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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.
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
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
Source: RBC Capital Markets
Mike Abramsky 3
followed by the minicomputer (e. the iPod – that have accelerated market expansion and shifted market share from incumbent vendors to new challengers. and Radio Shack.0 20 0. personal data assistants small enough to ‘fit in your pocket’. transformational technology innovations – e. MS-DOS. including the Sharp Wizard. The launch in 1981 of the IBM PC. upgrades. Commodore 64. Popular applications like Lotus 1-2-3 and word processing from MultiMate and WordStar (later Microsoft Word) popularized the PC. Software developers shifted their sights to the PC. with early leaders Digital Equipment and Burroughs (and later IBM) ceding ground to new challengers like Dell. Internet. In 2009. Exhibit 3: How Iconic Innovations Accelerated Global Technology Markets 1. VAX). Newton Messagepad and Palm Pilot. DEC PDP-11. was arguably the best selling computer (17M total units sold) in the early 1980s..g. Commodore. wireless phones – have grown via transformational innovations. PC and Computing – Complex and massive. smartphones are uniquely transformational. laptops are expected to rise to >50% of PC shipments. Amiga. the cellphone. The early PC looked nothing like it does today – embodied by the $400 do-it-yourself Altair launched in 1975 .g. with netbooks (small ultra-light laptops) jumping from 0% of laptops in CY07 to >15% in CY09. four discrete technology markets – PC and computing.but inspired subsequent copies. Total # of 2008 Users: 1. and Microsoft standards PC-DOS and Windows accelerated growth and software momentum. each successively attracting larger markets and users. mainframes dominated computing in the 1950s. add-ons. 164. But it was the PC that upended the computing industry in a few short years. the Internet. because they represent the convergence of these four technology markets – adding the convenience of being able to go everywhere.000 PC Users (MM) 800 600 400 200 0 1980 1985 1990 1995 2000 2005 2008A 2009E 1. was a seminal industry event..1B users globally by 2008.1 14. 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.8 83. Laptops became popular in the early 1990s with the launch of the Apple PowerBook 165c which brought color VGA screens. which grew from <10M users in the early 1980s to 1. consumer electronics. debuted in the late 1990s.9 126. it has been iconic.6 7. Eyeing the growing PC market.3 57.Wireless Industry Exhibit 2: Global Data-Centric Smartphone Milestones and Evolution Launch of the first touchscreen BlackBerry August 18. with its standard architecture. and upgradable components. In our opinion. with 64K RAM and Microsoft Basic. multiple contenders like Wang.0 0 2000A 2001A 2002A 2003A 2004A 3. the PC.200 1.1B 1. Compaq and Apple. etc. Over the last five decades.5 2005A 2006A 2007A Source: RBC Capital Markets estimates Transforming 4 Previously Discrete Markets In the past. Organizers. ergonomic keyboards and mouse positioning.1B 4 Mike Abramsky . also emerged but only a few survived.3 28. launched in 1982.
Web usage rapidly grew from 45M users in 1995 to 400M users in 2000. Web pages continued to grow from 26M in 1998 to 1B in 2000 to 1T by 2008.6B 2. Canon. hypertext links – Tim Berners-Lee at CERN in 1989. Hayes. Internet – Initially developed for military and academic purposes. Consumer Electronics – Consumer electronics usage emerged in the 1920s with the first AM radio broadcast. and Kodak which transformed the industry.000 Internet Users (MM) 1. Sony’s introduction of the first portable transistor radio in 1960 ushered in low-cost.g. many struggling early on to find successful marketing and financial models. Motorola. Emerson. Sony PlayStation. Film-based compact and SLR (Single Lens Reflex) cameras dominated the industry. starting with the Polaroid Land Camera in 1972. iPod sales rose from 1. to be usurped by digital cameras from Fuji. cannibalized paper correspondence and fax.. selling 10M units in 1984. along with initial broadcasts in the late 1940s put television on the ‘must have’ list. with sales reaching 6M units in 1999 and exceeded film camera sales in 2004.500 1. viable advertising models and popular portals/destinations emerged – Ebay. as was its famous unwinding in 2009.5M units in 2003 to 55M units in 2008. 100M in 1993 and eventually reaching 385M total unit sales in 2009. RCA and Philco. Sega Genesis. Nintendo Gameboy popularized the handheld gaming market. Yahoo – in some cases cannibalizing brick-andmortar businesses. Microcom). like Nintendo (NES). with hits like ‘Space Invaders’ driving total console sales to 8M units by 1984 and eventually reaching 30M total units sold.August 18. portable consumer electronics. and Nintendo Wii. which started off slowly. Telebit. the Mosaic browser and Netscape Navigator – Marc Andreessen in 1993 and 1994). Priceline. Email. Following releases of iTunes for Windows and a 40GB iPod. 2009 2. Amazon.500 1.6B 2. new Internet-based businesses. 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. Total # of 2008 Users: 2.500 2. began to accelerate in adoption. over 125M digital cameras were sold in 2008. Xbox. Total # of 2008 Users: 1. Mass market adoption further accelerated with the bundling of Microsoft’s Internet Explorer 4 with Windows 98 in 1998. Penetration grew from 9% of households in 1950 to 86% in 1959. AOL’s acquisition of Time Warner in 2000 was a watershed event marking the ascendance of the Web as a business power. Businesses rushed to develop an online presence. Cameras also grew popular with consumers. which produced images instantly following capture. but it was Sony’s Walkman launched in 1979 which broke records. combining simplicity and immediacy.6B in 2008.4B 2. with total users estimated at more than 200M in 2008. With gaming consoles. the Atari 2600 ushered in home video gaming. Nikon.000 1.4B Consumer Electronics Users (MM) Mike Abramsky 5 2005 . The post-war (1948-49) boom. Internet usage began to proliferate with transformational innovations which improved usability (e. the home gaming market has grown to more than 250M users in 2008. Apple’s $399 iPod digital media player in 2001 and its iTunes PC jukebox/store popularized MP3 usage. With Google search popularizing the Web. Released in 1977. with advertisers experimenting to leverage the new medium. and subsequently quadrupled to 1. with sets from Admiral.000 500 0 1980 1985 1990 1995 2000 Wireless Industry 1.000 500 0 1980 1985 1990 1995 2000 2005 3.
health and fitness. weather forecasts.7B 4. travel. Yellow Pages) • Using personal/lifestyle apps like finance. and uploading photos and other data to social networking websites (e. etc. it was the launch of Apple’s iPhone in 2007 – arguably the most significant event in smartphone history. Exhibit 4: Greater Than The Sum of its Parts Categories Communication Examples • Making phone calls. etc.000 1. Competitors and carriers followed Apple’s lead. the first clamshell mobile phone with vibrating alert. Motorola released the DynaTAC handheld mobile phone.. offering significantly higher spectrum efficiency and call quality. 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 . appealing to millions of new buyers. compelling. UMTS and EV-DO launched in 2001 and 2002 in Japan and Europe (2004/2005 in North America). Digital-based 2G networks like TDMA. sending emails. reference. the world’s thinnest handset (13mm). changeable faceplates and games (‘Snake’ was launched on the Nokia 6110 in 1997).g. like Ericsson with its T28. Nokia 7110 in 1999) offered limited (WAP. While previous phones (e. capable of supporting both voice and data services. 2009 4.000. popularized the mobile web. its first GMS handset. raising broader interest in smartphones. 3G networks like HSDPA. mobile applications and advanced mobile phone MP3 experiences to new levels with its integrated iPod media experience. However. yielding new. In Europe.g. Playing games • Personal navigation.000 0 1980 1985 1990 1995 2000 2005 3. Motorola introduced the sleek Star-Trek-like StarTAC in 1996.. like ringtones. listening to the radio • Browsing news. followed by BlackBerry’s 5810 and 6210 voice/data smartphones. 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. adoption of mobile data – particularly. watching downloaded movies and TV. MySpace. and as a result.g.7B Source: RBC Capital Markets 4 Technology Markets + Mobility = Smartphones Greater Than the Sum of its Parts. Wireless Phones – In 1983. which went on to sell more than 110M units. watching YouTube videos. Other vendors launched popular designs. Motorola introduced the RAZR. launched new designs. Twitter) • Listening to music. SMS and IM. weighting 28 ounces. Sony W800 Walkman). Total # of 2008 Users: 3. browsing. With the release of its Nokia 1011 in 1992. beyond proprietary mobile services (e. productivity.000 Phone Users (MM) 3. convenient user experiences. Nokia continuously reduced the size and cost of its phones. turn-by-turn directions • Using a single device to make payments in-store. which combined its legendary email with integrated voice handsets. 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.) mobile web experiences and others offered integrated music/media (e. and Sony with its Z5 and Z7. The mobile GSM wireless network standard was adopted by most global networks. and costing $4.g. 10 inches high. added new features. smartphone users more than quadrupled to 165M in 2008 from 40M in 2006. Global mobile phone users grew to nearly 180M in 1998. i-mode in Japan) and SMS.Wireless Industry August 18.. and accelerating expansion and global adoption. Facebook.. Mobile subscribers in the US grew from 200k in 1983 to more than 2M in 1989.g. blogs. local search (e. The Handspring Visor and Treo phones emerged in the late 1990s and helped popularize the smartphone with email and PIM features. sports scores. Nokia launched the Mobira Talkman in 1984 and the more portable Mobira Cityman in 1987. iDEN and CDMA launched in the early 1990s..000 2. In late 2004.
save GPS location when park car Presence Identifies activity and presence Location. etc. Bar code or image-based data capture transactions User-generated content captured on location Proximity to event E. presence-based mobile marketing • Dynamic. Direction Location Proximity Capture data (e. GPS. 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. find. time-sensitive requests Source: RBC Capital Markets Mike Abramsky 7 . 2009 Wireless Industry Convenience of Mobility. presence. activity-based.August 18. content. shows/movie theatres offer discounted tickets to unfilled seats to people walking by • • • • • Transaction in proximity to purchase.g. • Friend location. Coffee shops send coupons to attract nearby buyers. resources immediately Two-way immediacy • Where? When? Why? How? • Indispensable mobile information kiosk • Peers/colleagues can contact users • Emergencies.. smartphones make these four formerly discrete technology experiences richer and more convenient by adding mobility – which offers users portability. proximity. Just as Internet connectivity (ISPs via telephone or cable) enhanced the PC experience.) in proximity to event or place Immediacy Always On Access answers. banking to ATM. location-based social networking • Adapt content based on location • Location-based mobile marketing/commerce • E. and always on functionality.g. immediacy. Exhibit 5: Added Convenience of Mobility Mobility Adds Portability ‘Pocketable’..g. etc. Speed.. video/camera. location.
Just as the Web ushered the birth of new business models like eBay. direction Voice communication Proximity Portability – goes everywhere Rich web browsing Video/camera/Bluetooth Purchases Voice communication. gaming. Open Table. etc. Ticketmaster.Wireless Industry Exhibit 6: Smartphones Enhance Tethered Technology Experiences Tethered Usage Unconnected Desktop PCs. restaurants -> local community in proximity is huge) Call – see pictures of everyone in one mile that express interest Want to party? See. Amazon. online collaboration Enhanced User Experiences • Mobile web which leverages location. PIM. Location-based collaboration User-generated content– can deliver and capture data in proximity to event or place – banking. 8 Mike Abramsky . content and applications Deliver and capture data in proximity to event or place – banking. insurance companies. or Google – creating new wealth for entrepreneurs and investors. proximity and community Presence and location-based PIM Community and instant messaging (IM) combined with location. contacts. mobile payments Portable video Upload video and pictures to file sharing and social networking websites GPS integration with mobile web. community Examples • • • • • August 18. rich web. etc. and Google. speed. Added Value of Mobility • • • • • • • • • Presence Location. GPS. etc. video. hotels. rental firms. MLS. messaging. purchases. 2009 • • • • • • High-End Feature Phones • Communications. purchases. Priceline. Expedia. email. • • • • Consumer Electronics • Music. movies. unleash new business models – the next eBay. activity. • • Location-based services Mobile marketing Video capture for on spot transactions. Amazon. IM. call all at once • • Source: RBC Capital Markets The Next Web The Mobile Web is the Next Web. etc. the Mobile Web on smartphones is likely to usher in new industries and businesses. content Mobile commerce. 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. Laptops • Applications.
search Open Table • • Google. find out availability. other content GPS integration with mobile web. get reviews and descriptions of restaurants. mobile content updates for gaming. apps When driving around a neighborhood.August 18. see houses for sale within your budget See a house for sale – bring up features. 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. room rates and book room As walking down street. community rankings. 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. Yahoo • • • • • • • • • • • • User-submitted video YouTube. iTunes • • Real estate MLS • Lead generation Salesforce. 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. Travelocity • Restaurant reservations Portals. pass restaurants. take picture and identify location – see features. pricing. community Proximity-based notification and marketing of available flights and hotel rooms Proximity-based notification and marketing of restaurant availability Mobile search. purchases. with seamless synchronization with home PC Presence-based gaming. local search Proximity-based filtering news and content Mobile content uploading. 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. seat map.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 . sharing and viewing Presence-based communities Portable video. stores – what sales are on? Take picture of a barcode and book hotel online Pass by hotel. content and apps Presence-based notification of properties under defined criteria • • Walking past theatre – get availability. content Examples • • • • Wireless Industry Buying a car. Flickr Content Netflix. can buy tickets immediately.
a smartphone can serve as a mobile PC or laptop at a far lower cost with less bulk. proximity. by serving as the hub for other computing. Internet. activities (it is still not universal to watch movies or stream radio on PCs. content servers. content downloads. cost and inconvenience of carrying multiple devices.. or read/compose email on a PC while in a meeting. and in some ways do these better. targeted mobile marketing based on activity.).g. PVRs. one-to-many. which may help enrich carriers. content – smartphones represent the first opportunity to converge formerly discrete media on a single device – i. etc. a media-centric user could use a media tablet peripheral. 10 Mike Abramsky . and subsidize the cost of the device and service.Wireless Industry August 18. TiVOs. Unlike other media. cellphones and music. given the diversity of functionality demanded by different activities (i. some advertising spending may transition from traditional media (e. Thus. 2009 A Next Mass Medium 3C Convergence. However. TV. SlingBoxes.. nor is it convenient to do full word processing on a handset). because they are “3C” – the convergence of communication. smartphones possess the power to become the way some consumers may principally (i. Likewise. as they have in Asia where 24 million users executed 240 million mobile payment transactions in 2008. digital set top boxes.. By adding an inexpensive computing peripheral (keyboard. it may be the smartphone that becomes a hub (or remote control) for a user’s content. remain discrete.e. gaming and media peripherals. (some of this is already happening on BlackBerries and iPhones). and still use the smartphone’s mobile data connection (via wireless tether) to draw on the same content. Regardless of where a user's content resides. etc. Smartphones already manage content subscriptions. It’s unlikely we will ever see one converged device addressing all user needs. even transfer and exchange content to other devices/accessories/peripherals – and other mobile users. or shop on TV. etc. and store some of a user’s content locally.).. a gaming user could use a gaming peripheral with controls tied to the smartphone. collaboration.) – along with voice phones and cellphones – while offering some convergence (e. Even with advanced computing capabilities. As well. objective. representing another source of revenue. mobile electronic wallets and mobile transactions have not caught on yet in North America with traditional mobile phones. etc. purchase. • Mobile Marketing.g. and personal navigation may become far richer than today. update. archive. etc. do email.g. immediate need. smartphones may enable advertisers to reward realtime behavior – based on a user’s activity. even if you could. etc. interfacing (at home or remotely) to PCs. objective. use apps. smartphone vendors. downloads and playlists. While many have pointed to the TV. it’s inconvenient to make phone calls every day with a laptop. Internet) to mobile. etc. applications. it’s the smartphone which can untether it for them. smartphones can provide much richer information for advertisers to target marketing with potentially much more impactful results (mobile coupons are just the beginning. set top box or PC as the holy grail of ‘converged home entertainment’. Examples may include: • Content Hub.e. with a larger screen. TV. With smartphones as the hub for content.. go to this restaurant at this location. • Smartphones + Peripherals.) is an inconvenience. time. drawing upon the smartphone’s connectivity and resources.. With smartphones. However. carrying around multiple devices (PCs. smartphones have the potential to become a hub for all a consumer’s content – regardless of source or location. An HBO subscriber for example might access content while on the go (e. This is compounded by the need to have multiple wireless subscriptions and multiple content/data/application stores for each device.e. get news. location – visit this store. Prior media (radio. etc. privacy preference.. playback on the device). or to make calls on PCs. Similarly. information and other services. storage. this dealer. mouse). computing. watch. direct mail. or while at home on their TV (synced with smartphone). Smartphone consumers may browse. radio. smartphones can reduce the need. phones. surf the Web. watch TV/movies. or reading the newspaper with TV or radio on). screen. or use a laptop while at a concert. stream radio. But because they are connected constantly as well as personal and portable. using the PC while streaming radio. with their always on wireless connectivity and other capabilities. combined with the convenience of going everywhere users do. versus their PCs or TVs or newspapers or radios) listen to music. to watch movies or view photos – at home on the wall or on the go on a plane – with less bulk and cost. newspapers. etc.
Video content from smartphones could match. regulators. contextual advertisements. SMS and voice communications on mass market handsets are. cable.). activities. etc. create and upload content. along with mobile’s additional value to advertisers (location. online advertising grew from $4. all combine to enhance the smartphone user’s power to immediately.4 billion in 2008. business leaders. etc. Transcending traditional “one-to-many” media channels. en mass or one-to-one – with congregants. worldwide mobile advertising was just over $3 billion or less than 0.August 18. educators. Twitter) on smartphones unleashed firsthand reporting from people attending an event. religious leaders. most of which was SMS marketing. etc. May Take Time.. etc. Reach Out And Touch Someone. advertising market). presence. discussions.S. etc.7 $10. advertising. immediacy.6 billion in 1999 to $23. and is now the fourth largest category of advertising in the U. users are often challenged to capture and share usergenerated content.0 $17.4 $39. etc.). employees. at location. etc. U. GPS and compass sensors. smartphones with their technology capabilities and personalization have the power to become a “one-to-one” mass media.g. Future upside to smartphone hardware/service revenues (at high margins) may come from future smartphone services (carriage fees. In 2008. as well as popular smartphone applications that dynamically and easily capture user-generated content.S. 2009 • Wireless Industry Mobile Peer-to-Peer Collaboration.4 US Advertising Market ($B) Source: Interactive Advertising Bureau (IAB) Mike Abramsky 11 . radio. rather than third-party journalist impressions. Internet.). It took several years before Internet advertising began to cannibalize existing media – but it eventually did. subscriptions. allowing users to collaborate dynamically and locally with peers – on content.8 $12. • • Replaces Your Wallet Shift of Revenues to Mobile. Exhibit 8: Addressable U. entertainers.4 $28. Similar to the path of online advertising. or even eclipse. interests. or by a 20% CAGR.5% of total advertising ($650 billion). Micro-blogging services (e. we believe mobile advertising will quickly accelerate as users transition from traditional media to mobile. It may be sooner than expected when politicians. books. politicians are already using YouTube and blogs to reach out to constituents.2 $23. 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. transactions. smartphones facilitate real-time. In our opinion.S.) to mobile media (SMS. (out of a $295 billion total U. But Huge Potential. Higher quality digital cameras. just the beginning of mobile peer-to-peer collaboration. constituents. Advertising Market (2008) TV Networks Newspapers TV Distribution Online Radio Directory Consumer Magazines Trade Advertising Out of Home $0 $5 $7. Explosion in User-Generated Mobile Content. use the power of smartphones to communicate – interactively. – regardless of location or device. Although mass market phones have the capability to record video and audio.8 $34. video content currently provided from PC users onto popular destinations such as YouTube or social networking sites. location-based collaboration. in our opinion.S. mobile search. this creates significant opportunities for user-generated content yet to emerge. activity.2 $10 $15 $20 $25 $30 $35 $40 $45 $13. For example. with revenues shifting from traditional media (TV.
000 apps and achieved over 1. and blogging are applications with the potential to significantly increase consumer smartphone penetration. Mobile advertising revenue in Japan was $1 billion in 2008. vendors can also directly transact with millions on the wireless network. electronic tickets.1 trillion purchase value (accounting for 31% of all purchases) were made in the U.5 billion downloads. AIM. Japan an Example. video conference. personal navigation. etc. Personal navigation for smartphones (with built-in GPS) is another significant driver of smartphone adoption. where mobile phones can be used as electronic money. etc. compelling services.. in just over one year since release. In mobile payments. Only launched in 2003/2004. free service credits versus money). location-based services. The mobile content and applications market is only just beginning to emerge. music. 4) higher uptake of smartphones. carriers can have their own currency and points system (e. for example. from 103 million in 2007. 2009 Transformation to Commerce. 5) demand for Internet radio. loyalty cards. and status updates. owing to high uptake of mobile data services. ease of use). attracting more than 400 million active users. The smartphone becomes not only a shopper’s aid but also a dynamic catalog. BlackBerry app store in April 2009. Barcode scanning has become a means for advertising and gathering information. • Personal Navigation. during 2007. presence. with more than 350 million users. in our view. Japan has been ahead of the market in mobile commerce owing to early deployment of 3G networks. Internationally. social networking sites like Facebook and MySpace (where users maintain profiles/web pages. blogging. iPhone’s App store already has over 65. 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. Nearly 24 billion credit card transactions with a $2. Mobile transactions in Asia-Pacific and Japan more than doubled to 240 million in 2008. When integrated with carrier billing systems. hence the value-add of smartphones. the Facebook app is the second most popular downloaded app for iPhone. chat. Instant messaging platforms like Windows Live Messenger. For example. and. a marketing/sales channel to rival TV – even better when combined with location. and the surging popularity of innovative mobile applications. we believe only smartphones with data plans can offer a compelling mobile user experience. nearly 50 million Japanese consumers (50% of total) use their mobile phones to make mobile transactions or redeem mobile coupons. or $9/subscriber/year. With the shift away from traditional media (TV. social networking. Social Networking.) and related advertising to handsets. MasterCard and banks and become their own integrated billing provider for transactions and services. games and other apps.g. Carriers can bypass Visa. with users able to justify a smartphone purchase as replacing a standalone 12 Mike Abramsky . Specific areas of mobile content and applications include: • IM. where social networking applications proliferate and users can make use of mobile features like photo uploads. and Yahoo! Messenger (allowing users to chat. location awareness. Navigation increases the appeal of smartphones as a “converged” device. 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. standardization on Sony’s FeliCa mobile payments system. smartphones / high-end mobile phones. Instant messaging. print. Although some traditional mobile phones are integrated with large IM platforms and social networking sites. 2) increasing popularity of constantlyconnected activities like IM. For example. As a result. following the launch of the iPhone App store in July 2008. We see the pace of innovative mobile applications accelerating given: 1) rising customer demand for mobile versions of desktop and web-based applications. and DoCoMo’s aggressive strategy to accelerate mobile payments (large number of compatible storefronts. equating to 33/user/year. membership cards.Wireless Industry August 18. airline tickets and for other uses. Osaifu-Keitai – DoCoMo’s mobile payment platform based on FeliCa – is the premier mobile payment system in Japan. and share videos) have already gained significant popularity.S. Mobile Content and Applications The Mobile Content and Applications Market is Still in Early Stages and Underpenetrated. share files/pictures. photo albums. strong uptake of DoCoMo’s i-Mode mobile data services. a possible significant business case for wireless operators. social networking. 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. in addition to other features) have achieved widespread penetration. 3) broader availability of developer tools.
at home. multimedia and other mobile content should remain a top driver of smartphone uptake and data services. offers an alternative to PC-based Microsoft Office. becoming far different than today. offering the ease of tapping vast resources immediately and conveniently. adapting and customizing to the convenience of the user based on interest. processing. 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. simplifying and reducing development costs. Smartphones go beyond simple maps. functions. Also Google Docs.August 18. And. etc. downloadable multimedia and content is now moving to mobile. 2009 Wireless Industry GPS device. customization. storage and content can all be accessed from the cloud. productivity applications. With the growing pervasiveness of wireless networks. the Mobile Web with the power of portability. and Super Monkey Ball. mobile content or applications is not yet clear. etc. services. attractions. Google’s Chrome OS. Browsing. The Cloud Adds the Cloud. either way these issues are likely to play a significant role in evolving mobile content models and businesses. with some applications generating over $1 million in download fees in a short time from launch. like TeleNav GPS Navigator or TomTom for the iPhone. Yet this is only the beginning. with innovative applications that integrate the user’s current location with searches for restaurants. While the extent to which these issues might support or hinder innovation in smartphones. etc. Examples include free mapping applications.g. The practical realities of privacy.. because of the potential enhancement to the mobile user experience. location.). As it has with the iPhone and iTunes. share and store data on Google servers) launched in 2006. is an example of Google’s effort to transform the computing experience via the cloud. just as the Web spawned multi-player gaming and virtual worlds. user interface (UI) on smartphones (like Apple’s Multi-Touch). like the Internet where browsing matured and integrated new innovations that became commonplace (speed improvements. new formats. and news readers are enhanced via the smartphone experience. and in the case of BlackBerry. copyright and content ownership rights have already begun to assert temselves into mobile content and applications. tip calculators and expense trackers have sprouted up overnight. a recently announced browser-centric PC Operating System. The cloud also means applications (accessed via a browser) might not need to be customized to each device. bandwidth consumption). Two recent examples include Apple's blocking of Google Voice application (offering free SMS and cheap long distance calls).) • • Hands Off My Content. Browsing. to paid turn-by-turn navigation apps. Games. web-based hosted Office Suite (that can be accessed from anywhere via a web browser and where users can collaborate. along with services such as storage. geo-tagged photos. like Google Maps or BlackBerry Maps. mobile browsers of the future may evolve to advantage the mobile medium. need. represents another opportunity for new gaming experiences. optimized for mobile usage. Mike Abramsky 13 . are provided over the wireless network – versus from software locally installed on a PC using local storage or accessed from land-based networks. Smartphone browsers. Applications. Games and Productivity Applications. The smartphone browsing experience may become so satisfying that some users may justify switching from PC browsing to smartphones. a free. activity. convenience. etc. Initially popularized by Apple’s iPhone. and Amazon remotely deleting books from its Kindle ebook reader it was not legally authorized to provide. just as gaming consoles launched innovative games. the convenience. and productivity applications like dictionaries. The Cloud May Transform the Mobile Smartphone Experience. social networking and other applications. features. are now replicating a desktop browsing experience adapted for the mobile world (navigation. applications and content. The cloud may become an increasingly significant dimension of smartphone functionality over time. Multimedia and Mobile Content. in the car. news readers for popular sites like CNNmobile or CNBC. navigation innovations. the smartphone user experience is expected to increasingly leverage “the cloud”. The cloud is a general term used when data. Pac-Man. rights management. proximity. Well-known games like Guitar Hero.
the speed. info (e.mobile music mashup in the audience e.easier sharing of user-generated content (blogs. calendars. calendar..) Shopping . yields better battery life Data storage (media. Hypothetically. Source: RBC Capital Markets Practical Realities. lighter. adapts to location and interest Gaming . etc. discounts/coupons for nearby customers Business – real-time lead generation . etc. photos.) Developer apps would not need to be customized to each device • • • • • • • • • • • Traveling . stability. etc.Wireless Industry Exhibit 9: The Cloud May Further Transform the Computing Experience Cloud Enhancements to Mobility: Examples: August 18.. traffic. discussion threads. Social networking (live proximity discussion. docs. smartphones could be thinner. power consumption). payments.ad-hoc multi-player Community Content . other information) Device backup (contacts. memory.location. 2009 • • • • • • • Real-time information (weather. 14 Mike Abramsky .subscribe. Assistance . posts. comments. coverage and bandwidth constraints of mobile networks could undermine the cloud-based user experience. and raise carrier resistance to cloud-based computing. pictures. IM.rent and try as you walk by. support (how do I do this?) Location-based marketing .health.g. news.g. consumers may resist migrating personal and corporate data to the Web. DVRs.. ticket info after walking the theatre district) Remote access: e. PCs. pull resources. etc. playlists Help. As well. However. blogs) Ease of use (apps always up-to-date) Off-device processing (complex functions and searches performed at the service).g. processing power.pulls in resources. videos. video. instant collaboration) Entertainment . captures opportunity Live on site: posts. using the cloud. safety. and less expensive to make (less storage. to home security systems. financial data) Real-time collaboration (email.
