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

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

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

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

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

Wireless Industry

August 18, 2009

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

2 Mike Abramsky

August 18, 2009

Wireless Industry

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

• •

• •

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Source: RBC Capital Markets

Mike Abramsky 3

smartphones are uniquely transformational. including the Sharp Wizard. mainframes dominated computing in the 1950s. Newton Messagepad and Palm Pilot. Internet.200 1.Wireless Industry Exhibit 2: Global Data-Centric Smartphone Milestones and Evolution Launch of the first touchscreen BlackBerry August 18.g.9 126. was a seminal industry event. upgrades. consumer electronics. Exhibit 3: How Iconic Innovations Accelerated Global Technology Markets 1.8 83. it has been iconic. with its standard architecture. the Internet. wireless phones – have grown via transformational innovations.1B users globally by 2008. Laptops became popular in the early 1990s with the launch of the Apple PowerBook 165c which brought color VGA screens. each successively attracting larger markets and users.000 PC Users (MM) 800 600 400 200 0 1980 1985 1990 1995 2000 2005 2008A 2009E 1. also emerged but only a few survived.0 0 2000A 2001A 2002A 2003A 2004A 3.1B 1. because they represent the convergence of these four technology markets – adding the convenience of being able to go everywhere. But it was the PC that upended the computing industry in a few short years. and Radio Shack. etc. Software developers shifted their sights to the PC..g. four discrete technology markets – PC and computing.1 14. Organizers. the iPod – that have accelerated market expansion and shifted market share from incumbent vendors to new challengers. MS-DOS. ergonomic keyboards and mouse positioning. In 2009. with early leaders Digital Equipment and Burroughs (and later IBM) ceding ground to new challengers like Dell. with netbooks (small ultra-light laptops) jumping from 0% of laptops in CY07 to >15% in CY09. with 64K RAM and Microsoft Basic. The launch in 1981 of the IBM PC. debuted in the late 1990s. add-ons. and Microsoft standards PC-DOS and Windows accelerated growth and software momentum. VAX). 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.3 57. laptops are expected to rise to >50% of PC shipments. Eyeing the growing PC market.3 28. was arguably the best selling computer (17M total units sold) in the early 1980s. Commodore. 164.5 2005A 2006A 2007A Source: RBC Capital Markets estimates Transforming 4 Previously Discrete Markets In the past. Amiga. the PC. multiple contenders like Wang. launched in 1982. and upgradable components.but inspired subsequent copies. In our opinion. Total # of 2008 Users: 1.6 7. Compaq and Apple.. Commodore 64.1B 4 Mike Abramsky . which grew from <10M users in the early 1980s to 1. personal data assistants small enough to ‘fit in your pocket’. followed by the minicomputer (e. Popular applications like Lotus 1-2-3 and word processing from MultiMate and WordStar (later Microsoft Word) popularized the PC. transformational technology innovations – e.0 20 0. DEC PDP-11. Over the last five decades. the cellphone. The early PC looked nothing like it does today – embodied by the $400 do-it-yourself Altair launched in 1975 . PC and Computing – Complex and massive.

Xbox. Telebit.6B 2. Canon.5M units in 2003 to 55M units in 2008. Following releases of iTunes for Windows and a 40GB iPod. with advertisers experimenting to leverage the new medium. along with initial broadcasts in the late 1940s put television on the ‘must have’ list. Sega Genesis. as was its famous unwinding in 2009. Total # of 2008 Users: 2.4B 2. Cameras also grew popular with consumers. Email. the home gaming market has grown to more than 250M users in 2008. iPod sales rose from 1. The post-war (1948-49) boom.000 Internet Users (MM) 1. Motorola. Penetration grew from 9% of households in 1950 to 86% in 1959. Web pages continued to grow from 26M in 1998 to 1B in 2000 to 1T by 2008. hypertext links – Tim Berners-Lee at CERN in 1989. Hayes. Sony PlayStation. began to accelerate in adoption. portable consumer electronics.. and Kodak which transformed the industry. Emerson.000 500 0 1980 1985 1990 1995 2000 Wireless Industry 1. Film-based compact and SLR (Single Lens Reflex) cameras dominated the industry. Nintendo Gameboy popularized the handheld gaming market. Yahoo – in some cases cannibalizing brick-andmortar businesses.6B 2. Web usage rapidly grew from 45M users in 1995 to 400M users in 2000. RCA and Philco. Internet usage began to proliferate with transformational innovations which improved usability (e.500 1. Mass market adoption further accelerated with the bundling of Microsoft’s Internet Explorer 4 with Windows 98 in 1998. which produced images instantly following capture. the Mosaic browser and Netscape Navigator – Marc Andreessen in 1993 and 1994). With Google search popularizing the Web. with total users estimated at more than 200M in 2008. cannibalized paper correspondence and fax.000 1. With gaming consoles. 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. but it was Sony’s Walkman launched in 1979 which broke records. Total # of 2008 Users: 1. 100M in 1993 and eventually reaching 385M total unit sales in 2009. Apple’s $399 iPod digital media player in 2001 and its iTunes PC jukebox/store popularized MP3 usage. to be usurped by digital cameras from Fuji.4B Consumer Electronics Users (MM) Mike Abramsky 5 2005 . which started off slowly. Internet – Initially developed for military and academic purposes. AOL’s acquisition of Time Warner in 2000 was a watershed event marking the ascendance of the Web as a business power. and subsequently quadrupled to 1. Released in 1977.000 500 0 1980 1985 1990 1995 2000 2005 3. Priceline. Amazon. viable advertising models and popular portals/destinations emerged – Ebay. Consumer Electronics – Consumer electronics usage emerged in the 1920s with the first AM radio broadcast. new Internet-based businesses. Microcom).August 18. many struggling early on to find successful marketing and financial models. Nikon. 2009 2.6B in 2008. Businesses rushed to develop an online presence. over 125M digital cameras were sold in 2008.500 1. with hits like ‘Space Invaders’ driving total console sales to 8M units by 1984 and eventually reaching 30M total units sold. starting with the Polaroid Land Camera in 1972. with sales reaching 6M units in 1999 and exceeded film camera sales in 2004. and Nintendo Wii. selling 10M units in 1984. like Nintendo (NES). combining simplicity and immediacy. with sets from Admiral. Sony’s introduction of the first portable transistor radio in 1960 ushered in low-cost.500 2. the Atari 2600 ushered in home video gaming.g.

