owner has a problem. particularly non-iPhone networks like Verizon and Vodafone (some of whom lost subscribers to iPhone carriers). Iconic smartphones like the iPhone. 2009 Exhibit 35: iPhone/iPod Touch Sales Momentum vs. leading to dropped calls. smartphones generate 30x more wireless data traffic than voice/SMS phones. to assure a safe and satisfying ownership experience. allowing these vendors to. streaming video. the consumer ends up shouldering the burden of support. they don’t call the smartphone vendor or the software vendor – they call the carrier. especially if carriers who aren’t trained in diagnosing problems refer owners to someone else (e. With the rapid growth in smartphone and other mobile data users. compensation. wait. Data Consumption . For example. the server. “you should call Microsoft. Smartphone consumer buyers (beyond early adopters) are easily intimidated. resulting in degraded user experiences. Support Capabilities: Don’t Abandon Me! Leading smartphone vendors like RIM and Apple were also able to convince carriers to invest in an elevated level of sales and support infrastructure – including recruiting.Wireless Industry August 18. and raising the knowledge level of smartphone sales and support staff. offer vendor-managed application storefronts. training. Company reports Sony PSP Motorola RAZR Nintendo Wii Opened Carrier Eyes re Smartphones. Palm Pre or Google Android devices with rich browsing experiences. Other Benchmark Consumer Product Launches 80 70 60 Units (MM) 50 40 30 20 10 0 6 Mo 12 Mo 18 Mo 24 Mo Apple iPhone launch at AT&T on June 29. degrading their experience. Given the variation and elevated complexity in vendor smartphone hardware and software (both on the device. for example. Following AT&T’s lead. the smartphone support process needs to accommodate supporting all these complexities. especially in urban areas of the U. re-explain their problem to someone else – and sometimes get caught in the middle – as everyone (including the carrier) blames each other. Months from Launch iPhone/iPod Touch Sony Playstation 2 Source: RBC Capital Markets.Key Challenges Users Demand Data. slow data access or limited connectivity. unlimited data plans. Palm and Google more control over the user experience.”). user-craved features like Wi-Fi. the Web and the user’s PC) as well as applications..g. is being overloaded. began to allow smartphone vendors like RIM.S. 44 Mike Abramsky . call Google. etc. and opened their platform to third-party developers. a May 2009 study by Alcatel-Lucent of North American wireless network usage shows web browsing consumes 32% of data-related airtime but 69% of bandwidth. carrier networks. In many ways this was as important as their innovations in the smartphone itself. In this scenario. and certain European countries. full attachment viewing and other large downloads/uploads are significant consumers of wireless network bandwidth. at a single source.

86 bps/Hz for HSPA) and greater spectrum Mike Abramsky 45 .g. with unlimited email but limited browsing). Unlike wireline networks. 2009 Exhibit 36: Wireless Data Consumption Challenges • • Wireless Industry An average voice plan that includes 500 minutes of airtime uses about 45MB of capacity per user per month.August 18. 4G network technologies like LTE deliver higher capacity through higher spectrum efficiency (e. engineers have been able to expand wireless network capacity 1. Orange UK launched prepaid BlackBerry data plans at £5/month in January 2009.000. which will appeal to price-sensitive mainstream voice/SMS users to entice them to shift from voice to data. You need 50x as much bandwidth (15MB/s) for video versus voice (4-7kb/sec).. all three of these factors remain constrained and force tradeoffs to further improve network capacity. network capacity in wireless is constrained. but under flat-rate pricing. 2.. Alternatively. • Source: RBC Capital Markets Exhibit 37: Double Data Airtime devoted to different data applications vs. highly likely to evolve away from “all-you-can-eat” plans towards data consumption “tiers” (perhaps similar to how cable Internet plans evolved) possibly with entry-level priced tiers (e. Data Pricing To Evolve To “Tiers”. For example. these caps are challenging to implement in a competitive environment where carriers risk consumer frustration and confusion around overages and unexpectedly high data overage bills. carriers and smartphone vendors will face the challenge of structuring tiers to avoid user frustration when approaching data consumption limits (a challenge not faced by cable Internet tiers based on speed versus caps). However.g. carriers can’t charge 50x as much as voice for video. some 3G carriers are looking to seamlessly offload capacity to Wi-Fi hotspots or users’ home wireline networks.6GB worth of capacity per month. bandwidth used during one random hour Web browsing Minutes 32% Email 30% Peer-topeer 14% Other 24% Bandwidth Source: Alcatel-Lucent 69% 4% 16% 11% Data Consumption Remains a Key Challenge. carriers have made expensive investments in additional network infrastructure to reduce cell sizes to expand network capacity.000 times since 1957. As carrier networks become clogged with bandwidthconsumptive apps.000 minutes per month. However. Within 3G networks. Within this hostile environment. reads at least three articles from a mobile Web site such as CNN. Regardless. as opposed to larger spectrum (25x) and spectrum efficiency improvements (25x). These tiers as discussed may also include free Wi-Fi access to offload network loads while maintaining the smartphone user’s experience. this amount of data usage would require roughly 20. A user with an unlimited data plan who watches 15 minutes of video per day. LTE May Take Time. given the significant noise and interference that exists in the environment. data service pricing is. caps on consumed data volumes tend to be typical carrier responses. Translated into voice minutes.com.1 bps/Hz for LTE versus 0. in our view. Yet as smartphones grow market share. but the ability to do this remains limited given that the power needed to overcome increasing interference is nearing limits. and checks email using his company’s virtual private network uses about 1. as the iPhone has already set the standard for unlimited browsing. due predominately to smaller cell sizes (1600x).

Wireless Industry

August 18, 2009 allocation (20MHz versus 5MHz). While carriers like Verizon are planning on launching LTE networks in late 2010, early LTE devices are likely PC adapters, not handsets and it may be some time before LTE smartphones are affordably available. LTE requires complex antenna design (e.g., multi-band, MIMO) and faster processors to improve spectrum efficiency, which are challenging to deliver with satisfactory handset form factor and battery life and may be initially expensive. And early LTE smartphones may need to incorporate 2G, 3G, and 4G radios to assure continuous coverage as LTE rolls out, which could present power consumption, costs and other engineering challenges. For example, the first EV-DO BlackBerry with satisfactory battery life was released in November 2005, more than two years after Verizon commercially launched its EV-DO network. Similarly, the iPhone 3G and BlackBerry Bold were released in mid 2008, more than four years after AT&T launched its 3G (UMTS) network. Favors BlackBerry Compression Advantages. The aforementioned bandwidth issues for carriers favors BlackBerry’s bandwidth-efficient smartphone model over Apple and competitors. BlackBerry’s end-to-end network model is more spectrum and bandwidth efficient than iPhone or other rich mobile web-browsing smartphones, making it a favorite of carriers. Data from most all of BlackBerry users – both consumers and businesses – on all its handsets are routed through BlackBerry’s NOC, which routes, compresses, and encrypts its data, reducing network loads. RIM’s NOC reduces data consumption through efficient wireless networking protocols, compressing and optimizing messages, attachments, web pages, app data, and delivering efficiency benefits from 3x to 20x competitive platforms. RIM’s platform also offers distinct advantages to the smartphone user experience (e.g., faster data downloads, superior battery life, lower wireless data costs (particularly while roaming), better connection stability and reliability) – along with enabling BlackBerry’s legendary and unique “Crackberry” experience, which many have tried and failed to duplicate. Lower network consumption increases carriers’ profitability, along with their capacity to handle more mobile data users and allow more measured investments in network infrastructure (as much as 5x lower, according to RIM).
Exhibit 38: BlackBerry Data Efficiency vs. Microsoft Direct Push as of Jan/08
Email JPG PDF Word PowerPoint Excel 0.0x 2.0x 4.4x 4.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x 18.0x 20.0x 6.6x 14.4x 5.4x 18.6x

BlackBerry Data Efficiency vs. Microsoft Direct Push
'Data Efficiency' comparisons based on tests (conducted by RIM) on data transferred to send/receive identical files, documents, emails on either platform. Viewing attachments on Blackberry is via RIM"s attachment service. Comparison of data efficiency on BlackBerry 9000 versus Microsoft Direct Push running on iPhone. Source: Research In Motion

Other Leading Smartphone Vendor Advantages
Engineering Talent. By offering opportunities to both work on leading technologies and products, smartphone leaders like RIM and Apple can amass the best industry talent, particularly engineers looking to develop the “next best thing” in mobile communications. RIM’s and Apple’s engineering teams are considered among the best in the world, and have already become leading

46 Mike Abramsky

August 18, 2009

Wireless Industry centers of design and engineering talent in areas of expertise specifically associated with smartphones and data, including power management, miniaturization, processing power, antenna design, multimodal wireless technologies (EDGE, EVDO, HSDPA, Wi-Fi, Bluetooth, 4G, etc.) data network coverage/spectrum constraints, software, wireless security, etc. Experience Curve Advantages. Smartphone leaders possess experience curve advantages over incumbent vendors across the spectrum of activities and technologies associated with data-centric smartphones. This includes being first to link up and then jointly innovate with key relationships (e.g., component suppliers, contract manufacturers, retail and enterprise sales distributors, etc.) as well as key partnerships (sales, vertical, technology, and marketing). Leading smartphone vendors also gain deep experience understanding smartphone users, including what works/doesn’t work in the marketplace – such as new technologies, features, pricing, form factors (e.g., OTA versus WiFi downloads, which music/movie or TV shows/app/content/ecommerce experiences and business models work/don’t work), enabling them to continually offer the best data experiences. Other important experience curves include improvements to battery life, improved spectrum efficiency, improved graphics (gaming) and improved smartphone manufacturing capabilities. Smartphone leaders also improve their experience curves around the growing developer ecosystem, nurturing applications, and enabling carriers for data. Marketing and Branding. Leading smartphone challengers develop marketing skills that are unmatched at “creating the crave” – selling their unique, iconic user experiences (particularly at Apple, where selling technology is an art), inspiring mass market buyers to desire their smartphones, and to upgrade from voice/SMS handsets. Leading smartphone vendors can outrace some incumbents (who spread their market focus over their legacy businesses) in building and maintaining leading smartphone brands, which may help smartphone challengers expand market share and sustain margins. Smartphone challengers can often leverage a high level of PR “buzz” around their product launches and innovations, which provides significant non-cash marketing value. Apple benefits by the equivalent of ~$400 million of advertising off its “PR buzz” around its major product launches. Retail Skills. Leading challengers develop unique retail sales skills and innovations (Genius Bars, in-store specialists, enterprise sales specialists, etc.), and customer support innovations to reduce the smartphone “intimidation” factor, and successfully encourage users to switch from voice/SMS handsets/plans to smartphones and add data plans. Organizational Advantages. Smartphone vendors are organized to optimize development of their premium smartphone user experiences. Within challenger organizations, smartphone priorities drive corporate agendas and initiatives. Software and hardware engineering organizations are egalitarian versus some incumbent organizations (where typically the traditional voice/SMS handset or PC hardware teams have more power, control budgets, determine product roadmaps, and priorities). By virtue of their focus, some challenger smartphone vendors are more agile and adaptive, can pursue new innovations or market shifts quickly, shifting budgets and resources around developing opportunities (like touchscreen technology, new software applications, etc.), new markets, changing customer requirements, competitive developments or new opportunities. Manufacturing. Manufacturing smartphones demands a higher level of complexity, quality control and margin control than traditional high-end feature phones or regular PCs. Leading challengers have a competitive advantage in manufacturing innovations, including chipset design and packaging, compact battery engineering, touchscreen integration, keyboard design, and radio/antenna positioning. Extending its ownership of the supply chain: • Apple acquired chip manufacturer PA Semi for $278 million in April 2008, adding 150 engineers and related patents. Apple also recently increased its stake in UK-based Imagination Technologies, providing it more control over the development of its PowerVR graphics processor design already embedded in the iPhone 3GS. • RIM’s radio modem and circuitry are integrated into single chips and circuit boards, which significantly cuts manufacturing costs and time. Intellectual Property Advantages. Most leading smartphone vendors have accumulated strong intellectual property (IP) positions around multiple aspects of their smartphone technologies. RIM has more than 850 U.S. patents relating to wireless communications, handheld device UI,

Mike Abramsky 47

Wireless Industry

August 18, 2009 handheld device design, mobile data synchronization, push-based messaging, smartphone accessories, and other aspects of smartphone design and systems (RIM has licensed its keyboard and other patents to Palm, Nokia, Samsung and others). Apple has more than 2,500 U.S. patents on computer systems, handheld devices and related technologies. Within smartphones, Apple’s patents are concentrated on user interface, multimedia, multi-touch, and other areas. Palm has over 300 U.S. patents on smartphone software design, form factor, touchscreen, personal information management, and stylus input, along with other aspects of smartphone designs and systems. For leading smartphone challengers, the depth and breadth of patents can deter threats from competitors, incumbent vendors and patent trolls, reduce licensing costs, and aid in pursuing infringing competitors. Investor Support. While still subject to the scrutiny of public markets, shareholders in smartphone leaders like RIM and Apple are more accustomed to these vendors’ risk-taking on new, unproven markets, often betting management will deliver above-average shareholder returns in the long run. For example, RIM moved outside of its traditional data-only, two-way paging business to target the cellphone market with the BlackBerry 5810. RIM also transitioned from its core enterprise business to the consumer segment with the BlackBerry 7100, and from keyboard to touchscreen with the BlackBerry Storm. Over this time frame, RIM’s stock rose 1545%. Similarly, Apple released the entry-level iPod Mini, Nano and Shuffle, expanding its addressable market, but cannibalizing its classic larger iPods, and subsequently launched the iPhone that is now cannibalizing its traditional MP3 iPod franchise. Over this time frame, Apple’s stock rose 1343%. Conversely, investor bases of incumbent vendors, like Motorola, Nokia and others, accustomed to recurring revenues and profits from legacy businesses may have less tolerance for volatility in quarter-over-quarter financial results or for failures related to new, unproven initiatives targeting uncertain markets. Incumbent vendors often focus their priorities and resources around prior successes (e.g., Nokia N91, N92, N93, N95, N96, N97; Motorola RAZR V3, V3i, V3m, V3xx, maxx, RAZR2 V8, RAZR2 V9, RAZR2 V9X) aimed at existing customers, versus making big bets on new, unproven markets until the markets have been established.

48 Mike Abramsky

some cellphone/PC/consumer electronics incumbents (e. and innovating around mobile voice network technologies (particularly around digital-based 2G networks.g. Controlling over 96% of the global cellphone market today. incumbent handset vendors like Nokia. Sony Ericsson and LG) will face challenges competing with the new challengers in smartphones – held back by technological. and Sony Ericsson historically grew to dominance by helping develop standards like GSM. from 96% of TAM in calendar 2008 to 84% in calendar 2012. Motorola. we see some voice-centric phone vendors losing market share to leading smartphone challengers. We estimate each 25bps global handset share gain (based on an estimated 1. iDEN and CDMA). it is possible a few of the incumbent vendors may evolve and compete successfully with smartphone challengers. Nokia. Dell. Samsung. some incumbents face challenges in their smartphone franchises because their voice/SMS cellphone or PC-oriented cultures and management skills may insufficiently adapt to the unique processes and skills required to produce iconic. Exhibit 39: Loss of Voice-Centric Vendor Shipments to Smartphones Challengers 100% 96% Incumbents % of Global Handset Units 95% 94% 91% 90% 88% 84% 85% 80% 75% 2008A 2009E 2010E 2011E 2012E Source: RBC Capital Markets estimates Historical Rise to Handset Dominance. 2009 Wireless Industry Some Incumbents To Face Challenges Despite their goals for smartphone dominance. these challenges are not insurmountable. LG. These incumbents have strong execution. Sony. Samsung. While difficult.August 18. as smartphones rise from 10% of TAM in calendar 2008 to 35% by calendar 2012 (41% CAGR) and smartphone challengers’ share of the smartphone market rises to 45% in calendar 2012 from 38% in 2008. HP. intense customer focus. or an estimated $1 billion in incremental revenue (assuming an average selling price of $326). including GSM. Motorola. Early mobile phones were designed for functionality rather than form – such as the 10-lb 4500x and 4800x “transportable” phones from Motorola – which resembled a car battery with a phone handset strapped to the top.2 billion total units in calendar 2008) equates to an additional 3 million units.. organizational. and their managements are highly capable. customer and shareholder barriers as well as cannibalization. in our opinion. have built dominant brands and leading technology. However. Accordingly. sustainably selling smartphones to the mass market. Mike Abramsky 49 .