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).000 3.713 6. the difference being multi-user households and Internet cafes).000 7.000 Install Base (MM) 6. Exhibit 11: 2008 Global Data-Centric Smartphone Users vs. At the end of calendar 2008. 2009 Wireless Industry The Rise of the Mobile Data Consumer Larger Than the Phone Market.6 billion Internet users.123 915 3.500MM Internet Users 1. only 2.123MM Data-Centric Smartphone Users 165MM Mobile Phone Install Base 3. TVs (200 million units per year).August 18. 2.1 billion PC users. given that globally there are 3.000 0 Population Telephone Total PCs Newspaper Circulation Broadband Data-Centric Internet Subscriptions Smartphone Subscribers Subscribers World Mobile Users Lines Users 1. A huge market opportunity for smartphones exists. and 1.713MM Consumer Electronics 2. personal media players (230 million units per year).596MM Source: RBC Capital Markets Huge User Opportunity.5 billion consumer electronics users.000 4. Exhibit 10: Global Data-Centric Smartphone Addresses More than the Phone Market PC Install Base 1. we believe that smartphones possess the ability to capture users.000 5.7 billion mobile phone subscribers. revenues.596 1. Because of their convergence capabilities. digital cameras (125 million units per year).000 1. portable navigation devices (32 million units per year) and other formerly discrete market segments. Other Markets… Lots of Growth Potential 8.000 2.671 530 480 368 165 Source: RBC Capital Markets TV Mike Abramsky 15 . 1.5% of the ~7 billion people in the world had smartphones and 24% had Internet access (only 8% are Internet subscribers. personal gaming devices (37 million units per year).
600 1.2 Massive Replacement Cycle.1 553.7 374.1 247.113 952 966 947 933 127 165 250 376 504 674 804 944 1.2 22. and will exceed PC sales in just three years.8 165. We estimate annual global data-centric smartphone shipments will exceed those of voice handsets within the next six years.200 Units (MM) 1.000 800 600 400 200 0 2008A 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 1. 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 766.0 42. Growing at a CAGR of 62%. more people globally have upgraded from voice to smartphones than in the past six years.3 7. from approximately 15 million upgrading in 2005. There is a massive global shift underway from voice-only phones (including SMS) to smartphones. In the past 18 months. an estimated 63 million mobile phone users upgraded to smartphones in 2008.400 1. 2009 Global Secular Upgrade Cycle to Smartphones.800 1.Wireless Industry August 18.5 102. Exhibit 13: Global Data-Centric Smartphone Shipments to Exceed Voice Handsets by 2014 1.003 783 724 650 650 Voice-Only Phone Units Source: RBC Capital Markets estimates Global Data-Centric Smartphone Units 16 Mike Abramsky .
They also crave distinctive designs. media player.). 2) the proliferation of mobile email and mobile browsing. media-centric experiences. etc. camera. video. and anywhere/anytime multimedia downloads. location-based services. media player. and fingertip access to information from mobile browsing. mature users. 5) an increasing buyer interest in customization (third-party applications. etc. trusted purchasing experience. location-based services.6% (or 727 Mike Abramsky 17 . superior user experiences. small businesses. mobile music. 7) faster 3G networks. etc. women. games. game console. music. not necessarily a mobile data plan) have risen 50% annually. etc. 3) a growing interest in multimedia messaging (photo. as the growing global adoption of mobile email. games.). 6) lower handset/data plan pricing trends globally. etc. students.). 4) the momentum of mobile application platforms and the proliferation of third-party mobile applications. social networking. Momentum of mobile applications platforms and proliferation of third-party mobile applications Increasing buyer interest in customization (third-party applications. 8) device convergence (GPS. IM. This massive upgrade cycle is being driven by a “perfect storm” comprised of: 1) cheaper. the convenience and productivity of continuous connectivity for email.) More affordable handset/data plan pricing trends globally Faster 3G networks and carrier focus on data Device convergence (GPS. video. etc. While the early-adopter smartphone base has been business users and early consumer adopters. mobile browsing and mobile applications is expanding the smartphone market into new segments (youth. multimedia messaging (photo.) Mobilization of business New Segments Driving Adoption. BlackBerry Bold Rising demand for mobile email and mobile browsing. etc. location-based services. etc. Exhibit 15: ‘Perfect Storm" Driving Smartphone Adoption • • • • • • • • Source: RBC Capital Markets Powerful. game console. software. mobile music. vertical markets. mobile phone subscribers with 3G devices/services (those who only have 3G devices. 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". As a leading indicator and precursor to mobile data adoption. and. multimedia messaging (photo.).. music. software. more powerful. etc.).9% of total global mobile phone subscribers (or 110 million 3G subscribers) in calendar 2003 to 19.). camera. social networking. and “hip/cool” differentiated brands. video. etc. iconic smartphones like the Apple iPhone. social networking. the penetration opportunity remains huge.August 18. 9) the mobilization of business. growing from 7. Mobile Data Devices and Usage Leaps. These buyers are seeking user-friendly. iconic smartphones.
80 $19.11 $15.38 $3. Key drivers of this data growth were rising mobile messaging (text).).60 $2.). and content downloads (ringtones. Data ARPU 50 Service ARPU (per mo) 40 30 20 10 0 2004A 2005A Data ARPU Source: RBC Capital Markets $45. video. SMS and PIM features) and focus on those users using data plans (or other connectivity such as Wi-Fi) to utilize connected.10 $3. Exhibit 16: Global Voice vs.80/user/month to ~$14. while voice ARPU fell from $21. Accordingly.00/user/month to ~$3. 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).80/user/ month. OTA (over-the-air) downloads and streaming content. email usage.49 $3. video. And more users are starting to use more data: from 2004 to 2008. applications (social networking. etc. 2009 million 3G subscribers) in calendar 2008. data services: wireless email. etc. global data ARPU rose from $3.49 $3. Consuming More Data. location services. web browsing.07 $8. media. 18 Mike Abramsky . web browsing.81 2006A 2007A Voice ARPU 2008A Exhibit 17: North America Voice vs.08 $42.50 $11.50/user/month over the same period.Wireless Industry August 18.28 $17.91 $6. Data ARPU 25 Service ARPU (per mo) 20 15 10 5 0 2004A 2005A Data ARPU Source: RBC Capital Markets $21. far outpacing the 11% increase in mobile voice revenue.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.00 $3.99 $44. We expect global mobile data traffic to grow at a CAGR of 131% from 2008 to 2013.96 $14. etc.09 $39.66 $43.16 $3.
24% in India. Also seeks easy usability for sophisticated data functionality.) to create user content and message content via SMS.4% by calendar 2012 (an estimated 766 million users). social networking.. heavy web browsing. notes). applications. social networking. etc. email. mobile applications and content – bypassing PCs and tethered Internet altogether. IT ‘approved’ integration with work email and servers. Exhibit 19: RBC Capital Markets Data-Centric Smartphone User Definition • Data Services – uses carrier data services or other connectivity for mobile email and messaging. China and Indonesia. others) and application stores (iTunes App Store.frequently uses mobile email. etc.g. and for personal entertainment. contacts. Despite limited disposable income. iTunes. mobile browsing.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. sufficient storage. messaging/phone integration. push-based content.4% of phone users in calendar 2008 (an estimated 165 million users) to 15. In many countries. email. • • • • • • Source: RBC Capital Markets The Global ‘Data Gap’ Large International Smartphone User Opportunity. etc.5B users and 1. Data-Centric Connected Functions . and applications. nine of the 10 countries with the fastest mobile phone subscriber growth are emerging markets like India. and 39% in Africa – well beyond the penetration of landline phones and Internet users. Windows Marketplace for Mobile) Content creators – utilizes applications (e. Mobile Media/Content/Apps Consumption – uses music. video.g. navigation. content downloads. battery life. etc. phone reliability. to avoid carrying multiple devices.seeks integration of work functionality and data with personal data and applications. 2009 Exhibit 18: Global Data-Centric Smartphone Users Global Mobile Phone Users Wireless Industry Smartphones Users Voice-Only 3. 122% in Russia. messaging.August 18. Internationally. content. smartphones have the opportunity to become the first and primary exposure for millions of consumers to the Internet. synchronized PIM (calendar. Google Android Market. etc. picture/video capabilities. people in emerging markets are still buying mobile phones at an unprecedented rate – 45% of people in China own mobiles. MMS. Reliable Data Experience – demands data devices that deliver high productivity. representing a 47% CAGR. along with seamless integration from third-party media stores (e. etc. PIM. where PC and Internet penetration is low. one-click search/buy.) and data capture (GPS data. BlackBerry App World. pictures. RealNetworks Rhapsody. Amazon MP3 store. we see “data-centric” smartphone user penetration growing from 4. blogging. Mike Abramsky 19 . For Work . real-time weather and mapping. applications. etc. voice/SMS phones have extremely high penetration rates. serviceability. email/web/phone integration. Voice/Data Integration – relies on tight integration of voice and data features phonebook/phone/contact integration. security.. Thus. news updates.
8% 1. and can’t afford Internet connectivity.1% 1.9% Internet Subscribers % of Households Source: RBC Capital Markets.2% 50.1% 0.8% 122.8% 0.9% 23.2% 27.7% 51.1% 21.6% 32.4% August 18.8% Mobile % of Population 30. just 1.2% 23.0% 70. For example.1 17.2% 2.0% 21.5 18.5 Mobile % of Population 24.S.1% 11.3% 5.4% 11.6 261. users may bypass PCs altogether and upgrade directly to smartphones. As the global upgrade cycle to data progresses.7% 52.5% 65.6% 26.7% 64.8% 30.5 24.0% 50.1 27.0% 4. International Telecommunications Union 20 Mike Abramsky .8% 31.Wireless Industry Exhibit 20: Top 10 Fastest Growing Mobile Phone Countries Country India China Indonesia Brazil Pakistan U.4 12.9 38.4% 5.2% 31.3 CY08 Mobile Phone Net Adds (MM) 100.7% 87.2 599.8% The Growing International ‘Data Gap’ is Massive.6 97.4 116.8 60.5% 13.0 13.3% 1.4% 2.7 135. given the large number of non-North American phone users who don’t have TVs and PCs.3 87.4 43.6% 123.6% 45. Exhibit 21: Data Gap in Top 10 Fastest Growing Mobile Phone Countries (2008) India Indonesia China Brazil Canada United States France United Kingdom 24.5 50.4% Landline % of Population 3. Nigeria Bangladesh Russia Philippines Source: RBC Capital Markets CY08 Mobile Phone Subs (MM) 282.1% have Internet access.9% 0.6% 93.8% 0.5 173.6% 70.5% 87. The smartphone opportunity internationally can be viewed as massive. 2009 Internet Subscribers % of Households 1.9% 2.2% 45.0 15. although 24% of people in India have a mobile phone.
smartphone growth in business is expected to continue to be healthy. customer relationship management (CRM). The ROI of smartphones (238% ROI. up 57% from 8 million enterprise smartphone users in calendar 2005 or 2. real-time access to mobile data via smartphones. Cognos. We believe. according to Ipsos Reid BlackBerry ROI Study. sales force automation (SFA). 6) rising international corporate email usage. Business datacentric smartphone users (typically larger enterprises. Oracle. 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. wireless email solutions like the BlackBerry remain nascent and underpenetrated.August 18. 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. ultimately. like enterprise resource planning (ERP). most knowledge workers who currently are provided a phone and a PC should be eligible for a mobile device.1% of total enterprise email users. Drivers of enterprise mobile email and smartphones include: 1) improved productivity and responsiveness. 4) lower cost and similar/better functionality versus laptops for mobile employees. and. Salesforce. include increased revenue from capturing more sales by having updated data. five-month payback. mobile VPN (remote network access). servers. In our view. 5) lower corporate telecommunications costs through PBX integration (combining cellphone and desktop phone into one device). 2) lower priced smartphones and mobile data plans. 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. • Soft dollar returns. 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. and in our opinion will remain a priority for corporations looking to mobilize solutions which are easy to deploy and provide rapid productivity gains. Other soft dollar returns include improved sales productivity. field service. Productivity Benefits. Pivotal. PCs. vertical applications for various industries and company applications. content and tools on location to identify and capture more prospects and raise sales conversion rates. reducing costs and increasing revenue generation.0% of total enterprise email users. desktop applications. mobile/PBX integration (desktop/mobile phone). superior management and security along with future productivity innovations to enterprise. 3) compelling mobile enterprise apps (like SAP. should continue to remain the brand of choice. with its enterprise functionality and features/content. and better customer service (using data and tools on site or with the customer to solve problems). or 18% of the estimated 165 million global smartphone users. and the collection of employee-generated content improve real-time feedback and decision-making both by mobile employees as well as management. In our view. document workflow and collaboration. or 6. The mobilization of enterprises is expected to continue. networking. the potential benefits of wireless enabling the enterprise may become as profound as the historically realized benefits of fax machines. Despite their high visibility within business.com). The convenient. Still Underpenetrated. 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. 2009 Wireless Industry Mobilization of Business Broader and Deeper Enterprise Adoption. and email. Mike Abramsky 21 . as deployment of mobile email and enterprise applications expands beyond key executives to mobile professionals and ultimately many rank-and-file employees. and the promise of “mobilizing” the corporate desktop. Drivers of enterprise smartphone adoption include: productivity and return on investment (ROI) of mobile business email and desktop/mobile integration. deployment of enterprise applications. RIM.
applications and other functionality will rise in importance for the ‘productivity-centric’ market segment (of which business users – enterprises.500 time sensitive emails and 1.9% 100 0 2003A 2004A 2005A 2006A 2007A 2008A 0.). given its sustained competitive advantage in providing a superior “Crackberry” mobile email experience and related experience advantages (reliability. 2007 Email Remains the Killer App. value = $7.1% 7. in our view.200 voice calls per year. 2009 Immediacy: 2. mobile email is expected to remain a prioritized requirement for these market segments for smartphones. manageability. reliability. and consumers combining work/business use – comprise a significant portion).0% 1.4% 2.815/yr August 18. messaging simplicity/power.125/yr Workflow: 38% increase in team efficiency.Wireless Industry Exhibit 22: ROI of a BlackBerry Deployment • • • • • Personal productivity: 250 hours per user per year. Favoring RIM. Exhibit 23: Global Enterprise Email Remains Underpenetrated 600 500 400 300 200 0. messaging/data/voice integration. where SMS has been the dominant messaging medium but where users are now evolving to embrace mobile email.. SMBs.400/yr BlackBerry TCO (total cost of ownership): $1.9% 5.315 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. through offering IT (a key gatekeeper for business penetration).0% 5. etc. RIM should maintain its competitive advantage. While browsing. battery life. superior security.0% 6. This global trend continues to favor RIM.0% 3.0% 0.0% 4. value = $3.0% 2. etc. which robust mobile business email users crave.0% 2. particularly outside North America. value = $16.0% 6. keyboard design.0% Corporate Email Users Source: RBC Capital Markets % Enterprise Smartphone Users 22 Mike Abramsky % Enterprise Smartphone Users Corporate Email Users (MM) . Additionally.
1 15. TVs (200 million units per year). representing a CAGR of 47% (39% prior) and 15. etc.0% 10.).9% 2012E 766. email. Internationally. We expect smartphone units to rise to ~504 million by calendar 2012 (395 million prior).0% 0.1 8.4% of total mobile phone users (12. Raising Smartphone Forecast.4% Source: RBC Capital Markets estimates 165 Million Global Data-Centric Smartphone Users Growing at 47% CAGR.9% 15.. We . We are raising our global smartphone user estimate to ~766 million by calendar 2012 (622 million prior). for many users.4% 18.1% 2010E 374. lower mobile data pricing).2 4. and. and social networking (e. portable gaming. and others segments (e. email. vertical market reader.6% Global Data-Centric Smartphone Users (MM) 2007A 102. digital cameras (125 million units per year). etc.0% 14. but also due to market share gains from PC.7 11.1% 2008A 165.August 18.g. Underpenetrated Larger Than the Phone Market.0% 6. smartphones could have the opportunity to become the first and primary exposure for millions of consumers to the Internet. we believe that smartphones possess the ability to capture users. the smartphone will be their first introduction to the Internet. rich browsing.0% 8. Facebook. With 56% of the world’s population already using mobile phones.6% 11.g. see “data-centric” smartphone user penetration growing at a CAGR of 47%. portable media. etc.. 2) better smartphone capabilities and user experience (e. messaging..1% 8.4% 2009E 247. 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.g. from 4.0% % of Total Mobile Phone Users 2006A Global Data-Centric Smartphone Users (MM) % of Total Mobile Phone Users 42. 4) increasing consumer smartphone awareness and retail shelf space. MySpace. 2009 Wireless Industry Sizing the Smartphone Market Huge. GPS.0% 12. portable navigation devices (32 million units per year) and other formerly discrete market segments. 5) greater variety of smartphones from manufacturers.4% of phone users in Mike Abramsky 23 .3 3.). revenues.g. Amazon Kindle. voice/SMS and broadband replacements. Our revised forecast contemplates: 1) more aggressive carrier smartphone promotions (higher subsidies. thus. portable navigation.8 1. representing a CAGR of 41% (33% prior) and 35.1% of global mobile phone handsets (24. mobile applications and content – bypassing PCs and tethered Internet altogether. 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. Nascent. digital cameras. Twitter. 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). Because of their convergence capabilities.6% 4..1% 1. personal media players (230 million units per year).0% % of Global Mobile Phone Users 16.6% 2011E 553. apps.) as users switch to smartphones. etc.). in countries where PC and Internet penetration is low.5 6. personal gaming devices (37 million units per year). consumer electronics (e.4% 6. peripherals.0% 2. 3) higher landline. Internationally. media.6% prior).4% prior).0% 4.
media players. Our outlook calls for data-centric smartphone units to rise from 10% of the total addressable market (TAM. Our view is that at the early innovation stage. interfaces. we see smartphone shipments rising to ~800 million units by calendar 2014..4 20. exceeding voice-only phones. 24 Mike Abramsky . 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. Under our datacentric smartphone definition. form factors. units shipped globally are expected to expand four times (41% CAGR) between calendars 2008 and 2012.8 10. from ~127 million sold in 2008 to an estimated 504 million units by 2012.1% CAGR 41. This assumption is based on the fast pace of smartphone innovation (3G. 127 Million Global Data-Centric Smartphone Units Growing at 41% CAGR.2% Source: RBC Capital Markets estimates Smartphones to Exceed Voice-Only Phones in 2014. Our outlook is based on an 18.Wireless Industry August 18. i.5% 2012E 503.e.to 24-month replacement cycle – faster than the three to five years (average) in the mobile phone market.5 28. GPS.9 14. etc.).8% 2010E 250. digital cameras.4% by calendar 2012 (an estimated 766 million users). Looking out further. 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. which makes upgrades more affordable. along with the growth in applications and proliferation of new designs and functionality.2% % of Total Addressable Market (TAM) 2009E 164.9 35. smartphone buyers tend to upgrade faster than regular phone buyers since technological improvements (like 3G) provide more urgency to upgrade and subsidies are greater.6% 2011E 376.
1% 2013E 46. 2009 Wireless Industry Exhibit 26: Long-Term Global Forecast: Data-Centric Smartphones vs.August 18.8% Smartphones to exceed 50% of total units CY2014 2014E 2015E 2016E % of Total Phones 2014E 52.800 1.6% 2015E 59. out of an estimated 127 million data-centric smartphones sold globally in calendar 2008.8% Global Data-Centric Smartphone Units 2010E 20. Mike Abramsky 25 .2% 2016E 60.6% 46.6% 2011E 28.7% 75% % of Total Addressable Market (TAM) 59. Voice-Only Phones (MM) 1. On a unit basis.5% 30% 45% 60.7% 60% 15% 0% Voice-Only Phone Units 2008A Smartphones as % of Total Phones 10.2% 2009E 14.000 800 600 400 200 0 2008A 2009E 2010E 2011E 2012E 2013E 10.3% 35.5% 2012E 35.600 1. with 66 million units sold to business users (13%) for a 30% CAGR.1% 28. This is expected to rise to 438 million units sold (87%) to consumers by calendar 2012.2% 20. 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. ort a 43% CAGR.400 1.2% 52.3% Source: RBC Capital Markets estimates Consumer versus Business Consumer Smartphone Units to Grow at 43% CAGR.6% 14. we estimate 104 million (82%) were sold to consumers and 23 million (18%) to business users.200 Units (MM) 1.
9 14.1 28. SMBs and executives whose smartphone usage is primarily business and whose service is often expensed – in calendar 2008.5 503. Business .9 164.) and international expansion.5 376. etc.8 42.2% Consumer Smartphones Users to Rise at 49% CAGR. This figure is expected to rise to ~667 million in calendar 2012 (87% of total) or a CAGR of 49%. There were ~30 million business data-centric smartphone users (18% of total) – typically. given the larger size of the potential consumer market. favorable factors for consumer growth (pricing. Out of 165 million total estimated datacentric smartphone users globally in calendar 2008.0 56. where consumers represent a larger portion of the market.9 35.4 65.Wireless Industry Exhibit 27: Global Consumer vs. larger enterprises. mix-shift from voice-only to smartphones. applications.8% 2010E 207.5 28.8 126.6 250.4 20. form factors.1% 41.5% 2012E 438. earlier penetration of smartphones in businesses versus consumers. Our outlook calls for faster growth in consumer data-centric users versus business users.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 22.1% CA GR 43.3% 30. we estimate over 80% (~136 million) were consumers. a group expected to rise to ~100 million by calendar 2012 (13% of total) or a 35% CAGR. iconic devices.6% 2011E 2012E % of TAM 2011E 320.2% 104.8 10. 26 Mike Abramsky % of Total Addressable Market (TAM) . 2009 40% 35% 30% 25% 20% 15% 10% 5% 0% 2010E Business 2009E 136.