Facebook. browsing. and costing $4. health and fitness. sports scores.g. 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 . In Europe.g. Competitors and carriers followed Apple’s lead. SMS and IM. Global mobile phone users grew to nearly 180M in 1998. listening to the radio • Browsing news. Yellow Pages) • Using personal/lifestyle apps like finance. sending emails.7B Source: RBC Capital Markets 4 Technology Markets + Mobility = Smartphones Greater Than the Sum of its Parts. capable of supporting both voice and data services. weather forecasts. Wireless Phones – In 1983. adoption of mobile data – particularly. 2009 4. Nokia 7110 in 1999) offered limited (WAP. compelling. popularized the mobile web. mobile applications and advanced mobile phone MP3 experiences to new levels with its integrated iPod media experience. Sony W800 Walkman). watching YouTube videos.g. turn-by-turn directions • Using a single device to make payments in-store. and as a result.. 3G networks like HSDPA. followed by BlackBerry’s 5810 and 6210 voice/data smartphones. blogs. convenient user experiences. 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. beyond proprietary mobile services (e. Exhibit 4: Greater Than The Sum of its Parts Categories Communication Examples • Making phone calls..000 1. Motorola introduced the sleek Star-Trek-like StarTAC in 1996. watching downloaded movies and TV. While previous phones (e. local search (e.000 0 1980 1985 1990 1995 2000 2005 3. offering significantly higher spectrum efficiency and call quality. changeable faceplates and games (‘Snake’ was launched on the Nokia 6110 in 1997). Mobile subscribers in the US grew from 200k in 1983 to more than 2M in 1989.000 Phone Users (MM) 3.. appealing to millions of new buyers. productivity. which went on to sell more than 110M units. like ringtones. 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. iDEN and CDMA launched in the early 1990s. it was the launch of Apple’s iPhone in 2007 – arguably the most significant event in smartphone history. etc. etc. The Handspring Visor and Treo phones emerged in the late 1990s and helped popularize the smartphone with email and PIM features. 10 inches high. Nokia continuously reduced the size and cost of its phones. the first clamshell mobile phone with vibrating alert. and accelerating expansion and global adoption.000. the world’s thinnest handset (13mm). The mobile GSM wireless network standard was adopted by most global networks.000 2. Motorola introduced the RAZR.) mobile web experiences and others offered integrated music/media (e. and uploading photos and other data to social networking websites (e. MySpace. Total # of 2008 Users: 3. raising broader interest in smartphones. its first GMS handset.7B 4. With the release of its Nokia 1011 in 1992. Digital-based 2G networks like TDMA. Motorola released the DynaTAC handheld mobile phone. yielding new. Other vendors launched popular designs. and Sony with its Z5 and Z7.. travel. i-mode in Japan) and SMS. However. Nokia launched the Mobira Talkman in 1984 and the more portable Mobira Cityman in 1987. weighting 28 ounces. In late 2004. added new features. Playing games • Personal navigation.. UMTS and EV-DO launched in 2001 and 2002 in Japan and Europe (2004/2005 in North America). Twitter) • Listening to music.Wireless Industry August 18.g. launched new designs.g. like Ericsson with its T28. which combined its legendary email with integrated voice handsets. smartphone users more than quadrupled to 165M in 2008 from 40M in 2006. reference.

location-based social networking • Adapt content based on location • Location-based mobile marketing/commerce • E. presence-based mobile marketing • Dynamic.. resources immediately Two-way immediacy • Where? When? Why? How? • Indispensable mobile information kiosk • Peers/colleagues can contact users • Emergencies. banking to ATM. immediacy. presence..g. etc. shows/movie theatres offer discounted tickets to unfilled seats to people walking by • • • • • Transaction in proximity to purchase. time-sensitive requests Source: RBC Capital Markets Mike Abramsky 7 . GPS. 2009 Wireless Industry Convenience of Mobility. proximity. Speed. location. • Friend location. and always on functionality. video/camera. 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.g.) in proximity to event or place Immediacy Always On Access answers. etc. Just as Internet connectivity (ISPs via telephone or cable) enhanced the PC experience. smartphones make these four formerly discrete technology experiences richer and more convenient by adding mobility – which offers users portability. Direction Location Proximity Capture data (e..August 18. Coffee shops send coupons to attract nearby buyers. Bar code or image-based data capture transactions User-generated content captured on location Proximity to event E. activity-based. find. Exhibit 5: Added Convenience of Mobility Mobility Adds Portability ‘Pocketable’.g. save GPS location when park car Presence Identifies activity and presence Location. content.