500 hefty price tag (at 3. 2009 Motorola DynaTac 8000x Source: Company reports Dick Tracy and James T. size/weight. Nokia. In 1996. They rapidly launched new innovations in designs. launching the lightweight “candybar” form factor. and Sony – in the early 1990s. The MicroTAC in 1989 created the “flipphone” form factor that weighed only 340g costing $2. and features (e. cost. weighting only 81g. the StarTAC was more expensive to buy. Motorola continuously shrunk the phone form factor to the relatively diminutive DynaTAC 8000X in 1983 for $4. ring tones) that popularized cellphones to the mass market. Exhibit 41: Iconic Mobile Phones Motorola StarTAC Nokia 8110 Ericsson T28 Motorola RAZR Source: Company reports 50 Mike Abramsky . offered a flip communicator-like design (with vibrate function). on GPRS networks. voice quality. priced expensively (initially) at $600 (before rebate).000. Motorola launched the RAZR. weighing 800g and delivering an hour of talk time and 30-number memory.500. the world’s thinnest handset (13mm) in late 2004. with Nokia launching the sleek Nokia 8110 in 1998 at 152g.. it was these vendors who were viewed as the innovators. battery life. Ericsson.Wireless Industry Exhibit 40: Early Mobile Phones Motorola 4500x/4800x August 18. which at 88g and 60 minutes of talk time (12 hours standby.1 ounces. Nokia released the Nokia 1010 in 1992. than pure gold) despite a poorly-designed user interface and other drawbacks (the antenna was prone to damage). Motorola and others launched new designs reminiscent of Star Trek communicators and/or Dick Tracey’s Watch Phone. Consumers lined up to pay its $1. displays. Kirk. Form factors continued to shrink. by weight.g. Capitalizing on consumers’ thirst for new innovations in phone technologies and their willingness to pay a premium for new form factors. Motorola. Motorola introduced the StarTAC. with a second battery option to extend talk time).500-3. and Ericsson releasing the tiny T28 in 1999. releasing iconic handsets that captured the hearts (and wallets) of consumers enamored with the latest technology.

market share. Nokia was particularly aggressive in gaining scale efficiencies. sales. Past Successful Voice/SMS Practices Become Smartphone Challenges Incumbents Entered the Smartphone Market. Motorola Q. packaging updates and variations of successful handsets to stimulate upgrade cycles. unreliable or frustrating to use for email.) and other features like calculators and notepads – as well as PC connectivity. Samsung Blackjack and Instinct. for example. along several dimensions: • Organizational – legacy (voice/SMS) organizations held all the power. • Cannibalization – Threats of cannibalizing core voice/SMS business led to hesitation in prioritizing smartphones and innovative mobile data models to markets and customers. and marketing/branding – a form of horizontal integration. Verizon Wireless and others. offering unique touchscreen interfaces with similar icon-based software with animations and fingertip control.g. Motorola Q. some smartphone sales subsequently stalled as mass market buyers never materialized.August 18. market their brands globally and aggressively. Their “playbook” was to develop a design for every attractive market segment and geography. look “iPhone-like”. and network technologies proliferated (and began to be copied).g. Beyond packaging. the aforementioned voice phone vendors sustained their leadership by becoming experts in “packaging” – producing variants in designs. yet post-launch sales momentum of some of these models has waned. successful handset vendors quickly moved to develop and control distribution channels. Samsung Omnia have been heavily promoted by AT&T. Return rates are often higher on some incumbent vendor smartphones (versus iPhone or BlackBerry. • Entrenched Processes – time-honed product development. Source: RBC Capital Markets Research Past Successful Practices Became Challenges in Smartphones.) lagged RIM and Apple (e. New versions are constantly released with updated hardware specifications.. and moving to dominate the supply chain. wireless data) in developing iconic. craved. And all offer email and browsing through Windows Mobile. supply chains. and thus subordinated (even suppressed) smartphone initiatives. etc. etc. O2 XDA. contacts. • Channel/support – Traditional sales. voice/SMS technologies. HTC Diamond. manufacturing. Many of these time-proven strategies that made incumbents hugely successful in voice/SMS phones became challenges when competing with the smartphone challengers. Exhibit 42: Incumbent Smartphone Offerings Met with Limited Success Some incumbent vendor smartphone offerings have to date met with mixed success. determined priorities. resulting in significantly higher profitability versus the rest of the industry relative to its market share in the late 1990s. in an oft-repeated pattern. and push out competitors via scale and brand strength. reduce costs and size. Data first came to mobile phones in 1996 when Nokia launched the PDA-like 9000 Communicator. and. hardware. the smartphone market. • Technology skills and talent – traditional technology strengths (“packaging”. LG Prada and Voyager. browsing and other tasks. supply chain. and Samsung Instinct phones. While these sold well initially to early adopters. etc. features and form factors around core components to offer phones to multiple market segments and different price points. and were slow to adapt to. manufacturing. simple data-centric smartphone experiences. and then the Nokia 7110 with WAP browser in 1999. Then they would repeat the process. As smartphones – largely from BlackBerry – started to become popular. dominate supply chains and carrier shelf space. LG Voyager. These vendors also started incorporating incremental innovations like PIM (personal information management functions like calendars. and distribution processes were not optimized for. be the first to provide popular wireless technologies. Nokia E61. distribution.. The Samsung Blackjack. Successful “Playbook”. As innovations in voice/SMS phone design. with mixed product reviews. resources.). form factors. and support processes faced challenges transitioning to the specialized sale & support demands of smartphones. for example) because some users find them complex. Mike Abramsky 51 . priced attractively at $49 to $99. software. 2009 Wireless Industry “Packaging”. incumbent vendors launched their smartphones (e.

and Samsung. RIM and Apple) and 6. iTunes) Ovi multimedia store work-in-process. engineer. data compression. This is particularly true for data-centric features like browsing. Motorola. LG.. manufacture. in our view. flexibility/upgradability). Iconic data-centric smartphones are more difficult to design. market. and awkward UI. For example. by contrast. In our opinion. but outsourcing manufacturing. intuitive UI Access to all apps and commonly used functions with minimal “clicks” Rich. This includes areas such as power management. etc. Simple. Apple and other challengers. marketing. confusing mix of apps and “other stuff” like ringtones. virtually all incumbent smartphones have mobile web. no video content • • • • • • • • • • Elegant. Exhibit 43: Complexity vs. 1. Complex vs. software development. Powerful. However. sometimes pack more features.5x voice/SMS phones. hardware and related services – and distribution.Wireless Industry • August 18. Simplicity in Smartphone Design and User Experience Nokia N97 iPhone User Interface • • • • • • • S60 5th edition UI appears dated Slow processor drag on usability Multiple clicks Acceptable experience but complex setup Hindered by lack of multi-touch Complex setup. according to M:Metrics. awkward browsers. non-intuitive software. many powered by Microsoft or Symbian.g. In our view. sometimes because of complex. The constraints of mobile data-centric devices for data applications (involving unique issues like power consumption. sell. etc. yet consumers use some of them less than on Apple’s iPhone. memory management. Data is Hard. demanding the tight integration of both software and hardware 52 Mike Abramsky . Symbian. performance and the latest technologies than handsets from RIM or Apple. Incumbents. are largely horizontally integrated – focusing on design. download apps via iTunes or on device Unmatched developer/app momentum Simple and powerful “iPod” multimedia experience Huge library of music and video content available through iTunes Mobile Browsing Email Apps and Developers Multimedia • • • Source: RBC Capital Markets Horizontal Integration. while also increasing the frustration and intimidation of the user data experience. slow “polling” experience Awkward Ovi Store experience – difficult to navigate. and support. touchscreen designed for the data user). Standard S60 multimedia player Difficult to sync with PC jukeboxes (e.) demand unique competitive advantages and skills at which. email and applications which are difficult to make simple.5x the average smartphone (Windows. ergonomics/UI (keyboards. “Data is hard”. Some smartphone offerings from Nokia. a key characteristic of leading smartphone vendors is deep vertical integration: their control over all aspects of the value chain that produces their user experience: software. marketing and R&D. stack programming. security. 85% of Apple iPhone owners use the mobile web. Complex smartphones often include features that end up being rarely used. network efficiency. software/hardware integration. distribute. less-than-optimal smartphone user experiences versus RIM. who in turn prioritized new handsets aligned to carrier priorities to target near-term visible market opportunities with defined ROI. The challenge of the horizontally integrated model is that it produces. to date some incumbents’ smartphones have not sold as strongly or sustainably to mass market consumers. in our view. wallpapers. 2009 Highly influenced by their customers – Carriers continued to strongly influence incumbent vendor product roadmaps. stability. data-centric UI designs. desktop-like mobile browsing experience Easy to setup Easy to access and buy apps iTunes PC jukebox huge advantage Browse. and data modem (throughput. sharing common suppliers and components. hardware. this is partially because of their complexity. complex connectivity configuration. and support than traditional voice/SMS cellphones or PCs. some incumbents lag relative to smartphone challengers.

.g. stretching). The challenges for some hardware-centric incumbents is that the “crave” for smartphones is not about new “packaging” or including the latest wireless technologies. some smartphones from incumbent vendors contain poorly-designed storefronts or awkward apps/content stores. its messaging and cloud experiences depend largely on OEM Mike Abramsky 53 . Google. where incumbent handset vendors face similar skill gaps in knowing what constitutes “hit” iconic mass-market application/content store software experiences. Symbian only offers 1. While filling the gaps in their software capabilities. spectrum efficiency. The Software Challenge Software Skill Challenges.) unique UI issues. As well. apps. Samsung Mobile Applications.g. etc. browsing. pinching. Android. Content and App Gap.. challenged in software skills. but is more about how software. Symbian.. While it is possible some Android-powered smartphone vendors could become successful smartphone share leaders. pricing and margins. hardware provided by different parties) worked in the PC sector. Samsung. addictive user experiences. Few Iconic. These issues are not insurmountable: some incumbents may successfully address this software skill gap and remain competitive in smartphones.g. but can be inconsistent at times. in our opinion. LG. we believe some OEM smartphone vendors using thirdparty OS may continue to lag the iconic user experiences of the leading vertically integrated smartphone challengers like RIM and Apple – and thus may also lag these vendors in market share. lacks polish (e. T-Mobile G1) had awkward form factors / keyboards and lacked full multi-touch (e. email. Although Android’s mobile web browsing is strong.g. Google Android. Sony Ericsson PlayNow arena) or allowed their carrier customers to heavily influence specifications for their application stores. reliability and user experience are more difficult to achieve given the unique constraints of mobile (battery life. we see few rivaling the success of iPhone or BlackBerry. applications from Microsoft. is an open source mobile platform (see Vendor Share Outlook section) offered to mobile phone vendors for free. Some incumbent voice/SMS vendors have sometimes prioritized their own “storefronts” (e. productivity. applications. content. extend to content and applications. processing. similar functions in different apps require different key strokes) and early devices (e. As a result.. despite being in the market since 2001 and shipping more than 200 million units). Linux). While (with some unique exceptions).) becomes increasingly key to the smartphone experience. where world-class performance. flash. For example. Given smartphones are at the early stage of their cycle and markets remain large. physical device limitations. reviews have suggested that Android’s UI is attractive and functional. apps and content partners. Android-powered phones are expected to offer satisfactory user experiences (email. utilize third-party software (largely operating systems.). Incumbent smartphone OEMs (Original Equipment Manufacturers) like Motorola. etc. LG Application Store. market share. UI.). Some of our reasons for this view include: • Many Functional. hardware and content combine together to provide superior data user experiences (web browsing. it presents more challenges in smartphones. limited resources (storage. applications. and other subtle but critical usability deficiencies) from “hit” mass-market successes like iPhone or BlackBerry. 2009 Wireless Industry together which Apple and RIM use to create their distinctive delightful.). These incumbent vendor challenges. some incumbent voice/SMS vendors have not yet shown their ability to develop and nurture a thriving developer ecosystem (e. discouraging developers and limiting consumer uptake. As software (OS. carriers’ hero positions and subsidies). Why Google May Not Help All Incumbents Smartphone OEMs. we believe vertically integrated smartphone vendors like RIM and Apple may continue to remain leaders through superior smartphone experiences. applications. nascent and underpenetrated. etc. While the horizontally-integrated OEM model (OS.000 apps. or have inappropriate app/content pricing.g. Nokia Ovi Store. and HTC.. etc. some incumbent vendors – used to designing the latest “checklist” of hardware features in next generation handsets – lag RIM and Apple’s skills in defining iconic software experiences that differentiate the less-compelling smartphones (those with less elegant and inconsistent UIs. entertainment. we believe the best smartphone experience wins (garnering customer loyalty.August 18. owned by Google and managed/developed by the Open Handset Alliance. etc.

We believe most Android vendors are planning on developing UIs and apps on top of Android. Google may face an increasingly complex support structure across its multiple handset partners. Google may face challenges in managing the rising complexity of accommodating these changes. processes. Where they exist. The smartphone leaders’ innovations often target markets for which there currently exists little demand. which may lag RIM and Apple given many incumbents’ limited experience in software and services design and development and relationships with third parties. Samsung. apps.) in a manner that requires changes to Google’s underlying OS. For example. This contrasts with the strong global smartphone brand of RIM and Apple with their consistently applied. But customization may fragment the Android user experience across OEMs. is that successful smartphone vendors like RIM and Apple take a different path. and carriers certify and deploy the updates on their own timetable. Many of their most successful handsets have been developed in partnership with their carrier customers. etc. etc. Developer and App Scale. Managing the complexity of supporting multiple OEMs. they will still need to fill these skill gaps (particularly in software and software/hardware integration) – things which Android cannot alone provide. application developers may need to increasingly contend with a wide range of Android OEM hardware and software customizations in developing. Motorola. Google may thus face challenges avoiding diluting the Android brand. our view. 2009 implementations. As the number of Android-powered OEM handsets increases on more carriers. some incumbents may still need to overcome the challenges of adapting their existing voice/SMS or PC centric cultures. As the number of OEMs increases. Samsung. one carrier on an Android device offers different support benefits and restrictions versus another). for whom which differentiation is important. Possibly Lag in Deploying Innovations. to the challenges of data. A few Android OEMs. Sony Ericsson and others are planning to release Android devices with customized UIs and apps. which theoretically is capable of supporting multiple hardware profiles and platforms. updating and supporting Android applications. many of whom have customized Android independently and have a diversity of hardware platforms with different features and form factors (this is the same challenge faced by Microsoft).. may build strong software skills and successfully compete as smartphone leaders. updated versions of Android with new innovations may deploy inconsistently. where an OEM updates their own customized implementations (or new innovations from RIM and Apple. Android Alone Insufficient. User Experience. With the rise in multiple OEMs. are not necessarily 54 Mike Abramsky . like Nokia. and LG. tools. Customization of the Android experience appeals to the OEMs. iconic smartphone user experiences across devices and carriers. Google may face rising complexity and delay of accommodating the impact of changes across its OEM partners. However. This may increase challenges and costs for some Android developers. as multiple OEMs test and update their various UIs and custom apps to ensure compatibility. Possible Fragmentation in Brand. Despite its open source architecture. HTC has added support for Microsoft Exchange and Exchange ActiveSync on its non-Google branded devices. the expanding variety of Android OEM device platforms. To succeed competitively in smartphones. innovative and customer-focused.Wireless Industry August 18. Conversely. This may lead to inconsistent support experiences (e. as previously discussed in this section. as buyers perceive the device as a Motorola or HTC or Samsung smartphone as opposed to an Android smartphone. however. performance specs and implementations may lead to fragmentation of third-party applications. • • • • • Trapped by Their Carrier Customers Successful voice/SMS incumbents. but on their own predictions of future market need. are aggressive. Some of these incumbents may successfully overcome these challenges and become smartphone leaders. or carriers move to update wireless technologies. creating new innovations not principally based on carrier or consumer feedback. We do not believe that Android alone will be sufficient to overcome challenges for all incumbents in competing in smartphones against RIM and Apple and other pure-play vertically integrated leaders.g. etc. When launching or updating software with new innovations. which isn’t available as part of the standard Android installation on competitor devices (or even HTC’s Google-branded devices).

Product Roadmap Challenges. evolving technology arena. Yet as we have previously discussed. decision-making and priorities to compete in smartphones and against pure-play challengers like RIM and Apple who are not constrained by legacy voice handset organizations and established hierarchies. reorganizing around software versus hardware. and thus face challenges in modifying these quickly to adapt to emerging smartphone market segments. incumbent technology leaders experiencing disruptive shifts in their end markets. budgets... speculative. transformational innovations that carriers might not be asking for (RIM’s BES. products. This hesitancy can stifle – even suppress – necessary changes to organizations. leading install base and scale would prevail over new challengers. content. etc. etc. and are oriented to maximizing next year’s growth and profitability.August 18. NIH (Not Invented Here) Syndrome. customer-focused. As a result. etc. face challenges to “upending” their business model – strategy. some incumbents prioritize incremental product innovations (faster. different technology skills. and well-run. Even the rank and file sometimes resists the disruption of market changes. and often test consumer demand ("we are customer focused.) or pricing or geography or performance. new form factors. involving proven design/development processes. and that smartphones have only nominal financial impact to incumbent sales versus the large revenue streams and cash flows from existing voice/SMS handset businesses.) over higher risk. Mike Abramsky 55 . Some incumbents. hardware. different business models. They failed to recognize fully or accept how dramatically different organization management. funding. who “own” the largest legacy businesses or biggest customers. less cost. new designs. elevating smartphone roadmaps over voice/SMS. Some incumbent managers in power and leadership (many of whom came up through the ranks by being successful in building incumbent businesses. perspectives. marketing. Some of these similarities. Many carriers tend to prioritize innovations that target proven markets and offer probable growth and improved profitability. GM. wireless carriers – culturally accustomed to specifying features. include: • Often these leaders believed their companies’ dominance. in our view. they rightfully argue. The historically successful mantra of “listening to our customers” may inhibit some incumbents from prioritizing risky initiatives that target unproven markets. timing of voice/SMS handsets – in our opinion face challenges and skill gaps in defining “hit” data-centric smartphone user experiences (software.g. resulting in stalled or slower decisionmaking. support) like the iPhone or BlackBerry. They argue instead these resources and priorities should be allocated towards more incremental initiatives they can sell today and customers want. sales. Kodak. and have the most pull in the organization) may strongly protest at any significant diversion of resources. incumbency. 2009 Wireless Industry what customers are asking for today. product roadmap. Apple’s application store. technologies. Palm’s Synergy). Some incumbents’ business processes and product roadmap justifications have been established over many years.). We see similarities to the challenges faced by some incumbents from smartphones to those faced by once-dominant. By contrast. etc. channels. or organizational priority towards smaller speculative smartphone initiatives. pricing. given low visibility to the scope and size of the smartphone market (currently only 10% of total handsets). budgets. why would we not involve our customers in product directions?") through research before finalizing new products. Some of these dominant technology industry leaders (Xerox. fresh talent – were all needed to compete in the new. Polaroid. management approvals and highly ingrained ROI hurdles. pricing. 2G to 3G to 4G. recruit/comp – to elevate and transition to smartphone-oriented business processes (e. Digital Equipment. budgeting and planning processes. pricing. Disrupting their organizations deeply may be difficult to justify. which may transcend legacy market segmentation. power.g. yet failed to adapt (sometimes even recognize) new trends that threatened their leadership until too late. resources. latest “check list” of gadgets and features. Many incumbents have multi-year product roadmaps that are often segmented by technology (e. in our view. applications. Sun. Siebel. thinner. relationships. This carrier input heavily influences many incumbent product roadmaps. Other Challenges “Upending” Threat.) were similarly smart. IBM. which. some incumbent vendors are culturally oriented to collaborate with carriers. and for which there is little hard evidence of future growth. altering HR and budget allocation practices. their largest customers are not asking for.