2009 Exhibit 28: Global Consumer vs. Business . navigation. • Introduction of lower cost. given aggressive competition between mobile operators.1 553.6 766. and.g.2 4. • Rising awareness and distribution of iconic smartphones (e.5 99. BlackBerry Storm. rising consumer BlackBerry appeal and desire. Orange UK launched prepaid BlackBerry data plans at £5/month). multimedia viewing.7 11.000 currently to 1 million by the end of calendar 2009.7% International Smartphone Forecast International Market User Forecast. • Global proliferation of fast 3G networks that significantly improve the user experience of mobile browsing. TMobile G1) into Europe and Asia.9% 35. and downloads. and innovative data plans.5 6.2 43.7 165. We expect the data-centric smartphone market opportunity to rise globally.3% 46.4% CA GR 48.g.6 374. according to Indonesia’s Department of Communication and Information Technology).6 83.1 8.3 247. Mike Abramsky 27 % of Total Mobile Phone Users . • Increased focus on data by international carriers (e..5 63.g.4% 2009E 204. Indonesia BlackBerry subscribers are expected to grow from 300.6% 2011E 470..5 29. and apps.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 135.9% 2012E 666.August 18. in January 2009.1 15. • Availability of region-specific and language-specific third-party apps and services...1% 2010E 2011E 2012E % of Total Mobile Phone Users 2010E 310. “Slider” smartphone with slide out keyboard. driven by: • Global adoption of mobile data services like web browsing.g. entry-level and pre-pay smartphone data plans aligned to local buyer preferences (e. along with iconic phones with localized form factors (e. iPhone. and touchscreens). email. 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.
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.
Availability of Asia-Pacific content and apps. 2009 Potential Adoption Inhibitors Consumer electronics spending slowdown. proliferation of 3G networks. IM.7 314.1 349. increasing use of Smartphones to replace Internet cafes.360. navigation. Symbian introduces compelling mobile data services.5 1.7 3. greater awareness/distribution of BlackBerry and iPhone.7 1.4 41. social networking.2% 57.2 10.7% Mobilizatio n of local region content and apps. social networking. proliferation of 3G networks.469. competition fro m mass market phones with 'good enough' social netwo rking and messaging features. advanced multimedia.6% New innovative Smartphones.5 1.7 1. sustained high data plan pricing due to network capacity constraints. Consumer electronics spending slowdown.8% Mobilizatio n of Asia-Pacific content and apps.6 2. lower data pricing and subsidized device pricing.7 32. speed of Smartpho ne component cost reductions and introduction of low cost 'emerging markets' Smartphones. Symbian introduces compelling mobile data services.0% 305. competition from mass market phones with 'good eno ugh' social networking and messaging features. Asia -Pacific Total Mobile Phone Users (M M) Smartphone % of Mobile Phone Users Data-Centric Smartphone Users (MM) 1. Source: RBC Capital Markets Research estimates Mike Abramsky 29 . increasing user desire for mobile browsing.0 2. navigation. per capita income limitations.7 5. advanced multimedia.8 540.5% 152.5 2. competition from mass market phones with 'good eno ugh' social networking and messaging features. per capita income limitations.8 33. speed of Smartpho ne component cost reductions and introduction of low cost 'emerging markets' Smartphones.8 5. etc. sustained high data plan pricing due to network capacity constraints. IM.0 18.4 525. new innovative Smartphones.9 37.5% 146. broad distribution of Android devices.953.). consumer electronics spending slowdown. Symbian introduces compelling mobile data services.3% 86.627.0% 115.7 1. collaboration (email.5% 86.8 7.1 23. etc. greater awareness/distribution of BlackBerry and iPhone.6 53. broad distribution of Android devices.4 511. increasing user desire for mobile browsing. lower data pricing and subsidized device pricing.2 14. navigation.5 3.5% 127.9% 10.9 16.1 13.6% 5. IM. competition fro m mass market phones with 'good enough' social netwo rking and messaging features. sustained high data plan pricing due to network capacity constraints. navigation. IM.557. social networking.697. sustained high data plan pricing due to network capacity constraints. collaboration (email.4% 42.4 368.1 332. Western Europe Total Mobile Phone Users (M M) Smartphone % of Mobile Phone Users Data-Centric Smartphone Users (MM) 498.143.8% 2.9 554. etc. social networking.5% 54. consumer electronics spending slowdown.3 1.). etc.8% 5.8% 24.5% 180.3 42. greater penetration of MS Exchange and Lotus Notes for business users.560.). collaboration (email. broad distribution of Android devices. reduction in data roaming fees.6% 38.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. collaboration (email. Availability of local region content and apps.7 7. 2009E 2010E 2011E 2012E CAGR Adoption Drivers August 18. advanced multimedia.6 8.5 1. lower data pricing and subsidized device pricing. advanced multimedia.7% New innovative Smartphones.2 25.1 11. increasing user desire fo r mobile browsing. Rest of the World (RoW) Total Mobile Phone Users (M M) Smartphone % of Mobile Phone Users Data-Centric Smartphone Users (MM) 1.5% 58. increasing user desire for mobile browsing.753.3 50.5% 126.7% 43.0% 83.5% 225.). lower data pricing and subsidized device pricing.351.7% 57.3% 93. new innovative Smartphones.
Out of 165 million total data-centric smartphone users globally in calendar 2008. France.5% of 1. 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 42.8 146.3 305. Russia. suggesting a strong emerging Asia-Pacific data-centric smartphone opportunity. rising to ~180 million in calendar 2012 (33% penetration).0 86. An estimated 11% of mobile users in China and 84% in Japan were “experimenting” with mobile email. Considered a leading indicator of data-centric smartphone growth.6% 42.5 24.8% 46. China. Western Europe (U.9 180. including Latin America.5 57. Spain.5 38. Korea. growing to ~306 million users by calendar 2012 (13% of 2.7 2012E RoW 2012E 152. Asia Pacific and Rest of the World Markets. Africa.4 billion total subs).4 126. Eastern Europe.7 43.3 766. India.7 374. Thailand.7 165.4 54. we estimate there were ~43 million users in North America (14% penetration).K. • We estimate RoW (Rest of the World.4 93. reaching 433 million users or 57% of total datacentric smartphone users by calendar 2012.7 billion total subs) or growing at a 51% CAGR. but are expected to grow rapidly.Wireless Industry August 18.8% 53. Regions outside North America and Western Europe accounted for an estimated 79 million data-centric smartphone users in calendar 2008 or 48% of total.3 553. which represents a CAGR of 43%.5 247. • We estimate Asia-Pacific (including Japan.5 2011E Asia-Pacific 2010E 83. Germany and Italy) was ranked at 17% of users “experimenting with mobile email” versus 12% of users in North America.1 CAGR 37. We estimate Western Europe data-centric smartphone users at ~43 million in calendar 2008 (9% penetration). Indonesia. or a 54% CAGR.8% of 1. New Zealand. which is expected to rise to ~153 million in calendar 2012 (42% penetration) or a 38% CAGR.9 225. and the Middle East) to grow from ~25 million data-centric smartphone users in calendar 2008 (1.1 2011E 115.7% Source: RBC Capital Markets Research estimates 30 Mike Abramsky .1 57.1 86.9% 50. representing a 53% CAGR.2 2009E 58.4 billion total subs) to ~127 million by calendar 2012 (8% of 1.6 127..6 billion mobile phone subs). 2009 North America and Western Europe. and Singapore among others) at ~55 million data-centric smartphone users in calendar 2008 (3. Australia.
8 35.3 SMS/subscriber/day). In other regions (RoW).1% 41.1 99. This suggests a large opportunity for smartphone growth.6 58. many iPhone clones offering a similar multi-touch UI have come onto the market. developing nations are high users of SMS. or at a 40% CAGR.0 58.8 38. 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).1 199.4 20. 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. 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) 31.2 164. or at a 43% CAGR.8 20. 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. mobile messaging is hugely popular around the world.1 85.5 28.6 SMS/subscriber/day. 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). affirming the long-term opportunity for smartphones and mobile data.9 14.8 10.8 155.August 18. with a high percentage of ‘grey market’ devices.9 35. With 2.6% 2011E 76.2 26.1% CAGR 33.5 503. single-digit growth) and Japan (110 million subs.1 31. China (estimated 600 million mobile phone subs and adding approximately 100 million per year). single-digit growth) present attractive long-term growth opportunities for data-centric smartphones. sending 1.9 376. In Western Europe. for example.8% 2011E Asia-Pacific 2010E 54. but remain difficult to crack for some smartphone manufacturers.0% 43.2% 2009E 36. ahead of Western Europe at 1.3 43.5% 2012E RoW 2012E 98. 2009 Wireless Industry International Unit Shipment Forecast.2% Source: RBC Capital Markets Research SMS: The Global Leading Indicator for Mobile Data.4 SMS/subscriber/day (versus North America at 4. In Asia-Pacific. China. representing a CAGR of 46%. Korea (45 million subs.2 120. Japan: Huge but Tough to Crack. due to: • Cheap knockoffs/counterfeits. representing a CAGR of 33%.0 86.6 126.3% 40.8 66.5 250. Korea.0% 46. China Mobile’s “Redberry” is a clone of RIM’s BlackBerry push email service at a fraction of the Mike Abramsky 31 .5 trillion SMS messages and 50 billion MMS messages sent in calendar 2008. 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 approximately 700 SMS/subscriber sent in calendar 2008 (an average of 2/subscriber/day).
fueled by the iPhone fever there. unlocked Apple iPhones – minus warranty and some features – are commonly sold in China via the black market. However.). recent smartphones like the iPhone and BlackBerry Bold are rising in popularity given their superior multimedia. Foreign smartphones have previously struggled in Japan. iPhone and BlackBerry). Outside China... barriers and bias towards local solutions.. IM. Smartphones are an attractive status item in other Asia-Pacific countries like Indonesia. for example. Japan is one of the leading regions in mobile data. with more than 90% of the estimated 110 million mobile phone subs using mobile data services. Japan was one of the earliest adopters of mobile Internet.g. The success of mobile data in Japan is primarily due to NTT DoCoMo’s i-mode and KDDI’s EZWeb. and Emoji (picture characters or emoticons) support. the requirement was abolished in April 2009. Thailand (estimated 60 million subs). brand recognition (e. leading to the launch of BlackBerry in South Korea (iPhone and other smartphone launches are still pending). 32 Mike Abramsky . limited integrated services available on smartphones and other factors. 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. given low disposable income. etc. Hong Kong.Wireless Industry August 18.g. 3G penetration in Japan rose to 93% of total subscribers in calendar 2008. including India (estimated 280 million subs). 2009 price. the Asia-Pacific market represents a large opportunity. lacking local preferences for features like TV viewing. Mobile data represented 37% or $23 billion of total service revenue in Japan in calendar 2008..g. interest in mobile services (email. ticket booking. eliminates the cost of using Internet cafes). Indonesia (estimated 120 million subs). however. Taiwan.S. Thailand. data plan uptake in these regions significantly lags North America and Western Europe. up from 28% or $17 billion in calendar 2006. and recently in Australia. Taiwan (estimated 24 million subs). the deployment and promotion of Telstra’s 3G network. • Lower disposable income for mobile data services (ARPU in China is approximately $10/month versus $52/month in the U. browsing and productivity user experiences. Other Asia-Pacific Opportunities. • Favoritism. along with competitive entry-level data pricing. Owing to its early deployment of 3G networks in 2001 and launches of mobile services like HTML web browsing. Data-centric smartphone penetration in Australia and New Zealand is expected to be similar to North American and Western European trends. the Philippines. Smartphone penetration in AsiaPacific is expected to rise over time. Korea and Japan. • Unique cultural differences. email. sports results. and Hong Kong (estimated 10 million subs) among others. given the compelling services offered by smartphones versus the low wireline Internet access (e. Australia (estimated 23 million subs). social networking. up from 67% in 2006. with high sales of Symbian (e. the Philippines (estimated over 60 million subs). etc. Japan: Leading the World in Mobile Data. Nokia N96 or E71) and Windows Mobile smartphones featuring large digital cameras or robust media players. weather forecasts. and mobile TV.). called "Ai Feng" ("Love Craze"). games. embedded chips enabling mobile payments. with relatively comparable levels of disposable income.
) but by common smartphone buying/usage behavior and prioritized preferences. Our view is different. dominated by four to five leading smartphone vendors. that Apple and RIM’s competitive advantages will diminish as competitors flood the market. “media-centric” and “productivity-centric”. 4-5 Smartphone Leaders. books. Some valid segments which could emerge include: • PIM-centric – users who prize personal organization above other features. age.. non-intimidating) smartphones that sell sustainably. • Cloud-centric – users who prize the cloud-centric smartphone user experience. texting. we believe market segmentation in smartphones will continue. 20-30% of the total smartphone market). and other productivity-enhancing functionality before other features. while others may remain niche (e. including: a) the complexity of making iconic (craved. developers. who also can only support two to three platforms. etc. While difficult to accurately predict what other segments may emerge and their significance or sustainability. Mike Abramsky 33 .g. rather than supporting 10 to 20 or more vendors and segments. we believe Apple and RIM have staked out two smartphone market segments. illustrates how new market segments served by new vendors remain possible). in our view. While some view the smartphone vendor landscape as already “set” with RIM and Apple the leaders. we think the smartphone market (at least for the next few years) will evolve into discrete market segments. etc. conversely.g. collaboration. gaming.. limiting the vendor field. 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. smartphone vendors. work/life integration. Apple has been successful with its media-centric iPhone platform that incorporates iTunes. We define smartphone market segments not by user type (geography. b) wireless carriers’ inability to support or subsidize more than one or two smartphone OSs or iconic handsets each.). Likely Market Segments. Apple. leading to speculation that other contenders (challengers or incumbents) will face an uphill battle to lead the smartphone market – or. we believe there is room in the nascent. and. we believe it is early in the smartphone race and that significant evolution of the vendor landscape could lie ahead. underpenetrated smartphone market for perhaps two or three other leading smartphone vendors to emerge. <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. 2009 Wireless Industry Smartphone Market Segmentation Smartphone Segmentation. While many contenders will rise and fall.August 18. we foresee the market supporting four to five because of the unique ‘gating factors’. 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. Some of these segments (and vendor shares) may become large (e. d) the size of segments sufficient as to be commercially attractive to carriers. sex. c) iconic smartphone platforms gaining a critical mass of developers and content. Thus. and. • Specialized (video. and other stakeholders. while perhaps not reflecting a discrete market segment. and RIM with its message-centric BlackBerry platform. (Amazon’s Kindle wireless eBook reader. while other smartphone market segments (some of which haven’t emerged yet) represent significant new opportunities ahead.
form factors. it is their execution of smartphone features. 2009 Source: RBC Capital Markets Form. functionality.Wireless Industry Exhibit 33: Smartphone Market Segmentation August 18. innovative.g. in our view. powerful user experiences best suited to the desires of their target market. operating systems. choosing instead specific designs. functionality. etc. Smartphones and services from leading vendors targeting these different market segments may share common characteristics (cellphone. content. however. simple. Function Follows Market Focus. Apple’s choice of its designs. 34 Mike Abramsky . form factors. For example. features.). 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”). in order to deliver differentiated. mobile browsing. Productivity-centric smartphones from RIM may disproportionately offer applications and content that improve personal productivity. wireless email. software and content versus RIM’s differentiated choices of the same). driven by each vendor’s unique philosophy and market focus (e. form factors. applications and related services which differentiate them. although all leading smartphone platforms will likely share similar popular applications and content. applications. content. application types. whereas media-centric smartphones may disproportionably feature premium multimedia and content (like high-end gaming). each may specialize in featuring certain applications and content prized by their target audiences. etc..
primarily acquire a smartphone for superior multimedia and content experiences.g. Work-email integration is a Mike Abramsky 35 . than media-centric users. willing to trade off speed and productivity (via a virtual keyboard for example) for elegance and simplicity in multimedia usability and design. 3G. location-based search) and Wi-Fi improves connectivity in areas with low network coverage.. with these users taking full data plans. as productivity-centric users depend more on their smartphones to support their work-related needs first before play. are a priority.. and are looking for a smartphone to mobilize social networking.g. given the need for a fast web-browsing experience. Heavy email/messaging users may prefer a QWERTY keyboard. sufficiently available scope of music. along with a large touchscreen for a superior browsing experience or improved usability of web apps (e. Features such as PIM (calendar. Integration of work use. GPS and Wi-Fi are prioritized.. applications and content. are key purchase requirements. Productivity-centric users are data-centric users who still prize multimedia and voice. photographic capabilities (e. Seamless integration with thirdparty multimedia stores and web sharing sites. but users are willing to accept ‘functional’ capabilities in these areas as a tradeoff for productivity-centric advantages. IM. more frequently using email. RealNetworks Rhapsody. For personal entertainment and other experiences. and a compelling “casual” web-browsing experience. such as powerful media players. high-resolution digital cameras). emerging location-based services enhance the cloud experience (e. messaging. and content for the device. along with related service costs. messaging).g. along with more purposedriven web browsing (i. serviceability and battery life are more important.g. Phone reliability. Cloud-centric users are data-centric users who are heavy web users. including support for third-party consumer email platforms.. and are interested in the reliability/robustness/versatility of the smartphone’s messaging and PIM capabilities. applications and content along with related service costs. Scope of content (music. form-filling. iTunes. are key purchase requirements. which offers better tactile feedback (e. 2009 Candidate Segment Definitions Wireless Industry Media-centric users are data-centric users who. Media-centric users are satisfied with casual data entry (versus frequent email. Work-email integration is a requirement for these users. some Web use . music. instant messaging systems. but are primarily interested in their smartphone’s data capabilities to improve personal productivity. Personalization is prized by these users particularly for media-centric functionality. games. these users prize powerful picture/video capabilities (high-resolution cameras. notes) with wireless synchronization are more important to these users. seamless integration with third party multimedia stores (e. seeking information for productivity versus casual surfing). and web services. like Flickr. Google Docs).). Cloud-centric users may prioritize both a tactile QWERTY keyboard for rapid data entry and usage. Media-centric users are attracted to data-centric smartphones with powerful media players. Cost/pricing/features of multimedia features. movies. functionality and data with personal data/life on a single device is often also a high priority for message-centric users. applications) and mobile web browsing remain important. MMS. such as via a sleek UI and intuitive media player and web browser. web-based email. storage. along with features like attachment viewing/editing..e. Amazon MP3 store. Productivity-centric users seek speed and productivity for data entry and usage (such as offered by a tactile QWERTY keyboard. and multimedia capabilities. contacts.August 18.. Flash. as is integration with popular enterprise messaging and security standards. movies. etc. etc. movie and picture capabilities. thirdparty productivity apps. along with rich and powerful web browsing (support for Java. applications. social networking websites. while still prizing data experiences and voice. BlackBerry Storm’s clickscreen or slide-out QWERTY keyboard). Work-email integration is a consideration. and others). like typing URLs or searches or typing new phone #s). but not a requirement.) and sufficient storage and battery life. games. web apps and services. Cost/pricing/features of productivity features. for voicemail systems. Cloud-centric users are attracted to smartphones with tight integration with a broad number of web-based email platforms.g.
4" x 7. iPod Touch users can download apps and multimedia. PIM-centric users may prioritize a tactile QWERTY keyboard for rapid data entry and usage. Amazon Kindle users can purchase books over the air. Cost/pricing/features of multimedia features. Multimedia capabilities such as powerful media players. instead relying on touchscreens for infrequent data input. applications and content along with related service costs. and Groupwise). Amazon Kindle has a large form factor (10. along with basic email integration. but not a requirement for these users. are key purchase requirements. but allows for full page text reading. 2009 consideration. etc. Lotus Notes. multimedia.g. functionality and data is important to PIM-centric users. applications and content along with related service costs. high resolution digital camera). PIM-centric users seek smartphones with robust mobile/connected PIM features and usability. While users’ needs are as diverse as the tasks. Navigation devices don’t have QWERTY keyboards. Specialized users are data-centric users who prefer a mobile device designed for a particular task. for these users. and integration with enterprise messaging systems (like MS Exchange. PIM-centric users are data-centric users who rely heavily on traditional personal information management features like contacts. Amazon Kindle). calendar. applications and content are key purchase requirements. to organize their lives. gaming.2" x 0.38").Wireless Industry August 18.g. enterprise/vertical market processes. in some cases. and notes. For example. are key purchase requirements. such as book reading. Cost/pricing/features of multimedia features. and seamless integration with third-party multimedia stores are a consideration. navigation. photographic capabilities (e. the cost of mobile data service is built into the up-front cost of the device (e. but not a requirement.. Specialized users prize features that materially improve the user experience for the specific task.. and navigation users get traffic updates over the air. For example. Cost/pricing/features of multimedia features. mobile data is crucial for the full experience. Integration of work use. 36 Mike Abramsky .
Samsung. it is Apple and RIM’s ability to create simple. Smartphones that appear complex and intimidating exacerbate these fears. LG Voyager. PC or Internet markets make data-centric smartphones more difficult to design. Beyond early adopters. The reliable ‘Crackberry’ email experience of the BlackBerry. 2) Overcome Intimidation: Overcome the fear the mass market holds for technology. engineer. are rewarded by market share. thermostat. 2009 Wireless Industry Challengers To Dominate Smartphone Markets Vendor Share Shifts Expected. iconic user experiences. RIM and Apple have been successful in overcoming buyer inertia ("I use SMS and am happy. distribution (i. (Nokia shipped 10 million+ units of smartphones like the N95. will dominate the smartphone market. however.. and coverage constraints (for data) of mobile networks. and organizational advantages. addictive and non-intimidating mobile data experiences users love/crave.. carrier). Sony Ericsson. satellite radio. email.and. Most consumers globally feel intimidated by complex technology. These differences (wireless versus PC/Internet) include: • Constraints: The constraints of mobile devices. Apple. non-intimidating user experiences. and subsidies. TV remote. However. • Deep Vertical Integration: Smartphone vendor ownership of hardware. etc. We believe that leading smartphone vendors possess two unique competitive advantages: 1) Create The Crave: Innovative.e. Those smartphone vendors well positioned to lead the industry possess unique competitive advantages and skills versus incumbent vendors in hardware. why do I need mobile email? mobile browsing? mobile apps?") in switching from voice to smartphones. manufacture. including battery life and small-screens. Many Can Sell 1 Million Smartphones. differentiated. But Very Few Have Sold 10 Million+.August 18. Apple. many feel powerless when they can’t use the technology of their car. RIM . given their unique ability to create compelling. With its simple. may be able to address their challenges and succeed in the market. Create the ‘Crave’. as for many.g. in an oft-repeated pattern. manufacturing. • Carrier Networks: Smartphone experiences are often undermined by the spectrum. ATM. Internet. margins. because most smartphones don’t sustainably delight and entice millions of users with their unique user experiences. Important differences from the traditional cellphone. sales. multimedia iPod and Apps experience of the iPhone. wireless hardware. we believe challengers like RIM. sell. and possibly Palm and Google. intuitive and elegant UI – along with the safe Apple in-store buying experience – the iPhone Mike Abramsky 37 . Many smartphones (e. car stereo. computer. Some incumbents. convenient. reaching mass markets is challenging. programmable coffeemaker. roaming. among others. In our view. Motorola Q. . thus. Samsung Blackjack and Instinct. and support – along with cultural. Sony. customer loyalty. and HP. sales subsequently stalled as mass market buyers never materialized. but we estimate many were sold without mobile data plans). Motorola. their phone is their lifeline and they are afraid of making a mistake. • Enterprise: Mobile data represents heightened security and manageability challenges for enterprises – even more than traditional on-premise networks. network. are two examples of unique iconic smartphone experiences that millions of consumers worldwide recognize and seek out. who may face challenges growing their smartphone franchises. simple. Dell.. etc. Data is Hard. carrier leverage.) have sold well initially to early adopters. phone. Overcome Intimidation. unique. market. distribute. make it difficult to innovate and engineer delightful. software and services combined is a requirement and a competitive advantage. O2 XDA. and most smartphones are too complex and intimidating to millions of users who are only comfortable with knowing how to use simple cellphones. design. Leading smartphone vendors master the carrier channel to address legacy issues which can undermine user experience. software. LG. taking market share from incumbent vendors such as Nokia.What Makes Their Products So Special? In our view. addictive smartphone experiences craved by the mass market. stereo. VCR. execution. and support than traditional voice/SMS cellphones or PCs. and the compelling mobile browsing.