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

with seamless synchronization with home PC Presence-based gaming. community rankings. 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. get reviews and descriptions of restaurants. Travelocity • Restaurant reservations Portals. pass restaurants. seat map. community Proximity-based notification and marketing of available flights and hotel rooms Proximity-based notification and marketing of restaurant availability Mobile search. room rates and book room As walking down street. mobile content updates for gaming. content and apps Presence-based notification of properties under defined criteria • • Walking past theatre – get availability. iTunes • • Real estate MLS • Lead generation Salesforce. content Examples • • • • Wireless Industry Buying a car. stores – what sales are on? Take picture of a barcode and book hotel online Pass by hotel. Yahoo • • • • • • • • • • • • User-submitted video YouTube. take picture and identify location – see features. search Open Table • • Google.August 18. see houses for sale within your budget See a house for sale – bring up features. 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. find out availability. apps When driving around a neighborhood. pricing. local search Proximity-based filtering news and content Mobile content uploading. 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. other content GPS integration with mobile web. 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.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 . purchases. can buy tickets immediately. sharing and viewing Presence-based communities Portable video. Flickr Content Netflix.

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

It took several years before Internet advertising began to cannibalize existing media – but it eventually did. along with mobile’s additional value to advertisers (location.2 $23.4 $39. smartphones facilitate real-time. discussions. etc. politicians are already using YouTube and blogs to reach out to constituents. books. etc. or by a 20% CAGR. allowing users to collaborate dynamically and locally with peers – on content. Similar to the path of online advertising. (out of a $295 billion total U. at location. worldwide mobile advertising was just over $3 billion or less than 0. May Take Time.4 $28. In our opinion.2 $10 $15 $20 $25 $30 $35 $40 $45 $13.S. transactions. Future upside to smartphone hardware/service revenues (at high margins) may come from future smartphone services (carriage fees. or even eclipse. Although mass market phones have the capability to record video and audio. use the power of smartphones to communicate – interactively. rather than third-party journalist impressions. online advertising grew from $4. contextual advertisements.4 US Advertising Market ($B) Source: Interactive Advertising Bureau (IAB) Mike Abramsky 11 .). U.. as well as popular smartphone applications that dynamically and easily capture user-generated content. etc. mobile search.S. subscriptions. – regardless of location or device. etc. constituents. But Huge Potential.0 $17. this creates significant opportunities for user-generated content yet to emerge. we believe mobile advertising will quickly accelerate as users transition from traditional media to mobile. Transcending traditional “one-to-many” media channels.7 $10.). Explosion in User-Generated Mobile Content. SMS and voice communications on mass market handsets are.g. etc. educators.S.August 18. activity. religious leaders.) to mobile media (SMS. location-based collaboration. For example. Micro-blogging services (e. Video content from smartphones could match.). video content currently provided from PC users onto popular destinations such as YouTube or social networking sites. advertising market).6 billion in 1999 to $23. Advertising Market (2008) TV Networks Newspapers TV Distribution Online Radio Directory Consumer Magazines Trade Advertising Out of Home $0 $5 $7. most of which was SMS marketing.S. advertising. in our opinion. radio.8 $12. employees. 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. entertainers. etc. Reach Out And Touch Someone. business leaders. en mass or one-to-one – with congregants. and is now the fourth largest category of advertising in the U. interests.4 billion in 2008. It may be sooner than expected when politicians. cable. users are often challenged to capture and share usergenerated content. • • Replaces Your Wallet Shift of Revenues to Mobile. GPS and compass sensors. all combine to enhance the smartphone user’s power to immediately. smartphones with their technology capabilities and personalization have the power to become a “one-to-one” mass media. Exhibit 8: Addressable U. immediacy. with revenues shifting from traditional media (TV. presence. In 2008. etc. Internet. just the beginning of mobile peer-to-peer collaboration.8 $34. 2009 • Wireless Industry Mobile Peer-to-Peer Collaboration. create and upload content.5% of total advertising ($650 billion). regulators. activities. Twitter) on smartphones unleashed firsthand reporting from people attending an event. Higher quality digital cameras.