56 Mike Abramsky . calendar. However. social networking) into a single view. text.) – but those efforts didn’t pay off. as discussed. in our opinion. and hope they’ll then produce an iconic winning product that competes with RIM. Some incumbent technology leaders tried to M&A their way into the new paradigm (e. Similarly. Apple. etc. some incumbent smartphone vendors. RIM and Palm. we believe there is ample room in the market for four to five vendors to dominate. Some incumbents may be able to adapt to compete successfully in their smartphone franchises. world times) on the home screen. which incorporates an unique UI. They failed to fully nurture. elevate and fund highly transformational ideas from their own organizations. because the acquired company cultures weren’t nurtured.. The company is leveraging its investment in software (HTC now has over 1. has been reinventing itself. and thus HTC’s success is not necessarily a zero sum game for Apple. email.000 software engineers. prioritized and supported by the incumbent culture. and integrates various communication channels (phone. in our view. • HTC. acquiring an on-demand division. and Palm. acquiring software vendors. buying an Internet and software team.000+ total employees) and its strategy of transitioning away from the ODM model. can’t just “acquire” their way into smartphones. email. and has a strong possibility of being a leading smartphone competitor. weather. Its Android initiatives appear compelling. such as the HTC Hero featuring HTC’s proprietary Sense UI. 2009 Some of these former leaders could not justify the risk of cannibalizing or disrupting their existing businesses or ceding organizational power. out of 8. user customizable widgets that display pushed content (twitter feeds. HTC.g.Wireless Industry • August 18.

Mike Abramsky 57 .2% Apple 16% 2012E Data-Centric Smartphone Share (Units) RIM Other 29% 18% 18% Apple 11% Nokia Nokia 36% 26% 2008A-2012E Data-Centric Smartphone Share (Units) Shifts 100% % of Data-Centric Smartphone Units 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2008A Source: RBC Capital Markets estimates Palm Other RIM Apple HTC Nokia 2009E 2010E 2011E 2012E Challenger Share Gains = 2-3x Growth Upside.August 18. we believe that the fast-growing global smartphone market can support both Apple and RIM. with 1. Sony Ericsson) equates to $4 billion in incremental revenue. With 1.. Exhibit 44: Data-Centric Smartphone (Units) Vendor Share Outlook 2008A Data-Centric Smartphone Share (Units) RIM Other 27% Samsung 3. PC.7% Motorola 2.4% Motorola 3.5% Palm 3% HTC 5% Palm 4% HTC 7% Samsung 5. and consumer electronics vendors. “RIM versus Apple” misses the larger opportunity as both should be able take share from some incumbent voice/SMS.0% Sony Ericsson 1.1% of TAM Apple needs to achieve 8. RIM needs to achieve 10% of TAM in order to triple current revenue.8% of TAM in 2008. Each 100bps global handset share gain from the incumbents (Nokia. We believe the smartphone market is large enough to accommodate four to five smartphone vendor leaders.7% Sony Ericsson 2. Motorola. At 165 million users in calendar 2008 and projected to grow to 766 million by calendar 2012. we believe successful challengers may double or triple their revenue by 2012. 2009 Wireless Industry Vendor Share Outlook Smartphone Market Large Enough to Support Multiple Vendors. LG. Off share gains from incumbent vendors. Samsung. In our view. similarly.5% of TAM to triple its current smartphone revenue.

Shipping 13.5 60% 69% 60% Apple RIM 4 % Share Price Impact: 5 Apple 23% 1. 2. it may. Based on RBC CM’s current $17. Based on smartphone industry average ASP of $337. further assisted by the strength of its global brand and its Mac franchise.0 $10. advanced gaming. and apps. supporting pay as you go and other carrier sales models. we forecast Apple’s market share to grow to 5. prepaid iPod/phone) and variations in iPhone form factors for certain markets such as China (e.7 363% 412% 361% 138% 2. Based on RBC CM’s $44. computing. innovation. Apple’s design strategy (for both iPhone and Touch) to maintain UI continuity across devices offers scale benefits for developers who with a single app version can address Apple’s install base. Based on RBC CM’s 24% FTM non-GAAP EBIT margin outlook and 19. We also expect Apple will continue to surprise investors and consumers with iPhone-related innovations that further expand iPhone’s addressable market opportunities (media. disruptive innovations (iPod. expanding in-carrier distribution in more countries by eliminating exclusivity and expanding third-party distribution channels. competitors continue to lag iPhone’s sleek touchscreen experience. Apple has already taken steps to accelerate iPhone momentum and share gains. etc. a possible entry-level. Challenges.Wireless Industry Exhibit 45: Sensitivity Analysis of Market Share Gains Conservative Incremental Smartphone Share (%) # of Smartphone Units (MM) Incremental Revenue Impact ($B) % Impact to FTM Smartphone Revenue: RIM 2 3 1 August 18. Despite the iPhone’s introduction more than two years ago. 4. robust third-party applications platform. While we believe Apple can continue to launch products. and tight multimedia integration. be challenging to sustain the same unique level of significant. We believe Apple will sustain its lead in content. video. Innovation remains alive and well at Apple. with significant growth and share gains yet ahead. sustaining above-peer margins for its smartphones. 58 Mike Abramsky . etc. There is a huge upgrade opportunity. and growing its lead in mobile applications.1% of TAM. just a dynamic of the stock that bears ongoing monitoring. Source: RBC Capital Markets estimates Apple Apple to Capture 5. no WiFi).7% Global Share by 2012. user-generated content. we do not view this as a near-term risk for investors.7 million handsets in calendar 2008.0 $31.5% 31. This may affect Apple’s abilities to sustain its premium margins. and customer loyalty. moving to more attractive pricing (starting at $99).7% of TAM by calendar 2012.5x FTM P/E. strong management team and multi-year product roadmap. iPhone) if Steve Jobs were not involved with the company.g.0% 186.4 181% 206% 181% 69% Bullish 15. 3. should Steve depart and the pace of innovation slow.7B FTM non-GAAP revenue outlook. However. Our long-term outlook reflects upside from possible additional iPhone SKUs (including next-generation LTE iPhone. 2009 Base 7.). <$99 subsidized. Apple’s greatest risk – and greatest asset – in our opinion remains its iconic CEO Steve Jobs. Based on RBC CM’s 21% FTM EBIT margin outlook and 17x FTM P/E. however.3B FTM revenue outlook. Off the strength of its brand. driven by its unique talent pool. which we expect to expand to include mobile commerce.. iPhone advantages include Apple’s 100 million+ iPod install base and 300 million + iTunes users globally. slow its growth rate and increase its vulnerability to competition. Apple is expected to retain its premium carrier subsidy versus competitors.0 $62. low-cost. retain its competitive advantages and lead in its key markets without Steve. games.5% 93. Apple holds an estimated 1. 5. We view the iPhone as a 10-year platform.

5% TAM by Calendar 2012.8 17. A significant source of RIM’s competitive advantage continues to be its global carrier leverage.8 13.4 16.8 13. RIM’s UI and PIM. include the intuitive. Unlike Apple.2 16.1 16. while maintaining its superior security.4% 2009E 164.3% Wireless Industry 2011E 376. there is a growing consumer demand – popularized by Apple. powerful data experiences. SMBs and enterprises continue to snap up – as well as launching entry-level devices like the BlackBerry 8500.2% 2. While not always first to market.6 million handsets in calendar 2008. touchscreen) to penetrate additional compelling markets (e. SDK.August 18. email client.g. RIM continues to address larger.1 130. Internationally. North Americans like flip phones. achieved via its superior spectrum efficiency and other unique aspects of its platform. as it offers superior carrier profitability. with RIM as its undisputed king – both for consumers and businesses. In the rapidly expanding consumer smartphone market.5 13.6 10. to pace competitors and meet evolving consumer expectations. RIM’s smartphone brand has grown in strength globally. bundled and downloadable applications.7 14. craved push-based “Crackberry” messaging experience. we forecast RIM’s market share to grow to 6. is with “front end” software (browsing.5% of TAM by calendar 2012.7% 766. and Google – for rich mobile browsing. reliability and manageability advantages prized by IT.7 91. Ahead. Challenges.4 35. We believe RIM is fully aware of these issues and is already moving to address them while retaining its trademark spectrum efficiency. RIM has – at several times in its history – successfully reinvented itself. iconic smartphones.7 10. RIM’s design strategy is to expand its trademark Crackberry experience to multiple form factors (flip.5 54.1 56. while reliable and functional. a thriving consumer application ecosystem. and intuitive. reliability and battery life.1% 165. have remained essentially unchanged. To succeed in the consumer market.9% 374. Examples include evolving its BlackBerry pagers to voice/data devices.0 15. application and mobile media experiences (both on devices and on the PC).8% of TAM. benefiting from carrier promotions discounting older iconic handsets (like Curves. Pearls) which consumers. 2008A-2012E 2008A RBC Data-Centric Smartpho ne Units (MM) Apple Units Forecast % Data Centric Smartphon e Units % TAM (units) RBC Data-Centric Smartpho ne Users (MM) Apple User Foreca st % Data Centric Smartphon e Users % of Total M obile Ph one Use rs 126. new data subscribers. NOC.5% 2. RIM possesses both unique hardware and advanced “back end” software capabilities. RIM may need to evolve its UI. Shipping 22. internationally.8% 1. One growing challenge RIM faces.3% 5. RIM holds an estimated 1. elegant smartphone UI. consumer and business – all of which remain underpenetrated for smartphones. RIM may also need to improve its SDK to be more developer-friendly.5 33. UI.1% 2..0% 247.5% 0.8% 2010E 250. Mobile email is expected to remain the smartphone “killer app” globally. in our view.5% 4. browsing. and increasing BlackBerry share and sales productivity across its carrier partners. as we expect RIM will continue to innovate to improve ROI and productivity of its devices and solutions. BlackBerry remains compelling for carriers. etc. evolving core designs via new innovations into new. RIM is now on most carriers (over 500 worldwide) and so growth now comes from upgrades. Europeans like sliders) and we expect additional SKUs and innovations.8% 2.1% 0. in our view. evolving its QWERTY smartphones to the successful Pearl with SureType.).0% 2012E 503. having developed: its OS.0% 1. price-sensitive consumer markets via its broad pricing ranges. wireless stack. and expanding from business to consumer markets. and it is increasingly known for compelling handset styles and designs.9 82.6% Source: RBC Capital Markets estimates RIM RIM Forecast to Capture 6. not just for its email experience. reliability and Mike Abramsky 59 . Enterprise as well should continue to be an area of BlackBerry domination.1% 553.9 22. Palm. and BES/BIS server. battery life. RIM’s market opportunity lies along four fronts: domestically.7 14. 2009 Exhibit 46: Apple as % of Forecast Market. and its NOC/software/hardware ownership creating its unique. RIM’s sustainable advantages. thus continuing to expand its addressable markets and outsell incumbents.

8% 165. targeting a broad addressable application developer community. and thus may need to be more measured in its product and distribution roll out.1 57.3% 2011E 376. production.1% 247.1 115.1 15. a ground-up developed smartphone OS platform with unique innovations like multitasking.0% 0. though these could be phased out over time as WebOS gains enterprise features.8 18. iconic smartphone experience. marketing budgets and balance sheets as do RIM and Apple.8 22. 2009 carrier profitability.9% 2010E 250.5 19. c) litigation/other.1% 374. controlling the end-to-end smartphone software and hardware platform. We assume Palm continues its global carrier distribution expansion following Sprint. OTA downloads. we believe Palm’s strong management team has the potential for superior execution. Palm. spawning a family of smartphones addressing a global market opportunity at multiple price points and form factors. some incumbents and in the company of RIM and Apple. At this early turnaround phase. including a $99 GSM version expected to launch first in the U. Synergy (user data integration). We note that RIM.2 21.4% 6.0% 553. which could stretch out its product/carrier ramp.5 15.Wireless Industry August 18. limited applications) – also show Palm has the potential to provide that rare iconic smartphone experience.2 million units in calendar 2012.7 15. Palm does not benefit from strong brand tailwinds.8% 4.2% TAM) or 2.8% 1. utilizing WebKit-based mobile web browsing.6 17. The accolades for Pre – despite its early drawbacks (one carrier.9 92.3% data-centric smartphone shipment market share (0. its first WebOS device – despite the already broad awareness of iPhone – illustrates pent-up demand for innovative. HTML email. Palm faces near-term challenges. Palm (like RIM and Apple) is. expanding to multiple carriers globally over the next two years. Our outlook calls for Palm to quickly recover.5 37.3% of TAM) or 18. may continue to offer Windows Mobile devices like the Treo for enterprises.). With its new strategy. and compelling and clever hardware/software designs – all combine to offer a unique. we believe Palm has the potential for a remarkable smartphone turnaround.4% 5. and.5 17. Palm 60 Mike Abramsky . While lacking the scale. initially with Bell in Canada and O2/Telefonica in Europe. the opening up of its platform to third-party developers. network. Exhibit 47: RIM as % of Forecast Market. etc.6% 2009E 164. non-intimidating smartphone user experiences. subsequently recovered ground once launching its versions. and others).5% 766.4% 1.0 12.8% 2012E 503. WebOS product line and under the direction of a new management team headed by ex-Apple executive Jon Rubenstein.7% 0.5 15.6% share (1. The huge positive reception to the launch of Palm’s Pre. Following a period of decline and facing oblivion. differentiated from incumbent vendors. integrating an intuitive UI and friendly notifications – and using popular Web development standards. matching it to its available resources.S. Palm in our view faces near-term risks but has the “special sauce”: vertically integrated.9 34. including: a) execution. developer-friendly SDK.2 million units in calendar 2009 to 3. scale. Targeting the PIM-centric segment of the Palm legacy. we also expect Palm may encounter execution “speed bumps” (quality. in our opinion. avoiding many of the historic. well positioned for smartphone leadership. Challenges. As a turnaround.4 49. growing from an estimated 1.1% 1.1 20.7 83.7% 3. above competitors.1% 2. and subsequently with other North American and European carriers. As well. while historically lagging competitors in rolling out software innovations (attachment viewing. b) product and distribution ramp. Application Store. preRubenstein execution and product stumbles that caused Palm to lose share leadership. We see WebOS as a platform.3% Source: RBC Capital Markets estimates Palm The New Palm. brand and distribution of Apple and RIM. We believe Palm’s WebOS is strategic to Palm’s potential success: incorporating integration with the cloud and Web services for consolidating multiple sources of personal data.5 65. in the interim. 2008A-2012E 2008A RBC Data-Centric Smartpho ne Units (MM) RIM Unit Forecast % Data Centric Smartphon e Units % TAM (units) RBC Data-Centric Smartpho ne Users (MM) RIM Total Subscribers % Data Centric Smartphon e Users % of Total M obile Ph one Use rs 126.

g.4 0. Currently shipping ~7 million units per year. and integrates various communication modes (phone. weather.6 2.5 3.3% 766.8 2.7 0. However.2 0.8 3. may position it for smartphone leadership in some segments. social networking) into a single view.1 0.0 2.5% of TAM by calendar 2012. and thus HTC’s success is not necessarily a zero sum game for Apple.8% 0.5% of TAM in calendar 2008 to 2. architecture and their media. Apple. moving away from the ODM model.8% 553. While not as vertically integrated as RIM and Apple (because HTC still relies on the Android).6 2. Windows Mobile has yet to support multi-touch.7 10.9 2.3 1. deepening its software capabilities (now has 1. We do.7% 0. In December 2008.1 6. RIM and Palm.2% 2011E 376. UIs and custom apps.2 0.1 17. For example.0 14. and Palm’s introduction of new innovations to the market. HTC acquired One & Company to transform external designs of HTC’s smartphones and develop HTC’s TouchFLO UI.1% 2010E 250. and Touch HD.000+ total employees). new sensors. HTC has the potential. Additionally. 2008A-2012E 2008A RBC Data-Centric Smartphone Units (MM) Palm Units Forecast % Data Centric Smartphone Units % TAM (units) RBC Data-Centric Smartphone Users (MM) Palm Shipments By OS Platform (MM) Web OS Microsoft Windows Palm OS (Legacy) Palm User Forecast % Data Centric Smartphone Users % of Total Mobile Phone Users Source: RBC Capital Markets estimates 2009E 164. Mike Abramsky 61 . as discussed. which incorporates user customizable widgets that display pushed content (twitter feeds. new screen technology. email. however. 2.2 3.1 3. increasing its mix of HTC-branded device launches.). While HTC has increased its investments in software. The company may also encounter other roadblocks (like litigation from Apple).1 2. in our view.8% 0.8 2.8 5..000 software engineers of 8. Taiwan-based HTC is the world’s largest smartphone ODM (manufacturing devices for OEMs and carriers) and the largest producer of Windows Mobile devices (>33% of total Windows Mobile (WinMo) shipments in calendar 2008).August 18. Touch Cruise.6% 1.5 1.1% 0. our forecast is for HTC to rise from 0. expect these risks to diminish as Palm gains scale and momentum.5 years since Apple first demonstrated it.2 1. however.2% 247.1% 0. we believe there is ample room in the market for four to five vendors to dominate.9 18.3% 2012E 503.7 0.5% 0. calendar. improving manufacturing quality. This may make it challenging for HTC to continue to fully differentiate itself to carriers from other Android and Windows Mobile vendors and match RIM. HTC has also developed its proprietary Sense UI user interface.4 7. it faces challenges as it remains dependent on Microsoft and Google’s underlying applications. Recently. HTC offers integration with Microsoft Exchange and ActiveSync on its branded devices. email.5 0.5% 126.6% 374. HTC’s move towards owning both software and hardware technology. text. content and services strategies. tools. HTC has reinvented itself. new innovations may be delayed. coupled with its unique and innovative form factors.8% 0.3% 165.4% 0.6 4. to also become a leading smartphone vendor.5 10. etc. Exhibit 48: Palm as % of Forecast Market.5 0.1% HTC Corporation Transforming from ODM to Smartphone Contender. Challenges. waiting for Microsoft or Google OS updates to support certain new hardware features (e.3% 0.0 0. world times).0 23.0 8. and increasingly utilizing Google’s Android OS. used in the WinMo-powered Touch Diamond 2. 2009 Wireless Industry must woo back disenfranchised users and carriers who lived through quality problems at the “old” Palm. offered on the Android-powered HTC Hero.4 0.