RIM. I did not have the time to write a short one. secure. Simplicity also means discoverability. and support.). but not simpler than that. • Apple provides its multi-touch browsing experience via the integration of both software and hardware technologies. Some of their best products demanded too much “tinkering” on behalf of the user.. required a significant learning curve (with a thick instruction book to match). which offer reliable UI – critical for a seamless desktop-like mobile browsing experience. 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. e. because it demands the discipline." – C. RIM and Apple also control related services (Apple iTunes/Web.” “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. While it sounds easy. applications are appealing over more complex alternatives – because of their ease. While “make it simple” sounds easy and obvious. were non-intuitive in achieving important tasks. Ceram Making complex technology simple is among the rarest and most difficult challenges in technology. even distribution. Consumers like the proprietary integration between iTunes. More functional than elegant. shouldering a higher burden of their own tech support. adoring customers. the experience improves and adds additional value as the user gains expertise with the smartphone.” “I want to get my email and mobile web but I’m scared to try it. • RIM provides its ‘Crackberry’ email experiences via push-based messaging and single inbox synchronization in a seamless. secure fashion. power and reliability.” Source: RBC Capital Markets The Power of Simplicity "I am sorry this is such a long letter. Just Say “No”. which others (including Microsoft) have attempted but not yet duplicated. and end up being forced to raise a fuss just to get the customer service they deserved in the first place. 2009 overcomes these fears.W. 38 Mike Abramsky . powerful. a key characteristic of leading smartphone vendors is deep vertical integration: their control over all aspects of the user experience – software. and intuitive – and works. judgment and vision of creating only those features that the consumer will embrace and use – while saying “no” to many others. many technology vendors in many industries have tried and failed. software development kit (SDK). RIM’s network operating center (NOC)). in the enterprise. addictive user experiences. are richly rewarded by millions of loyal." – Albert Einstein In our view. contact. welcomed by frustrated owners seeking support who hate being put on hold. etc. BlackBerry’s user experience is simple. Always-on.Wireless Industry August 18. calendar. Apple and Palm control both hardware and software (UI. it is very difficult to do. hardware and related services. etc. etc. and detracted from (versus enhanced) convenience. OS. etc. marketing. bundled applications." – Mark Twain "Genius is the ability to reduce the complicated to the simple. Simplicity extends to sales and support as well. and mobile users do not need to initiate a connection to the server to check important messages – the messages find them. This goal is further complicated by engineering within the aforementioned constraints and complexities of wireless data handsets. iTunes Store and iPhone/iPods because it works so well and seamlessly.g. and BlackBerry has similarly overcome IT fears of security. shuffled between support personnel. and those vendors (like Apple) who exemplify “ease of use”. It is the artful and clever engineering of both software and hardware together that Apple and RIM use to create their distinctive delightful. push-based messaging is critical because it provides immediacy to messaging information. carrier networks. Deep Vertical Integration "My aim is to make things as simple as possible. RIM’s integrated email.
memory). email. in our view. such as when users check their emails frequently causing the screen to consume power. or want push email –or even 3G data –both of which consume processor cycles. With the desktop PC. mass market. and not crash or freeze or drop calls. This is more challenging to achieve when the OS and software is provided by a third-party. sound systems. 2009 • Wireless Industry Palm delivers a compelling and unique ‘PIM-centric’ experience via Palm’s ‘Synergy’ user data unification and universal search capabilities. downloads. horizontal business models (where vendors outsource software. service and hardware together helps develop smartphones designed to manage these network issues for data and optimize the user experience.). Smartphone designers tightly engineer both the hardware and software to meet selected user data experience requirements for a specific target market. which voice/SMS mobile phones don’t face to the same extent. where users intuitively flick. over deep vertically integrated vendors. and efficient design of its OS. in our opinion. responsive. data roaming challenges and inconsistent data connectivity. However. APIs and SDK. scroll and zoom. scale and standardized user experiences. and applications. manufacturing. Why Might Vertically Integrated Smartphone Vendors Initially Win? Traditionally. input peripherals. 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. Sony PlayStation 3.. For example. high-end feature phones also do not need to contend with the constraints of data. given the higher complexity of software and network instability. Smartphone software for example needs to assure it doesn’t drain the battery or overly tax the processor. etc.g. leading to reduced costs. • Data Network Challenges. along with its fast. interface. horizontal integration in smartphones increases the challenges of developing sustainable. etc. bandwidth constraints. non-intimidating software and hardware design. Apple designed the iPhone with advanced 3D graphics (to appeal to the gaming and youth market). iconic user experiences which are both compelling and simple. acceptable battery life through specific hardware choices (processor. These constraints include the unique power consumption of data devices. processing. Palm also possesses the “special sauce” of compelling. Given that smartphones are at the early stage in their innovation cycle. in addition to storage limitations. given: • Data Demands Special Skills over PCs and High-End Feature Phones. Voice-centric. Navigation is intuitive with “cards” and multi-touch. and Webkit-based browser. this cutting-edge user experience will. engineers have the luxury of power. • Microsoft has evolved its portable Windows Media strategy (formerly similar to its mobile strategy) from licensing (e. etc. to which smartphones are more prone. In the high-end feature phone market. multi-touch WebOS user interface. PlaysForSure) to a vertically integrated Zune media player and marketplace. The power. In the case of BlackBerry. and other constraints of smartphones demand tight integration between the software and hardware in order to overcome these constraints while still offering superior. friendly. • Craved User Data Experiences Are Challenging. • Nintendo Wii. support and use common industry suppliers) have proven successful in the PC and high-end cellphone markets. and printers). combining/adding multiple capabilities (webcam. its software and compression protocols are also designed to avoid taxing overstressed wireless networks. multitasking constraints. horizontal integration helps drive down costs and increases flexibility in producing products for multiple markets off common components and suppliers. OS. display space. iconic smartphone user experiences. Controlling software.August 18. and high-speed connections. graphics. memory. Third-party web services are tightly integrated into WebOS’s UI and developers can access innovative WebOS features like Synergy and notifications. be more challenging to achieve where the OS and software is provided by a third-party. Smartphone designers must contend with spotty data network coverage. Xbox360 and other gaming systems all have proprietary OS and their own proprietary online forums and marketplaces for community. over deep vertically integrated vendors. which place special demands on smartphone hardware and software to accommodate data-centric functions like browsing. Mike Abramsky 39 .
SDK. followed by reattempts at success. successful smartphone leaders like RIM and Apple believe that they are better at predicting what customers want in the future. wireless hardware and design skills. In our opinion. 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. requiring the combination of cuttingedge and unique software. 2009 Creating the Future Leading Smartphone Vendor Skill: Creating The Future. 40 Mike Abramsky . What makes great hardware with software is not the latest technology. the body and the brain of a smartphone. reviewers or journalists. Some of Palm’s management (including CEO Rubenstein. it’s the software that is the personality and the soul. universal search and multi-tasking. • RIM’s BlackBerry OS. they retain their advantage by recognizing their error and shifting rapidly to move in the new direction (Apple portable video and Netbooks. etc. 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. mobile browsing. competitors. intuitive. willingness to iterate through failure to success. ex-Apple) have prior experience in tightly integrating software and hardware to create unique computing user experiences. new markets using judgment (versus market analysis or surveys or their largest customers or an ROI analysis. but with inferior battery life and bandwidth efficiency. Sometimes these successful vendors use a more instinctive. making craved smartphones is in fact an unique art. including its innovative user interface. high battery life. etc. iconic products thus developed are often in hindsight called "brilliant vision". financial or industry analysts. leveraging its “PIM-centric” legacy into its WebOS smartphone platform. While maintaining carrier relationships. Leading smartphone vendor cultures are oriented around developing new innovations that create new markets (versus enhancing existing ones). For example. emerging opportunities – despite unclear market size or justification. RIM. tightly integrating software and hardware on the Mac. Blaze Their Own Path. Apple and RIM develop smartphone innovations for nascent. design. marketing and distribution of the new products. “learn by doing” approach that often shifts gears as new markets develop and their learning about new markets improves. RIM attachment viewing. agility to adapt to changing markets. Design: An ‘Art’. along with robust security. rather than chase. Competitors have attempted to emulate RIM’s continuous push email experience. and network bandwidth efficiency. Hardware. However. to create the iconic iPhone user experience. incorporating innovations like Synergy user data unification. • Apple’s iPhone OS uses the software kernel (core code) from its Mac OS X (desktop OS). • Palm developed its WebOS from the ground up. coupled with their unique skills (crave. nor planning processes or marketing studies.) regarding what technology consumers will or will not value in the future. Through their success in predicting consumer trends. successful smartphone vendors don’t primarily take future product directions from carriers – nor from industry experts or market research firms. Apple. they create. Google and Palm have prior advantages in this area. having developed their smartphone software and operating systems independently and from the ground up. What sustains successful smartphone vendor advantages is their ability to make sound predictions of future market need. but can sometimes be more iterative behind the scenes than realized. While seemingly easy.Wireless Industry August 18. Failures are viewed as opportunities to learn about what works in the market. application store. nor popular technology pundits. Software. 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. software and NOC technology were developed by RIM and are tightly integrated to deliver its legendary ‘Crackberry’ always-on instantaneous messaging experience. While hardware and design is the beauty. The successful. Apple leveraged its prior experience and success. nor from investors. HTML email and touchscreens). particularly in nascent markets that have little or no near-term ROI and for which there is little available demand or market research.
These choices can make or break the success of an OS and a developer.g. favoring first-mover platforms with a critical mass of users that can support sufficient application sales (e. HSDPA. to enhance the user experience. processing power. went through many iterations to make it usable and compact. speakers. including revenue share and costs to develop and support (standard revenue share is now 7080%. Smartphone Vendor Hardware Skills. developing innovative and unique UI layers on top of third-party operating systems. 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. legacy Palm OS. or iTunes/media/content). partially because of a thriving software application and developer ecosystem atop Windows. developer tools and resources. Successful smartphone challengers offer powerful. particularly at the early stage of evolution of a new computing platform. A strong developer SDK includes such capabilities as: Mike Abramsky 41 . 4G. developer-friendly and supported SDKs that make development easy and cost-effective on their platform. Challengers have developed wireless hardware technology skills unique to smartphones and data. antenna design. • Visibility to consumers amidst other applications (a drawback of Apple’s App Store given large number of apps). Winning developers to a smartphone OS means offering: • Greatest # of "eyeballs" or addressable market. interactive displays.. standard programming languages. 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. leading smartphone platforms will develop a sustainable ecosystem of mobile applications and developer ecosystems atop popular Mobile Operating Systems. Bluetooth.g. for example. with high-resolution. before iPhone’s App store. along with iconic Windows-based applications (spreadsheet. Similarly.g. data network coverage/spectrum constraints and wireless security. word processing) that popularized the PC platform. Developers! Developers! Developers! A Thriving Developer Ecosystem Matters. Despite skill disadvantages in software. In addition. including key position and shape. A good example is Adobe Flash.).August 18. marketing support. applications.). • Broad distribution through app stores to reach entire install base (as opposed to fragmented through third parties). greater storage. and integrated shortcuts via software. they often make choices regarding which platforms they will develop applications for. like Android. which has a strong. such as power management. smartphone vendors must master the technical complexities of integrating new hardware. accelerometers. History has shown that developers care less about standards and more about which platform has the easiest. and wireless protocols and standards. track wheel for onehanded navigation and data retrieval. etc. Small details that perfect the data experience become prized skills. EV-DO.) and other capabilities (GPS. revenue share was only 50%). faster processors. media features (higher quality cameras. powerful SDK with good tools and thus is a favorite of developers everywhere on the Web. the BlackBerry keyboard. Leading smartphone vendors become adept at engineering “converged” portable computing devices. etc. For example. music players. competitors have tried but have been unable to reliably engineer and optimize their smartphones to provide similar battery life to the BlackBerry. HTC has built promising software capabilities. Apple’s App Store and Apps can be viewed as a by-product of a thriving developer ecosystem. Microsoft dominated the PC platform... most cost-effective and powerful development tools. • Ease of app development (e. 2009 Wireless Industry Some horizontally integrated vendors may yet succeed. access to APIs. maximum developer profitability. miniaturization. etc. some incumbent vendors may successfully upgrade their software skills to become smartphone leaders. • Consumer engagement on the platform (e.). multimodal wireless technologies (EDGE. Great Smartphone Software = A Great SDK. despite its proprietary format. iPhone/iPod Touch have 45 million users double the install base of Sony PS3). OS support. etc. Wi-Fi.
hardware. service and support processes.). which convinced AT&T (and subsequently other carriers) to allow Apple unprecedented control over iPhone user experience. Apple’s strategy worked: AT&T sold over 5 million iPhones in the first year. 2009 • Wireless Industry Carriers have long allocated “hero positions” – promotions. consumers worldwide overwhelmingly voted with their wallets for the iPhone and iPod Touch experience. apps and content partners. 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. etc. rich mobile browsing. network. and application issues. app store. iPod/iTunes. in their view. Carriers – reluctant to open their networks to third-party applications/content – often prioritize their own content and app “storefronts”.August 18.. many wireless carriers – used to specifying the latest “checklist” of hardware features in next generation handsets – in our opinion. features. warranty. Mike Abramsky 43 . etc. touchscreen. Even with initially high. pricing. inventory. AT&T saw in the iPhone itself (UI. While Apple made some early missteps (e. are challenged in envisioning and specifying innovative. offered maximum near-term growth and profitability. branding. or instituting inappropriate app/content pricing. applications. slow distribution expansion).. These carrier challenges also extend to selecting “hit” content and applications. and other subtle but critical usability deficiencies) from the “hit” mass-market successes like iPhone and BlackBerry. and thus end up limiting selection and distorting market-driven demand. discouraging developers and limiting consumer uptake. activation. content. Apple Changed Everything. sales. etc. However.) is becoming increasingly key to the smartphone experience. Beyond the innovations. iconic smartphone experiences. UI. 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. exclusive distribution. favoring their application stores. This has resulted in some carriers launching poorly-designed storefronts or awkward apps/content stores. marketing and pricing (hardware and unlimited data plans). loyal customer base. Particularly. The launch of iPhone on AT&T in June 2007 forever altered carrier smartphone practices. Wi-Fi.g.g. • Lacking Software Skills. Apple’s unmatched consumer computing brand. given that it is software that differentiates the less-compelling smartphones (those with less elegant and inconsistent UIs. Software (OS. visual voicemail. subsequently over 80+ carriers sold another 21 million phones worldwide (with subsidized pricing). and resources. AT&T also agreed to invest in updated iPhone marketing. historic consumer electronics launches. 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. visual voicemail). Many carriers today continue to try to prioritize and update their own application/content stores. unsubsidized pricing ($499/$599).. marketing and distribution shelf space – to those handset vendors which. as well as network upgrades (e. applications.
For example. they don’t call the smartphone vendor or the software vendor – they call the carrier. user-craved features like Wi-Fi. allowing these vendors to. and raising the knowledge level of smartphone sales and support staff. the consumer ends up shouldering the burden of support. slow data access or limited connectivity. As shown in Exhibit 37. the Web and the user’s PC) as well as applications. where the buyer now needs to contact a new party. Company reports Sony PSP Motorola RAZR Nintendo Wii Opened Carrier Eyes re Smartphones. 2009 Exhibit 35: iPhone/iPod Touch Sales Momentum vs. 2007. and opened their platform to third-party developers. to assure a safe and satisfying ownership experience. particularly non-iPhone networks like Verizon and Vodafone (some of whom lost subscribers to iPhone carriers). is being overloaded. because when a smartphone owner has a problem.. full attachment viewing and other large downloads/uploads are significant consumers of wireless network bandwidth. leading to dropped calls.Key Challenges Users Demand Data. degrading their experience. especially in urban areas of the U. In many ways this was as important as their innovations in the smartphone itself. Data Consumption . 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. With the rapid growth in smartphone and other mobile data users. the smartphone support process needs to accommodate supporting all these complexities.g. wait. for example. the limited data capacity of 3G networks. Palm and Google more control over the user experience. 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. resulting in degraded user experiences. Smartphone consumer buyers (beyond early adopters) are easily intimidated. Months from Launch iPhone/iPod Touch Sony Playstation 2 Source: RBC Capital Markets. 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. training. “you should call Microsoft. the server. offer vendor-managed application storefronts. unlimited data plans.”).Wireless Industry August 18.S. Iconic smartphones like the iPhone. Given the variation and elevated complexity in vendor smartphone hardware and software (both on the device. and certain European countries. In this scenario. Palm Pre or Google Android devices with rich browsing experiences. carrier networks. re-explain their problem to someone else – and sometimes get caught in the middle – as everyone (including the carrier) blames each other. call Google. began to allow smartphone vendors like RIM. etc. Following AT&T’s lead. 44 Mike Abramsky . compensation. especially if carriers who aren’t trained in diagnosing problems refer owners to someone else (e. at a single source. smartphones generate 30x more wireless data traffic than voice/SMS phones. streaming video.
• Source: RBC Capital Markets Exhibit 37: Double Data Airtime devoted to different data applications vs. which will appeal to price-sensitive mainstream voice/SMS users to entice them to shift from voice to data.g.000 minutes per month. You need 50x as much bandwidth (15MB/s) for video versus voice (4-7kb/sec).000. but under flat-rate pricing. Data Pricing To Evolve To “Tiers”. caps on consumed data volumes tend to be typical carrier responses. A user with an unlimited data plan who watches 15 minutes of video per day. 2. Yet as smartphones grow market share. in our view. Translated into voice minutes. but the ability to do this remains limited given that the power needed to overcome increasing interference is nearing limits. as opposed to larger spectrum (25x) and spectrum efficiency improvements (25x).6GB worth of capacity per month. some 3G carriers are looking to seamlessly offload capacity to Wi-Fi hotspots or users’ home wireline networks. given the significant noise and interference that exists in the environment. Regardless. However. 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. and checks email using his company’s virtual private network uses about 1. carriers have made expensive investments in additional network infrastructure to reduce cell sizes to expand network capacity. engineers have been able to expand wireless network capacity 1. due predominately to smaller cell sizes (1600x). with unlimited email but limited browsing). all three of these factors remain constrained and force tradeoffs to further improve network capacity. Unlike wireline networks. These tiers as discussed may also include free Wi-Fi access to offload network loads while maintaining the smartphone user’s experience. 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)..86 bps/Hz for HSPA) and greater spectrum Mike Abramsky 45 . For example. as the iPhone has already set the standard for unlimited browsing.1 bps/Hz for LTE versus 0.August 18. 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. 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. this amount of data usage would require roughly 20. reads at least three articles from a mobile Web site such as CNN. network capacity in wireless is constrained.g. Within this hostile environment. 4G network technologies like LTE deliver higher capacity through higher spectrum efficiency (e. data service pricing is. As carrier networks become clogged with bandwidthconsumptive apps. 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.000 times since 1957. Orange UK launched prepaid BlackBerry data plans at £5/month in January 2009.. However. Within 3G networks. LTE May Take Time. carriers can’t charge 50x as much as voice for video.com. Alternatively.
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
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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
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
Accordingly.g.2 billion total units in calendar 2008) equates to an additional 3 million units. 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. intense customer focus.. and innovating around mobile voice network technologies (particularly around digital-based 2G networks. Dell. some cellphone/PC/consumer electronics incumbents (e. these challenges are not insurmountable. While difficult. 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.August 18. incumbent handset vendors like Nokia. Controlling over 96% of the global cellphone market today. Motorola. iDEN and CDMA). Samsung. 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. However. Sony Ericsson and LG) will face challenges competing with the new challengers in smartphones – held back by technological. have built dominant brands and leading technology. Mike Abramsky 49 . organizational. Nokia. and their managements are highly capable. These incumbents have strong execution. 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. Samsung. it is possible a few of the incumbent vendors may evolve and compete successfully with smartphone challengers. 2009 Wireless Industry Some Incumbents To Face Challenges Despite their goals for smartphone dominance. or an estimated $1 billion in incremental revenue (assuming an average selling price of $326). we see some voice-centric phone vendors losing market share to leading smartphone challengers. in our opinion. HP. and Sony Ericsson historically grew to dominance by helping develop standards like GSM. sustainably selling smartphones to the mass market. LG. from 96% of TAM in calendar 2008 to 84% in calendar 2012. We estimate each 25bps global handset share gain (based on an estimated 1. including GSM. Sony. customer and shareholder barriers as well as cannibalization.
Nokia released the Nokia 1010 in 1992. which at 88g and 60 minutes of talk time (12 hours standby. Motorola. Motorola continuously shrunk the phone form factor to the relatively diminutive DynaTAC 8000X in 1983 for $4. the StarTAC was more expensive to buy. it was these vendors who were viewed as the innovators. Capitalizing on consumers’ thirst for new innovations in phone technologies and their willingness to pay a premium for new form factors. They rapidly launched new innovations in designs. offered a flip communicator-like design (with vibrate function). Exhibit 41: Iconic Mobile Phones Motorola StarTAC Nokia 8110 Ericsson T28 Motorola RAZR Source: Company reports 50 Mike Abramsky . than pure gold) despite a poorly-designed user interface and other drawbacks (the antenna was prone to damage). displays. and Sony – in the early 1990s. priced expensively (initially) at $600 (before rebate). size/weight. Consumers lined up to pay its $1.g. Form factors continued to shrink. by weight. Ericsson. Motorola launched the RAZR. with a second battery option to extend talk time). weighting only 81g. and Ericsson releasing the tiny T28 in 1999. Motorola and others launched new designs reminiscent of Star Trek communicators and/or Dick Tracey’s Watch Phone. on GPRS networks. Motorola introduced the StarTAC. weighing 800g and delivering an hour of talk time and 30-number memory. Kirk. Nokia. ring tones) that popularized cellphones to the mass market. battery life. cost.000. In 1996.500. launching the lightweight “candybar” form factor.1 ounces.. 2009 Motorola DynaTac 8000x Source: Company reports Dick Tracy and James T. voice quality. The MicroTAC in 1989 created the “flipphone” form factor that weighed only 340g costing $2. with Nokia launching the sleek Nokia 8110 in 1998 at 152g.Wireless Industry Exhibit 40: Early Mobile Phones Motorola 4500x/4800x August 18. the world’s thinnest handset (13mm) in late 2004. releasing iconic handsets that captured the hearts (and wallets) of consumers enamored with the latest technology. and features (e.500 hefty price tag (at 3.500-3.
contacts. As smartphones – largely from BlackBerry – started to become popular. offering unique touchscreen interfaces with similar icon-based software with animations and fingertip control. the aforementioned voice phone vendors sustained their leadership by becoming experts in “packaging” – producing variants in designs. Return rates are often higher on some incumbent vendor smartphones (versus iPhone or BlackBerry. voice/SMS technologies. simple data-centric smartphone experiences. form factors. Beyond packaging. packaging updates and variations of successful handsets to stimulate upgrade cycles. Data first came to mobile phones in 1996 when Nokia launched the PDA-like 9000 Communicator. • Cannibalization – Threats of cannibalizing core voice/SMS business led to hesitation in prioritizing smartphones and innovative mobile data models to markets and customers.. market share. along several dimensions: • Organizational – legacy (voice/SMS) organizations held all the power. determined priorities. unreliable or frustrating to use for email. hardware. and distribution processes were not optimized for. incumbent vendors launched their smartphones (e. Many of these time-proven strategies that made incumbents hugely successful in voice/SMS phones became challenges when competing with the smartphone challengers. supply chain. LG Prada and Voyager. Mike Abramsky 51 . Motorola Q. Past Successful Voice/SMS Practices Become Smartphone Challenges Incumbents Entered the Smartphone Market. and then the Nokia 7110 with WAP browser in 1999. Their “playbook” was to develop a design for every attractive market segment and geography. dominate supply chains and carrier shelf space. craved. browsing and other tasks. HTC Diamond. in an oft-repeated pattern. and were slow to adapt to. These vendors also started incorporating incremental innovations like PIM (personal information management functions like calendars. successful handset vendors quickly moved to develop and control distribution channels. the smartphone market.) lagged RIM and Apple (e. etc. and thus subordinated (even suppressed) smartphone initiatives. reduce costs and size.) and other features like calculators and notepads – as well as PC connectivity. market their brands globally and aggressively. O2 XDA. As innovations in voice/SMS phone design. yet post-launch sales momentum of some of these models has waned. Verizon Wireless and others. with mixed product reviews. While these sold well initially to early adopters. Nokia was particularly aggressive in gaining scale efficiencies. Samsung Blackjack and Instinct. Motorola Q. resources. and support processes faced challenges transitioning to the specialized sale & support demands of smartphones. and Samsung Instinct phones. And all offer email and browsing through Windows Mobile.). • Entrenched Processes – time-honed product development.August 18. look “iPhone-like”. • Channel/support – Traditional sales. manufacturing. resulting in significantly higher profitability versus the rest of the industry relative to its market share in the late 1990s..g. and push out competitors via scale and brand strength. Nokia E61. The Samsung Blackjack. for example) because some users find them complex. Source: RBC Capital Markets Research Past Successful Practices Became Challenges in Smartphones. wireless data) in developing iconic. 2009 Wireless Industry “Packaging”. Successful “Playbook”. and. etc. LG Voyager. New versions are constantly released with updated hardware specifications. and marketing/branding – a form of horizontal integration. and moving to dominate the supply chain. Then they would repeat the process. Samsung Omnia have been heavily promoted by AT&T. supply chains. distribution. for example. priced attractively at $49 to $99. and network technologies proliferated (and began to be copied).g. Exhibit 42: Incumbent Smartphone Offerings Met with Limited Success Some incumbent vendor smartphone offerings have to date met with mixed success. features and form factors around core components to offer phones to multiple market segments and different price points. • Technology skills and talent – traditional technology strengths (“packaging”. some smartphone sales subsequently stalled as mass market buyers never materialized. be the first to provide popular wireless technologies. manufacturing. sales. etc. software.