Osaifu-Keitai – DoCoMo’s mobile payment platform based on FeliCa – is the premier mobile payment system in Japan. Barcode scanning has become a means for advertising and gathering information. Instant messaging. and the surging popularity of innovative mobile applications.S. Specific areas of mobile content and applications include: • IM. chat. membership cards. and blogging are applications with the potential to significantly increase consumer smartphone penetration. Japan an Example. in just over one year since release. MasterCard and banks and become their own integrated billing provider for transactions and services. With the shift away from traditional media (TV. following the launch of the iPhone App store in July 2008. carriers can have their own currency and points system (e. nearly 50 million Japanese consumers (50% of total) use their mobile phones to make mobile transactions or redeem mobile coupons. Although some traditional mobile phones are integrated with large IM platforms and social networking sites. Japan has been ahead of the market in mobile commerce owing to early deployment of 3G networks. owing to high uptake of mobile data services. smartphones / high-end mobile phones. and Yahoo! Messenger (allowing users to chat. the Facebook app is the second most popular downloaded app for iPhone. Navigation increases the appeal of smartphones as a “converged” device. with more than 350 million users. hence the value-add of smartphones. a possible significant business case for wireless operators. etc. Personal navigation for smartphones (with built-in GPS) is another significant driver of smartphone adoption. Nearly 24 billion credit card transactions with a $2. Instant messaging platforms like Windows Live Messenger. As a result. and share videos) have already gained significant popularity. and DoCoMo’s aggressive strategy to accelerate mobile payments (large number of compatible storefronts. ease of use). 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. 2009 Transformation to Commerce. free service credits versus money). electronic tickets. Social Networking. For example.Wireless Industry August 18. from 103 million in 2007.1 trillion purchase value (accounting for 31% of all purchases) were made in the U. Only launched in 2003/2004. Mobile Content and Applications The Mobile Content and Applications Market is Still in Early Stages and Underpenetrated. video conference. 2) increasing popularity of constantlyconnected activities like IM. we believe only smartphones with data plans can offer a compelling mobile user experience. location awareness. social networking. in addition to other features) have achieved widespread penetration. 3) broader availability of developer tools. • Personal Navigation. The smartphone becomes not only a shopper’s aid but also a dynamic catalog. BlackBerry app store in April 2009. print. photo albums. etc. compelling services. 4) higher uptake of smartphones. Internationally. 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. Mobile transactions in Asia-Pacific and Japan more than doubled to 240 million in 2008. games and other apps. and. share files/pictures. strong uptake of DoCoMo’s i-Mode mobile data services. where social networking applications proliferate and users can make use of mobile features like photo uploads. location-based services.000 apps and achieved over 1.) and related advertising to handsets. social networking sites like Facebook and MySpace (where users maintain profiles/web pages. AIM. iPhone’s App store already has over 65.. Carriers can bypass Visa. loyalty cards. standardization on Sony’s FeliCa mobile payments system. We see the pace of innovative mobile applications accelerating given: 1) rising customer demand for mobile versions of desktop and web-based applications. attracting more than 400 million active users. for example.5 billion downloads. where mobile phones can be used as electronic money. blogging. personal navigation. and status updates. equating to 33/user/year. 5) demand for Internet radio. presence. music. during 2007.g. with users able to justify a smartphone purchase as replacing a standalone 12 Mike Abramsky . a marketing/sales channel to rival TV – even better when combined with location. airline tickets and for other uses. When integrated with carrier billing systems. For example. in our view. or $9/subscriber/year. vendors can also directly transact with millions on the wireless network. Mobile advertising revenue in Japan was $1 billion in 2008. In mobile payments. 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. The mobile content and applications market is only just beginning to emerge.

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

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

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. portable navigation devices (32 million units per year) and other formerly discrete market segments.000 4. 2009 Wireless Industry The Rise of the Mobile Data Consumer Larger Than the Phone Market. digital cameras (125 million units per year). given that globally there are 3. the difference being multi-user households and Internet cafes).6 billion Internet users.500MM Internet Users 1.000 7.123MM Data-Centric Smartphone Users 165MM Mobile Phone Install Base 3. only 2. we believe that smartphones possess the ability to capture users.000 2.000 0 Population Telephone Total PCs Newspaper Circulation Broadband Data-Centric Internet Subscriptions Smartphone Subscribers Subscribers World Mobile Users Lines Users 1.000 1.000 Install Base (MM) 6.5 billion consumer electronics users. personal gaming devices (37 million units per year). At the end of calendar 2008. Exhibit 11: 2008 Global Data-Centric Smartphone Users vs. and 1.713 6. 1. 2.671 530 480 368 165 Source: RBC Capital Markets TV Mike Abramsky 15 . A huge market opportunity for smartphones exists. revenues. Other Markets… Lots of Growth Potential 8.596 1. personal media players (230 million units per year).7 billion mobile phone subscribers.123 915 3.596MM Source: RBC Capital Markets Huge User Opportunity. TVs (200 million units per year). Exhibit 10: Global Data-Centric Smartphone Addresses More than the Phone Market PC Install Base 1.1 billion PC users.000 5. Because of their convergence capabilities.713MM Consumer Electronics 2.August 18.5% of the ~7 billion people in the world had smartphones and 24% had Internet access (only 8% are Internet subscribers.

2 Massive Replacement Cycle.003 783 724 650 650 Voice-Only Phone Units Source: RBC Capital Markets estimates Global Data-Centric Smartphone Units 16 Mike Abramsky .3 7. and will exceed PC sales in just three years. 2009 Global Secular Upgrade Cycle to Smartphones.200 Units (MM) 1. an estimated 63 million mobile phone users upgraded to smartphones in 2008.000 800 600 400 200 0 2008A 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 1.8 165. 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 766.1 553. Growing at a CAGR of 62%.113 952 966 947 933 127 165 250 376 504 674 804 944 1. There is a massive global shift underway from voice-only phones (including SMS) to smartphones.0 42.5 102.400 1.600 1.Wireless Industry August 18. Exhibit 13: Global Data-Centric Smartphone Shipments to Exceed Voice Handsets by 2014 1.800 1. from approximately 15 million upgrading in 2005. In the past 18 months.7 374. more people globally have upgraded from voice to smartphones than in the past six years.2 22. We estimate annual global data-centric smartphone shipments will exceed those of voice handsets within the next six years.1 247.

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

Wireless Industry August 18. And more users are starting to use more data: from 2004 to 2008. etc.10 $3. web browsing.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. email usage. while voice ARPU fell from $21. Consuming More Data.49 $3.07 $8. far outpacing the 11% increase in mobile voice revenue.50/user/month over the same period.).80 $19.60 $2. applications (social networking. Key drivers of this data growth were rising mobile messaging (text). 18 Mike Abramsky .00/user/month to ~$3. Exhibit 16: Global Voice vs.80/user/month to ~$14. etc. We expect global mobile data traffic to grow at a CAGR of 131% from 2008 to 2013. carrier mobile data revenues (which include SMS/MMS messaging) rose 30% annually from $62 billion (12% of total revenue) in 2004 to $182 billion in 2008 (21% of total revenue).81 2006A 2007A Voice ARPU 2008A Exhibit 17: North America Voice vs. 2009 million 3G subscribers) in calendar 2008.80/user/ month.38 $3. location services.49 $3. data services: wireless email.28 $17.11 $15.91 $6.00 $3. Accordingly. Data ARPU 50 Service ARPU (per mo) 40 30 20 10 0 2004A 2005A Data ARPU Source: RBC Capital Markets $45. etc. and content downloads (ringtones. video.). video.08 $42. SMS and PIM features) and focus on those users using data plans (or other connectivity such as Wi-Fi) to utilize connected.99 $44.96 $14. global data ARPU rose from $3.09 $39.50 $11. media.16 $3. Data ARPU 25 Service ARPU (per mo) 20 15 10 5 0 2004A 2005A Data ARPU Source: RBC Capital Markets $21.66 $43. OTA (over-the-air) downloads and streaming content. web browsing.