dropping from 36.2% Nokia Nokia: Defending Market Position.9 35.Wireless Industry Exhibit 49: HTC as % of Forecast Market.7% 0. rich mobile web browsing. bit-side. integrated flash memory size.7 54.1% 2. application ecosystems. 2009 2009E 164. acquired by Nokia in 2008 (Nokia plans to make the platform available as open source to other manufacturers).5 3. out of 400 million phones.7 11.1% 553. but available for Nokia 5800) and involves an ~$100 premium versus devices without “Comes with Music”. files. As shown by Microsoft’s Zune struggle against Apple.3 7.7 15.8 7. PLAZES. Nokia shipped only an estimated 47 million data-centric smartphones in calendar 2008 (this would exclude Nokia’s smartphones bought without full data plans). sharing (user-generated photos.5 7.1 6. appealing-looking smartphones offering the latest hardware features (some superior to RIM and Apple like higher-res cameras.6 5.6 5.1 7.8% in calendar 2012 (Nokia’s overall share of TAM should still grow.6% 2011E 376. given smartphone market growth).4 40. 2008A-2012E 2008A RBC Data-Centric Smartphone Units (MM) HTC Units Forecast % Data Centric Smartphone Units % TAM (units) RBC Data-Centric Smartphone Users (MM) HTC Shipments By OS Platform (MM) Google Android Microsoft Windows HTC User Forecast % Data Centric Smartphone Users % of Total Mobile Phone Users Source: RBC Capital Markets estimates August 18. Nokia’s smartphones run Symbian OS.5% 2. may continue to face challenges transitioning to smartphones. particularly with software.1 20. contacts.1 15.1 25.4 17.9 16. in our opinion.0 6. which allows unlimited downloads of DRM-restricted music for two years.9 8.2% 1. videos). The global leader in handsets with 468 million units shipped in calendar 2008. wireless technology). etc. NAVTEQ. – has been to date disappointing (based on early reviews). not yet available for N97.7% 1.8% of smartphone units in calendar 2008 to 25. since they are limited to playback on certain devices and for a limited time.2% 0.8 6. OZ Communications. with some buyers using them as PIM organizers with voice/SMS only (no data plan). intuitive smartphone data experiences of RIM and Apple’s OSs. We expect Nokia to lose some smartphone share. its Symbian-powered user experiences lag the richer. ringtones.0% TAM in calendar 2012.1 6.1% 0.1% 126..2 0. Nokia may be able to address these challenges and successfully compete in the smartphone market.5% 766. Some of its smartphones have been criticized as being too complex for data-centric functionality like email and browsing.5% 165. data and content. Loudeye.9% 2012E 503. Nokia. consumers have shown little interest in DRM-restricted music subscription services. These issues are not insurmountable. Symbian-powered Nokia smartphones don’t offer multi-touch UIs (have resistive rather than capacitive touchscreens). and others). and innovative media players.g.0% 247. app purchases.4 10. Microsoft recently announced it is planning to bring Microsoft Office Mobile and other Microsoft software to Nokia’s Symbian devices. is only available on a select number of handsets (e.4% 374. Nokia’s subscription “Comes with Music” service.3 7. However.5 28.5 billion in software and data acquisitions (Intellisync. 62 Mike Abramsky .4% 2010E 250. Twango.1 7. and sync of calendars.8 7. gaming (N-Gage).9% 0. Mobile content as well has proved a challenge for Nokia: its Ovi mobile content service – offering content like music. gate5.8% TAM to 9. This has not been through lack of trying: Nokia has spent more than $8. from 3. downloads.1 4. While Nokia has led the market in delivering stylish.9 11.0% 1.2% 0.

2 5. to the Propel slider and the Omnia touchscreen.9% 4.9% TAM in calendar 2012. Ace and Saga.3 6.8 0.0 33.5% 2012E 503.8 4.9 25. users are required to navigate between the TouchWiz UI and Windows..1 111.g.6 29.2 0.. its overall voice/SMS handset market share will.3 28.8 165.4 5.9 0.1 0.1 40.9 129.4 70.0 766.4% 0.8 4.7 3. 2009 Exhibit 50: Nokia as % of Forecast Market.4% 2011E 376.9 53.6 5. photo browser.3 374.7 28. music player.5 5.1% 2.9 27.5 20. “world’s thinnest Android smartphone”).1 16.1 15.4% TAM (5 million units) in smartphones in calendar 2008.7% 4.2% 553.0% 2010E 250.5% 2009E 164.8% 374. in our opinion. which some reviewers have disliked. Samsung may commission developers to release proprietary games and apps available only on its app store for its Android devices. lacking its own proprietary smartphone OS.7 161.1 5. We believe Samsung will focus on being first to market with innovative new hardware (like high resolution screens.0% 5. 2008A-2012E 2008A RBC Data-Centric Smartphone Units (MM) Samsung Units Forecast % Data Centric Smartphone Units % TAM (units) Samsung Shipments By OS Platform (MM) Google Android Microsoft Windows Other RBC Data-Centric Smartphone Users (MM) Samsung User Forecast % Data Centric Smartphone Users % of Total Mobile Phone Users Source: RBC Capital Markets estimates 2009E 164. Samsung lags RIM.1 11. Conversely. etc.7% 0.4 247. its first Android-powered smartphone.4% 1. Samsung’s expected Android smartphone launches in late 2009.5% 0.7 3.8% 9.9 3.8% 3.8% 126.4 12.8% 247.2% 3.9% 12. and should improve sales of what has been to date limited smartphone success (Samsung sold only 4 million Windows Mobile powered devices in 2008 (e.9 0.0 3.6% 0.3 29. (Similar to other UI layers on top of Windows.1% 0.4% 1. Samsung offers a variety of Windows Mobile smartphones. Apple and other smartphone leaders.1 206.0% 1. We expect Samsung to grow its smartphone franchise from 0. We expect Samsung to differentiate its Android devices and offer a customized touchscreen UI with 3D animations and transitions.0 3. Samsung’s Omnia smartphone series incorporates Samsung’s TouchWiz UI for Windows Mobile. Blackjack.5 8.9 6.8% 165.0 553.) Samsung launched the i7500 Galaxy in 2009. As the second largest mobile phone manufacturer shipping 200 million units annually. utilizing Windows Mobile.9 28.4 26.1 34. Apple and Palm in software capabilities.g.2% 2010E 250.5 108.2 56. face some losses to RIM.2% Source: RBC Capital Markets estimates Samsung Balancing Windows Mobile and Android.5% 0.9 4.5% Wireless Industry 2011E 376. Omnia)).0% 1.6% 0.4% TAM in calendar 2008 to 1. 2008A-2012E 2008A RBC Data-Centric Smartphone Units (MM) Nokia Units Forecast % Data Centric Smartphone Units % TAM (units) RBC Data-Centric Smartphone Users (MM) Nokia User Forecast % Data Centric Smartphone Users % of Total Mobile Phone Users 126.3% 0.8 46. from the QWERTY keyboard Jack. Epix.3 5. TouchWiz updates the standard Windows Mobile UI to handle finger touch inputs (as opposed to stylus) and features a customizable home screen with multiple “widgets” like clock. Symbian and Android (over an estimated 80% of Samsung’s smartphones sold in calendar 2008 were running Windows Mobile). Exhibit 51: Samsung as % of Forecast Market. and cameras) and packaging/form factors (e.9 32.0% 766.2% Mike Abramsky 63 .7 36. and is horizontally integrated.5 82.August 18.6% 2012E 503.5% 9.5% 0. Samsung had only 0.8% 2. as well as integrate its Android devices with its “Samsung Mobile Applications” app store.9% 8.1% 5.

7 9.g.3% 247.1 4.9 0. Apple and other smartphone leaders. Pending Android smartphone launches in late 2009 and 2010 are expected to improve MOT’s smartphone momentum.7 0. with its turnaround largely dependent on the sustained success of its pending Android-powered offerings. Motorola Q) along with another 1.8% share of TAM in calendar 2012 versus 0.2% 0.3 2.3% by calendar 2012.1 5.Wireless Industry August 18. with its total handset share falling from 8.2% in calendar 2008. Windows Mobile. user confusion and complexity as software and data become more important to the smartphone experience. at 0. which features a unique “panel” UI on top of Windows Mobile. Exhibit 52: Motorola as % of Forecast Market. Motorola has faced losses in handset market share.9% 0. The Xperia experience remains constrained by Windows Mobile limitations (e. in our opinion.0 3. Sony Ericsson’s strategy of differentiating its smartphone experiences atop these platforms through innovative UIs. Some reviewers have disliked Xperia’s user experience (appears unpolished and inconsistent.8% in calendar 2007 to 8.9 1. Positioned as a premium feature phone vendor.g. requiring users to manually switch between the “panel” UI and Windows Mobile and offering weak integration with core phone functionality (e.7% 1.9 1.7% 374.8 2. While the launch of these devices is likely a near-term positive for Motorola’s smartphone franchise.1 6. customers.6 3. given its larger challenges. as shown in its Xperia X1 smartphone.7 4.9 18. but lacking its own smartphone OS. We expect Motorola to grow from 0.2% in calendar 2008. and departing key employees.0% 0.8% 1.2 3.7% 0.8 11.9 3. Symbian and Linux).8 3.6 2. 2009 Motorola "Hail Mary" Smartphone Play.4 2. Facing larger challenges with its global handset franchise.2 0. Sony Ericsson remains committed to three major smartphone platforms – Symbian. call. lacks multi-touch).g.5 0.6% 0.1% 0. widgets and mobile services has not yet been proven. likely to 64 Mike Abramsky .3% 2011E 376.0 0.2% TAM in calendar 2008 to 1.8 2. Motorola to date has had limited success (sold only <1 million WinMo-powered smartphones in 2008 (e.3 0.3% 766.3% 0.1% Sony Ericsson Juggling Three Smartphone Platforms. we believe Sony Ericsson is developing an innovative UI atop Android. In smartphones. slowed product development.8 0. we remain cautious regarding how strong and sustainable its efforts may be to catch up to the user experiences and momentum of smartphone leaders RIM and Apple. the company shipped 100 million units in calendar 2008.5 14.4% 2012E 503.6% 126.. SMS notifications)). 2008A-2012E 2008A RBC Data-Centric Smartphone Units (MM) Motorola Units Forecast % Data Centric Smartphone Units % TAM (units) RBC Data-Centric Smartphone Users (MM) Motorola Shipments By OS Platform (MM) Google Android Microsoft Windows Other Motorola User Forecast % Data Centric Smartphone Users % of Total Mobile Phone Users Source: RBC Capital Markets estimates 2009E 164.2 28. down 37% from 159 million units in calendar 2007. to face losses to RIM. and Android – which increases support costs.9 3..6% 0.5 million Linux-based Ming smartphone in Asia) but has moved to shift and prioritize its handset and smartphone offerings around Android (scaling back WinMo. similar to its “panel” UI for Windows Mobile.8 2. We expect Sony Ericsson’s share of the smartphone market to remain essentially static. Sony Ericsson has lost market share through the market’s shift to smartphones.0 3. To differentiate its Android-based devices. Still the third largest mobile phone manufacturer.4 9.1% 553. To us.4 19.2% 165. while Motorola’s overall voice/SMS handset market share will continue. Motorola is planning to incorporate unique applications and user experiences into its Androidbased devices – such as highly integrated social networking integration – not part of the standard Android OS..1 12.1% 2010E 250.7 5. Motorola represents a “Hail Mary” play in smartphones.

5% 1.0 2.7 27.3% 0. HP.7% 3.8 1.0% 553.6% 553.6% of data-centric units in calendar 2008 to 17.6 18.2% 2009E 164. and Fujitsu) to launch smartphones and connected mobile devices – particularly.1% Other Vendors (PC.August 18.7 16.4 4. Panasonic.4 17. with their shares declining from 19.0% in calendar 2008 to 6. Sony Ericsson may leverage Sony’s Walkman.8 3.1% 2010E 250.8 19. Over time. we do not believe – given the aforementioned competitive advantages required to be successful in the smartphone market – that PC vendors nor smaller phone vendors will succeed in becoming smartphone leaders (although they may become smaller.7 104.1 23.0 1.2% 165.4 3. They may survive by selling smartphone units bundled with their own offerings. 2008A-2012E 2008A RBC Data-Centric Smartpho ne Units (MM) Other Units Forecast % Data Centric Smartphon e Units % TAM (units) RBC Data-Centric Smartpho ne Users (MM) Other User Forecast % Data Centric Smartphon e Users % of Total M obile Ph one Use rs 126.2 0. niche smartphone players).3% 2.3 2. etc.9 30.6% 1.3 1.1 10.5% 0.7% 247. However.8% 2011E 376.1% 0.3 1.9% 2. and Lenovo) as well as smaller phone manufacturers (LG.7 19. channels or customer bases where they are dominant.8 21.0% 1.1 1.0% Source: RBC Capital Markets estimates Mike Abramsky 65 .1% 766.8 2. 2009 Wireless Industry feature sleek 3D animations and transitions.1 3.0 0.2 1.4 44.6 1. Exhibit 54: Other Vendors as % of Forecast Market.2% 2012E 503. the PC vendors. or in certain niches.6 1.2 18.8% 766. Playstation and/or Cybershot franchises and incorporate robust multimedia.9 88.9% 0.5% in calendar 2012 (TAM rises from 2. Sony is likely to integrate its Android devices with its MyPlay online music store.9 11.7 2.0% 165.8% 3.5 0. NEC.7% 374. Exhibit 53: Sony Ericsson as % of Forecast Market.1% 247.6% 0. We see the aforementioned smaller mobile phone vendors losing share to smartphone challengers.1% 0.1% in calendar 2012 on growth in the smartphone market).9 1.8 24. 2008A-2012E 2008A RBC Data-Centric Smartphone Units (MM) Sony Ericsson Units Forecast % Data Centric Smartphone Units % TAM (units) RBC Data-Centric Smartphone Users (MM) Sony Ericsson Shipments By OS Platform (MM) Google Android Microsoft Windows Other Sony Ericsson User Forecast % Data Centric Smartphone Users % of Total Mobile Phone Users Source: RBC Capital Markets estimates 2009E 164.6% 5.2% 2012E 503.1 150.7 1. gaming and/or camera capabilities into its Android handsets.2% 0. where the rise in netbooks and the commoditization of traditional PCs is forcing PC manufacturers to prioritize mobile devices and smartphones.5 7.1% 0. Phone.6 1.6 4.3 1.3 17.0 0.0 2. value-add widgets.5 66.4 2.3% 126. which it has already launched for O2 UK.1% 2011E 376.6 17.2 44.4% 374.6% 2. Sharp.3 6.) We expect other vendors.4% 2010E 250.7 2.5% 6.1 80.9 1.5 58.7% 0. direct integration with social networking services and other custom apps. Acer.0% 0. including PC manufactures (Dell.0 3.

rising from a 0. Microsoft is planning a significant release. and Google Seen To Dominate Near Term.5% share of total data-centric smartphone units in calendar 2008 to 12% calendar 2012. 3-4 OS. with the survivors not necessarily first movers (recall Excite.Wireless Industry August 18. third-party apps for smartphones began to flourish. and no more. carrier reluctance to open their networks. and a vibrant app ecosystem is fast becoming “table stakes” for smartphone differentiation and success. our outlook assumes Microsoft’s share modestly 66 Mike Abramsky . RIM. Lycos. Ask Jeeves. While this release may close innovation gaps. RIM. and is expected to lose share to OS from Apple. for example. Apple opened the floodgates to mobile application momentum. and scale). We see Apple. which paled in richness to some of today’s interactive. and Google initially dominating the smartphone OS market. declining from 13% of total data-centric smartphone units in calendar 2008 to 11. and successful uptake of pending product cycles. Palm is expected to increase its OS share from 1.1% of total data-centric smartphone units in calendar 2009 to 3. Still Early.. Palm’s WebOS is expected to stake out a smaller but significant leadership position within the PIM-centric segment.g. Initially. multimedia website experiences as network speeds. we see room in the market initially for perhaps three to four dominant smartphone operating systems (if that. mobile applications are a critical catalyst for future growth of data-centric smartphones. Samsung. mobile applications lagged the vibrant third-party applications marketplace associated with the PC or the PDA because of OS fragmentation. distribution. Symbian will.) and a developer-friendly ecosystem (SDK. RIM. 2009 Mobile OS Share Outlook OS/Platforms Becoming Standards. and RIM leading the productivity-centric smartphone segment. Although apps on the iPhone (now numbering 65k with 1. Given our thesis for early smartphone market segmentation (as described in the Smartphone Market Segmentation section). but each has its own up/down scenarios dependent on overcoming challenges. Microsoft is expected to cede some OS share to Android. LG and Sony Ericsson shift to Android from Windows. Windows Mobile 7. We believe it is very early in the evolution of the smartphone application/OS market. consumer convenience (App stores.5B downloads to date) have seemingly exploded. Hotbot. is likely to lead near term given its near-term traction with OEM smartphone vendors but faces uncertain status longer term. Along with subsequent application stores from Google (Android) and RIM. AOL. app-centric OSs.8% share of total data-centric smartphone units in calendar 2008 to 18. Significant Smartphone Platform Share Shifts Expected. etc. Google. Google Android is expected to quickly accelerate share gains. further innovations and lower priced devices. in our view. this stage of app development is to us reminiscent of early websites (a time when. Netscape. and vendor dominance. and Google. as well as OEMs using Android to replace RTOS (real-time operating systems) on high-end feature phones. along with content/app developers who also can only support two to three platforms). app-enabled OS software and SDK. Windows Mobile has lagged innovations from Apple. etc. We forecast Apple OS to rise from an 11% share of total data-centric smartphone units in calendar 2008 to 16% in calendar 2012 on international momentum. smartphone operating systems may further consolidate to two or three. or Mozilla. Apple. Similar to how iconic software applications popularized PCs (e. Our outlook on Palm is positive. given the challenges that wireless carriers face in supporting more than one or two smartphone platforms. PCs. building competitive advantages. newspaper and magazine websites were simple HTML versions of their print publications). RIM’s share is expected rise from 17. with Apple in the lead due to its dominance of the media-centric segment. largely at the expense of Microsoft as a rising number of handset OEMs like Motorola. Given its later re-entry into the consumer market (with WinMo 7) and assuming it sustains its current pricing structure. With the iPhone and its App Store. by the time it reaches the market it may face significant challenges regaining OEM market share versus Google (particularly if Microsoft sustains its software pricing model). tools and PC technologies developed. Internet search. in 2010 which may help it regain momentum. data subscribers. easy payment.. etc. browsers. With its compelling WebOS user experience and increasing carrier momentum. iTunes. and a lack of economic incentive (revenue. and Google and thus ceded market share. @Home. RIM.4% in calendar 2012 on international momentum and a move into late adopter buyers. tools). similar to consolidation in other consumer tech platforms like gaming consoles.). in our opinion. VisiCalc for Apple II and Lotus 1-2-3 for IBM PC). In time. face significant challenges.5% in calendar 2012.5% in calendar 2010.