some incumbents lag relative to smartphone challengers.5x voice/SMS phones. sometimes pack more features.5x the average smartphone (Windows. “Data is hard”. The constraints of mobile data-centric devices for data applications (involving unique issues like power consumption. Incumbents. sell. desktop-like mobile browsing experience Easy to setup Easy to access and buy apps iTunes PC jukebox huge advantage Browse. hardware and related services – and distribution. 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. Exhibit 43: Complexity vs. RIM and Apple) and 6. Iconic data-centric smartphones are more difficult to design.) demand unique competitive advantages and skills at which. performance and the latest technologies than handsets from RIM or Apple.g. but outsourcing manufacturing. engineer. sharing common suppliers and components. awkward browsers. this is partially because of their complexity. Data is Hard. data-centric UI designs. many powered by Microsoft or Symbian. Powerful. yet consumers use some of them less than on Apple’s iPhone. market. ergonomics/UI (keyboards. data compression. in our view. software/hardware integration. less-than-optimal smartphone user experiences versus RIM. software development. and awkward UI. hardware. This is particularly true for data-centric features like browsing. touchscreen designed for the data user). according to M:Metrics. demanding the tight integration of both software and hardware 52 Mike Abramsky . non-intuitive software. 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. However. are largely horizontally integrated – focusing on design. manufacture. who in turn prioritized new handsets aligned to carrier priorities to target near-term visible market opportunities with defined ROI. slow “polling” experience Awkward Ovi Store experience – difficult to navigate. Motorola. etc. virtually all incumbent smartphones have mobile web. by contrast. no video content • • • • • • • • • • Elegant. flexibility/upgradability). email and applications which are difficult to make simple. security. intuitive UI Access to all apps and commonly used functions with minimal “clicks” Rich. Symbian. complex connectivity configuration. confusing mix of apps and “other stuff” like ringtones. memory management. iTunes) Ovi multimedia store work-in-process. stability. Apple and other challengers. Simple. in our view. network efficiency. stack programming. In our opinion. and data modem (throughput. 1. Some smartphone offerings from Nokia. The challenge of the horizontally integrated model is that it produces. distribute. 85% of Apple iPhone owners use the mobile web. etc. Standard S60 multimedia player Difficult to sync with PC jukeboxes (e. In our view.. while also increasing the frustration and intimidation of the user data experience. Complex vs. marketing and R&D. and support than traditional voice/SMS cellphones or PCs. 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. LG. Complex smartphones often include features that end up being rarely used. marketing. and Samsung. For example.Wireless Industry • August 18. and support. wallpapers. 2009 Highly influenced by their customers – Carriers continued to strongly influence incumbent vendor product roadmaps. to date some incumbents’ smartphones have not sold as strongly or sustainably to mass market consumers. This includes areas such as power management. sometimes because of complex.
As a result. The Software Challenge Software Skill Challenges. some smartphones from incumbent vendors contain poorly-designed storefronts or awkward apps/content stores. applications. As software (OS. Some incumbent voice/SMS vendors have sometimes prioritized their own “storefronts” (e. addictive user experiences. Nokia Ovi Store. stretching). limited resources (storage. Google. in our opinion. While the horizontally-integrated OEM model (OS. pricing and margins. we believe vertically integrated smartphone vendors like RIM and Apple may continue to remain leaders through superior smartphone experiences. While (with some unique exceptions). Samsung Mobile Applications. but is more about how software. it presents more challenges in smartphones. discouraging developers and limiting consumer uptake. LG Application Store. UI. processing.g. For example.August 18. 2009 Wireless Industry together which Apple and RIM use to create their distinctive delightful. or have inappropriate app/content pricing. While filling the gaps in their software capabilities. Why Google May Not Help All Incumbents Smartphone OEMs. Given smartphones are at the early stage of their cycle and markets remain large. nascent and underpenetrated. lacks polish (e. where world-class performance. productivity. and other subtle but critical usability deficiencies) from “hit” mass-market successes like iPhone or BlackBerry. similar functions in different apps require different key strokes) and early devices (e.. apps.. The challenges for some hardware-centric incumbents is that the “crave” for smartphones is not about new “packaging” or including the latest wireless technologies. Samsung. etc. owned by Google and managed/developed by the Open Handset Alliance. Content and App Gap. market share.) becomes increasingly key to the smartphone experience. Although Android’s mobile web browsing is strong. we see few rivaling the success of iPhone or BlackBerry. but can be inconsistent at times. despite being in the market since 2001 and shipping more than 200 million units). reviews have suggested that Android’s UI is attractive and functional.). Incumbent smartphone OEMs (Original Equipment Manufacturers) like Motorola. hardware and content combine together to provide superior data user experiences (web browsing. 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. applications. These issues are not insurmountable: some incumbents may successfully address this software skill gap and remain competitive in smartphones. pinching. its messaging and cloud experiences depend largely on OEM Mike Abramsky 53 . etc. extend to content and applications. LG. Android.g.000 apps. While it is possible some Android-powered smartphone vendors could become successful smartphone share leaders. and HTC. Few Iconic. flash. Google Android. 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... carriers’ hero positions and subsidies).).g. 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. applications from Microsoft. etc. utilize third-party software (largely operating systems. etc. etc.. browsing. Symbian only offers 1. T-Mobile G1) had awkward form factors / keyboards and lacked full multi-touch (e. Symbian. Android-powered phones are expected to offer satisfactory user experiences (email.) unique UI issues. These incumbent vendor challenges. hardware provided by different parties) worked in the PC sector. applications. is an open source mobile platform (see Vendor Share Outlook section) offered to mobile phone vendors for free. apps and content partners.). we believe the best smartphone experience wins (garnering customer loyalty. challenged in software skills.g. where incumbent handset vendors face similar skill gaps in knowing what constitutes “hit” iconic mass-market application/content store software experiences. physical device limitations. entertainment. Linux). spectrum efficiency. some incumbent voice/SMS vendors have not yet shown their ability to develop and nurture a thriving developer ecosystem (e. content. email. Some of our reasons for this view include: • Many Functional. As well.g.
the expanding variety of Android OEM device platforms. application developers may need to increasingly contend with a wide range of Android OEM hardware and software customizations in developing. This may increase challenges and costs for some Android developers. User Experience. Google may face an increasingly complex support structure across its multiple handset partners. As the number of OEMs increases. Many of their most successful handsets have been developed in partnership with their carrier customers. performance specs and implementations may lead to fragmentation of third-party applications. Where they exist. This contrasts with the strong global smartphone brand of RIM and Apple with their consistently applied. Possibly Lag in Deploying Innovations. etc. iconic smartphone user experiences across devices and carriers. etc. 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. 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). our view. A few Android OEMs. as buyers perceive the device as a Motorola or HTC or Samsung smartphone as opposed to an Android smartphone. Conversely. they will still need to fill these skill gaps (particularly in software and software/hardware integration) – things which Android cannot alone provide. or carriers move to update wireless technologies. Managing the complexity of supporting multiple OEMs. however. to the challenges of data. Google may thus face challenges avoiding diluting the Android brand.. The smartphone leaders’ innovations often target markets for which there currently exists little demand. Developer and App Scale. as previously discussed in this section. Samsung. and LG. Some of these incumbents may successfully overcome these challenges and become smartphone leaders. and carriers certify and deploy the updates on their own timetable. 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. processes. Possible Fragmentation in Brand. is that successful smartphone vendors like RIM and Apple take a different path. which may lag RIM and Apple given many incumbents’ limited experience in software and services design and development and relationships with third parties. tools. innovative and customer-focused. However. which theoretically is capable of supporting multiple hardware profiles and platforms. 2009 implementations. updating and supporting Android applications. for whom which differentiation is important. When launching or updating software with new innovations. etc. are not necessarily 54 Mike Abramsky . HTC has added support for Microsoft Exchange and Exchange ActiveSync on its non-Google branded devices. We believe most Android vendors are planning on developing UIs and apps on top of Android. as multiple OEMs test and update their various UIs and custom apps to ensure compatibility.) in a manner that requires changes to Google’s underlying OS. • • • • • Trapped by Their Carrier Customers Successful voice/SMS incumbents. but on their own predictions of future market need. one carrier on an Android device offers different support benefits and restrictions versus another). Sony Ericsson and others are planning to release Android devices with customized UIs and apps. Motorola. Despite its open source architecture. which isn’t available as part of the standard Android installation on competitor devices (or even HTC’s Google-branded devices).g. Customization of the Android experience appeals to the OEMs. 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. But customization may fragment the Android user experience across OEMs. are aggressive. This may lead to inconsistent support experiences (e. Google may face rising complexity and delay of accommodating the impact of changes across its OEM partners. For example. may build strong software skills and successfully compete as smartphone leaders. like Nokia. Android Alone Insufficient. Google may face challenges in managing the rising complexity of accommodating these changes. With the rise in multiple OEMs. creating new innovations not principally based on carrier or consumer feedback. apps. To succeed competitively in smartphones.Wireless Industry August 18. Samsung.
content. GM. We see similarities to the challenges faced by some incumbents from smartphones to those faced by once-dominant. Some of these similarities. and often test consumer demand ("we are customer focused. why would we not involve our customers in product directions?") through research before finalizing new products.. pricing. resulting in stalled or slower decisionmaking. which may transcend legacy market segmentation. Some incumbents’ business processes and product roadmap justifications have been established over many years. some incumbents prioritize incremental product innovations (faster.). Even the rank and file sometimes resists the disruption of market changes. customer-focused. thinner. Palm’s Synergy).. different business models. Many incumbents have multi-year product roadmaps that are often segmented by technology (e. Kodak. evolving technology arena. they rightfully argue.) were similarly smart. NIH (Not Invented Here) Syndrome. product roadmap. Siebel. budgets. in our view. They failed to recognize fully or accept how dramatically different organization management. recruit/comp – to elevate and transition to smartphone-oriented business processes (e. elevating smartphone roadmaps over voice/SMS. Polaroid. 2009 Wireless Industry what customers are asking for today. altering HR and budget allocation practices. new designs. Many carriers tend to prioritize innovations that target proven markets and offer probable growth and improved profitability. perspectives. involving proven design/development processes. and thus face challenges in modifying these quickly to adapt to emerging smartphone market segments. leading install base and scale would prevail over new challengers. incumbent technology leaders experiencing disruptive shifts in their end markets. Disrupting their organizations deeply may be difficult to justify. or organizational priority towards smaller speculative smartphone initiatives. sales. technologies. They argue instead these resources and priorities should be allocated towards more incremental initiatives they can sell today and customers want. face challenges to “upending” their business model – strategy. timing of voice/SMS handsets – in our opinion face challenges and skill gaps in defining “hit” data-centric smartphone user experiences (software. 2G to 3G to 4G. wireless carriers – culturally accustomed to specifying features. reorganizing around software versus hardware. By contrast. This hesitancy can stifle – even suppress – necessary changes to organizations. speculative. marketing. who “own” the largest legacy businesses or biggest customers. hardware. some incumbent vendors are culturally oriented to collaborate with carriers. 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. their largest customers are not asking for. As a result. IBM. 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. channels. latest “check list” of gadgets and features. Mike Abramsky 55 . etc. Yet as we have previously discussed. management approvals and highly ingrained ROI hurdles. pricing. and for which there is little hard evidence of future growth. transformational innovations that carriers might not be asking for (RIM’s BES. include: • Often these leaders believed their companies’ dominance. different technology skills. This carrier input heavily influences many incumbent product roadmaps.) over higher risk. in our view. The historically successful mantra of “listening to our customers” may inhibit some incumbents from prioritizing risky initiatives that target unproven markets. Sun. less cost. fresh talent – were all needed to compete in the new. Some of these dominant technology industry leaders (Xerox. pricing. funding. etc.g. budgeting and planning processes. etc. Apple’s application store. Some incumbents. resources. given low visibility to the scope and size of the smartphone market (currently only 10% of total handsets). Some incumbent managers in power and leadership (many of whom came up through the ranks by being successful in building incumbent businesses. and are oriented to maximizing next year’s growth and profitability. yet failed to adapt (sometimes even recognize) new trends that threatened their leadership until too late. incumbency. products. and well-run. Digital Equipment.) or pricing or geography or performance. Other Challenges “Upending” Threat. budgets. support) like the iPhone or BlackBerry. and have the most pull in the organization) may strongly protest at any significant diversion of resources. power.g. relationships. etc. new form factors. Product Roadmap Challenges.August 18. which. applications.
weather.) – but those efforts didn’t pay off. out of 8. email. Its Android initiatives appear compelling. world times) on the home screen. They failed to fully nurture. calendar. social networking) into a single view.000 software engineers. • HTC.000+ total employees) and its strategy of transitioning away from the ODM model. in our opinion. Some incumbents may be able to adapt to compete successfully in their smartphone franchises. can’t just “acquire” their way into smartphones. acquiring software vendors. text. acquiring an on-demand division. we believe there is ample room in the market for four to five vendors to dominate. RIM and Palm. such as the HTC Hero featuring HTC’s proprietary Sense UI. in our view. user customizable widgets that display pushed content (twitter feeds. elevate and fund highly transformational ideas from their own organizations. prioritized and supported by the incumbent culture. 56 Mike Abramsky .g. and has a strong possibility of being a leading smartphone competitor. 2009 Some of these former leaders could not justify the risk of cannibalizing or disrupting their existing businesses or ceding organizational power. buying an Internet and software team. some incumbent smartphone vendors. as discussed. has been reinventing itself. and Palm. which incorporates an unique UI. and thus HTC’s success is not necessarily a zero sum game for Apple. Similarly. email. Some incumbent technology leaders tried to M&A their way into the new paradigm (e. and hope they’ll then produce an iconic winning product that competes with RIM. However.Wireless Industry • August 18. because the acquired company cultures weren’t nurtured. etc.. HTC. The company is leveraging its investment in software (HTC now has over 1. Apple. and integrates various communication channels (phone.
August 18. Off share gains from incumbent vendors.5% of TAM to triple its current smartphone revenue. LG.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. we believe that the fast-growing global smartphone market can support both Apple and RIM. and consumer electronics vendors. At 165 million users in calendar 2008 and projected to grow to 766 million by calendar 2012.0% Sony Ericsson 1. 2009 Wireless Industry Vendor Share Outlook Smartphone Market Large Enough to Support Multiple Vendors.. Exhibit 44: Data-Centric Smartphone (Units) Vendor Share Outlook 2008A Data-Centric Smartphone Share (Units) RIM Other 27% Samsung 3. Motorola. Each 100bps global handset share gain from the incumbents (Nokia. PC. Sony Ericsson) equates to $4 billion in incremental revenue.1% of TAM Apple needs to achieve 8. Samsung. Mike Abramsky 57 . RIM needs to achieve 10% of TAM in order to triple current revenue.7% Sony Ericsson 2.5% Palm 3% HTC 5% Palm 4% HTC 7% Samsung 5.8% of TAM in 2008. we believe successful challengers may double or triple their revenue by 2012. with 1.4% Motorola 3. We believe the smartphone market is large enough to accommodate four to five smartphone vendor leaders. “RIM versus Apple” misses the larger opportunity as both should be able take share from some incumbent voice/SMS. With 1. similarly.7% Motorola 2. In our view.
moving to more attractive pricing (starting at $99). video. However. We view the iPhone as a 10-year platform. prepaid iPod/phone) and variations in iPhone form factors for certain markets such as China (e. disruptive innovations (iPod. 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. just a dynamic of the stock that bears ongoing monitoring. Challenges. 2009 Base 7. advanced gaming. with significant growth and share gains yet ahead.4 181% 206% 181% 69% Bullish 15.5% 31.3B FTM revenue outlook.7% of TAM by calendar 2012.. we forecast Apple’s market share to grow to 5. no WiFi). driven by its unique talent pool. Innovation remains alive and well at Apple. which we expect to expand to include mobile commerce. Based on RBC CM’s $44. a possible entry-level. sustaining above-peer margins for its smartphones. further assisted by the strength of its global brand and its Mac franchise. Based on RBC CM’s 21% FTM EBIT margin outlook and 17x FTM P/E. and apps.0 $10. Our long-term outlook reflects upside from possible additional iPhone SKUs (including next-generation LTE iPhone. should Steve depart and the pace of innovation slow. <$99 subsidized. Based on smartphone industry average ASP of $337. computing. Based on RBC CM’s current $17. games. Apple holds an estimated 1. Apple has already taken steps to accelerate iPhone momentum and share gains. Based on RBC CM’s 24% FTM non-GAAP EBIT margin outlook and 19. and growing its lead in mobile applications. Apple is expected to retain its premium carrier subsidy versus competitors.0 $62.7B FTM non-GAAP revenue outlook. Apple’s greatest risk – and greatest asset – in our opinion remains its iconic CEO Steve Jobs. Source: RBC Capital Markets estimates Apple Apple to Capture 5. and tight multimedia integration. This may affect Apple’s abilities to sustain its premium margins. 58 Mike Abramsky . be challenging to sustain the same unique level of significant.0% 186.0 $31. retain its competitive advantages and lead in its key markets without Steve.5x FTM P/E. we do not view this as a near-term risk for investors. competitors continue to lag iPhone’s sleek touchscreen experience. low-cost. strong management team and multi-year product roadmap.g. We believe Apple will sustain its lead in content. etc. While we believe Apple can continue to launch products. 5. slow its growth rate and increase its vulnerability to competition. etc.). iPhone advantages include Apple’s 100 million+ iPod install base and 300 million + iTunes users globally. iPhone) if Steve Jobs were not involved with the company.7% Global Share by 2012.1% of TAM. 2. user-generated content. and customer loyalty. Off the strength of its brand. robust third-party applications platform. innovation.7 million handsets in calendar 2008. expanding in-carrier distribution in more countries by eliminating exclusivity and expanding third-party distribution channels.5% 93. supporting pay as you go and other carrier sales models.7 363% 412% 361% 138% 2. 4. however. it may. 3.Wireless Industry Exhibit 45: Sensitivity Analysis of Market Share Gains Conservative Incremental Smartphone Share (%) # of Smartphone Units (MM) Incremental Revenue Impact ($B) % Impact to FTM Smartphone Revenue: RIM 2 3 1 August 18. We also expect Apple will continue to surprise investors and consumers with iPhone-related innovations that further expand iPhone’s addressable market opportunities (media. Shipping 13. Despite the iPhone’s introduction more than two years ago.5 60% 69% 60% Apple RIM 4 % Share Price Impact: 5 Apple 23% 1. There is a huge upgrade opportunity.
1% 165. have remained essentially unchanged.7 10.6% Source: RBC Capital Markets estimates RIM RIM Forecast to Capture 6. wireless stack.August 18. elegant smartphone UI.4 35.3% Wireless Industry 2011E 376.8 13. while maintaining its superior security. evolving its QWERTY smartphones to the successful Pearl with SureType. RIM’s UI and PIM. email client. Shipping 22. application and mobile media experiences (both on devices and on the PC). Challenges. craved push-based “Crackberry” messaging experience. not just for its email experience. internationally. and Google – for rich mobile browsing.4% 2009E 164. powerful data experiences. in our view. and BES/BIS server. is with “front end” software (browsing.5 33.6 10. 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. RIM’s market opportunity lies along four fronts: domestically.8% 2010E 250. and intuitive. Europeans like sliders) and we expect additional SKUs and innovations. RIM is now on most carriers (over 500 worldwide) and so growth now comes from upgrades. In the rapidly expanding consumer smartphone market. as we expect RIM will continue to innovate to improve ROI and productivity of its devices and solutions. in our view. UI. to pace competitors and meet evolving consumer expectations. with RIM as its undisputed king – both for consumers and businesses. bundled and downloadable applications.1% 0. and expanding from business to consumer markets. Unlike Apple.8 13.1 56.5 13.1 16. browsing. Mobile email is expected to remain the smartphone “killer app” globally. evolving core designs via new innovations into new. RIM may also need to improve its SDK to be more developer-friendly. 2009 Exhibit 46: Apple as % of Forecast Market. Ahead.8% 1. RIM’s smartphone brand has grown in strength globally.9 22. benefiting from carrier promotions discounting older iconic handsets (like Curves.). while reliable and functional. reliability and Mike Abramsky 59 .7 14.2% 2.0% 247. BlackBerry remains compelling for carriers.6 million handsets in calendar 2008.8% 2.1% 553. North Americans like flip phones.3% 5.5 54. Enterprise as well should continue to be an area of BlackBerry domination.7 91. iconic smartphones. achieved via its superior spectrum efficiency and other unique aspects of its platform.1% 2.2 16. as it offers superior carrier profitability.9 82. Palm.4 16. Internationally. Pearls) which consumers.0 15.8% of TAM.5% TAM by Calendar 2012. battery life.. and it is increasingly known for compelling handset styles and designs. and increasing BlackBerry share and sales productivity across its carrier partners. RIM’s design strategy is to expand its trademark Crackberry experience to multiple form factors (flip. RIM continues to address larger. NOC. and its NOC/software/hardware ownership creating its unique.0% 2012E 503. etc.7 14. RIM has – at several times in its history – successfully reinvented itself. RIM possesses both unique hardware and advanced “back end” software capabilities.8 17. new data subscribers.9% 374. Examples include evolving its BlackBerry pagers to voice/data devices. RIM holds an estimated 1. SMBs and enterprises continue to snap up – as well as launching entry-level devices like the BlackBerry 8500. reliability and manageability advantages prized by IT.5% of TAM by calendar 2012.g. One growing challenge RIM faces. SDK. We believe RIM is fully aware of these issues and is already moving to address them while retaining its trademark spectrum efficiency.5% 4. touchscreen) to penetrate additional compelling markets (e. include the intuitive. reliability and battery life. thus continuing to expand its addressable markets and outsell incumbents. RIM may need to evolve its UI. RIM’s sustainable advantages. A significant source of RIM’s competitive advantage continues to be its global carrier leverage. price-sensitive consumer markets via its broad pricing ranges.7% 766. having developed: its OS. While not always first to market.5% 2. there is a growing consumer demand – popularized by Apple. consumer and business – all of which remain underpenetrated for smartphones. we forecast RIM’s market share to grow to 6.1 130.0% 1. To succeed in the consumer market.5% 0. a thriving consumer application ecosystem.
the opening up of its platform to third-party developers. subsequently recovered ground once launching its versions.1 57. controlling the end-to-end smartphone software and hardware platform. Palm. which could stretch out its product/carrier ramp. while historically lagging competitors in rolling out software innovations (attachment viewing.8% 2012E 503. b) product and distribution ramp. we believe Palm has the potential for a remarkable smartphone turnaround. Synergy (user data integration). developer-friendly SDK.8 18. and subsequently with other North American and European carriers.2 21. etc.S. targeting a broad addressable application developer community. its first WebOS device – despite the already broad awareness of iPhone – illustrates pent-up demand for innovative.1 15. and. including: a) execution. limited applications) – also show Palm has the potential to provide that rare iconic smartphone experience. Application Store. Palm in our view faces near-term risks but has the “special sauce”: vertically integrated. avoiding many of the historic. marketing budgets and balance sheets as do RIM and Apple. network. c) litigation/other. Palm (like RIM and Apple) is. expanding to multiple carriers globally over the next two years. above competitors. We note that RIM. Targeting the PIM-centric segment of the Palm legacy.1 115. Following a period of decline and facing oblivion. At this early turnaround phase.8% 165. While lacking the scale. and thus may need to be more measured in its product and distribution roll out.9% 2010E 250.2 million units in calendar 2012. With its new strategy. some incumbents and in the company of RIM and Apple.0% 0. Challenges. and others).7 15.7 83.).4% 5. 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. growing from an estimated 1. We assume Palm continues its global carrier distribution expansion following Sprint.1% 2. iconic smartphone experience. Exhibit 47: RIM as % of Forecast Market.2 million units in calendar 2009 to 3.6% 2009E 164.3% of TAM) or 18. production. may continue to offer Windows Mobile devices like the Treo for enterprises. Our outlook calls for Palm to quickly recover.6% share (1.7% 0. 2009 carrier profitability. spawning a family of smartphones addressing a global market opportunity at multiple price points and form factors. Palm does not benefit from strong brand tailwinds. utilizing WebKit-based mobile web browsing.1% 247. OTA downloads.1 20. differentiated from incumbent vendors.3% Source: RBC Capital Markets estimates Palm The New Palm. including a $99 GSM version expected to launch first in the U.9 34.1% 374.5 65. in the interim. WebOS product line and under the direction of a new management team headed by ex-Apple executive Jon Rubenstein. The accolades for Pre – despite its early drawbacks (one carrier. and compelling and clever hardware/software designs – all combine to offer a unique.7% 3.8% 1. As well.6 17.Wireless Industry August 18.2% TAM) or 2.8 22.4% 6.4 49.5 17.5 37. 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 126.5 15. though these could be phased out over time as WebOS gains enterprise features. initially with Bell in Canada and O2/Telefonica in Europe.3% data-centric smartphone shipment market share (0. integrating an intuitive UI and friendly notifications – and using popular Web development standards.3% 2011E 376. brand and distribution of Apple and RIM.1% 1.9 92. a ground-up developed smartphone OS platform with unique innovations like multitasking. We see WebOS as a platform. non-intimidating smartphone user experiences. Palm 60 Mike Abramsky . we believe Palm’s strong management team has the potential for superior execution. HTML email. The huge positive reception to the launch of Palm’s Pre.5 15. preRubenstein execution and product stumbles that caused Palm to lose share leadership. well positioned for smartphone leadership.5 19. we also expect Palm may encounter execution “speed bumps” (quality.4% 1. in our opinion.0% 553.5% 766.0 12.8% 4. matching it to its available resources. Palm faces near-term challenges. As a turnaround. scale.