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

5 24.S.2% 2.5 173.0 13.5% 87.0% 50.7% 87. although 24% of people in India have a mobile phone.8% 0. and can’t afford Internet connectivity.8% 1.4% 2.Wireless Industry Exhibit 20: Top 10 Fastest Growing Mobile Phone Countries Country India China Indonesia Brazil Pakistan U.4 12.8% Mobile % of Population 30.6% 32. The smartphone opportunity internationally can be viewed as massive.9% 2.7 135. users may bypass PCs altogether and upgrade directly to smartphones.0% 70.1 17.3 87.6% 123. 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% 65. For example.3 CY08 Mobile Phone Net Adds (MM) 100.5 50.9% 23.6% 70.2% 23.4% August 18.9 38.9% Internet Subscribers % of Households Source: RBC Capital Markets.8% 30.5 Mobile % of Population 24.2% 31.8 60. As the global upgrade cycle to data progresses.1% 21.4% Landline % of Population 3. Nigeria Bangladesh Russia Philippines Source: RBC Capital Markets CY08 Mobile Phone Subs (MM) 282.1 27.6 97.8% The Growing International ‘Data Gap’ is Massive.8% 31.4 116.7% 51.5 18. just 1.1% 11.8% 0.4% 5.0 15.1% have Internet access. International Telecommunications Union 20 Mike Abramsky .2 599.7% 64.2% 45.1% 0.8% 122. 2009 Internet Subscribers % of Households 1.6 261.7% 52.3% 1.6% 45.2% 50. given the large number of non-North American phone users who don’t have TVs and PCs.1% 1.4 43.3% 5.2% 27.9% 0.6% 93.0% 4.4% 11.0% 21.6% 26.5% 13.

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

125/yr Workflow: 38% increase in team efficiency.0% 2.9% 5. This global trend continues to favor RIM.0% 1.0% 6. value = $3. applications and other functionality will rise in importance for the ‘productivity-centric’ market segment (of which business users – enterprises.0% 6. and consumers combining work/business use – comprise a significant portion)..400/yr BlackBerry TCO (total cost of ownership): $1. reliability. 2009 Immediacy: 2. messaging/data/voice integration. where SMS has been the dominant messaging medium but where users are now evolving to embrace mobile email. battery life.0% 5.).815/yr August 18. through offering IT (a key gatekeeper for business penetration). etc. particularly outside North America.200 voice calls per year. etc. While browsing.4% 2. RIM should maintain its competitive advantage. 2007 Email Remains the Killer App.0% 2. which robust mobile business email users crave.1% 7. given its sustained competitive advantage in providing a superior “Crackberry” mobile email experience and related experience advantages (reliability. Favoring RIM. mobile email is expected to remain a prioritized requirement for these market segments for smartphones. messaging simplicity/power. in our view. SMBs.0% 3. keyboard design. manageability.9% 100 0 2003A 2004A 2005A 2006A 2007A 2008A 0. Additionally.Wireless Industry Exhibit 22: ROI of a BlackBerry Deployment • • • • • Personal productivity: 250 hours per user per year. value = $7. superior security. value = $16.0% Corporate Email Users Source: RBC Capital Markets % Enterprise Smartphone Users 22 Mike Abramsky % Enterprise Smartphone Users Corporate Email Users (MM) .0% 0. Exhibit 23: Global Enterprise Email Remains Underpenetrated 600 500 400 300 200 0.0% 4.315 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.500 time sensitive emails and 1.

Because of their convergence capabilities. Twitter. rich browsing.).8 1..4% Source: RBC Capital Markets estimates 165 Million Global Data-Centric Smartphone Users Growing at 47% CAGR. 4) increasing consumer smartphone awareness and retail shelf space.0% % of Total Mobile Phone Users 2006A Global Data-Centric Smartphone Users (MM) % of Total Mobile Phone Users 42. digital cameras. and social networking (e. we believe that smartphones possess the ability to capture users. etc. mobile applications and content – bypassing PCs and tethered Internet altogether. We expect smartphone units to rise to ~504 million by calendar 2012 (395 million prior). TVs (200 million units per year).9% 2012E 766. Raising Smartphone Forecast.0% 8. from 4. 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. Underpenetrated Larger Than the Phone Market.6% Global Data-Centric Smartphone Users (MM) 2007A 102. digital cameras (125 million units per year).4% 18. and others segments (e. personal media players (230 million units per year).7 11. revenues.. etc.) as users switch to smartphones.6% 4. but also due to market share gains from PC.6% 2011E 553..9% 15. representing a CAGR of 41% (33% prior) and 35. We are raising our global smartphone user estimate to ~766 million by calendar 2012 (622 million prior).1% 2008A 165.0% 2. Facebook.1% of global mobile phone handsets (24.6% prior).g. see “data-centric” smartphone user penetration growing at a CAGR of 47%. GPS. etc. in countries where PC and Internet penetration is low. lower mobile data pricing).0% 12.4% prior).4% of total mobile phone users (12. messaging. thus. the smartphone will be their first introduction to the Internet.1% 2010E 374. apps. Amazon Kindle.).August 18.4% of phone users in Mike Abramsky 23 .g. portable navigation devices (32 million units per year) and other formerly discrete market segments.0% 4. 2009 Wireless Industry Sizing the Smartphone Market Huge. and. email.0% 0.).1% 1. MySpace.. Internationally.g. voice/SMS and broadband replacements.1% 8.4% 2009E 247.5 6.0% % of Global Mobile Phone Users 16. representing a CAGR of 47% (39% prior) and 15.1 15. Nascent. 2) better smartphone capabilities and user experience (e. media. 3) higher landline. Internationally.2 4. portable gaming. personal gaming devices (37 million units per year).1 8. We . consumer electronics (e.0% 14.6% 11. 5) greater variety of smartphones from manufacturers. 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. etc. vertical market reader. 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). for many users. portable media. portable navigation.0% 10. email.3 3. peripherals. smartphones could have the opportunity to become the first and primary exposure for millions of consumers to the Internet. With 56% of the world’s population already using mobile phones.g.4% 6.0% 6. Our revised forecast contemplates: 1) more aggressive carrier smartphone promotions (higher subsidies.