tight integration with Google’s cloud services.0% Google Android 0. bundled Android UI and apps.5% 2008A-2012E Data-Centric Smartphone Share (Units) Shifts 100% % of Data-Centric Smartphone Units 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2008A Source: RBC Capital Markets estimates Google Android Palm Other RIM Apple Microsoft Symbian 2009E 2010E 2011E 2012E Google Android Android.5% Google Android 12. Thus.August 18. Android appears positioned to gain early momentum with a portion of the entry-level voice/SMS phone market moving to smartphones. particularly with RTOS voice/SMS phone vendor OEMs.4% RIM 17. browsing experience.0% RIM 18. which is contingent on Microsoft regaining OEM handset share following the release of WinMo 7. software and telecom partners that manage development) has recently had strong near-term momentum as an OEM smartphone OS. Mike Abramsky 67 .1% TAM) to 12. high level of customizability. along with the Open Handset Alliance.5% in calendar 2008 (0.2% 9.5% in calendar 2012. from a 46% share of the data-centric smartphone market in calendar 2008 to 35% in calendar 2012. price-sensitive former users of these phones upgrading to smartphones. Exhibit 55: Data-Centric Smartphone (Units) Platform Share Outlook 2008A Data-Centric Smartphone Share (Units) Other Palm 2. Symbian shows the most dramatic decline.3% Symbian 46. Android will see near-term traction with OEM smartphone vendors who prize the opportunity to leverage Google’s 100 million-plus online base.0% Microsoft 12.8% Symbian 35.8% 2012E Data-Centric Smartphone Share (Units) Other Palm 3.5% 2. 2009 Wireless Industry recovers to 12.0% in calendar 2012 (4.2% TAM). We expect Android’s share of data-centric handsets to steadily rise from 0.3% Apple 16. vibrant developer and mobile app ecosystem. in our view. Google’s open-source mobile platform (unveiled in November 2007.4% Apple 10.3% Microsoft 13. Android’s advantages include its: low/no cost to OEMs. a group of 47 hardware. Other platforms (like Linux) are forecasted to decline from 9% in 2008 to 2% in 2012. and. with Google well suited for entry-level.

with a webkit-based mobile browser.6 4.).6% Equates to 66% of total Windows Mobile Smartphone shipments Source: RBC Capital Markets Not iPhone Killers. flash. physical device limitations.7 2. 2) implementation “with strings”. a large number of whom appear committed to launching Android devices. 2009 OEM Value Proposition. 3) “The Google Experience”. touchscreen UI. sell-through of some early Android devices has been slower than expected given some of the roughness of the user experience (brought up in reviews). given: • Despite customization.3 1.7% 2008 Smartphone Shipments (MM) 6.1% 0. though device development may remain challenging. OEM software/hardware updates may be delayed until Google makes necessary changes to Android.) unique UI constraints.7% 1. Sony Ericsson and others. in contrast to the strong consistently applied.9 Share (%) 4.1% 8.0 196.3 Sha re (%) 0. While providing OEMs with satisfactory smartphone user experiences. full installs of Google apps and unrestricted access to the Android market. HTC has added support for Microsoft Exchange and Exchange ActiveSync on its non-Google branded devices. Apple.9 0. Samsung.5% 20. and location-based marketing. who benefit from tighter integration of software/hardware via vertical integration. app ecosystem (Android market). including HTC. potentially creating delays in deploying new innovations. Google may over time grow new sources of mobile revenues.2 10.1 96. Gmail. but they may not use any Google apps (e. etc. • Customization by OEMs fragments the Android user experience.0% 3. Google’s pricing – free – may offer 5% cost advantages over a licensed OS like Microsoft. Support is more critical and challenging in mobile (than on the Internet or PCs) where superior performance. functional multimedia and mobile email (Gmail-centric). • Android OS updates must accommodate customized implementations across multiple OEM partners. in-store purchase transactions. Android Launch Timing HTC Samsung Motorola Sony Ericsson Fall 2008 Fall 2009 Fall 2009 Fall 2009 2008 Voice/SMS Handset Shipments (MM) 0. LG. calendar. for example.7% 3.6 393. which isn’t available as part of “The Google Experience” on competitor devices (or even HTC’s Google-branded devices). assuming Windows Mobile charges $10/unit for a smartphone with average $200 bill of materials (BOMs). processing.9% 8. We believe most vendors will adopt the implementation “with strings”. HTC) Android-powered smartphone vendors may face challenges becoming “iPhone killers”.9 0. • The rising number of OEMs may lead to inconsistent user support experiences across OEMs and carriers. carriage fees (broadcasting). reliability and user experience are more difficult to achieve given the unique constraints of mobile (battery life..1% 7.6 100. limited resources (storage. spectrum efficiency. For example. iconic smartphone user experiences of RIM and Apple. Android is available to OEMs under three models: 1) obligation free. including advertising. where OEMs sign a distribution agreement with Google and may install Google apps. where they can develop their own UI and apps on top of the Android. yet still use Google apps. Android continues to gain critical mass with handset OEMs. with few exceptions (perhaps. The standard Android UI provides a modern smartphone experience.).9 3.0% 2008 Windows-Based Smartphones (MM) 5. the smartphone experiences of horizontally integrated Android OEMs are expected to lag user experiences from RIM. Exhibit 56: Profiles of Android OEMs Est.g.8% 31.Wireless Industry August 18. Motorola.9 15. and Palm. 68 Mike Abramsky .0% 15. Early OEM momentum has been uneven – with some OEMs having difficulty releasing devices on schedule due to engineering challenges. etc.5 Sha re (%) 13.8% 1.7% 0. with Google branding on the handset. We expect OEMs to address the UI shortcomings as they come up the learning curve and begin to roll out proprietary UIs. etc. giving OEMs liberty to customize and install on a variety of devices. Conversely. Also.

1 553. Windows Mobile 7.1 3. to become successful in smartphones.8 0.3 million units) to 13.5% 2011E 376.and business-oriented.5) this year offering improved UI with touch control. As a result. Apple. 2008A-2012E 2009E 164.3 1. however.3 247. 2009 • Wireless Industry Despite its Open Source architecture.1% 2012E 503. and Wi-Fi support.4 5.9 9. along with structured tools. in 2010. Apple and Google in consumer smartphone innovations (UI. WinMo 7 is also expected to leverage Mike Abramsky 69 . etc.0 165.0% 11. etc.2 0.0% in calendar 2008 (16. accelerometer. Windows Mobile 7.). Microsoft is planning a more significant release.5% 0.1 84. given competitors will also continue to evolve their experiences.5% 3.3 5. Exchange. hardware/software features.0% Microsoft Windows Mobile – Aiming To Regain Leadership.7% 7.0 0.6 11. QWERTY versus touchscreen keyboards. Given its 2010 re-entry in the market with Windows Mobile 7 (see below) and assuming it sustains its current pricing structure. slower than the rise in the market).9 9.) as well as continued to face some reliability and usability issues. developer tools. however.6 0.3 8.).2% 1. which we forecast will decline from 13% of total data-centric smartphone units in calendar 2008 to 11.. photos. some voice/data incumbents may need to successfully upend legacy business processes.4% in calendar 2007 (15. Microsoft has ceded OEM. Microsoft believes WinMo 7 will help it regain mobile OS share momentum.9 60. Android application developers may need to increasingly contend with the costs and complexity of developing and supporting a wide variety of OEM hardware and software customizations.1 12.0 6.2% 15.5% in calendar 2010.9 374. Office. content. which is contingent on Microsoft regaining OEM handset share following the release of WinMo 7.5% in calendar 2012. etc.1 2. break carrier influences and recognize and fill skill gaps.8 0.7 50.5 5.August 18. 2008A RBC Data-Centric Smartphone Units (MM) Google Android Units Forecast % Data Centric Smartphone Units % TAM (units) Google Android Vendor Shipments (MM) HTC Motorola Samsung Sony Ericsson Other RBC Data-Centric Smartphone Users (MM) Google Android User Forecast % Data Centric Smartphone Users % of Total Mobile Phone Users Source: RBC Capital Markets estimates • Exhibit 57: Google Android as % of Forecast Market. etc. entrenched hierarchies.5 10.5% 3.8 0.5% 1. memory.4% 0.3 0. Windows. and contacts to the Web. deeper integration with its other platforms (Xbox.0 0. processor speeds.6 0.1 24.4 21.g. Microsoft launched an interim WinMo release (6. sensors (e. and Google. Microsoft is expected to cede some OS share to Android in the near term. cultures. WinMo’s share of data-centric handsets dropped from 18. GPS.1 12.1 9. Zune. user and developer market share to RIM. which should improve OEM smartphone development. As discussed in the Some Incumbents To Face Challenges section.0% 1.7% 126. Our outlook assumes Microsoft’s share modestly recovers to 12.1 3.5 million units – an increase.3 1.2% 0. apps.0 0.1% 0.1% 0. Windows Mobile has lagged RIM.0 0. updated Internet Explorer and some integration with cloud services like “Windows Marketplace for Mobile” apps store and “MyPhone” for syncing text messages.6 17. Having prioritized the enterprise and attempting to dislodge BlackBerry in this space over the past two years. WinMo 7 is expected to deliver more complete consumer.0% 4. The user experiences of the WinMo 7 release may well close prior innovation gaps with RIM and Apple. visibility to the competitiveness of these future offerings remains limited.1% 2010E 250.5 766.5 39.4 7. Android alone may not elevate incumbent voice/SMS vendors to smartphone leadership. videos.4 2. Examples include various screen resolutions.5 12.9 5. end-to-end experiences.6 0. Web.4% 0.

3% 5. by the time Windows 7 reaches the market. the horizontally integrated Microsoft OEM model.4% 3.. Often.0% 2011E 376.1 553. tight integration of software/hardware. Nokia accounts for 85-90% of total Symbian shipments.9 3.9 0. be planning to work closely with a select few OEMs to attempt to deliver a tightly integrated software/hardware user experience compelling enough to recover some market share. Thus.3% 1. however.4% 20.9% 126. from 46% share of the data-centric smartphone market in calendar 2008 to 35% in calendar 2012.3 0.8% 2010E 250.5 14.1 95.9 12.5 46.5 20.1 44.Wireless Industry August 18.9 20.5% 16. email. at this stage of the smartphone market. however.8 0.7 4.4 28. enabling superior. if WinMo 7’s user experiences and possible innovations in OEM smartphone tools are strong. delightful.5% 0. PC install base (500 million “home” users). competitors certainly won’t be standing still.8 16. possibly offering consumers management of and access to their personal data and content across platforms. Some Symbian-powered smartphone user experiences continue to lag the rich. Symbian’s user experience is also 70 Mike Abramsky .0 14.0% 1. Horizontal Integration. including OEM share lost to Google. particularly if it sustains its existing software pricing model versus Google’s “free” offering without delivering a differentiated and superior user experience. our forecast for Symbian shows dramatic decline. Going forward. Symbian-powered Nokia smartphones don’t offer multi-touch UIs.1 12.9 0. in our view.8% 7.8 12. However.9 0. A significant portion of Symbian users do not fall under our data-centric definition.6% Symbian Transitioning to Open Source. rich web browsing. Exhibit 58: Microsoft as % of Forecast Market. Regardless of its advantages.e. Uphill Battle. As an example. unique. apps) and not taking full data plans.5% 4.0% 0.4% 10. Now owned by Nokia (acquired in 2008).2% 1.5) faces inherent challenges to creating an “iPhone killer”. with some buyers using them as PIM organizers with voice/SMS only (no data plan). 2008A-2012E 2008A RBC Data-Centric Smartphone Units (MM) Microsoft Units Forecast % Data Centric Smartphone Units % TAM (units) Microsoft Vendor Shipments (MM) HTC Samsung Motorola Palm Others RBC Data-Centric Smartphone Users (MM) Microsoft User Forecast % Data Centric Smartphone Users % of Total Mobile Phone Users Source: RBC Capital Markets estimates 2009E 164. Nokia has not yet (may not) open up its Ovi mobile services strategy to other Symbian partners. As with Google.7 68.5% 2012E 503.9 165. 2009 Microsoft’s large Xbox install base (28 million users). iconic smartphone user experiences are best provided via deep vertical integration.1 6.8 4. and hotmail (350 million users).5 374.2 13. Microsoft faces an uphill battle in regaining market share.4% 1. intuitive smartphone data experiences of RIM and Apple’s OSs. i.9 62.2 12. aren’t utilizing full data (browsing. at this stage (6. Per our thesis.9 2. Symbian to date has been the world’s most popular OS. a broad app ecosystem.2 4.4 11. and innovative multimedia.0 12.4 247.5% 2. Symbian may lose OEM share due to concerns in utilizing an OS offered by a competitor or if Nokia prioritizes Symbian development around its own handsets.7 0.7 15. not just data-centric units).1 6.5 13.9 0.0% 1.7 12.2 766.4 6. Microsoft could re-gain OEM handset share versus Android which could potentially shift market share back in Microsoft’s favor.5 32.8 11. With more than 200 million handsets shipped to date and a 52% share of the total smartphone OS market (all devices shipped. some Symbian smartphones have been criticized as being too complex for data-centric functionalities like email and browsing versus competitors. Microsoft Windows Mobile 7 may.4 8.2 24.

August 18, 2009

Wireless Industry fragmented across multiple UIs (e.g., S60 for Nokia devices, UIQ for Sony Ericsson and Motorola, MOAP for NTT DoCoMo handsets from Fujitsu, Sony Ericsson, Mitsubishi, Sharp, others) designed for various markets/regions. An updated open source version of Symbian with consolidated UIs, expected in 2010, may close some of its usability gaps against competitors. In the mean time, Symbian is expected to continue to lose some traction with OEMs, who are prioritizing development of other platforms like Android (e.g., Motorola closed its Symbian development team late 2008).
Exhibit 59: Symbian as % of Forecast Market, 2008A-2012E
2008A RBC Data-Centric Smartphone Units (MM) Symbian Units Forecast % Data Centric Smartphone Units % TAM (units) Symbian Vendor Shipments (MM) Nokia Others RBC Data-Centric Smartphone Users (MM) Symbian User Forecast % Data Centric Smartphone Users % of Total Mobile Phone Users
Source: RBC Capital Markets estimates

2009E 164.9 65.0 39.4% 5.8% 53.9 9.7 247.5 103.0 41.6% 2.5%

2010E 250.4 86.8 34.7% 7.1% 70.3 14.9 374.1 140.3 37.5% 3.2%

2011E 376.5 141.4 37.6% 10.7% 108.9 30.4 553.7 204.9 37.0% 4.4%

2012E 503.9 177.9 35.3% 12.4% 129.9 45.4 766.1 272.0 35.5% 5.5%

126.8 58.7 46.3% 4.7% 46.7 9.4 165.2 76.0 46.0% 2.0%

Other Platforms
Other Platforms (e.g., Linux) to Decline to <5%. Other mobile platforms include Linux and proprietary platforms like Sidekick. Linux is popular in Japan, where NEC and Panasonic offer FOMA smartphone devices for NTT DoCoMo (e.g., Panasonic P906i, and NEC N906i), and in some Asia-Pacific countries, where Motorola offers its MING smartphone. Our outlook calls for other mobile platforms to decline to a 2.0% share of data-centric smartphone users in calendar 2012 (10 million shipments), down from a 9.4% share in calendar 2008 (12 million shipments). We expect mobile Linux and proprietary platforms to grow slower than the smartphone market, given the maturity of Linux-based smartphones in Japan. Mobile Linux may remain popular as a low-cost smartphone platform for emerging markets, though no leading Linux implementation has emerged, and some vendors may increasingly adopt open or established platforms like Symbian, Android, or Windows, and no longer justify the cost of maintaining another platform.
Exhibit 60: Other Platforms as % of Forecast Market, 2008A-2012E
2008A RBC Data-Centric Smartpho ne Units (MM) Other Units Forecast % Data Centric Smartphon e Units % TAM (units) RBC Data-Centric Smartpho ne Users (MM) Other User Forecast % Data Centric Smartphon e Users % of Total M obile Ph one Use rs 126.8 12.0 9.4% 1.0% 165.2 23.2 14.1% 0.6% 2009E 164.9 15.9 9.7% 1.4% 247.5 33.1 13.4% 0.8% 2010E 250.4 21.7 8.7% 1.8% 374.1 43.4 11.6% 1.0% 2011E 376.5 18.4 4.9% 1.4% 553.7 41.9 7.6% 0.9% 2012E 503.9 10.2 2.0% 0.7% 766.1 45.8 6.0% 0.9%

Source: RBC Capital Markets estimates

Mike Abramsky 71

Wireless Industry

August 18, 2009

Smartphone Market Profitability
While gross margins (GMs) and average selling prices (ASPs) may further moderate (on product mix) in order to target the smartphone mass market, we foresee sustained earnings power for leading smartphone vendors like RIM and Apple in the foreseeable future. Margin Focus. Apple and RIM have achieved above-average profitability (with the Apple iPhone at ~55% GMs and RIM at 40-45% versus the industry average of low 30% for voice/SMS handsets). Apple’s 55% GMs on the iPhone are due to its estimated $400 carrier subsidy (versus other smartphones at $200-250), given iPhone’s ability to drive mobile data subscribers. RIM is able to attain attractive 40-45% GMs despite offering a range of smartphones (from the high-end Bold to the entry-level Curve 8520) as a result of its high margin service business ($2-10/month/ subscriber), which reduces the carrier’s load on its network bandwidth. In our view, Nokia’s smartphone GMs (estimated at 35-40%) lag Apple and RIM, as it lacks Apple’s carrier subsidy and RIM’s service fees; HTC generates GMs of just 30-35% on its Windows Mobile and Android smartphones. Margins for RIM in late 2008 took a downshift from 50-55% to 40-45% as RIM shifted product mix to target the consumer and more costly touchscreen markets, raising investor uncertainty and valuation volatility; investors subsequently remain cautious over potential future margin declines for RIM and the sector. Mix-Shift Ahead. Early-adopter uptake of iconic smartphones is currently driving significant smartphone growth for RIM and Apple. Future growth, in our view, will come from a higher mix of late adopters – a more price-sensitive, style-sensitive segment (particularly in international markets where ARPUs and ASPs are traditionally lower, handset subsidies are lower, prepay is higher, and voice/SMS feature phones’ share is higher). This is expected (already begun) to precipitate a product mix shift for RIM and Apple, etc. towards lower blended ASPs (i.e., a higher mix of $99 smartphones targeted to entry-level users, lower on carrier promotions), given that lateadopter buyers are more handset price sensitive. RBC/Changewave survey data (April 2007, 3,500 respondents) shows that lowering handset pricing can accelerate buying momentum 30-40%.
Exhibit 61: Market Expansion on Lower Smartphone ASPs
600.0 500.0 Smartphone Units (MM) 400.0 300.0 200.0 100.0 0.0 2008A 2009E 2010E 2011E Smartphone ASP 2012E $400 $350 $300 $250 $200 $150 $100 $50 $0 Smartphone ASP ($/device)

Smartphone Units
Source: RBC Capital Markets estimates

As well, these late adopters may require a higher level of marketing investment to entice them to upgrade to smartphones and move to data plans. While still remaining healthy for iconic smartphones, carrier subsidies are also expected to moderate (on average) with a mix-shift to lower ASP smartphones to target the market, along with a shift to more attractive, “tiered” data plans designed to entice more price-sensitive late adopters.