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. deepening its software capabilities (now has 1.4 7. HTC offers integration with Microsoft Exchange and ActiveSync on its branded devices.6 2. calendar.g. increasing its mix of HTC-branded device launches.8 2.8% 0. RIM and Palm. HTC has also developed its proprietary Sense UI user interface.).1 3.3% 165. 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.August 18.6% 1. content and services strategies.8 5.5 0.1% 0. etc. Exhibit 48: Palm as % of Forecast Market. HTC has the potential.4% 0.5% 126.9 2. as discussed.1% 2010E 250. social networking) into a single view. Mike Abramsky 61 . Touch Cruise.8% 0. email. expect these risks to diminish as Palm gains scale and momentum. we believe there is ample room in the market for four to five vendors to dominate. We do.0 8. However. new sensors. new innovations may be delayed.1 17.0 23.5% 0.0 0.0 2. 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). improving manufacturing quality. For example.5% of TAM by calendar 2012.2 0. In December 2008.5 0. 2.8% 553.1% HTC Corporation Transforming from ODM to Smartphone Contender.2% 247. HTC’s move towards owning both software and hardware technology.2 1. in our view. and integrates various communication modes (phone.3% 766. used in the WinMo-powered Touch Diamond 2. and Touch HD. While not as vertically integrated as RIM and Apple (because HTC still relies on the Android). coupled with its unique and innovative form factors. tools.1 2. architecture and their media. and thus HTC’s success is not necessarily a zero sum game for Apple.9 18. HTC acquired One & Company to transform external designs of HTC’s smartphones and develop HTC’s TouchFLO UI. text.0 14. however. world times). Recently.3% 0.3% 2012E 503.5% of TAM in calendar 2008 to 2. new screen technology. and increasingly utilizing Google’s Android OS. and Palm’s introduction of new innovations to the market.000+ total employees).5 years since Apple first demonstrated it.4 0.2 0. our forecast is for HTC to rise from 0.1 0.3 1. which incorporates user customizable widgets that display pushed content (twitter feeds.. offered on the Android-powered HTC Hero. moving away from the ODM model.6 2.7 0.5 1.7 0.1% 0. UIs and custom apps. Currently shipping ~7 million units per year. Windows Mobile has yet to support multi-touch.5 3. Additionally.1 6. Apple. may position it for smartphone leadership in some segments.7 10. however. email.2 3. The company may also encounter other roadblocks (like litigation from Apple). to also become a leading smartphone vendor. 2009 Wireless Industry must woo back disenfranchised users and carriers who lived through quality problems at the “old” Palm. waiting for Microsoft or Google OS updates to support certain new hardware features (e. HTC has reinvented itself. While HTC has increased its investments in software.8% 0.2% 2011E 376.8 3.5 10.8 2. weather.7% 0. Challenges. it faces challenges as it remains dependent on Microsoft and Google’s underlying applications.6% 374.000 software engineers of 8.6 4.4 0.
OZ Communications. While Nokia has led the market in delivering stylish. PLAZES.5 28.8% of smartphone units in calendar 2008 to 25.5% 2. downloads. Some of its smartphones have been criticized as being too complex for data-centric functionality like email and browsing.8% in calendar 2012 (Nokia’s overall share of TAM should still grow.1% 0. intuitive smartphone data experiences of RIM and Apple’s OSs. Nokia may be able to address these challenges and successfully compete in the smartphone market.Wireless Industry Exhibit 49: HTC as % of Forecast Market. out of 400 million phones.4 40.1 6. This has not been through lack of trying: Nokia has spent more than $8. given smartphone market growth).8 7. but available for Nokia 5800) and involves an ~$100 premium versus devices without “Comes with Music”. and others). bit-side. Nokia shipped only an estimated 47 million data-centric smartphones in calendar 2008 (this would exclude Nokia’s smartphones bought without full data plans).2% Nokia Nokia: Defending Market Position.1 7.1% 2. and sync of calendars.1 15. consumers have shown little interest in DRM-restricted music subscription services. dropping from 36. is only available on a select number of handsets (e. Nokia’s smartphones run Symbian OS.0% 1.8% TAM to 9.3 7.5% 766. since they are limited to playback on certain devices and for a limited time. from 3. particularly with software. ringtones.9 16. contacts. etc. may continue to face challenges transitioning to smartphones.2 0.7% 1. 2009 2009E 164. with some buyers using them as PIM organizers with voice/SMS only (no data plan). data and content.5 billion in software and data acquisitions (Intellisync.9% 0. NAVTEQ. – has been to date disappointing (based on early reviews). We expect Nokia to lose some smartphone share.8 7. Nokia’s subscription “Comes with Music” service. and innovative media players.6% 2011E 376. in our opinion.8 6.5 3.9 35. Symbian-powered Nokia smartphones don’t offer multi-touch UIs (have resistive rather than capacitive touchscreens).6 5.4 17.1 6. app purchases. sharing (user-generated photos.9 8. its Symbian-powered user experiences lag the richer.4% 374. These issues are not insurmountable.2% 0.7% 0. The global leader in handsets with 468 million units shipped in calendar 2008.0% TAM in calendar 2012.1 20.4% 2010E 250.6 5.7 15. Microsoft recently announced it is planning to bring Microsoft Office Mobile and other Microsoft software to Nokia’s Symbian devices.5% 165.7 54.1 4.4 10.2% 0.1 25.0 6. Nokia.2% 1. 62 Mike Abramsky . Loudeye.7 11. integrated flash memory size. wireless technology). As shown by Microsoft’s Zune struggle against Apple. However. Mobile content as well has proved a challenge for Nokia: its Ovi mobile content service – offering content like music. videos). 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 18.9 11. gate5.0% 247. which allows unlimited downloads of DRM-restricted music for two years. gaming (N-Gage). files. acquired by Nokia in 2008 (Nokia plans to make the platform available as open source to other manufacturers).9% 2012E 503.1% 126. Twango.5 7. not yet available for N97.1 7. application ecosystems.g. appealing-looking smartphones offering the latest hardware features (some superior to RIM and Apple like higher-res cameras.. rich mobile web browsing.3 7.1% 553.
Symbian and Android (over an estimated 80% of Samsung’s smartphones sold in calendar 2008 were running Windows Mobile).5% 0.8% 374.9% 12. from the QWERTY keyboard Jack.7 28. (Similar to other UI layers on top of Windows.1 15. lacking its own proprietary smartphone OS.5 108. Omnia)).1 111.2 0.0 3.6% 0.9 6.9 25.9 129.9 0.0 553.2% 2010E 250.5% 9.9 32.8% 247. in our opinion.7 3. Samsung’s expected Android smartphone launches in late 2009.7% 4.2% 3. music player.4 5. as well as integrate its Android devices with its “Samsung Mobile Applications” app store.9 0.5 82. its overall voice/SMS handset market share will.1 11.4% 1.1 206. Ace and Saga.0% 5. We expect Samsung to differentiate its Android devices and offer a customized touchscreen UI with 3D animations and transitions.2% Source: RBC Capital Markets estimates Samsung Balancing Windows Mobile and Android.1% 2.1 34.4 70.g.3 374.2 56. 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 164.5 5.4% 0.8 4.5% 0. Exhibit 51: Samsung as % of Forecast Market.0 3. 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. Samsung had only 0. face some losses to RIM. “world’s thinnest Android smartphone”). which some reviewers have disliked.3 28. Conversely. Epix.9 53.6% 2012E 503.4% TAM (5 million units) in smartphones in calendar 2008.8% 126.August 18. and cameras) and packaging/form factors (e.) Samsung launched the i7500 Galaxy in 2009.6% 0.6 29.2% 553. to the Propel slider and the Omnia touchscreen.7 161.3% 0. Apple and Palm in software capabilities.3 6.8% 3.3 5.8 46. 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.0% 1. utilizing Windows Mobile.4 26.. and is horizontally integrated.5% Wireless Industry 2011E 376.0% 2010E 250. Samsung’s Omnia smartphone series incorporates Samsung’s TouchWiz UI for Windows Mobile.7% 0.5% 2012E 503.9 3. Apple and other smartphone leaders.8 0.1 0.g.4% 2011E 376.4% 1.8% 2.7 36. As the second largest mobile phone manufacturer shipping 200 million units annually.. We believe Samsung will focus on being first to market with innovative new hardware (like high resolution screens.1 5.0 766. etc.3 29.4 247. 2009 Exhibit 50: Nokia as % of Forecast Market.4 12.8% 165.1 16. users are required to navigate between the TouchWiz UI and Windows.0 33.2% Mike Abramsky 63 .0% 766. 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. Samsung may commission developers to release proprietary games and apps available only on its app store for its Android devices. Samsung offers a variety of Windows Mobile smartphones.8 165.6 5.2 5. photo browser.9 28.5% 0.9 4. Blackjack.5 8.1% 5.9% 8.4% TAM in calendar 2008 to 1.5 20.9% TAM in calendar 2012.7 3. Samsung lags RIM.8 4. its first Android-powered smartphone.8% 9. We expect Samsung to grow its smartphone franchise from 0.1 40.9% 4.0% 1.1% 0.9 27.5% 2009E 164.
To differentiate its Android-based devices.4% 2012E 503.2% TAM in calendar 2008 to 1.6% 0.g.1 12.6 3. Motorola represents a “Hail Mary” play in smartphones.9 3. down 37% from 159 million units in calendar 2007.2% in calendar 2008.8% in calendar 2007 to 8.0% 0.9 3. 2009 Motorola "Hail Mary" Smartphone Play. Motorola Q) along with another 1. the company shipped 100 million units in calendar 2008. while Motorola’s overall voice/SMS handset market share will continue. likely to 64 Mike Abramsky . similar to its “panel” UI for Windows Mobile.3% 766.7 0.. We expect Motorola to grow from 0. SMS notifications)).g.9% 0.7% 0.8 2.1% 553. Positioned as a premium feature phone vendor. user confusion and complexity as software and data become more important to the smartphone experience.6% 0.g.2 3.0 3.3% 247. requiring users to manually switch between the “panel” UI and Windows Mobile and offering weak integration with core phone functionality (e.4 2.9 18.1 4.8 2.1 5.3% by calendar 2012.7 9.Wireless Industry August 18. 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. To us.3 0. customers. slowed product development.1 6. Sony Ericsson has lost market share through the market’s shift to smartphones. and Android – which increases support costs. and departing key employees. to face losses to RIM.3% 2011E 376.7% 1. with its turnaround largely dependent on the sustained success of its pending Android-powered offerings.8 3. which features a unique “panel” UI on top of Windows Mobile.2 0.4 9. Windows Mobile.8 11. Sony Ericsson’s strategy of differentiating its smartphone experiences atop these platforms through innovative UIs.2% 165.8% share of TAM in calendar 2012 versus 0.8 2.4 19.5 14. 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. call. Pending Android smartphone launches in late 2009 and 2010 are expected to improve MOT’s smartphone momentum.6% 126. in our opinion.2% 0. We expect Sony Ericsson’s share of the smartphone market to remain essentially static.7% 374. 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. In smartphones. The Xperia experience remains constrained by Windows Mobile limitations (e. Still the third largest mobile phone manufacturer.9 1.0 3. Motorola to date has had limited success (sold only <1 million WinMo-powered smartphones in 2008 (e. While the launch of these devices is likely a near-term positive for Motorola’s smartphone franchise.8% 1. at 0.8 0. Facing larger challenges with its global handset franchise. Motorola has faced losses in handset market share. widgets and mobile services has not yet been proven. but lacking its own smartphone OS.0 0.2 28. Sony Ericsson remains committed to three major smartphone platforms – Symbian.6 2.9 0. lacks multi-touch).3 2.9 1.1% 0. we believe Sony Ericsson is developing an innovative UI atop Android. Exhibit 52: Motorola as % of Forecast Market..7 5. Symbian and Linux).3% 0.1% 2010E 250. given its larger challenges.. Some reviewers have disliked Xperia’s user experience (appears unpolished and inconsistent.5 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. as shown in its Xperia X1 smartphone.7 4. with its total handset share falling from 8.2% in calendar 2008.1% Sony Ericsson Juggling Three Smartphone Platforms. Apple and other smartphone leaders.
7 104.1% in calendar 2012 on growth in the smartphone market).0% 0. Exhibit 53: Sony Ericsson as % of Forecast Market.1 150.3% 126. However.2% 2012E 503. Acer.6% of data-centric units in calendar 2008 to 17. HP.7 2.7% 247.8 3. 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 126.1% 2010E 250.0% in calendar 2008 to 6.9% 0.3 1.7 2. Sharp.1% 2011E 376.0 1.8% 3.7 27.0% Source: RBC Capital Markets estimates Mike Abramsky 65 .8 21.9% 2. and Lenovo) as well as smaller phone manufacturers (LG.1% 0.2 44. We see the aforementioned smaller mobile phone vendors losing share to smartphone challengers. Exhibit 54: Other Vendors as % of Forecast Market.7% 374.7% 0.9 30.7 1.0 0. channels or customer bases where they are dominant. or in certain niches.5 0.5 7.1 23.6% 2.0% 1.8 24.2 0. gaming and/or camera capabilities into its Android handsets.2% 2012E 503.1% 0.2% 2009E 164.9 1.3% 2.3% 0.5% 0. with their shares declining from 19. the PC vendors.5 66.1 80.6% 1.6 17.9 88. Panasonic.0 3.9 1.1% 247.8 1.4% 374. where the rise in netbooks and the commoditization of traditional PCs is forcing PC manufacturers to prioritize mobile devices and smartphones.) We expect other vendors.2 1.5% 1.5 58.7 16. niche smartphone players). including PC manufactures (Dell.4 4.0% 553.5% in calendar 2012 (TAM rises from 2.1% 0. etc.1% 766.2% 0.6 18. Sony is likely to integrate its Android devices with its MyPlay online music store.6 1.1% Other Vendors (PC.2 18.August 18.2% 165. 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.6 4. value-add widgets.4 44. NEC. Over time.4 3.6% 553.8% 2011E 376.8 2. Playstation and/or Cybershot franchises and incorporate robust multimedia. direct integration with social networking services and other custom apps.5% 6. Phone. 2009 Wireless Industry feature sleek 3D animations and transitions.7% 3.7 19. which it has already launched for O2 UK. Sony Ericsson may leverage Sony’s Walkman.8% 766.1 10.6% 0.0 2.1 1. and Fujitsu) to launch smartphones and connected mobile devices – particularly.3 1. They may survive by selling smartphone units bundled with their own offerings.4 2.3 2.4 17.9 11.6% 5. 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 1.6 1.3 6.3 1.0 0.8 19.0 2.1 3.4% 2010E 250.0% 165.3 17.
Wireless Industry August 18. With the iPhone and its App Store. smartphone operating systems may further consolidate to two or three. and Google and thus ceded market share. and Google initially dominating the smartphone OS market. data subscribers. building competitive advantages. our outlook assumes Microsoft’s share modestly 66 Mike Abramsky . 3-4 OS. AOL. given the challenges that wireless carriers face in supporting more than one or two smartphone platforms. Internet search. or Mozilla. further innovations and lower priced devices.5% share of total data-centric smartphone units in calendar 2008 to 12% calendar 2012.8% share of total data-centric smartphone units in calendar 2008 to 18. multimedia website experiences as network speeds. distribution. In time.g. PCs. Hotbot. and scale). app-enabled OS software and SDK. and Google Seen To Dominate Near Term. largely at the expense of Microsoft as a rising number of handset OEMs like Motorola.5B downloads to date) have seemingly exploded. Samsung. we see room in the market initially for perhaps three to four dominant smartphone operating systems (if that.1% of total data-centric smartphone units in calendar 2009 to 3. third-party apps for smartphones began to flourish. newspaper and magazine websites were simple HTML versions of their print publications). consumer convenience (App stores. Along with subsequent application stores from Google (Android) and RIM.5% in calendar 2010. We believe it is very early in the evolution of the smartphone application/OS market. with Apple in the lead due to its dominance of the media-centric segment. Initially. Although apps on the iPhone (now numbering 65k with 1. rising from a 0.4% in calendar 2012 on international momentum and a move into late adopter buyers. in our view. Windows Mobile 7. and a lack of economic incentive (revenue.5% in calendar 2012. Google Android is expected to quickly accelerate share gains. and a vibrant app ecosystem is fast becoming “table stakes” for smartphone differentiation and success. etc. We see Apple. Given our thesis for early smartphone market segmentation (as described in the Smartphone Market Segmentation section). with the survivors not necessarily first movers (recall Excite. carrier reluctance to open their networks. @Home. Microsoft is expected to cede some OS share to Android. Similar to how iconic software applications popularized PCs (e. and no more. RIM. RIM. in 2010 which may help it regain momentum. iTunes. Apple. While this release may close innovation gaps.) and a developer-friendly ecosystem (SDK. With its compelling WebOS user experience and increasing carrier momentum. easy payment. and vendor dominance. RIM’s share is expected rise from 17. etc. and RIM leading the productivity-centric smartphone segment. Given its later re-entry into the consumer market (with WinMo 7) and assuming it sustains its current pricing structure. and Google. Symbian will. is likely to lead near term given its near-term traction with OEM smartphone vendors but faces uncertain status longer term. app-centric OSs.). browsers. mobile applications lagged the vibrant third-party applications marketplace associated with the PC or the PDA because of OS fragmentation. Netscape. Lycos. and successful uptake of pending product cycles. Windows Mobile has lagged innovations from Apple. tools and PC technologies developed. Our outlook on Palm is positive. RIM. face significant challenges. 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. LG and Sony Ericsson shift to Android from Windows. Apple opened the floodgates to mobile application momentum. for example. Palm is expected to increase its OS share from 1. Palm’s WebOS is expected to stake out a smaller but significant leadership position within the PIM-centric segment. 2009 Mobile OS Share Outlook OS/Platforms Becoming Standards. Microsoft is planning a significant release. this stage of app development is to us reminiscent of early websites (a time when. RIM. Significant Smartphone Platform Share Shifts Expected. which paled in richness to some of today’s interactive. in our opinion. 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). similar to consolidation in other consumer tech platforms like gaming consoles. Ask Jeeves. etc. and is expected to lose share to OS from Apple. but each has its own up/down scenarios dependent on overcoming challenges. Google. tools). declining from 13% of total data-centric smartphone units in calendar 2008 to 11. VisiCalc for Apple II and Lotus 1-2-3 for IBM PC). 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)... Still Early. mobile applications are a critical catalyst for future growth of data-centric smartphones.
which is contingent on Microsoft regaining OEM handset share following the release of WinMo 7.1% TAM) to 12. in our view. high level of customizability.4% RIM 17.3% Symbian 46. Android’s advantages include its: low/no cost to OEMs. Mike Abramsky 67 . particularly with RTOS voice/SMS phone vendor OEMs. a group of 47 hardware.0% in calendar 2012 (4.0% Google Android 0. with Google well suited for entry-level. bundled Android UI and apps. tight integration with Google’s cloud services.5% in calendar 2012. We expect Android’s share of data-centric handsets to steadily rise from 0.0% RIM 18. along with the Open Handset Alliance.August 18. vibrant developer and mobile app ecosystem. and.5% Google Android 12. software and telecom partners that manage development) has recently had strong near-term momentum as an OEM smartphone OS. Exhibit 55: Data-Centric Smartphone (Units) Platform Share Outlook 2008A Data-Centric Smartphone Share (Units) Other Palm 2. 2009 Wireless Industry recovers to 12. Android appears positioned to gain early momentum with a portion of the entry-level voice/SMS phone market moving to smartphones.2% TAM).5% in calendar 2008 (0.8% 2012E Data-Centric Smartphone Share (Units) Other Palm 3.8% Symbian 35.4% Apple 10. Android will see near-term traction with OEM smartphone vendors who prize the opportunity to leverage Google’s 100 million-plus online base.3% Microsoft 13.0% Microsoft 12.5% 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. browsing experience.5% 2. price-sensitive former users of these phones upgrading to smartphones.2% 9.3% Apple 16. Symbian shows the most dramatic decline. Other platforms (like Linux) are forecasted to decline from 9% in 2008 to 2% in 2012. Google’s open-source mobile platform (unveiled in November 2007. from a 46% share of the data-centric smartphone market in calendar 2008 to 35% in calendar 2012. Thus.
9% 8. etc. a large number of whom appear committed to launching Android devices. Gmail. for example.). and Palm. Samsung. 2009 OEM Value Proposition. reliability and user experience are more difficult to achieve given the unique constraints of mobile (battery life. in contrast to the strong consistently applied.5% 20.1% 8.9 0.9 0. Android is available to OEMs under three models: 1) obligation free. LG.9 15. in-store purchase transactions.g. 3) “The Google Experience”. Android continues to gain critical mass with handset OEMs. yet still use Google apps. which isn’t available as part of “The Google Experience” on competitor devices (or even HTC’s Google-branded devices).7 2. While providing OEMs with satisfactory smartphone user experiences. 2) implementation “with strings”.6 4.Wireless Industry August 18.9 Share (%) 4.7% 3. though device development may remain challenging. Motorola. Sony Ericsson and others. flash.0% 3. 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). Google may over time grow new sources of mobile revenues. with a webkit-based mobile browser.3 Sha re (%) 0.0% 15. Conversely.9 3.3 1.2 10. giving OEMs liberty to customize and install on a variety of devices. Exhibit 56: Profiles of Android OEMs Est.1% 0. processing. and location-based marketing.6% Equates to 66% of total Windows Mobile Smartphone shipments Source: RBC Capital Markets Not iPhone Killers.6 100. with Google branding on the handset.7% 1. We expect OEMs to address the UI shortcomings as they come up the learning curve and begin to roll out proprietary UIs. spectrum efficiency.0% 2008 Windows-Based Smartphones (MM) 5. given: • Despite customization. functional multimedia and mobile email (Gmail-centric).7% 0. Apple. where they can develop their own UI and apps on top of the Android. including advertising. assuming Windows Mobile charges $10/unit for a smartphone with average $200 bill of materials (BOMs). physical device limitations. etc. but they may not use any Google apps (e. HTC) Android-powered smartphone vendors may face challenges becoming “iPhone killers”. 68 Mike Abramsky . etc. full installs of Google apps and unrestricted access to the Android market.5 Sha re (%) 13. app ecosystem (Android market). The standard Android UI provides a modern smartphone experience. We believe most vendors will adopt the implementation “with strings”. • The rising number of OEMs may lead to inconsistent user support experiences across OEMs and carriers.1% 7.8% 31.8% 1. • Android OS updates must accommodate customized implementations across multiple OEM partners.).0 196. • Customization by OEMs fragments the Android user experience. limited resources (storage..) unique UI constraints. OEM software/hardware updates may be delayed until Google makes necessary changes to Android. who benefit from tighter integration of software/hardware via vertical integration. the smartphone experiences of horizontally integrated Android OEMs are expected to lag user experiences from RIM.6 393. iconic smartphone user experiences of RIM and Apple. Google’s pricing – free – may offer 5% cost advantages over a licensed OS like Microsoft. calendar. touchscreen UI. Also. with few exceptions (perhaps. where OEMs sign a distribution agreement with Google and may install Google apps.1 96. potentially creating delays in deploying new innovations. HTC has added support for Microsoft Exchange and Exchange ActiveSync on its non-Google branded devices. Android Launch Timing HTC Samsung Motorola Sony Ericsson Fall 2008 Fall 2009 Fall 2009 Fall 2009 2008 Voice/SMS Handset Shipments (MM) 0.7% 2008 Smartphone Shipments (MM) 6. carriage fees (broadcasting). including HTC. Early OEM momentum has been uneven – with some OEMs having difficulty releasing devices on schedule due to engineering challenges. For example. Support is more critical and challenging in mobile (than on the Internet or PCs) where superior performance.