from ~127 million sold in 2008 to an estimated 504 million units by 2012.1% CAGR 41.5 28. 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) 126.9 35. interfaces. form factors.9 14. Our outlook is based on an 18.e. Our outlook calls for data-centric smartphone units to rise from 10% of the total addressable market (TAM. which makes upgrades more affordable. 127 Million Global Data-Centric Smartphone Units Growing at 41% CAGR. media players.4 20.2% Source: RBC Capital Markets estimates Smartphones to Exceed Voice-Only Phones in 2014.to 24-month replacement cycle – faster than the three to five years (average) in the mobile phone market. Our view is that at the early innovation stage.Wireless Industry August 18. 2009 calendar 2008 (an estimated 165 million users) to 15. etc. units shipped globally are expected to expand four times (41% CAGR) between calendars 2008 and 2012. we see smartphone shipments rising to ~800 million units by calendar 2014.).4% by calendar 2012 (an estimated 766 million users). exceeding voice-only phones. digital cameras. This assumption is based on the fast pace of smartphone innovation (3G. smartphone buyers tend to upgrade faster than regular phone buyers since technological improvements (like 3G) provide more urgency to upgrade and subsidies are greater.8% 2010E 250. GPS. Under our datacentric smartphone definition.5% 2012E 503.6% 2011E 376. total mobile phones sold) in calendar 2008 to an estimated 35% TAM by calendar 2012.. along with the growth in applications and proliferation of new designs and functionality. i. 24 Mike Abramsky .2% % of Total Addressable Market (TAM) 2009E 164.8 10. Looking out further.

1% 2013E 46.2% 52. Mike Abramsky 25 . with 66 million units sold to business users (13%) for a 30% CAGR. we estimate 104 million (82%) were sold to consumers and 23 million (18%) to business users. On a unit basis.6% 46. ort a 43% CAGR.000 800 600 400 200 0 2008A 2009E 2010E 2011E 2012E 2013E 10. Voice-Only Phones (MM) 1.5% 2012E 35.August 18.7% 75% % of Total Addressable Market (TAM) 59.1% 28. 2009 Wireless Industry Exhibit 26: Long-Term Global Forecast: Data-Centric Smartphones vs.400 1.2% 2016E 60.8% Smartphones to exceed 50% of total units CY2014 2014E 2015E 2016E % of Total Phones 2014E 52.5% 30% 45% 60.2% 20. This is expected to rise to 438 million units sold (87%) to consumers by calendar 2012.3% Source: RBC Capital Markets estimates Consumer versus Business Consumer Smartphone Units to Grow at 43% CAGR.6% 2011E 28.600 1.6% 2015E 59.800 1.6% 14.7% 60% 15% 0% Voice-Only Phone Units 2008A Smartphones as % of Total Phones 10. 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. out of an estimated 127 million data-centric smartphones sold globally in calendar 2008.200 Units (MM) 1.3% 35.2% 2009E 14.8% Global Data-Centric Smartphone Units 2010E 20.

Business . mix-shift from voice-only to smartphones. SMBs and executives whose smartphone usage is primarily business and whose service is often expensed – in calendar 2008.1 28.5 503. etc. 26 Mike Abramsky % of Total Addressable Market (TAM) . iconic devices.6 250.0 56.9 35.9 164.8 126. earlier penetration of smartphones in businesses versus consumers. Our outlook calls for faster growth in consumer data-centric users versus business users.9 14.8% 2010E 207.8 42.4 65. form factors. where consumers represent a larger portion of the market. given the larger size of the potential consumer market.1% CA GR 43.2% 104.3% 30.6% 2011E 2012E % of TAM 2011E 320.5 28.5% 2012E 438.4 20. This figure is expected to rise to ~667 million in calendar 2012 (87% of total) or a CAGR of 49%.Wireless Industry Exhibit 27: Global Consumer vs.8 10. we estimate over 80% (~136 million) were consumers. 2009 40% 35% 30% 25% 20% 15% 10% 5% 0% 2010E Business 2009E 136. applications. larger enterprises.) and international expansion. a group expected to rise to ~100 million by calendar 2012 (13% of total) or a 35% CAGR.5 376.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. There were ~30 million business data-centric smartphone users (18% of total) – typically. favorable factors for consumer growth (pricing.1% 41.2% Consumer Smartphones Users to Rise at 49% CAGR.0 22. Out of 165 million total estimated datacentric smartphone users globally in calendar 2008.