72 Mike Abramsky

August 18, 2009

Wireless Industry Healthy Profitability. Despite this expected ASP mix-shift, we see sustainable margins and healthy earnings power for leading smartphone vendors like RIM and Apple, given an expected increase in overall gross profit dollars. Drivers include: 1) consumers’ willingness to pay a premium for new smartphone innovations; 2) successful challengers offer superior smartphone experiences versus competitors and some incumbents; 3) continued healthy carrier subsidies for select leading smartphone vendors; 4) favorable industry structure; and, 5) possible margin benefits from new services. Premium for Innovation. Millions of consumers remain eager to pay a premium for craved, iconic smartphone experiences and new innovations. Apple’s iPhone 3GS, offering much faster speeds and other updates, outsold the $99 iPhone 8GB 3G by a 2:1 margin (we estimate Apple sold 2.2 million iPhone 3GS versus 3.0 million iPhone 3G last quarter – but iPhone 3GS was only available for less than a month, which equates to 1.4 million/week versus 231,000/week) during a deep recession, selling 1 million units in the first weekend. This is, in our view, a sustainable dynamic for the next two to three years, as smartphones (and mobile web and applications) remain at the early stage of their innovation cycle. Leading smartphone vendors like RIM, Apple, and other potential leaders, are expected to continue to launch multiple new product cycles ahead, incorporating yet-unveiled, yet-to-be-craved smartphone innovations, stimulating upgrades and demand. The surprising and significant consumer reception to the launch of the Palm Pre on Sprint shows consumer appetite remains large for compelling smartphone innovations, i.e., there are still great launches (with line-ups) yet ahead. New iconic smartphones with craved innovations will continue to command higher ASPs, subsidies and margins, higher than older versions, less iconic/compelling competitive alternatives or entry-level smartphones. Recent smartphones like the BlackBerry Storm and Palm Pre have higher ASPs than previous generations (e.g., Curve, Treo/Centro). Pricing Strategies. Given that significant, yet-unveiled smartphone innovations and new product cycles remain ahead, we anticipate two-tiered smartphone pricing strategies; attractively priced but higher (e.g., $199 MSRP, $400-600 ASP) for new smartphones offering latest innovations, and $99/lower MSRP (<$350 ASP) pricing, targeting the late-adopter price-sensitive segment – particularly, internationally. RIM and Apple’s current product mix already accommodates $99 and lower priced devices, although we expect their mix of entry-level devices priced at $99 or less to rise. These $99/lower smartphones, however, are likely to offer less powerful or advanced technologies (such as lower resolution cameras, lower res displays, less memory/processing power, wireless technologies, less gadgets, etc.) with lower BOM costs than the $199 smartphones, appealing to price-sensitive buyers looking for core smartphone functionality, while delivering satisfactory margins to vendors. And we expect RIM and Apple, etc. to continue to lower pricing on some of their older but still popular smartphone models which have already moved up the supply chain/manufacturing efficiency curves. At $99 and $199, smartphones undercut other devices in adjacent markets (like MP3 players, navigation devices, video gaming devices, TVs, PCs, etc.). Carrier Subsidies. Given the relative similarity in BOMs between the leading vendors, carrier subsidies are a significant driver of smartphone vendor margins. Despite the expected rise in competitor smartphones entering the market – many initially powered by Android – our thesis remains that only a select group of leading smartphone vendors will offer the best, iconic, craved, non-intimidating user experience. These select smartphone vendors thus retain the power to justify a higher proportion of carrier subsidies, and promotions/shelf space because their craved distinct user experiences lead to superior data attach rates, new high-margin data subscribers, and higher data ARPU. In case of the 3G S iPhone a $400 average/unit, and $350-400 average/unit in case of RIM ($200-250 device subsidy plus RIM’s higher-margin redirector fees, which are estimated at $50-$250 over a two-year agreement) versus an average of $100-150/unit for high-end feature phones. Despite their cost to carriers, overall carrier subsidies on “hero” smartphones have increased, not declined, following the introduction of the iPhone 3G in 2008 as carriers seek to drive mobile data subscriber growth, reallocating subsidies away from high-end feature phones and less compelling smartphones that don’t sustainably sell to the mass market. For example, Verizon’s subsidy on the BlackBerry Storm is estimated at $300/unit, above RIM’s typical $200250/unit device subsidy. We see higher subsidies as sustainable to the smartphone leaders, as long as smartphone penetration remains low and iconic smartphones continue to attract new or

Mike Abramsky 73

Our outlook calls for smartphone ASPs to decline 6% per year from an average of $337 in calendar 2008 to $265 in calendar 2012 on a mix-shift to entrylevel smartphones. c) iconic smartphone platforms are gaining a critical mass of developers and content. and still more attractive than the low 30% average voice/SMS handset GMs in calendar 2008. who also can only support two to three platforms. This industry structure. and for Apple. Attractive Industry Structure.4% 2011E 44. These “gating factors” limit smartphone vendor competition to a select few leading vendors.3% 44. We expect entry-level smartphones.9% $209 $354 $300 32.9% 2010E 36.8% $200 $343 $279 31. in our model this translates to a decline in GMs from 43. helps support higher pricing and margin power over carriers. we do not foresee this occurring for several years. scale. suppliers and competitors. which remains underpenetrated. manufacturers may have difficultly fully passing along higher licensing costs to consumers.3% 37. Ericsson and others. however. sustaining competitive barriers to most incumbents and new entrants.6% 40. We see these favorable conditions remaining in place until the gap between the iconic.0% 46. developers.1% 74 Mike Abramsky .4% $229 $376 $337 35. to rise from 26% of total smartphone units in calendar 2008 to 48% in calendar 2012. Nokia. carriers are also expected to continue to subsidize smartphones with superior security. These “gating factors” include: a) the complexity of making iconic smartphones. establishes conditions for strong industry profitability.0% 44. craved user experiences and innovations of the select leading smartphone vendors begins to narrow against the user experiences of that of some incumbents or lower-cost competitors.6% 2012E 47. d) the size of the segment sufficient as to be commercially attractive to carriers. consumers. unique “gating factors” in the smartphone industry (different from the PC or feature cellphone or Internet industries which had weaker forces and thus underwent rapid commoditization) help resist commoditization and support healthy profitability.Wireless Industry August 18. and other stakeholders. manageability. Royalty costs remain a risk to smartphone margins.3% 41. Within the enterprise and SMB market. Exhibit 62: Smartphone Margin Outlook Mix of Entry-Leve Smartphones Entry-Level Smartphone ASP ($/device) Premium Smartphone ASP ($/device) Blended Smartphone ASP ($/device) Entry-Level Smartphone GMs Premium Smartphone GMs Blended Smartphone GMs Source: RBC Capital Markets estimates 2008A 26. brand and market momentum than today. which would be in addition to royalties from other patent holders. RBC CM Smartphone Margin Outlook Smartphone ASPs and GMs Outlook.0% 38. b) the fact that wireless carriers are unable to support or subsidize more than one or two smartphone OSs or iconic handsets each.7% $191 $333 $265 29. with the four times increase in market size. by which time we expect Apple and RIM will have significantly greater share.4% and ASPs from $345 to $287. Smartphone manufacturers currently pay royalties of approximately 3-5% of the handset’s ASP to key 3G patent holders like Qualcomm. 2009 upgraded data subscribers. the best smartphone experience will continue to win at this stage of the cycle. Royalty Costs . However. That only a few vendors will lead the market. smartphone vendors. Royalty costs for 4G network technologies like LTE may initially be higher than 3G – similar to the initial transition from 2G to 3G – and possibly impact initial 4G gross margins. In other words. like the BlackBerry Pearl Flip or a possible iPhone “Nano”. blended iPhone non-GAAP GMs in our model drop from 55% to 45% and blended iPhone ASPs from $550 to $450. and. In our view. Nortel (large LTE patent holder) has suggested that a 1% royalty for its patents on all LTE handsets is reasonable.2% $219 $365 $321 33. and ROI. We expect smartphone industry GMs to decline 590bps from 43% in calendar 2008 to 37% in calendar 2012. in our opinion.0% 43. reliability. at which point we would foresee greater threats to margins.7% 43. For RIM.6% 45. These increases could be offset by higher pricing for the new technology.0% 2009E 30.5% to 39.

. carriers pay RIM a “redirector fee” of $2-10/month/subscriber. we believe ASP/margin declines to penetrate the mass market are mitigated by the following factors: a) RIM and Apple’s current product mix. in our view. $199) pricing to the early-adopter market. 2009 Wireless Industry For the smartphone challengers.. iTunes/App store ecosystem. branding. We view these redirector fees as sustainable.g. $99 or lower) pricing to late-adopter and international markets. b) current pricing strategies – expected to continue – for RIM and Apple to introduce new products with the latest innovations at existing (e. and focus on premium buyers (even within the late majority segment. or UI layers on top of Android/Windows for others) which delivers a compelling user experience versus standard Android and Windows smartphones. given this service remains both difficult for competitors to replicate and attractive to carriers in a world of ever-increasing consumer demand for spectrum-consuming mobile data experiences. computing halo effect. Apple’s margin declines are. which already accommodates $99 and lower pricing (with subsidies).August 18. Apple. RIM is also mitigated by its efficiency and high profitability for carriers. offset by Apple’s power to leverage its unique position in the market via innovation. while overall blended GMs are 4045% including high-margin redirector fees (at 13-15% of revenue) and an estimated 80% margin. We also expect Palm’s margins to be more resilient given its differentiated software platforms (WebOS for Palm.g. RIM’s hardware margins are estimated at 33-36%. which helps protect against subsidy declines. and Palm Margin Factors. RIM’s business user segment (including its large portion of buyers/owners who prize BlackBerry for both personal and business use) also protects higher ASP (for security. c) continued reallocation of carrier subsidies to those challenger products uniquely able to sustainably attract new high-margin data subscribers over time. manageability advantages) given its indirect user subsidy through corporate reimbursement. and offer less premium-featured or older handsets at entry-level (e. effectively an indirect subsidy which assists margins. Mike Abramsky 75 . For “redirecting” the data through its NOC. RIM. similar to iPods) allowing it to negotiate premium carrier subsidies versus competitors.

5 (5% CAGR) 19.4% Smartphone Upgrade Cycle (Years) 1. applications. consumers are unwilling to part with their cellphones. which helps to offset weakness in traditional phone market segments. While the total global handset market remains vulnerable to global economic slowdown.1% 2. growing faster than the general handset market. discounted data/handset pricing. only 3% of respondents would part with their cellphone service. and smartphone upgrade cycles. networks) and global transition from voice to smartphones help the smartphone sector outperform the slowing economic cycle. total mobile phone penetration and growth. 1. Smartphone Market Forecast Scenarios. high emerging market demand.6% 1. The analysis shows smartphone market growth ranging from 24-52% CAGR and handsets from 300 to 675 million in calendar 2012. While many would part with TV service (44%).4 (3% CAGR) 11.6 Results: Data-Centric Smartphone Users (MM) (CAGR) 165 Consumer 135 Business 30 Data-Centric Smartphone Handsets (MM) 127 Handsets % of TAM 10.6% 35. and steady enterprise penetration. our Scenario Analysis suggests 30% upside (Bull Case). smartphone penetration and growth. 2) smartphones appear less discretionary than other purchases.2% Consumer 104 Business 23 Source: RBC Capital Markets estimates Bear Case -1% 4. 3) the data-centric smartphone market is international.Wireless Industry August 18. with growth in developing/emerging economies expanding rapidly. Affirming our view.8 540 (34% CAGR) 766 (47% CAGR) 993 (57% CAGR) 459 667 874 81 100 119 300 (24% CAGR) 504 (41% CAGR) 675 (52% CAGR) 21.2 Smartphone Penetration (% of TAM) 4. our Bull Case assumes stronger-than-expected global consumer uptake. Exhibit 63: Scenario Analysis 2008A Assumptions: CY10 GDP Growth (%) Global Mobile Phone Users (B) (CAGR) 3. vertical markets.9 (7% CAGR) 1.4 2012E Outlook Base Case 2% 5 (8% CAGR) 1. with intensive competition. and. 30% downside (Bear Case) to our datacentric global smartphone user/unit forecasts. Our Bear Case assumes a global recession. home phones (23%). offsetting slower regions.5% 255 438 594 45 66 81 76 Mike Abramsky .4% 1. we see the data-enabled smartphone market as a “market within a market”.700 respondents) shows that despite tightening consumer wallets. Under three scenarios for economic growth/slowdown.7 Global Mobile Phone Shipments (B) CAGR) 1.1 (8% CAGR) 1.1% 45. 4) lower data pricing and handset pricing trends are improving smartphone affordability. contracting consumer and business spending. Our scenarios (see Exhibit 63 and 64) vary assumptions on GDP. students.9 Bull Case 4% 5. or DVD/movie rentals (11%).4 (4% CAGR) 15. and the data-centric smartphone market (particularly the consumer segment) remains at risk from economic headwinds. 6) ROI of mobile deployments. recent RBC IQ / Changewave survey data (May 2009. 2009 Smartphone Market Scenario Analysis Product Cycles Versus Business Cycles. for the following reasons: 1) new product cycles (handsets. 5) smartphones are just beginning to penetrate broader market segments like SMBs.

tight credit.6 years). visibly slowing. HDTVs. with adoption/replacement of smartphones. Data-centric smartphone handsets rise from 127 million in calendar 2008 to 504 million in calendar 2012. Bear Case: Global Recession and Competitive Headwinds Hurt Smartphones. 2.S. PC cards/modules. with -4% U. GDP growth in calendar 2009 and remaining weak in calendar 2010 at -1%. and poor consumer confidence following collapses in home prices and stock markets. this scenario assumes a more protracted W-shaped or L-shaped recession. a 49% CAGR. Rising debt loads. Adoption/replacement of mobile phones.S.S. With intensifying pressures from rising debt loads. or 35% of TAM and a CAGR of 41%. lower pricing. In this scenario. data-centric smartphone users grow from 165 million in calendar 2008 to 766 million in calendar 2012. etc.200 Data-Centric Smartphone Users (MM) 1. or 15% of total mobile phone users and a 47% CAGR. a 35% CAGR. iPods. Despite early positive Mike Abramsky 77 .000 57% CA GR 993 Wireless Industry Bull case: 4% CY10 GDP Base case: 2% CY10 GDP 800 600 400 165 200 0 2006A 800 52% CAGR 722 Bear case: -1% CY10 GDP 451 287 412 240 316 102 540 34% CA GR 43 2007A 2008A 2009E 2010E 2011E 2012E Data-Centric Smartphone Units (MM) 700 600 500 400 300 200 100 0 2006A 2007A 2008A 2009E Bear Case 2010E 2011E Bull Case 57 127 222 141 165 202 318 524 675 300 22% CAGR 83 2012E Base Case Source: RBC Capital Markets estimates 1.August 18. new services/applications. with the replacement cycle easing modestly to 1. economy undergoes a sluggish U-shaped recession through calendars 2009/2010. 2009 Exhibit 64: Scenarios for Global Smartphone Penetration 1. In this case. the U. with GDP growth slowing to -3% in calendar 2009 and subsequently recovering to 2% in calendar 2010. and pessimism on home prices and stock markets restrain consumer spending. Discretionary consumer spending contracts. business users grow from 30 million in calendar 2008 to 100 million in calendar 2012 (13%). Consumer data-centric smartphone users rise from 135 million in calendar 2008 to 667 million in calendar 2012 (87% of total). International economies also slow on recessionary pressures – although not as slow as in the U. enterprise ROI.9 years (from 1. before slowly recovering in calendars 2011/2012. concerns about job security. and international growth. Base Case (RBC CM Forecast): Resilient Smartphone Uptake Within a Sluggish Economy. and upgrades to smartphones and mobile devices remain resilient on compelling new devices. and Western Europe. job losses and unemployment.