1% 0. As discussed in the Some Incumbents To Face Challenges section.5% in calendar 2010. Web. which should improve OEM smartphone development.August 18.5% 3.8 0. Microsoft is planning a more significant release. etc. Windows. apps.3 1. WinMo 7 is also expected to leverage Mike Abramsky 69 .3 247.0 0. slower than the rise in the market). Apple. etc.6 17. Exchange. processor speeds. however.3 1.1% 0. sensors (e. WinMo’s share of data-centric handsets dropped from 18.1 84. to become successful in smartphones. break carrier influences and recognize and fill skill gaps.0 0. 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.4 5.3 5.6 0. etc.2% 0.5% 0.1 12. Microsoft has ceded OEM. which is contingent on Microsoft regaining OEM handset share following the release of WinMo 7.6 0. 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.0% Microsoft Windows Mobile – Aiming To Regain Leadership.5% in calendar 2012. cultures. entrenched hierarchies.0% 4. and Wi-Fi support.5) this year offering improved UI with touch control..7% 126. deeper integration with its other platforms (Xbox.4 21.1 553.5 39. Microsoft believes WinMo 7 will help it regain mobile OS share momentum.0 0.1 12.1 3. user and developer market share to RIM.1 24. Microsoft is expected to cede some OS share to Android in the near term. Having prioritized the enterprise and attempting to dislodge BlackBerry in this space over the past two years. photos. content.2% 15.).7 50. Examples include various screen resolutions. updated Internet Explorer and some integration with cloud services like “Windows Marketplace for Mobile” apps store and “MyPhone” for syncing text messages.0% 1.0% in calendar 2008 (16. Android alone may not elevate incumbent voice/SMS vendors to smartphone leadership.). Zune. WinMo 7 is expected to deliver more complete consumer.5 12.0 165.9 9. given competitors will also continue to evolve their experiences.3 0. memory. along with structured tools.1 2. Given its 2010 re-entry in the market with Windows Mobile 7 (see below) and assuming it sustains its current pricing structure. end-to-end experiences.2% 1. Our outlook assumes Microsoft’s share modestly recovers to 12. however.1 9.3 8.6 0. As a result. hardware/software features.and business-oriented.3 million units) to 13. Microsoft launched an interim WinMo release (6. 2009 • Wireless Industry Despite its Open Source architecture.6 11. Windows Mobile 7.9 60.4% in calendar 2007 (15.4% 0.4 2. videos. Apple and Google in consumer smartphone innovations (UI. and contacts to the Web. which we forecast will decline from 13% of total data-centric smartphone units in calendar 2008 to 11. and Google.g. accelerometer.9 5. QWERTY versus touchscreen keyboards. some voice/data incumbents may need to successfully upend legacy business processes.1% 2010E 250.5 5.5% 2011E 376.8 0.5% 1.5% 3. GPS.4% 0.8 0.0 6.4 7. The user experiences of the WinMo 7 release may well close prior innovation gaps with RIM and Apple. Office. Windows Mobile 7.0 0.1% 2012E 503.5 10.1 3.9 374.5 million units – an increase. 2008A-2012E 2009E 164. etc.0% 11. visibility to the competitiveness of these future offerings remains limited. developer tools.9 9.2 0.) as well as continued to face some reliability and usability issues.7% 7. Windows Mobile has lagged RIM.5 766. in 2010.
1 95.9 165.8 12.0 12.9% 126.1 6.8 0. our forecast for Symbian shows dramatic decline.5 14. 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.1 12.6% Symbian Transitioning to Open Source. with some buyers using them as PIM organizers with voice/SMS only (no data plan). Exhibit 58: Microsoft as % of Forecast Market. Symbian’s user experience is also 70 Mike Abramsky .5 374.2 4.5% 4.5 32.1 553. and innovative multimedia.7 0. by the time Windows 7 reaches the market.5) faces inherent challenges to creating an “iPhone killer”.7 15.2 24.4% 20. 2009 Microsoft’s large Xbox install base (28 million users).9 3. Going forward.8% 2010E 250.9 62.3 0.2% 1. Per our thesis.0% 1. at this stage of the smartphone market.0% 2011E 376. A significant portion of Symbian users do not fall under our data-centric definition.5 46. However.9 0. possibly offering consumers management of and access to their personal data and content across platforms.0% 0.9 0. Nokia accounts for 85-90% of total Symbian shipments. some Symbian smartphones have been criticized as being too complex for data-centric functionalities like email and browsing versus competitors. not just data-centric units).4 28.0 14. however..9 0. As an example. Nokia has not yet (may not) open up its Ovi mobile services strategy to other Symbian partners.5% 16.7 68. Thus.9 12. if WinMo 7’s user experiences and possible innovations in OEM smartphone tools are strong. rich web browsing. i. tight integration of software/hardware.4% 1. including OEM share lost to Google. from 46% share of the data-centric smartphone market in calendar 2008 to 35% in calendar 2012.5% 2. particularly if it sustains its existing software pricing model versus Google’s “free” offering without delivering a differentiated and superior user experience. enabling superior. Some Symbian-powered smartphone user experiences continue to lag the rich. Microsoft Windows Mobile 7 may. Microsoft could re-gain OEM handset share versus Android which could potentially shift market share back in Microsoft’s favor.0% 1. PC install base (500 million “home” users).1 6.5% 0.e.2 12. competitors certainly won’t be standing still. the horizontally integrated Microsoft OEM model. Regardless of its advantages.4% 3. aren’t utilizing full data (browsing.5 13. delightful.2 766.7 4. apps) and not taking full data plans.4 6.5% 2012E 503. unique. email. Uphill Battle.9 20. Symbian-powered Nokia smartphones don’t offer multi-touch UIs.8% 7. Often. Now owned by Nokia (acquired in 2008). intuitive smartphone data experiences of RIM and Apple’s OSs. Symbian to date has been the world’s most popular OS.8 16.8 11. As with Google.3% 5. Microsoft faces an uphill battle in regaining market share.Wireless Industry August 18. iconic smartphone user experiences are best provided via deep vertical integration.4% 10. at this stage (6.4 11. however.3% 1. a broad app ecosystem.9 0.8 4.7 12. 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. With more than 200 million handsets shipped to date and a 52% share of the total smartphone OS market (all devices shipped. Horizontal Integration.2 13.4 8. 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.1 44.4 247.9 2.5 20. in our view. and hotmail (350 million users).
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 (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
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)
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 $200250/unit device subsidy. We see higher subsidies as sustainable to the smartphone leaders, as long as smartphone penetration remains low and iconic smartphones continue to attract new or
Mike Abramsky 73
1% 74 Mike Abramsky . which would be in addition to royalties from other patent holders. consumers. 2009 upgraded data subscribers. however. who also can only support two to three platforms. Exhibit 62: Smartphone Margin Outlook Mix of Entry-Leve Smartphones Entry-Level Smartphone ASP ($/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 26.6% 2012E 47. RBC CM Smartphone Margin Outlook Smartphone ASPs and GMs Outlook.4% $229 $376 $337 35. Royalty Costs .5% to 39.0% 43. These increases could be offset by higher pricing for the new technology. brand and market momentum than today.0% 38. d) the size of the segment sufficient as to be commercially attractive to carriers. This industry structure. and. Nokia. we do not foresee this occurring for several years. suppliers and competitors. These “gating factors” include: a) the complexity of making iconic smartphones.9% 2010E 36.0% 46. blended iPhone non-GAAP GMs in our model drop from 55% to 45% and blended iPhone ASPs from $550 to $450.7% $191 $333 $265 29. developers. like the BlackBerry Pearl Flip or a possible iPhone “Nano”. and still more attractive than the low 30% average voice/SMS handset GMs in calendar 2008. For RIM. We expect smartphone industry GMs to decline 590bps from 43% in calendar 2008 to 37% in calendar 2012. with the four times increase in market size.6% 45. That only a few vendors will lead the market. Nortel (large LTE patent holder) has suggested that a 1% royalty for its patents on all LTE handsets is reasonable. 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. We expect entry-level smartphones. Royalty costs remain a risk to smartphone margins. manufacturers may have difficultly fully passing along higher licensing costs to consumers.2% $219 $365 $321 33.7% 43. 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. sustaining competitive barriers to most incumbents and new entrants. We see these favorable conditions remaining in place until the gap between the iconic. c) iconic smartphone platforms are gaining a critical mass of developers and content. establishes conditions for strong industry profitability. and other stakeholders. at which point we would foresee greater threats to margins. and ROI. in our opinion. reliability.Wireless Industry August 18. These “gating factors” limit smartphone vendor competition to a select few leading 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. helps support higher pricing and margin power over carriers.3% 41. Smartphone manufacturers currently pay royalties of approximately 3-5% of the handset’s ASP to key 3G patent holders like Qualcomm. Attractive Industry Structure.9% $209 $354 $300 32. smartphone vendors.8% $200 $343 $279 31. to rise from 26% of total smartphone units in calendar 2008 to 48% in calendar 2012. In other words. which remains underpenetrated. Within the enterprise and SMB market. and for Apple. the best smartphone experience will continue to win at this stage of the cycle.3% 37.4% and ASPs from $345 to $287.3% 44.6% 40. However. carriers are also expected to continue to subsidize smartphones with superior security.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.0% 2009E 30. by which time we expect Apple and RIM will have significantly greater share. in our model this translates to a decline in GMs from 43. b) the fact that wireless carriers are unable to support or subsidize more than one or two smartphone OSs or iconic handsets each. scale. In our view.4% 2011E 44. Ericsson and others. manageability.
We view these redirector fees as sustainable. we believe ASP/margin declines to penetrate the mass market are mitigated by the following factors: a) RIM and Apple’s current product mix. branding. RIM’s hardware margins are estimated at 33-36%. Mike Abramsky 75 .g. computing halo effect. For “redirecting” the data through its NOC. effectively an indirect subsidy which assists margins. 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. b) current pricing strategies – expected to continue – for RIM and Apple to introduce new products with the latest innovations at existing (e. iTunes/App store ecosystem.August 18. while overall blended GMs are 4045% including high-margin redirector fees (at 13-15% of revenue) and an estimated 80% margin. 2009 Wireless Industry For the smartphone challengers. which helps protect against subsidy declines. or UI layers on top of Android/Windows for others) which delivers a compelling user experience versus standard Android and Windows smartphones. Apple. in our view. We also expect Palm’s margins to be more resilient given its differentiated software platforms (WebOS for Palm. c) continued reallocation of carrier subsidies to those challenger products uniquely able to sustainably attract new high-margin data subscribers over time. and focus on premium buyers (even within the late majority segment. and offer less premium-featured or older handsets at entry-level (e.g. and Palm Margin Factors. similar to iPods) allowing it to negotiate premium carrier subsidies versus competitors. 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. $99 or lower) pricing to late-adopter and international markets.. RIM. which already accommodates $99 and lower pricing (with subsidies). carriers pay RIM a “redirector fee” of $2-10/month/subscriber. Apple’s margin declines are. manageability advantages) given its indirect user subsidy through corporate reimbursement. $199) pricing to the early-adopter market. 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.
and the data-centric smartphone market (particularly the consumer segment) remains at risk from economic headwinds. for the following reasons: 1) new product cycles (handsets.9 Bull Case 4% 5.6% 1. total mobile phone penetration and growth.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) 21.1% 45. 4) lower data pricing and handset pricing trends are improving smartphone affordability.6% 35. 2009 Smartphone Market Scenario Analysis Product Cycles Versus Business Cycles.2% Consumer 104 Business 23 Source: RBC Capital Markets estimates Bear Case -1% 4. or DVD/movie rentals (11%). offsetting slower regions. 30% downside (Bear Case) to our datacentric global smartphone user/unit forecasts. networks) and global transition from voice to smartphones help the smartphone sector outperform the slowing economic cycle. recent RBC IQ / Changewave survey data (May 2009. consumers are unwilling to part with their cellphones.7 Global Mobile Phone Shipments (B) CAGR) 1.4% 1.4 (4% CAGR) 15. vertical markets.4 (3% CAGR) 11.1 (8% CAGR) 1. we see the data-enabled smartphone market as a “market within a market”.700 respondents) shows that despite tightening consumer wallets. Smartphone Market Forecast Scenarios.4 2012E Outlook Base Case 2% 5 (8% CAGR) 1. 1. and. 2) smartphones appear less discretionary than other purchases. home phones (23%). with intensive competition. Our scenarios (see Exhibit 63 and 64) vary assumptions on GDP. high emerging market demand. While many would part with TV service (44%). only 3% of respondents would part with their cellphone service. discounted data/handset pricing. The analysis shows smartphone market growth ranging from 24-52% CAGR and handsets from 300 to 675 million in calendar 2012.1% 2. and smartphone upgrade cycles.2 Smartphone Penetration (% of TAM) 4. Under three scenarios for economic growth/slowdown. Exhibit 63: Scenario Analysis 2008A Assumptions: CY10 GDP Growth (%) Global Mobile Phone Users (B) (CAGR) 3.4% Smartphone Upgrade Cycle (Years) 1. smartphone penetration and growth.6 Results: Data-Centric Smartphone Users (MM) (CAGR) 165 Consumer 135 Business 30 Data-Centric Smartphone Handsets (MM) 127 Handsets % of TAM 10. which helps to offset weakness in traditional phone market segments. Affirming our view.5% 255 438 594 45 66 81 76 Mike Abramsky .9 (7% CAGR) 1. our Scenario Analysis suggests 30% upside (Bull Case). applications. 3) the data-centric smartphone market is international. students. and steady enterprise penetration. Our Bear Case assumes a global recession.Wireless Industry August 18. growing faster than the general handset market. 5) smartphones are just beginning to penetrate broader market segments like SMBs. While the total global handset market remains vulnerable to global economic slowdown. contracting consumer and business spending. with growth in developing/emerging economies expanding rapidly. our Bull Case assumes stronger-than-expected global consumer uptake.5 (5% CAGR) 19. 6) ROI of mobile deployments.
Bear Case: Global Recession and Competitive Headwinds Hurt Smartphones. PC cards/modules. With intensifying pressures from rising debt loads.S. International economies also slow on recessionary pressures – although not as slow as in the U. and international growth.August 18. with -4% U. Discretionary consumer spending contracts. before slowly recovering in calendars 2011/2012. 2. and upgrades to smartphones and mobile devices remain resilient on compelling new devices.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. a 49% CAGR. job losses and unemployment. etc. and Western Europe.9 years (from 1. tight credit. Base Case (RBC CM Forecast): Resilient Smartphone Uptake Within a Sluggish Economy. business users grow from 30 million in calendar 2008 to 100 million in calendar 2012 (13%). or 35% of TAM and a CAGR of 41%.S. with adoption/replacement of smartphones. a 35% CAGR. Rising debt loads.6 years). HDTVs. with the replacement cycle easing modestly to 1. lower pricing. Adoption/replacement of mobile phones. economy undergoes a sluggish U-shaped recession through calendars 2009/2010. concerns about job security. or 15% of total mobile phone users and a 47% CAGR. In this case. data-centric smartphone users grow from 165 million in calendar 2008 to 766 million in calendar 2012. iPods. 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. enterprise ROI. In this scenario. with GDP growth slowing to -3% in calendar 2009 and subsequently recovering to 2% in calendar 2010.200 Data-Centric Smartphone Users (MM) 1. Data-centric smartphone handsets rise from 127 million in calendar 2008 to 504 million in calendar 2012. Despite early positive Mike Abramsky 77 . visibly slowing. new services/applications. the U.S. Consumer data-centric smartphone users rise from 135 million in calendar 2008 to 667 million in calendar 2012 (87% of total). and pessimism on home prices and stock markets restrain consumer spending. 2009 Exhibit 64: Scenarios for Global Smartphone Penetration 1. this scenario assumes a more protracted W-shaped or L-shaped recession.
and Palm. driven by iconic new handsets (like Storm 2. On significant consumer uptake. for a CAGR of 28%.16) and F2011 estimates become $21.82. CDMA. Spending on smartphones and mobile devices remains resilient (market growth estimated at 50-60% CAGR). Data-centric smartphone handsets rise at a CAGR of 52%. Inc. compelling applications and international smartphone acceleration.4 years (from 1. RIM: Raising Target to $150 RIM Positioned for Smartphone Leadership.6 years) as businesses reign in spending and consumers reduce discretionary spending.9 billion. $159. and global economies still face pressures. and form factors) to continue market penetration. lower data pricing. The shift to the next wave of computing will likely develop over the next several years.Wireless Industry August 18. small businesses. On stronger smartphone growth. In this scenario. with higher-than-expected global replacement of voice phones. along with upgrades from older 2G to newer. We believe RIM will continue to possess sustainable advantages in intuitive.59.06-$5. particularly among new market segments (younger buyers. reliability and battery life. We are raising our price targets on RIM from $100 to $150. it is only a short-lived V-shaped recession.16). representing a CAGR of 34%. and Palm Pre) and form factors. The resilience of global consumer discretionary spending on smartphones and wireless data surprises investors. Smartphone uptake also grows faster than expected within broader geographies (China. GDP growth only slowing to -2% in calendar 2009 (includes a strong second-half calendar 2009). We are introducing our F2012 estimates of $25. enterprise. along with its unique. consumer data-centric smartphone users are expected to grow from 135 million in calendar 2008 to 459 million in calendar 2012 (85% of total). enterprise users reach 119 million in calendar 2012 (12%). or 11% TAM. Western Europe. and its NOC/software/hardware ownership. Raising Estimates.0 billion (32% Y/Y) in revenue and EPS of $4. on Apple from $190 to $250. Outperform. representing a CAGR of 57%.23. etc. data-centric smartphone users rise from 165 million in calendar 2008 to 540 million in calendar 2012. Russia.43 EPS (prior $20.8 years on innovative devices and innovative service plans. global carrier data promotions.1% TAM in calendar 2009 and 4. with the replacement cycle steady at 1. With an estimated 1. (NASDAQ: PALM. is positioned for long-term smartphone leadership and we foresee significant additions and expansion of its product line (consumer. India. in our view.S. and then recovering to over 4% growth in calendar 2010. our F2010 estimates become $16. $5.8 billion (22% Y/Y) in revenues and $6. reaching 675 million in calendar 2012. Although the U. craved push-based “Crackberry” messaging experience. students.1 billion.S. Our Scenario Analysis shows F2011 revenues from $17. consumer data-centric smartphone users jump to 874 million in calendar 2012 (88% of total). RIM. In our opinion. Latin America. and on Palm from $18 to $25. faster. more full-featured 3G models.40 in EPS. 3G. GSM. the emerging leaders in the smartphone market such as Research in Motion Limited (NASDAQ: RIMM.26 (prior $15. or 22% of TAM. $70. Outperform. The smartphone market globally also gets a boost via adoption of mobile email and mobile browsing. Speculative Risk) represent compelling investment opportunities which warrant investor attention.2 billion (32% Y/Y) in revenue and $5. with U. (NASDAQ: AAPL. Above Average Risk). for a 24% CAGR. particularly in emerging economies. RIM needs only to achieve 3.). powerful data experiences.72. representing a 41% CAGR. Apple Inc. and vertical markets). Raising Targets Raising Price Targets.1% TAM in calendar 2010 to 78 Mike Abramsky . or at a CAGR of 36%.8% TAM (18% smartphones) in 2008. With a pull-back in consumer spending. offering a headwind to smartphone traction. mobile email takes off more slowly outside the U. than expected.0 billion and EPS from $4. 3. offer upside to financials and potential multiple expansion. Forecast to Capture 6. with the replacement cycle slowing to 2. 2009 indications. Above Average Risk). iPhone 3GS.0-22. $13. business users reach 81 million in calendar 2012 (15%). $4. or 46% of TAM. Bull Case: Smartphone Surprise.S. Our Bull Case scenario calls for data-centric smartphone users to reach 993 million in calendar 2012. justified by increased market shares which. or 20% of total mobile phone users. as visibility improves to the huge smartphone opportunity.5% TAM by 2012. a 59% CAGR. Data-centric smartphone handsets rise from 127 million in calendar 2008 to 300 million in calendar 2012. Outperform.
4% $4.9 64.1 49% 41.8 21. Challenges. UI. We believe RIM is already moving to address these challenges.3 42. While not insurmountable.3 94.088 26% 50.0 27.5% 20.06 6% $19.8 63.2 70% 42. bundled and downloadable applications.8 21.5%).5 20.16 20% F2011E Current $21. 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 $16.4% $5. with significant growth and share gains ahead. as it targets the mass smartphone market. and Mike Abramsky 79 .5% terminal rate.1 17.966 15% 41.656 21% 72. RIM will deliver above-peer growth.4 42% 40.0% 21. Additionally.910 44% 37. We view the iPhone as a 10-year platform.4% $4.768 22% 70.957 33% 56. profitability and valuation upside.8 17. Apple: Raising Target to $250 Apple Positioned for Smartphone Leadership. based on 1) revised higher F10/F11 EPS outlook (see above).151 32% 53.0 78.).4% $5.5% 19. Our revised $150 target is DCF-based (10.5% 19.2% $7.4 42% 40.46 10% $21.0 58.40/share).3 91.8 20.5% 20.5% 20. 2009 Wireless Industry exceed our revised growth expectations for the next two years.5 43% 42. SDK.40 18% Source: RBC Capital Markets estimates Reaffirming Outperform and Raising Target to $150 (from $100).4% $5.43 27% Prior $20. with strong fundamentals and products targeting multiple segments.26 23% Prior $15.9 34% 39.2% 21. FTM cash $6.0 23.August 18. In our view. RIM has lagged competitors in “front-end” software (browsing.2 54% 42.6% $6.151 32% 53. driven by distribution expansion.5% WACC (prior 11.3 66. on mix.3 91.3 42. innovations in user experience.2 18.0 27.9 64.9 44% 40. RIM may face further margin/ASP downshifts.1% 18.9% $4. 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.995 45% 38.16 24% F2012E New $25.032 12% 48.6% $6.1 52% 41.7% 21. while retaining its trademark advantages.5 28. etc.1 52% 41.768 22% 70. Our outlook reflects continued share gains in domestic and international markets.82 30% $26.0% $4. 4.2 70% 42.2% 18.1% $5.13 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 $15.2% 21.40 18% $21.43 27% $25.
0 billion revenue (11% Y/Y) and $5. Apple needs only to achieve 2.3 million iPhones (57% Y/Y). it may be challenging to sustain the same level of disruptive innovation if Steve Jobs were not involved with the company.7% $11.260 13.08 13.42 $8.8% 9.3 57. Challenges.336 17.97 15.6% 36.284 3.676 $42.108 20.955 12.7% TAM by 2012.795 3. software.2% 10.833 18.995 19.3 billion revenue (18% Y/Y) and $8. Adjusted for iPhone subscription accounting. We are introducing F2011 estimates of $50.3% 9.55 $8. Our F2009 estimates remain $36.1% 33.9% 33.4 20.9% 36.08-$8.46 $7. Source: RBC Capital Markets estimates 80 Mike Abramsky .3% $8.730 8.0% TAM in calendar 2009 and 2.9% 8.955 12.94 25.062 12.4 24.9% $9.6 billion. 2.35 15.23 in GAAP EPS (prior $42.062 12.4 million shipments (52% Y/Y).8 billion revenue (19% Y/Y) and $7.226 12.3% 55.7-52.860 $45.9% TAM in calendar 2010 to exceed our revised outlook.425 3.00) on 31.5 62.141 12.9% $7.780 20.91 $7. however.25 in GAAP EPS on 49.5% $6. However. 2009 additional iPhone SKUs.860 $52. service.975 3. Forecast to Reach 5.062 12.90 in GAAP EPS.23 15. With an estimated 1.676 $41.119 21.619 18.0% 31. Our F2010 estimates become $42.761 20.6% 30.1% TAM (11% smartphones).981 16. as it targets the mass smartphone market.676 $43. iTunes) iPhone 1 Other Total Revenue ($MM) To tal Reve nue Growth (%) Gross Margin (%) EBIT ($MM) EBIT Margin (%) Non-GAAP EPS2 GAAP EPS 13.455 18.9 67.208 3.Wireless Industry August 18.9% 36.7% 36. Apple may face margin/ASP downshifts.61 $7.860 $50.08 $6.682 3.94. Exhibit 67: Apple Scenario Analysis Bear Case F2010E Assumptions: iPhone Units (MM) Y/Y Growth (%) Results: Macintosh Music (iPo d.4% 8. Other includes Peripherals.786 20. Innovation remains alive and well at Apple.955 12.4 52.2% F2011E Base Case F2010E F2011E Bull Case F2010E F2011E 1. Our Scenario Analysis shows F2011 revenues from $45. Apple’s iTunes/iTunes Store/device ecosystem remains a significant source of competitive advantage.1 billion and EPS from $7.5% $9. near term we believe CEO Jobs’ return will accelerate Apple’s already strong product innovation.9% 9.271 21. Raising Estimates.5% 35.25 13.3% 49. $7.176 19. on mix.126 14.