multimedia viewing.7% International Smartphone Forecast International Market User Forecast. rising consumer BlackBerry appeal and desire.g. BlackBerry Storm. Indonesia BlackBerry subscribers are expected to grow from 300.7 165.2 43. We expect the data-centric smartphone market opportunity to rise globally.g. and downloads. according to Indonesia’s Department of Communication and Information Technology).6 766. Mike Abramsky 27 % of Total Mobile Phone Users .4% 2009E 204. and apps. • Availability of region-specific and language-specific third-party apps and services. driven by: • Global adoption of mobile data services like web browsing.5 63.5 29.2 4. • Increased focus on data by international carriers (e. along with iconic phones with localized form factors (e. TMobile G1) into Europe and Asia. email.6 374.7 11. Business .5 6.August 18..1 15.3 247.. and touchscreens). and.4% CA GR 48. navigation.6% 2011E 470. and innovative data plans. entry-level and pre-pay smartphone data plans aligned to local buyer preferences (e.000 currently to 1 million by the end of calendar 2009.1 553.. “Slider” smartphone with slide out keyboard.9% 35.. iPhone.9% 2012E 666.6 83. Orange UK launched prepaid BlackBerry data plans at £5/month).1 8.1% 2010E 2011E 2012E % of Total Mobile Phone Users 2010E 310. • Rising awareness and distribution of iconic smartphones (e.g. given aggressive competition between mobile operators. • Introduction of lower cost.g. 2009 Exhibit 28: Global Consumer vs.5 99. • Global proliferation of fast 3G networks that significantly improve the user experience of mobile browsing.Users (MM) Global Data-Centric Smartphone Users (MM) 900 800 700 600 500 400 300 200 100 0 2008A Consumer Consumer Business W orldw ide % of Total Mobile Phone Users Source: RBC Capital Markets estimates Wireless Industry 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2009E Business 2008A 135.3% 46. in January 2009. 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.

Wireless Industry Exhibit 29: International Data-Centric Smartphone User Penetration (% of Total Mobile Phone Users) August 18. 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 .

4% 42. Consumer electronics spending slowdown. advanced multimedia. etc. IM.).6% New innovative Smartphones. etc.953.7 1. etc.5% 180. Symbian introduces compelling mobile data services.3% 93. advanced multimedia. sustained high data plan pricing due to network capacity constraints. social networking. proliferation of 3G networks. competition fro m mass market phones with 'good enough' social netwo rking and messaging features. new innovative Smartphones.4 511.557. 2009E 2010E 2011E 2012E CAGR Adoption Drivers August 18.7 32.). 2009 Potential Adoption Inhibitors Consumer electronics spending slowdown.5% 58.8% 5. navigation.5% 146. Source: RBC Capital Markets Research estimates Mike Abramsky 29 . lower data pricing and subsidized device pricing.5% 54.6% 5.5 2.143.0 18.1 11.351.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. Western Europe Total Mobile Phone Users (M M) Smartphone % of Mobile Phone Users Data-Centric Smartphone Users (MM) 498. lower data pricing and subsidized device pricing. speed of Smartpho ne component cost reductions and introduction of low cost 'emerging markets' Smartphones. sustained high data plan pricing due to network capacity constraints. reduction in data roaming fees. consumer electronics spending slowdown.9% 10.1 332.2% 57.8% 24. IM.360.1 13. collaboration (email.7 5.9 554. broad distribution of Android devices.6 2. etc. collaboration (email.3 1.9 16.6 8. advanced multimedia.8 33.4 525.6 53.4 41. speed of Smartpho ne component cost reductions and introduction of low cost 'emerging markets' Smartphones.6% 38.8% 2.5 3. social networking.7 1. competition from mass market phones with 'good eno ugh' social networking and messaging features. Availability of Asia-Pacific content and apps.3% 86. navigation. proliferation of 3G networks.7 1. greater awareness/distribution of BlackBerry and iPhone. collaboration (email. Asia -Pacific Total Mobile Phone Users (M M) Smartphone % of Mobile Phone Users Data-Centric Smartphone Users (MM) 1.697. consumer electronics spending slowdown. increasing user desire for mobile browsing.1 23. increasing user desire for mobile browsing. increasing use of Smartphones to replace Internet cafes.5% 86. greater awareness/distribution of BlackBerry and iPhone.627.8% Mobilizatio n of Asia-Pacific content and apps.1 349.7% Mobilizatio n of local region content and apps.2 10. greater penetration of MS Exchange and Lotus Notes for business users. competition from mass market phones with 'good eno ugh' social networking and messaging features. lower data pricing and subsidized device pricing. collaboration (email.7% 43.5 1.469. navigation. broad distribution of Android devices.5% 126. Rest of the World (RoW) Total Mobile Phone Users (M M) Smartphone % of Mobile Phone Users Data-Centric Smartphone Users (MM) 1. Availability of local region content and apps.4 368.5% 152. IM. broad distribution of Android devices.7% New innovative Smartphones. new innovative Smartphones. sustained high data plan pricing due to network capacity constraints. social networking.8 5.7 7.5% 127.5% 225. sustained high data plan pricing due to network capacity constraints.).5 1. increasing user desire for mobile browsing.9 37. advanced multimedia.5 1. IM.753. navigation.560.).3 50.0 2. per capita income limitations. competition fro m mass market phones with 'good enough' social netwo rking and messaging features.7 3.2 14.7% 57.2 25.0% 115. Symbian introduces compelling mobile data services. Symbian introduces compelling mobile data services. social networking.8 540. per capita income limitations.0% 305. increasing user desire fo r mobile browsing.7 314.3 42.0% 83.8 7. lower data pricing and subsidized device pricing.