students. RIM needs only to achieve 3. with the replacement cycle steady at 1.2 billion (32% Y/Y) in revenue and $5. Raising Targets Raising Price Targets. Speculative Risk) represent compelling investment opportunities which warrant investor attention. mobile email takes off more slowly outside the U.06-$5. and global economies still face pressures. India.82. GDP growth only slowing to -2% in calendar 2009 (includes a strong second-half calendar 2009). particularly in emerging economies. enterprise users reach 119 million in calendar 2012 (12%). $70. or 46% of TAM. representing a 41% CAGR. Raising Estimates. along with its unique. Data-centric smartphone handsets rise from 127 million in calendar 2008 to 300 million in calendar 2012. iPhone 3GS. reaching 675 million in calendar 2012. reliability and battery life. The shift to the next wave of computing will likely develop over the next several years. Data-centric smartphone handsets rise at a CAGR of 52%. (NASDAQ: PALM. representing a CAGR of 34%.16). Latin America.8 billion (22% Y/Y) in revenues and $6. global carrier data promotions. the emerging leaders in the smartphone market such as Research in Motion Limited (NASDAQ: RIMM. a 59% CAGR.4 years (from 1. consumer data-centric smartphone users jump to 874 million in calendar 2012 (88% of total).23. Bull Case: Smartphone Surprise. We are raising our price targets on RIM from $100 to $150. with U.1% TAM in calendar 2010 to 78 Mike Abramsky . and vertical markets). RIM. We are introducing our F2012 estimates of $25. along with upgrades from older 2G to newer. etc. On stronger smartphone growth.1 billion. Outperform. Above Average Risk). and Palm Pre) and form factors.0 billion and EPS from $4. business users reach 81 million in calendar 2012 (15%). The smartphone market globally also gets a boost via adoption of mobile email and mobile browsing.5% TAM by 2012. more full-featured 3G models. Smartphone uptake also grows faster than expected within broader geographies (China.72.40 in EPS. Spending on smartphones and mobile devices remains resilient (market growth estimated at 50-60% CAGR). and then recovering to over 4% growth in calendar 2010. $13. With an estimated 1. In our opinion. $4.9 billion.59.43 EPS (prior $20. or 22% of TAM.8% TAM (18% smartphones) in 2008.16) and F2011 estimates become $21. Outperform. GSM. consumer data-centric smartphone users are expected to grow from 135 million in calendar 2008 to 459 million in calendar 2012 (85% of total). driven by iconic new handsets (like Storm 2. 3. for a 24% CAGR. $5. is positioned for long-term smartphone leadership and we foresee significant additions and expansion of its product line (consumer.26 (prior $15. Although the U. Inc.S. Apple Inc. offering a headwind to smartphone traction. enterprise. Our Bull Case scenario calls for data-centric smartphone users to reach 993 million in calendar 2012. in our view. The resilience of global consumer discretionary spending on smartphones and wireless data surprises investors. justified by increased market shares which.0 billion (32% Y/Y) in revenue and EPS of $4. lower data pricing. $159. for a CAGR of 28%. data-centric smartphone users rise from 165 million in calendar 2008 to 540 million in calendar 2012. or 11% TAM. with the replacement cycle slowing to 2. and on Palm from $18 to $25.).6 years) as businesses reign in spending and consumers reduce discretionary spending. 2009 indications. Our Scenario Analysis shows F2011 revenues from $17. our F2010 estimates become $16. and form factors) to continue market penetration. faster. CDMA. representing a CAGR of 57%. We believe RIM will continue to possess sustainable advantages in intuitive.8 years on innovative devices and innovative service plans. or 20% of total mobile phone users.0-22. than expected. Russia. On significant consumer uptake. it is only a short-lived V-shaped recession.1% TAM in calendar 2009 and 4. with higher-than-expected global replacement of voice phones. craved push-based “Crackberry” messaging experience. compelling applications and international smartphone acceleration. In this scenario. as visibility improves to the huge smartphone opportunity. small businesses. or at a CAGR of 36%. Above Average Risk). particularly among new market segments (younger buyers. 3G. Forecast to Capture 6. Outperform. offer upside to financials and potential multiple expansion. and Palm.S.S. powerful data experiences. RIM: Raising Target to $150 RIM Positioned for Smartphone Leadership. (NASDAQ: AAPL. and its NOC/software/hardware ownership. Western Europe.Wireless Industry August 18. on Apple from $190 to $250. With a pull-back in consumer spending.

Additionally.2% 21.0 78.2 18.5% WACC (prior 11.0 27. SDK. 4.4% $4. Exhibit 65: RIM Scenario Analysis Low Case F2011E Assumptions/Results: Revenue (MM) Y/Y Growth Shipments (MM) Sub Adds (MM) Total Subs (MM) Y/Y Growth Gross Margin (%) EBIT Margin (%) GAAP EPS (FD) Y/Y Growth $16.0 23.43 27% $25.6% $6.0% 21. on mix.3 94.40 18% Source: RBC Capital Markets estimates Reaffirming Outperform and Raising Target to $150 (from $100).151 32% 53.5% 19.768 22% 70. with significant growth and share gains ahead.0 58.5% 20.2% 18.966 15% 41.2% $7.3 91.656 21% 72.2 70% 42.40 18% $21. RIM has lagged competitors in “front-end” software (browsing.5% terminal rate. and 2) multiple re-rating to 34x FTM P/E from 23x on higher investor sentiment on the smartphone market opportunity and RIM’s leadership position.1 52% 41.768 22% 70.957 33% 56.).4% $4. UI.910 44% 37.151 32% 53.46 10% $21. 2009 Wireless Industry exceed our revised growth expectations for the next two years.2 70% 42.3 91.9% $4.1 49% 41.9 64. driven by distribution expansion.1% $5.032 12% 48.5%).2 54% 42. In our view.5 43% 42.9 64.995 45% 38. FTM cash $6. Challenges.5% 20.43 27% Prior $20.1 52% 41. RIM will deliver above-peer growth. profitability and valuation upside. and Mike Abramsky 79 .7% 21.26 23% Prior $15.5% 19.16 24% F2012E New $25.2% 21.3 42.August 18.13 23% F2012E Base Case F2011E F2012E High Case F2011E F2012E Source: RBC Capital Markets estimates Exhibit 66: RIM Estimates Revision F2010E Current Revenue (MM) Y/Y Growth Shipments (MM) Sub Adds (MM) Total Subs (MM) Y/Y Growth Gross Margin (%) EBIT Margin (%) GAAP EPS (FD) Y/Y Growth $15.5 28.4 42% 40. Our revised $150 target is DCF-based (10.4% $5. bundled and downloadable applications. etc.8 17. with strong fundamentals and products targeting multiple segments. While not insurmountable. Apple: Raising Target to $250 Apple Positioned for Smartphone Leadership.06 6% $19. as it targets the mass smartphone market.8 20.5% 20.0% $4. while retaining its trademark advantages. We believe RIM is already moving to address these challenges. We view the iPhone as a 10-year platform.4% $5.16 20% F2011E Current $21.8 63. RIM may face further margin/ASP downshifts. innovations in user experience.6% $6.9 44% 40.9 34% 39.8 21.3 66.0 27.3 42.40/share).4 42% 40.82 30% $26.1 17.088 26% 50.4% $5.8 21.1% 18. Our outlook reflects continued share gains in domestic and international markets.5 20. based on 1) revised higher F10/F11 EPS outlook (see above).

Wireless Industry August 18. Apple needs only to achieve 2.284 3.9% 9. Other includes Peripherals.4 20.4 million shipments (52% Y/Y).062 12.7% $11.676 $43.9% 36.336 17.860 $45.761 20.7-52.5% $9.08 13. it may be challenging to sustain the same level of disruptive innovation if Steve Jobs were not involved with the company.6% 30.126 14.25 in GAAP EPS on 49.260 13.2% 10.23 15.91 $7. Our F2009 estimates remain $36.062 12.786 20.3% 55.94.9% 8. However.3 billion revenue (18% Y/Y) and $8. Adjusted for iPhone subscription accounting.8% 9.9% $9.9% 36.00) on 31.5% $6.23 in GAAP EPS (prior $42.1% TAM (11% smartphones).676 $41.425 3.3% $8.9% $7.61 $7.94 25. Forecast to Reach 5.9% 33.08-$8.9% TAM in calendar 2010 to exceed our revised outlook.119 21. With an estimated 1.3 57. Apple may face margin/ASP downshifts. service. near term we believe CEO Jobs’ return will accelerate Apple’s already strong product innovation. Challenges. however.176 19.795 3.995 19.981 16.955 12.5% 35.25 13.90 in GAAP EPS. software. Apple’s iTunes/iTunes Store/device ecosystem remains a significant source of competitive advantage.619 18.955 12.730 8. on mix.3 million iPhones (57% Y/Y).0 billion revenue (11% Y/Y) and $5. Our F2010 estimates become $42. We are introducing F2011 estimates of $50.1 billion and EPS from $7.4 52.42 $8.226 12.8 billion revenue (19% Y/Y) and $7.46 $7. Source: RBC Capital Markets estimates 80 Mike Abramsky .7% TAM by 2012.271 21.6 billion.975 3.955 12.1% 33. 2009 additional iPhone SKUs. Exhibit 67: Apple Scenario Analysis Bear Case F2010E Assumptions: iPhone Units (MM) Y/Y Growth (%) Results: Macintosh Music (iPo d.6% 36.062 12. Raising Estimates.4% 8.676 $42.833 18. Our Scenario Analysis shows F2011 revenues from $45.0% TAM in calendar 2009 and 2.08 $6.7% 36.455 18.2% F2011E Base Case F2010E F2011E Bull Case F2010E F2011E 1.9 67.35 15.141 12.55 $8.860 $50.0% 31. $7.5 62.3% 49. Innovation remains alive and well at Apple.682 3.108 20. 2.97 15.860 $52. iTunes) iPhone 1 Other Total Revenue ($MM) To tal Reve nue Growth (%) Gross Margin (%) EBIT ($MM) EBIT Margin (%) Non-GAAP EPS2 GAAP EPS 13.3% 9.208 3. as it targets the mass smartphone market.4 24.780 20.

iTunes) iPhone Other 1 Gross Margin (%) EBIT ($MM) EBIT Margin (%) Non-GAAP EPS2 GAAP EPS $36.062 12. scale.9% 13.809 3. These challenges are expected to dissipate with growth and momentum. FTM cash $48.955 12. 3) expansion in global distribution. 4) additional innovations increasing demand.91 $7.4% 13.3% TAM (3% smartphones) in 2008.826 20. Mike Abramsky 81 . With an estimated 0.833 18.619 18. 2) multiple re-rating to 29x F2010E P/E from 23x on higher investor sentiment on the smartphone market opportunity and Apple’s leadership position. we expect $3.9% 13.795 3.2 billion (52% Y/Y) and $0. $0.August 18.294 12. and thus may need to be more measured in its product and distribution roll out.785 3.004 10.42).08).294 12. any related valuation volatility offers entry points.3% $8.4-3.25 1. Raising Estimates. As a turnaround. 2.55 $8.90 F2010E Current $42.8% 7. Our F2010 estimates become $2. For F2011.774 3. based on: 1) revised higher F2010/F2011 EPS outlook (see above).84 $5.865 35.06.6% TAM in calendar 2010 to exceed our outlook.28 $7.3% $8. Forecast to Reach 1.74/share). 2009 Exhibit 68: Apple Estimates Revision F2009E Current Revenue ($MM) Growth (%) Macintosh Music (iPod.23 Prior $42.676 36.307 20.860 35. Reiterate Our Outperform Thesis: 1) WebOS is a key asset and competitive advantage in user experience.2% TAM in calendar 2009 and 0.011 10.226 12.0% WACC (prior 10. ground-up designed WebOS platform.7% $8. Other includes Peripherals. service.119 21.9% $9.31-1.00 Wireless Industry F2011E New $50. Source: RBC Capital Markets estimates Raising Target to $250 (from $190).865 35.8% 7. and.196 12.995 19.2% 8. and. Palm lacks the strong brand tailwinds. matching it to its available resources.5%). Palm: Raising Target to $25 “The New Palm”.336 17.5 billion. While facing near-term challenges. the “New Palm” in our view possesses the “special sauce” necessary for global smartphone leadership: This includes its management team.3% $8. and.955 12.89 $5. $0. marketing budgets and balance sheets of RIM and Apple. b) product and distribution ramp. Palm needs only to achieve 0.90 Prior $36. 4.7 billion. Our Scenario Analysis shows F2011 revenue from $2. software. 2) we expect multiple WebOS devices.9% 13. including: a) execution.1 billion revenue (177% Y/Y) and $0. vertically integrated model.071 6.3% TAM by 2012.6 billion and EPS from $0.975 3.305 20.637 18.068 6. Our revised target is DCF-based (10. and unique innovations.75 non-GAAP EPS ($2.3% 9. We foresee additional share gains. Palm faces near-term challenges.8% 9.676 36.5% 15. Challenges.5% terminal rate. Adjusted for iPhone subscription accounting. c) litigation/other.25 in non-GAAP EPS (prior $1.

and.115 177.75 Prior 6.5% WACC (prior 11%).099 5. Adjusted for amortization of intangible assets.215 52.675 $2.937 3.744 499 $3. Our revised target is DCF-based (10.718 125.25 Prior 4.744 $3.00 F11E 6.0x on improving investor sentiment as Palm continues to successfully scale and gain market share.4% $0.225 $1.142 3.600 $2.4% 5.583 59.4% 3.962 499 $2.6% $0.02/share). 82 Mike Abramsky .430 712 $1. stock-based compensation.25 F11E 8.9% 5.7% $0. and restructuring charges.42 Current 5.9% 12.75 August 18.900 $3.30 F11E 9.08 1. 2009 High Case F10E 5.387 4. 2% terminal growth.519 46.3% $0.243 7.115 177. and restructuring charges.357 45.7% $0.374 $2.4x F2010 EV/non-GAAP sales from 2.625 113. Adjusted for amortization of intangible assets.Wireless Industry Exhibit 69: Palm Scenario Analysis Low Case Non-GAAP Total Smartphone Units (000s) webOS Units (000s) Revenue ($MM) Y/Y Growth (%) Pro Forma EBIT Margin (%) Pro Forma EPS 1 F10E 3. stock-based compensation.2% 2.215 52.0% 10. Source: RBC Capital Markets estimates Raising Target to $25 (from $18).240 193.243 7. Source: RBC Capital Markets estimates Exhibit 70: Palm Estimates Revision F2010E Non-GAAP Total Smartphone Units (000s) webOS Units (000s) Treo/Centro Units (000s) Revenue ($MM) Y/Y Growth (%) Pro Forma EBIT Margin (%) Pro Forma EPS 1 F2011E Current 8.086 4.0% 10.3% $0.461 5.0% 6.4% $0.9% $0.06 1.31 Base Case F10E 5. based on: 1) revised higher F2010/F2011 EPS outlook (see above).4% 5.086 4.399 8.374 712 $2. 2) multiple re-rating to 2. and FTM net cash of $8.9% $1.6% 7.3% $0.

August 18. retail data. Books. etc. Content Providers Data Providers (demographics. 2009 Wireless Industry Derivative Smartphone-Related Markets Exhibit 71: Smartphone-Related Markets and Companies End User Hardware: PCs Netbooks Peripherals Smartphones Smartphone Supply Chain: Semiconductors Enabling Technologies Components Wireless Instructure ODMs / Contract Manufacturers Distribution & Logistics Retail Services: Wireless Carriers Towers IT Services / Outsourcing Mobile Device Mgmt & Field Services Infrastructure Software & Services: OS / Software Infrastructure Software Applications Mobile Content & Multimedia Mobile Video Infrastructure Hosting Services (Cloud) Security Billing Systems Source: RBC Capital Markets. Movies. Company Reports Applications: Books & Reference Business Education Enterprise Application Entertainment Finance Games Lifestyle Navigation News On-Demand Productivity Social Networking Utilities Content: Mobile Marketing & Advertising Mobile Media Content Aggregators Music.) Mike Abramsky 83 . etc.

it also provides Internet access. Outperform. manufacturer. Research in Motion (NASDAQ: RIMM. Not Rated) Microsoft Corp (NASDAQ: MSFT. Apple. is a developer and manufacturer of mobile devices and smartphones. OEM radio modems. iWork. the sale of radio modems to OEM manufacturers.25. Pre and Centro phones. (NASDAQ: GOOG. Inc. recurring service fees (“redirector fees”) for managing carrier messaging infrastructure. Palm. $159. The company has five divisions. $7. Microsoft Corporation develops software.89.com domains. as well as software. Outperform. Products include the BlackBerry wireless handhelds.45. customer relationship. Revenues are generated from the sale of wireless devices. and peripherals. has a strong global brand and fiercely loyal customer base. (NYSE: NOK. Above Average Risk) Google Inc. Outperform. Outperform. (NASDAQ: AAPL. $444. and the iPhone smartphone. software and services. The Online Service Group includes MSN and Live. Products include the Macintosh line of personal computers. and marketer of wireless handheld devices. as well as manufactures. is a Waterloo-based developer. and accessories. services. The Server and Tools division develops and maintains components of the Windows Server System. services. $23. TWD 339. $70. and supports software products for various computing devices worldwide. Above Average Risk) Samsung (Korea: 005930. $13.000 employees.Wireless Industry August 18.). which consist of email and instant messaging services. and messaging-based wireless services. Microsoft Corporation (NASDAQ: MSFT). and marketer of differentiated personal computers. and other devices. (NASDAQ: PALM. Mac OS X operating system and related application software (iLife.59. CA-based Palm. BlackBerry Enterprise Server (BES) software. Average Risk)* HTC Corporation (Taipei: 2498. Palm products are sold through wireless carriers and third-party retailers throughout the world. smartphones. and nonrecurring engineering (NRE) revenues. including SQL database server and ISA server. licenses. Not Rated) Sony Ericsson (Tokyo: 6758. 2009 Companies Mentioned Apple Inc. Above Average Risk)** Palm. the iPod line of portable digital media players. (NASDAQ: AAPL). enterprise server software revenue. TSX: RIM). KRW 720616. $12. and the Home and Entertainment segment. and is supported by its retail store network.72. Client division develops and sells the Windows operating systems for PCs. which offers the Xbox video game system. is a California-based designer. Not Rated) Nokia Corp.23. (NASDAQ: PALM). the iTunes online media store. Apple has approximately 18. Inc. and online search and premium content. established 1984. Outperform. and supply chain management functions. founded in 1976. and Palm’s online store. which provide software to manage financial. etc. manufacturer. Not Rated) *Covered by Ross Sandler ** Covered by Mark Sue Company Descriptions Apple Inc. Outperform. Research In Motion. and Web and mobile services. Inc. Speculative Risk) Research in Motion Limited (NASDAQ: RIMM. Average Risk) Motorola (NYSE: MOT. and the BlackBerry data service backed by RIM’s NOC (Network Operations Center) infrastructure. which offers mobile software platforms that reside on PDAs.06. software. 84 Mike Abramsky . The Business Division includes the Information Worker segment (Office Suite) and Business Solutions segment. Apple is positioned in the high-end consumer sector. The Entertainment and Devices division is comprised of the Mobile and Embedded Devices segment. The company’s products include Palm Treo. JPY 2605.