3% $8.860 35.071 6.75 non-GAAP EPS ($2. Reiterate Our Outperform Thesis: 1) WebOS is a key asset and competitive advantage in user experience. Source: RBC Capital Markets estimates Raising Target to $250 (from $190). 4) additional innovations increasing demand.294 12. These challenges are expected to dissipate with growth and momentum. Our revised target is DCF-based (10.011 10.06. 3) expansion in global distribution.1 billion revenue (177% Y/Y) and $0.068 6.676 36.809 3. With an estimated 0. and unique innovations. and.307 20.865 35.42). As a turnaround. For F2011.3% $8.226 12.9% 13.25 in non-GAAP EPS (prior $1. c) litigation/other. Challenges.89 $5.955 12.4% 13. we expect $3. 2.4-3. and.28 $7.774 3. Palm: Raising Target to $25 “The New Palm”.6 billion and EPS from $0.5 billion.3% TAM (3% smartphones) in 2008.336 17.84 $5.676 36. Palm faces near-term challenges.6% TAM in calendar 2010 to exceed our outlook.00 Wireless Industry F2011E New $50. marketing budgets and balance sheets of RIM and Apple.2% TAM in calendar 2009 and 0.5%).955 12. ground-up designed WebOS platform.795 3.3% 9.08).3% TAM by 2012. scale. based on: 1) revised higher F2010/F2011 EPS outlook (see above). any related valuation volatility offers entry points.004 10. FTM cash $48.119 21.74/share).5% 15. Adjusted for iPhone subscription accounting.062 12.8% 7.637 18. vertically integrated model.90 Prior $36.995 19. iTunes) iPhone Other 1 Gross Margin (%) EBIT ($MM) EBIT Margin (%) Non-GAAP EPS2 GAAP EPS $36. b) product and distribution ramp.55 $8.9% 13. 2009 Exhibit 68: Apple Estimates Revision F2009E Current Revenue ($MM) Growth (%) Macintosh Music (iPod.975 3. 2) we expect multiple WebOS devices.7% $8. $0. 4.31-1. the “New Palm” in our view possesses the “special sauce” necessary for global smartphone leadership: This includes its management team.865 35. including: a) execution.2% 8.826 20. software. Mike Abramsky 81 .2 billion (52% Y/Y) and $0.91 $7. Raising Estimates. and.9% $9.0% WACC (prior 10.90 F2010E Current $42.7 billion. Our Scenario Analysis shows F2011 revenue from $2.August 18.8% 7. Palm needs only to achieve 0. and thus may need to be more measured in its product and distribution roll out.3% $8.294 12. We foresee additional share gains.5% terminal rate.833 18.8% 9.196 12.305 20.9% 13. $0. 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. service. While facing near-term challenges.619 18. Palm lacks the strong brand tailwinds. Forecast to Reach 1. Other includes Peripherals.25 1.23 Prior $42. Our F2010 estimates become $2. matching it to its available resources.785 3.
399 8.25 Prior 4.387 4. 2) multiple re-rating to 2.30 F11E 9.Wireless Industry Exhibit 69: Palm Scenario Analysis Low Case Non-GAAP Total Smartphone Units (000s) webOS Units (000s) Revenue ($MM) Y/Y Growth (%) Pro Forma EBIT Margin (%) Pro Forma EPS 1 F10E 3.9% $1.4% $0. Adjusted for amortization of intangible assets.718 125.0% 10.31 Base Case F10E 5.962 499 $2.142 3.374 $2. Adjusted for amortization of intangible assets.4% 5.7% $0.00 F11E 6. 2% terminal growth. Our revised target is DCF-based (10. stock-based compensation.3% $0.744 499 $3. and. Source: RBC Capital Markets estimates Exhibit 70: Palm Estimates Revision F2010E Non-GAAP Total Smartphone Units (000s) webOS Units (000s) Treo/Centro Units (000s) Revenue ($MM) Y/Y Growth (%) Pro Forma EBIT Margin (%) Pro Forma EPS 1 F2011E Current 8. based on: 1) revised higher F2010/F2011 EPS outlook (see above).25 F11E 8.675 $2.0% 10.7% $0.06 1.4% 3.900 $3.115 177.115 177.243 7.02/share).08 1.461 5.2% 2.374 712 $2.3% $0.086 4.243 7.215 52.4% $0.357 45.9% $0.937 3. and FTM net cash of $8. 2009 High Case F10E 5.240 193.3% $0. stock-based compensation.75 August 18.099 5.9% 5.6% $0.0x on improving investor sentiment as Palm continues to successfully scale and gain market share.430 712 $1.42 Current 5.625 113.4x F2010 EV/non-GAAP sales from 2.744 $3.4% 5. and restructuring charges.215 52.9% 12.5% WACC (prior 11%).75 Prior 6.6% 7.0% 6.600 $2. and restructuring charges. Source: RBC Capital Markets estimates Raising Target to $25 (from $18).519 46. 82 Mike Abramsky .225 $1.086 4.583 59.
) Mike Abramsky 83 . etc. Movies. Books. 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. 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. Content Providers Data Providers (demographics.August 18. etc. retail data.
licenses. 84 Mike Abramsky . OEM radio modems. The company’s products include Palm Treo. The Business Division includes the Information Worker segment (Office Suite) and Business Solutions segment. Palm products are sold through wireless carriers and third-party retailers throughout the world.89. which offers mobile software platforms that reside on PDAs. $12. TSX: RIM). Research In Motion. Average Risk)* HTC Corporation (Taipei: 2498. The company has five divisions. 2009 Companies Mentioned Apple Inc.25. Outperform. Outperform. Products include the Macintosh line of personal computers. manufacturer. Microsoft Corporation (NASDAQ: MSFT). and the Home and Entertainment segment. the sale of radio modems to OEM manufacturers. and supports software products for various computing devices worldwide. $7. etc.Wireless Industry August 18. and the iPhone smartphone. (NASDAQ: AAPL). and Palm’s online store. Above Average Risk) Google Inc. as well as manufactures. and peripherals. which consist of email and instant messaging services. Pre and Centro phones. and marketer of differentiated personal computers. established 1984. Not Rated) Nokia Corp. (NASDAQ: PALM. smartphones. Outperform. Apple. customer relationship. $13.59. as well as software. The Entertainment and Devices division is comprised of the Mobile and Embedded Devices segment. is a developer and manufacturer of mobile devices and smartphones. is a California-based designer. Speculative Risk) Research in Motion Limited (NASDAQ: RIMM. founded in 1976. The Server and Tools division develops and maintains components of the Windows Server System. $23. TWD 339. The Online Service Group includes MSN and Live. the iPod line of portable digital media players.45. Outperform. services. $444.23. Inc. Products include the BlackBerry wireless handhelds. software. $70. software and services. $159. Average Risk) Motorola (NYSE: MOT. is a Waterloo-based developer.). Revenues are generated from the sale of wireless devices. (NASDAQ: AAPL. including SQL database server and ISA server. (NASDAQ: GOOG. and the BlackBerry data service backed by RIM’s NOC (Network Operations Center) infrastructure. Not Rated) *Covered by Ross Sandler ** Covered by Mark Sue Company Descriptions Apple Inc. and online search and premium content. and accessories. and marketer of wireless handheld devices. iWork.com domains. Above Average Risk)** Palm. the iTunes online media store. enterprise server software revenue. recurring service fees (“redirector fees”) for managing carrier messaging infrastructure. Microsoft Corporation develops software. and nonrecurring engineering (NRE) revenues. Outperform. JPY 2605.000 employees. it also provides Internet access. (NASDAQ: PALM). Client division develops and sells the Windows operating systems for PCs. (NYSE: NOK. and Web and mobile services. Palm. Mac OS X operating system and related application software (iLife. Inc. which provide software to manage financial. and is supported by its retail store network.72. and other devices. and messaging-based wireless services. CA-based Palm.06. manufacturer. services. Inc. Apple is positioned in the high-end consumer sector. has a strong global brand and fiercely loyal customer base. which offers the Xbox video game system. Research in Motion (NASDAQ: RIMM. Outperform. Above Average Risk) Samsung (Korea: 005930. Not Rated) Sony Ericsson (Tokyo: 6758. and supply chain management functions. KRW 720616. Apple has approximately 18. Not Rated) Microsoft Corp (NASDAQ: MSFT. BlackBerry Enterprise Server (BES) software.
such as network services and program-to-program commands. Based on analog or AMPS technology. As defined by the International Telecommunications Union (ITU).5G and 3G networks. 2G systems traditionally supported voice and circuit-switched data service. an early wireless network technology involving the modulation of radio signals. 2G – Second Generation wireless technology. BCMCS – Broadcast Multicast Service. AES – Advanced Encryption Standard.11g and 802. Bandwidth – In wireless communications. 3G wireless networks offer increased voice capacity and provide higher data rates than 2G and 2. CDMA2000 1xEV-DO. Mike Abramsky 85 .11b. 802. a Wi-Fi-enabled laptop) and an access point to another network.August 18. The 802.11n. A standard for encryption intended to replace the DES (Data Encryption Standard). A private key symmetric cryptographic algorithm. For example.5G networks. microphones and mice. or communication hub. A set of standard methods or functions that application programs can use to access a particular set of services or tools. 2G systems are being replaced today by 2. A standard being developed for third-generation (3G) cellular networks. Bluetooth supports both voice and data communications. adding 2. that protects computer data by encoding (converting) the data three times for greater security.5G wireless technology to a 2G network provides packet-data service and improved data rates. Bluetooth – A short-range wireless technology that interconnects devices such as phones. Examples of multicast content could include video and movie clips. Provides transmission of multimedia data from a single source to all subscribers in a specific area.11a.11 refers to the body of standards issued by the IEEE (Institute of Electrical and Electronics Engineers) for WLANs (wireless local area networks). 2G wireless networks offer increased voice quality and capacity over 1G systems. Access Point – A network device. AES supports key lengths ranging from 128 to 256 bits. 1G wireless networks were designed to carry voice traffic only. 2. The first analog cellular phone system commercially deployed in the 1980s. BREW® provides a set of APIs for the development of applications for wireless devices. which transmit information as sound waves over radio signals allowing one call per channel.11 family of technologies includes 802. API – Application Programming Interface. 2. computers. 3DES was issued as a Federal Information Processing Standard and is an updated version of DES. the standards body that oversees WCDMA . Digital bandwidth is the volume of data that a channel can carry and is measured in bits per second (bps). ARPU – Average Revenue Per User. Based on digital technology. news. Analog – In telecommunications. 3DES – Triple Data Encryption Standard. The monthly revenue generated by a consumer’s wireless device usage. 3GPP – Third Generation Partnership Project.5G – Based on digital technology. that connects wireless devices to a wired local area network (LAN). 2009 Wireless Industry Glossary 1G – First Generation wireless technology. AMPS – Advanced Mobile Phone Service. 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.11 technologies use an over-the-air interface to connect a device (for example. 802.5G technology has been implemented as GPRS. A technology used to determine an end-user’s position in urban areas or dense outdoor environments. 802. Differs from traditional GPS by adding an assistance server. the standards body that oversees CDMA2000. Based on digital technology. keyboards. 3G – Third Generation wireless technology.11 – 802. the width or capacity of a communications channel. which shares tasks with the A-GPS receiver to expedite position location. WCDMA/UMTS and HSDPA/HSUPA. 3GPP2 – Third Generation Partnership Project 2. Analog bandwidth is measured in hertz (Hz). 3G technology has been or will be implemented as CDMA2000. 802. A-GPS – Assisted-Global Positioning System. sports or stock quotes.
CDPD – Cellular Digital Packet Data. which is then transmitted as a radio signal over a wireless network. DVB-H – Digital Video Broadcasting – Handhelds. a mobile phone may be equipped to support both CDMA2000 and WCDMA standards to send and receive calls. In contrast. music. Cellular – Analog or digital communications that provide a consumer with a wireless connection from the mobile device to a relatively nearby transmitter (base station). CDMA2000 1xEV-DO – CDMA2000 1X Evolution – Data Optimized. BREW – Binary Runtime Environment for Wireless. May be used with most wireless devices and networks. Today. cdmaOne was the coined term for Qualcomm’s original CDMA systems based on the IS-95A and IS-95B standards. The transmitter’s coverage area is called a cell. The CDMA2000 family of standards includes CDMA2000 1X and CDMA2000 1xEV-DO. secure transmission and more bandwidth than analog lines. including ringtones. Digital networks offer superior Quality of Service (QoS). Third-generation wireless technology that offers broadband data speeds to support applications such as VPN access. For example. CDMA2000 1xEV-DO and HSDPA . trademarked and reserved for the exclusive use of the CDMA Development Group (CDG) member companies. Digital – A form of transmission that transforms analog signals. graphics and video. 86 Mike Abramsky . 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 multicast technology standard specified by the DVB Project for the multicast delivery of TV-like programming to wireless devices. CDMA uses spread-spectrum technology. such as wireline. decreasing potential interference while achieving privacy. 2. An open. 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. such as speech. such as WCDMA (UMTS ). CDMA2000 1xEV-DO is a direct evolution of CDMA2000 1X. DRM – Digital Rights Management. PDAs and other mobile devices. For cellular communications. such as voice. Enables Internet connectivity for cellular phones. CDMA2000 1X – A family of third-generation (3G) wireless standards that offers enhanced voice and data capacity and higher data rates than previous. A dial-up modem is an example of a circuit-switched connection. A digital wireless technology that works by converting analog information. a packed-switched network are connectionless or “always on. using a total of 10 MHz of wireless spectrum. into digital information. second-generation wireless standards. video downloads and large file transfers.5G networks. A component of the BREW System. An add-on technology that enables first-generation (1G) analog systems to provide packet data. including personalized and branded user interfaces. extensible client platform developed by Qualcomm to support system and application software. into a series of electrical or optical pulses that represent the binary digits 0 and 1. there is a transmit side and a receive side.5G and 3G systems are replacing CDPD.” eliminating the need to initiate a connection for data transfer.Wireless Industry August 18. Developed to prevent the illegal distribution of purchased content over the Internet. CDMA2000 1xEV-DV – CDMA2000 1X Evolution Data and Voice. DSL or cable modems and wireless third-generation technologies. a 5 MHz channel uses 5 MHz to transmit and 5 MHz to receive. Broadband – Generic term for high-speed digital Internet connections. one signal is sent from the base station and received by all subscribing devices within range. Third-generation wireless technology that supports high-speed voice and data on the same channel. CDMA – Code Division Multiple Access. The standard for measuring the smallest unit of information in digital communications and data processing. For example. Technology for copyright protection of digital media. Dual Mode – Functionality that allows a mobile phone to operate in two different modes for greater roaming capabilities. cdmaOne – A brand name. With DVB-H. 2009 Bps – Bits Per Second. Channel – The amount of wireless spectrum occupied by a specific technology implementation.
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. Hot Spot – A location. where a consumer can establish a WLAN (wireless local area network) or Wi-Fi connection. i-mode supports Web content and services. such as Memory Sticks or Secure Digital (SD) Cards. Adds packet data to the existing voice network. the audio portion is handled separately. GSM – Global System for Mobile Communications. such as mobile banking. GPS works via radio signals sent from orbiting satellites to receivers on the ground. A second-generation wireless telecommunications standard for digital cellular services first deployed in Europe. GPS – Global Positioning System. 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. Usually refers to the delivery of a wide variety of TV-like programming to wireless devices. email and news reporting for cellular phones.263 – A video compression standard developed by the International Telecommunications Union (ITU) for transmitting video over limited bandwidth connections. Commonly used in mobile phones.264 (MPEG-4 AVC) – A high-compression.5G technology standard that is an upgrade to a GSM network. H. A 2. airport or bookstore. Flash Memory – A type of memory that can be erased and reprogrammed (rewritten). Department of Defense to enable users to determine their exact location anywhere on the globe. VoIP (voice over Internet protocol). digital video standard that offers greater compression than previous standards. audio players and removable memory cards. HSDPA – High-Speed Downlink Packet Access. digital cameras. Encryption – In security. H. FOMA – NTT DoCoMo’s WCDMA-compliant 3G network. A firewall enforces a boundary between two or more networks. video downloads and large file transfers. HSUPA – High-Speed Uplink Packet Access. push to talk (PTT) and video calling. Nextel Communications® uses iDEN technology as the basis for its networks. high-speed wireless data transmission to enable multimedia services such as videophone and video mail. A proprietary cellphone service based on cHTML technology developed by Japan’s NTT DoCoMo. An open industry standard for voice and multimedia communications over packet-based IP networks. i-mode – Internet Mode. such as a coffee shop. Supports high-volume. Symmetric and Public Key. Java – A programming language developed by Sun Microsystems for creating and running software programs on a single computer and in networked environments. iDEN – Integrated Dispatch Enhance Network. Considered an option for transmitting full-motion video over wireless and Internet connections. Supports technologies such as IM (instant messaging).S. IMS – IP Multimedia Subsystem. Mike Abramsky 87 . An enhancement to WCDMA networks that provides higher data speeds in the downlink to support applications such as VPN access. 2009 Wireless Industry EDGE – Enhanced Data Rates for Global Evolution. A worldwide radio-navigation system developed by the U. Java programs are portable and can be run anywhere in a network that has a Java virtual machine (JVM). Hot spots provide a wireless access point for the user and limited coverage (approximately 100 feet). Types include Asymmetric. such as the Internet. Supports only the visual portion of the video stream. paging and data from one wireless device. An enhancement to WCDMA networks that provides higher data speeds in the uplink to support applications such as VPN access and large file transfers. two-way radio transmissions. GPRS – General Packet Radio Service. depending on the location. Jointly developed by the International Telecommunications Union (ITU) and the ISO Moving Picture Experts Group (MPEG). and can also include IP-based content such as games or video and audio files.August 18. IP Datacasting – Simultaneous transmission of content from a single source to a large number of wireless subscribers. GSM is based on TDMA technology and provides circuit-switched data connections. A proprietary technology from Motorola based on the TDMA standard that allows users to access phone calls. such as mobile networks. encryption is the ciphering of data by applying an algorithm to plain text.
PDC is incompatible with other wireless networks. project schedules and task lists. MPEG-4 (MP4) – Moving Picture Experts Group-4. and Multimedia services. circuit-switched networks require a dedicated circuit. Refers to the routers used in CDMA2000 wireless networks that comprise the backbone of the network. PSTN – Public Switched Telephone Network. A highly optimized mobile broadband OFDMA solution designed from the ground up to deliver high-speed broadband data. Enables operators to offer personalized services based on the user’s location. A Type II PC card is the most common PCMCIA card. voice (VoIP).” eliminating the need to connect to a network to send or receive data. Multicast – Simultaneous transmission of content from a single source to large numbers of wireless subscribers. LTE complements existing 3G solutions by leveraging wider bandwidths (up to 20MHz). 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. PDSN – Packet Data Serving Node. PTT works like a “walkie-talkie” and requires transmitters to use the same frequency. or connection. and advanced antenna techniques (MIMO.Wireless Industry August 18. regardless of the particular frequency band being used. smartphone or PDA optimized to run in the low-memory and small-screen environment of a handheld device. PCMCIA – Personal Computer Memory Card International Association. PDC – Personal Digital Cellular. Allows wireless device users to send multimedia. for the duration of the data transmission. PC Card – A wireless modem that can be used in a laptop or other mobile computing device to connect to the Internet. A measurement of the amount of data transferred in one second between two telecommunication points. Refers to the 1900 MHz cellular frequency band. 2009 LBS – Location Based Services. from one device to another. More commonly used as a marketing term to describe digital wireless services in the Americas. One million hertz or cycles per second. A measurement often used to describe the speed of digital and analog signals. MPEG-3 (MP3) – Moving Picture Experts Group-3. Synonymous with PCMCIA card. PCS – Personal Communications Services. Packet-switched networks are connectionless or “always on. Measured as one million bits per second. Sometimes called a contact manager. Mbps – Megabits 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. Used for the mobile transmission and storage of audio files. The best known example in the United States is Nextel’s Direct Connect® service. PSTN refers to the entire collection of interconnected phone companies. In two-way radio communications. Used for the transmission and storage of images and video clips. SDMA and Beam forming). In contrast. PTT is an instant connection made between two cellphones. such as video or digital photos. MHz – Megahertz. Software for keeping track of contact addresses and phone numbers. In the United States. Refers to the local. appointments. WWAN (wireless wide area network) card and Aircard®. The second-generation TDMA-based wireless technology used in Japan. MMS – Multimedia Messaging Service. A standard for compressing audio into a compact file without losing a significant amount of its quality. A standard for compressing video into a compact file without losing a significant amount of its quality. Packet-Switched Network – Networks that transfer digital packets of data. Usually refers to the delivery of a wide variety of TV-like programming to wireless devices. PTT – Push-To-Talk®. long-distance and international phone system. 88 Mike Abramsky . Microbrowser – A Web browser specialized for a wireless phone. PIM – Personalized Information Manager.
A second-generation. For example. Trade name for a new family of IEEE 802. SDK – Software Development Kit. operating system. video game console. WAN – Wide Area Network. A third-generation. A network that is constructed using public wires to connect remote offices or individual users to their organizations’ network. 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. 2009 Wireless Industry Public Key Encryption – A method of securing data for transmission that equips each user with two keys. including telephone numbers and addresses. PDC and iDEN. digital wireless communication technology that increases the amount of data that can be delivered by dividing each cellular channel into time slots. but the term usually refers to a public network. A method of remotely retrieving data from and storing data associated with animals. Tri-Mode – Triple Mode. SMS – Short Messaging Service. One of the three international CDMA technologybased standards accepted by the ITU for third-generation wireless communications. products or equipment. hardware platform. A removable card built into all GSM phones and other mobile devices. A set of development tools that allows a software engineer to create applications for a certain software package. Applications include “last mile” broadband connections and hot spots. The routing of voice conversations. Used to initiate an interactive multimedia user session such as chat. VPN – Virtual Private Network. A protocol for managing the security of message transmission on the Internet. 800 MHz cellular and 1900 MHz PCS frequencies to make and receive calls. software framework. VoIP – Voice Over Internet Protocol. CDMA-based wireless communication standard that offers enhanced voice and data capacity and higher data rates than previous. sent as digital packets of data. UMTS/WCDMA – Universal Mobile Telecommunications System/Wideband CDMA. TDMA – Time Division Multiple Access. Wi-Fi – Short for “Wireless Fidelity” and another name for WLAN (wireless local area network). A set of standards that enables a wireless device to browse content from specially coded Web pages over wireless devices such as mobile phones. A thirdgeneration (3G). second generation wireless technologies. A geographically dispersed telecommunications network. RFID – Radio Frequency Identification. Requires an RFID tag which contains an antenna to enable the tag to send and receive queries from an RFID transceiver. over the Internet or other IP network. WiMAX – Wireless Interoperability for Microwave Access. a mobile phone may be equipped to use analog. Allows a mobile user to connect to a local area network (LAN) through a wireless connection. SIP – Session Initiation Protocol. for example. SIM – Subscriber Identity Module. TD-SCDMA – Time Division-Synchronous Code Division Multiple Access. such as handset number and wireless features.August 18. or similar platform. (3G) wireless standard that offers enhanced voice and data capacity and higher data rates than previous second generation wireless standards. and can also store data. a private key and a public key. The means by which users interact with the operating system. Source: Qualcomm Mike Abramsky 89 .16 wireless standards. between a Web server and a Web browser. The SIM identifies the user’s subscriber information. 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. video. voice or gaming. VPNs use encryption and other security mechanisms to ensure network access to authorized users. SSL – Secure Sockets Layer. A trusted third party often provides keys. A group of proposed wireless standards for high-throughput broadband connections over long distances. WAP – Wireless Application Protocol. Wireless standards that use TDMA technology include GSM. Functionality that allows a mobile phone to transmit in three modes for wider coverage area. UI – User Interface. VPNs are an essential component of secure wireless computing for the enterprise. A standard protocol defined by the Internet Engineering Task Force (IETF). people. A WAN may be privately owned or rented. computer system.
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