Analog bandwidth is measured in hertz (Hz). 802. 2G systems traditionally supported voice and circuit-switched data service. As defined by the International Telecommunications Union (ITU). Access Point – A network device. 3DES was issued as a Federal Information Processing Standard and is an updated version of DES.5G technology has been implemented as GPRS. Based on digital technology. WCDMA/UMTS and HSDPA/HSUPA. 1G wireless networks were designed to carry voice traffic only. For example. 2G wireless networks offer increased voice quality and capacity over 1G systems. microphones and mice.11a. 2G systems are being replaced today by 2. 3G wireless networks offer increased voice capacity and provide higher data rates than 2G and 2. a Wi-Fi-enabled laptop) and an access point to another network.11 technologies use an over-the-air interface to connect a device (for example. Examples of multicast content could include video and movie clips. that protects computer data by encoding (converting) the data three times for greater security. The monthly revenue generated by a consumer’s wireless device usage.11 – 802. 802. A technology used to determine an end-user’s position in urban areas or dense outdoor environments. an early wireless network technology involving the modulation of radio signals. AES – Advanced Encryption Standard. Based on analog or AMPS technology. 2. computers. adding 2. Based on digital technology. which shares tasks with the A-GPS receiver to expedite position location. Provides transmission of multimedia data from a single source to all subscribers in a specific area. ARPU is commonly used by wireless network operators and telecommunications/wireless analysts to estimate ROI (return on investment) measures for investments in network infrastructure and end-user services. such as network services and program-to-program commands. Bandwidth – In wireless communications.11 refers to the body of standards issued by the IEEE (Institute of Electrical and Electronics Engineers) for WLANs (wireless local area networks). 3GPP2 – Third Generation Partnership Project 2. API – Application Programming Interface.August 18. AMPS – Advanced Mobile Phone Service. Bluetooth – A short-range wireless technology that interconnects devices such as phones. Bluetooth supports both voice and data communications. the standards body that oversees WCDMA .11 family of technologies includes 802. the width or capacity of a communications channel.5G and 3G networks. that connects wireless devices to a wired local area network (LAN). BCMCS – Broadcast Multicast Service. A private key symmetric cryptographic algorithm. 3GPP – Third Generation Partnership Project. 802. Mike Abramsky 85 . ARPU – Average Revenue Per User. A standard being developed for third-generation (3G) cellular networks. news.5G – Based on digital technology.11g and 802. 2G – Second Generation wireless technology.5G networks. 2009 Wireless Industry Glossary 1G – First Generation wireless technology. The first analog cellular phone system commercially deployed in the 1980s. 2. The 802. 3G technology has been or will be implemented as CDMA2000.5G wireless technology to a 2G network provides packet-data service and improved data rates. A set of standard methods or functions that application programs can use to access a particular set of services or tools. A-GPS – Assisted-Global Positioning System. CDMA2000 1xEV-DO.11n. A standard for encryption intended to replace the DES (Data Encryption Standard). 802. Digital bandwidth is the volume of data that a channel can carry and is measured in bits per second (bps). keyboards.11b. the standards body that oversees CDMA2000. sports or stock quotes. AES supports key lengths ranging from 128 to 256 bits. which transmit information as sound waves over radio signals allowing one call per channel. 3G – Third Generation wireless technology. or communication hub. 3DES – Triple Data Encryption Standard. Analog – In telecommunications. Differs from traditional GPS by adding an assistance server. BREW® provides a set of APIs for the development of applications for wireless devices.

DVB-H – Digital Video Broadcasting – Handhelds. Today. Third-generation wireless technology that offers broadband data speeds to support applications such as VPN access. For example. such as wireline. into digital information. a packed-switched network are connectionless or “always on. CDMA uses spread-spectrum technology. which is then transmitted as a radio signal over a wireless network.Wireless Industry August 18. CDMA technology is the basis for third-generation (3G) wireless technologies which offer increased voice capacity and provide higher data rates than 2G and 2. A component of the BREW System. 86 Mike Abramsky . 2. into a series of electrical or optical pulses that represent the binary digits 0 and 1. DRM – Digital Rights Management. Enables Internet connectivity for cellular phones. The transmitter’s coverage area is called a cell. including personalized and branded user interfaces. BREW – Binary Runtime Environment for Wireless. such as voice. such as WCDMA (UMTS ). graphics and video. PDAs and other mobile devices. Broadband – Generic term for high-speed digital Internet connections. trademarked and reserved for the exclusive use of the CDMA Development Group (CDG) member companies. A multicast technology standard specified by the DVB Project for the multicast delivery of TV-like programming to wireless devices. The standard for measuring the smallest unit of information in digital communications and data processing. The CDMA2000 family of standards includes CDMA2000 1X and CDMA2000 1xEV-DO. CDMA2000 1xEV-DO – CDMA2000 1X Evolution – Data Optimized. Circuit-Switched Network – Networks that temporarily establish a physical circuit “connection” and keep that circuit reserved for the user until a disconnect signal is received. one signal is sent from the base station and received by all subscribing devices within range. In contrast.5G and 3G systems are replacing CDPD. CDPD – Cellular Digital Packet Data. secure transmission and more bandwidth than analog lines. there is a transmit side and a receive side. For cellular communications. CDMA2000 1xEV-DO is a direct evolution of CDMA2000 1X. With DVB-H. video downloads and large file transfers. a 5 MHz channel uses 5 MHz to transmit and 5 MHz to receive.5G networks. Channel – The amount of wireless spectrum occupied by a specific technology implementation. Developed to prevent the illegal distribution of purchased content over the Internet. A dial-up modem is an example of a circuit-switched connection. CDMA2000 1xEV-DO and HSDPA .” eliminating the need to initiate a connection for data transfer. decreasing potential interference while achieving privacy. An open. extensible client platform developed by Qualcomm to support system and application software. CDMA2000 1X – A family of third-generation (3G) wireless standards that offers enhanced voice and data capacity and higher data rates than previous. Digital networks offer superior Quality of Service (QoS). A digital wireless technology that works by converting analog information. May be used with most wireless devices and networks. CDMA2000 1xEV-DV – CDMA2000 1X Evolution Data and Voice. such as speech. second-generation wireless standards. Digital – A form of transmission that transforms analog signals. a mobile phone may be equipped to support both CDMA2000 and WCDMA standards to send and receive calls. including ringtones. Third-generation wireless technology that supports high-speed voice and data on the same channel. DSL or cable modems and wireless third-generation technologies. An add-on technology that enables first-generation (1G) analog systems to provide packet data. CDMA – Code Division Multiple Access. cdmaOne – A brand name. For example. Cellular – Analog or digital communications that provide a consumer with a wireless connection from the mobile device to a relatively nearby transmitter (base station). Dual Mode – Functionality that allows a mobile phone to operate in two different modes for greater roaming capabilities. using a total of 10 MHz of wireless spectrum. Technology for copyright protection of digital media. music. cdmaOne was the coined term for Qualcomm’s original CDMA systems based on the IS-95A and IS-95B standards. 2009 Bps – Bits Per Second.

An enhancement to WCDMA networks that provides higher data speeds in the uplink to support applications such as VPN access and large file transfers. GPRS – General Packet Radio Service. IP Datacasting – Simultaneous transmission of content from a single source to a large number of wireless subscribers. A proprietary cellphone service based on cHTML technology developed by Japan’s NTT DoCoMo. such as a coffee shop. depending on the location. Encryption – In security. Mike Abramsky 87 . A software/hardware enhancement for existing GSM networks designed to provide higher data rates to enhance the delivery of multimedia and other broadband applications for wireless devices. video downloads and large file transfers. 2009 Wireless Industry EDGE – Enhanced Data Rates for Global Evolution. airport or bookstore. GSM – Global System for Mobile Communications. two-way radio transmissions. paging and data from one wireless device. Symmetric and Public Key. IMS – IP Multimedia Subsystem. HSUPA – High-Speed Uplink Packet Access. Supports technologies such as IM (instant messaging). A worldwide radio-navigation system developed by the U. high-speed wireless data transmission to enable multimedia services such as videophone and video mail.263 – A video compression standard developed by the International Telecommunications Union (ITU) for transmitting video over limited bandwidth connections. Hot spots provide a wireless access point for the user and limited coverage (approximately 100 feet). Department of Defense to enable users to determine their exact location anywhere on the globe.264 (MPEG-4 AVC) – A high-compression. A second-generation wireless telecommunications standard for digital cellular services first deployed in Europe. i-mode supports Web content and services. where a consumer can establish a WLAN (wireless local area network) or Wi-Fi connection.S. GPS – Global Positioning System. such as mobile banking. email and news reporting for cellular phones. Commonly used in mobile phones. An open industry standard for voice and multimedia communications over packet-based IP networks. digital video standard that offers greater compression than previous standards.August 18. such as mobile networks. HSDPA – High-Speed Downlink Packet Access. H. Nextel Communications® uses iDEN technology as the basis for its networks. Jointly developed by the International Telecommunications Union (ITU) and the ISO Moving Picture Experts Group (MPEG). Flash Memory – A type of memory that can be erased and reprogrammed (rewritten). and can also include IP-based content such as games or video and audio files. i-mode – Internet Mode. Firewall – A combination of hardware and software that protects a computer or group of computers from an attack by an outside network or computer user. audio players and removable memory cards. push to talk (PTT) and video calling. Java programs are portable and can be run anywhere in a network that has a Java virtual machine (JVM). A 2. digital cameras. the audio portion is handled separately. GPS works via radio signals sent from orbiting satellites to receivers on the ground. A proprietary technology from Motorola based on the TDMA standard that allows users to access phone calls. VoIP (voice over Internet protocol). Hot Spot – A location. Usually refers to the delivery of a wide variety of TV-like programming to wireless devices. Considered an option for transmitting full-motion video over wireless and Internet connections.5G technology standard that is an upgrade to a GSM network. such as Memory Sticks or Secure Digital (SD) Cards. Supports only the visual portion of the video stream. A firewall enforces a boundary between two or more networks. GSM is based on TDMA technology and provides circuit-switched data connections. Java – A programming language developed by Sun Microsystems for creating and running software programs on a single computer and in networked environments. Types include Asymmetric. such as the Internet. Adds packet data to the existing voice network. iDEN – Integrated Dispatch Enhance Network. An enhancement to WCDMA networks that provides higher data speeds in the downlink to support applications such as VPN access. FOMA – NTT DoCoMo’s WCDMA-compliant 3G network. encryption is the ciphering of data by applying an algorithm to plain text. H. Supports high-volume.

smartphone or PDA optimized to run in the low-memory and small-screen environment of a handheld device. The second-generation TDMA-based wireless technology used in Japan. 2009 LBS – Location Based Services. LTE -Long Term Evolution. Examples of LBS include regional map information for real estate agents and asset tracking solutions for service representatives at logistics and transportation companies. 88 Mike Abramsky . A measurement of the amount of data transferred in one second between two telecommunication points. Refers to the 1900 MHz cellular frequency band. and advanced antenna techniques (MIMO. A standard for compressing audio into a compact file without losing a significant amount of its quality. In two-way radio communications. appointments. Software for keeping track of contact addresses and phone numbers. PSTN refers to the entire collection of interconnected phone companies. PTT works like a “walkie-talkie” and requires transmitters to use the same frequency. A highly optimized mobile broadband OFDMA solution designed from the ground up to deliver high-speed broadband data. circuit-switched networks require a dedicated circuit. PCS – Personal Communications Services. LTE complements existing 3G solutions by leveraging wider bandwidths (up to 20MHz). MPEG-3 (MP3) – Moving Picture Experts Group-3. Usually refers to the delivery of a wide variety of TV-like programming to wireless devices. voice (VoIP). More commonly used as a marketing term to describe digital wireless services in the Americas. A Type II PC card is the most common PCMCIA card. from one device to another. MHz – Megahertz. MPEG-4 (MP4) – Moving Picture Experts Group-4. and Multimedia services. PIM – Personalized Information Manager. PTT is an instant connection made between two cellphones. Synonymous with PCMCIA card. PDC – Personal Digital Cellular. Mbps – Megabits per second.Wireless Industry August 18. Used for the mobile transmission and storage of audio files. for the duration of the data transmission. PDC is incompatible with other wireless networks. Used for the transmission and storage of images and video clips. A measurement often used to describe the speed of digital and analog signals. Sometimes called a contact manager. project schedules and task lists. Allows wireless device users to send multimedia. PDSN – Packet Data Serving Node. Packet-switched networks are connectionless or “always on. A standard for compressing video into a compact file without losing a significant amount of its quality. or connection. regardless of the particular frequency band being used. Measured as one million bits per second. One million hertz or cycles per second. An international association that standardizes credit-card sized wireless modems which can be inserted into laptops or other mobile computing devices to connect to the Internet. In contrast. WWAN (wireless wide area network) card and Aircard®. Packet-Switched Network – Networks that transfer digital packets of data.” eliminating the need to connect to a network to send or receive data. Microbrowser – A Web browser specialized for a wireless phone. The best known example in the United States is Nextel’s Direct Connect® service. long-distance and international phone system. Multicast – Simultaneous transmission of content from a single source to large numbers of wireless subscribers. PTT – Push-To-Talk®. MMS – Multimedia Messaging Service. PCMCIA – Personal Computer Memory Card International Association. Refers to the local. Enables operators to offer personalized services based on the user’s location. such as video or digital photos. PSTN – Public Switched Telephone Network. PC Card – A wireless modem that can be used in a laptop or other mobile computing device to connect to the Internet. In the United States. SDMA and Beam forming). Refers to the routers used in CDMA2000 wireless networks that comprise the backbone of the network.

Wi-Fi – Short for “Wireless Fidelity” and another name for WLAN (wireless local area network). over the Internet or other IP network. Used to initiate an interactive multimedia user session such as chat. for example. For example. SSL – Secure Sockets Layer. TD-SCDMA – Time Division-Synchronous Code Division Multiple Access. digital wireless communication technology that increases the amount of data that can be delivered by dividing each cellular channel into time slots. operating system. A group of proposed wireless standards for high-throughput broadband connections over long distances. Tri-Mode – Triple Mode. including telephone numbers and addresses. CDMA-based wireless communication standard that offers enhanced voice and data capacity and higher data rates than previous. Functionality that allows a mobile phone to transmit in three modes for wider coverage area. video. voice or gaming. hardware platform. VPNs use encryption and other security mechanisms to ensure network access to authorized users. a private key and a public key. A third-generation. Allows a mobile user to connect to a local area network (LAN) through a wireless connection. A store-and-forward message service available on many secondgeneration and all third-generation wireless networks that allows users to send and receive short text messages over wireless devices. A WAN may be privately owned or rented. A set of development tools that allows a software engineer to create applications for a certain software package. Trade name for a new family of IEEE 802. such as handset number and wireless features. One of the three international CDMA technologybased standards accepted by the ITU for third-generation wireless communications. A method of remotely retrieving data from and storing data associated with animals. video game console. A standard protocol defined by the Internet Engineering Task Force (IETF). and can also store data. WiMAX – Wireless Interoperability for Microwave Access. computer system. UMTS/WCDMA – Universal Mobile Telecommunications System/Wideband CDMA. A geographically dispersed telecommunications network. A removable card built into all GSM phones and other mobile devices. products or equipment. A trusted third party often provides keys. but the term usually refers to a public network. A network that is constructed using public wires to connect remote offices or individual users to their organizations’ network. A thirdgeneration (3G). Applications include “last mile” broadband connections and hot spots. 800 MHz cellular and 1900 MHz PCS frequencies to make and receive calls.August 18. VPNs are an essential component of secure wireless computing for the enterprise. TDMA – Time Division Multiple Access. people. A set of standards that enables a wireless device to browse content from specially coded Web pages over wireless devices such as mobile phones. SIP – Session Initiation Protocol. Source: Qualcomm Mike Abramsky 89 . VoIP – Voice Over Internet Protocol. UI – User Interface. SIM – Subscriber Identity Module. software framework. The means by which users interact with the operating system. WAP – Wireless Application Protocol. The SIM identifies the user’s subscriber information. second generation wireless technologies. A second-generation. Each individual uses the other’s public key to encrypt the data that is sent and then each individual uses their own private key to decrypt the data received.16 wireless standards. (3G) wireless standard that offers enhanced voice and data capacity and higher data rates than previous second generation wireless standards. A protocol for managing the security of message transmission on the Internet. VPN – Virtual Private Network. or similar platform. RFID – Radio Frequency Identification. WAN – Wide Area Network. between a Web server and a Web browser. PDC and iDEN. sent as digital packets of data. SMS – Short Messaging Service. a mobile phone may be equipped to use analog. 2009 Wireless Industry Public Key Encryption – A method of securing data for transmission that equips each user with two keys. Wireless standards that use TDMA technology include GSM. Requires an RFID tag which contains an antenna to enable the tag to send and receive queries from an RFID transceiver. The routing of voice conversations. SDK – Software Development Kit.

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