New Zealand. reaching 433 million users or 57% of total datacentric smartphone users by calendar 2012. Spain.1 2011E 115. Germany and Italy) was ranked at 17% of users “experimenting with mobile email” versus 12% of users in North America.7 billion total subs) or growing at a 51% CAGR. but are expected to grow rapidly. India. Russia. growing to ~306 million users by calendar 2012 (13% of 2.5 24.3 553.7% Source: RBC Capital Markets Research estimates 30 Mike Abramsky .4 93.3 305. Western Europe (U. • We estimate RoW (Rest of the World.. rising to ~180 million in calendar 2012 (33% penetration). Africa.1 86. or a 54% CAGR.4 54.8% of 1. Australia.5 247.8% 46.8% 53. Thailand. and the Middle East) to grow from ~25 million data-centric smartphone users in calendar 2008 (1. China. and Singapore among others) at ~55 million data-centric smartphone users in calendar 2008 (3.9% 50. Korea. which is expected to rise to ~153 million in calendar 2012 (42% penetration) or a 38% CAGR.9 225.8 146.3 766. which represents a CAGR of 43%. we estimate there were ~43 million users in North America (14% penetration).4 billion total subs).1 CAGR 37. France.7 165. An estimated 11% of mobile users in China and 84% in Japan were “experimenting” with mobile email. suggesting a strong emerging Asia-Pacific data-centric smartphone opportunity.7 2012E RoW 2012E 152.Wireless Industry August 18.7 374.5 38.5 2011E Asia-Pacific 2010E 83. Asia Pacific and Rest of the World Markets.5 57. We estimate Western Europe data-centric smartphone users at ~43 million in calendar 2008 (9% penetration).5% of 1. Eastern Europe.9 180. Indonesia.0 86.K. 2009 North America and Western Europe.4 billion total subs) to ~127 million by calendar 2012 (8% of 1. Out of 165 million total data-centric smartphone users globally in calendar 2008.6 127. Considered a leading indicator of data-centric smartphone growth. • We estimate Asia-Pacific (including Japan.6% 42.4 126.1 57.2 2009E 58. representing a 53% CAGR. including Latin America. 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 42.7 43.6 billion mobile phone subs). Regions outside North America and Western Europe accounted for an estimated 79 million data-centric smartphone users in calendar 2008 or 48% of total.

2% 2009E 36. This suggests a large opportunity for smartphone growth.5 503. In Western Europe.2% Source: RBC Capital Markets Research SMS: The Global Leading Indicator for Mobile Data.2 26.5 28. China. but remain difficult to crack for some smartphone manufacturers. with a high percentage of ‘grey market’ devices. representing a CAGR of 33%. 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. 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.0% 43.6% 2011E 76. mobile messaging is hugely popular around the world. many iPhone clones offering a similar multi-touch UI have come onto the market.1 199.2 164. With 2.1 85.8 66.3 SMS/subscriber/day).6 58.9 376.8 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 2012.0% 46. 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).5 trillion SMS messages and 50 billion MMS messages sent in calendar 2008.5 250.4 20. 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 31. ahead of Western Europe at 1. or at a 40% CAGR. Korea. China Mobile’s “Redberry” is a clone of RIM’s BlackBerry push email service at a fraction of the Mike Abramsky 31 . Japan: Huge but Tough to Crack.0 86.0 58. or at a 43% CAGR. In Asia-Pacific.2 120.4 SMS/subscriber/day (versus North America at 4.August 18.3% 40. China (estimated 600 million mobile phone subs and adding approximately 100 million per year). sending 1.9 14. due to: • Cheap knockoffs/counterfeits.8 10. single-digit growth) present attractive long-term growth opportunities for data-centric smartphones. With approximately 700 SMS/subscriber sent in calendar 2008 (an average of 2/subscriber/day). affirming the long-term opportunity for smartphones and mobile data.8% 2011E Asia-Pacific 2010E 54.1 99. 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). for example. In other regions (RoW). single-digit growth) and Japan (110 million subs.6 126.9 35.8 38.5% 2012E RoW 2012E 98.3 43. developing nations are high users of SMS. representing a CAGR of 46%.1% 41.1% CAGR 33. Korea (45 million subs.8 155. 2009 Wireless Industry International Unit Shipment Forecast.6 SMS/subscriber/day.8 35.

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

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

Apple’s choice of its designs. powerful user experiences best suited to the desires of their target market.. applications and related services which differentiate them.Wireless Industry Exhibit 33: Smartphone Market Segmentation August 18. innovative. etc. however. 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”).). For example. choosing instead specific designs. although all leading smartphone platforms will likely share similar popular applications and content. in order to deliver differentiated. form factors. features.g. driven by each vendor’s unique philosophy and market focus (e. simple. wireless email. software and content versus RIM’s differentiated choices of the same). form factors. operating systems. Function Follows Market Focus. in our view. content. etc. whereas media-centric smartphones may disproportionably feature premium multimedia and content (like high-end gaming). applications. functionality. Smartphones and services from leading vendors targeting these different market segments may share common characteristics (cellphone. mobile browsing. content. application types. 2009 Source: RBC Capital Markets Form. 34 Mike Abramsky . functionality. Productivity-centric smartphones from RIM may disproportionately offer applications and content that improve personal productivity. it is their execution of smartphone features. each may specialize in featuring certain applications and content prized by their target audiences. form factors.

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

are key purchase requirements. enterprise/vertical market processes. For example. etc. in some cases. navigation.Wireless Industry August 18. Cost/pricing/features of multimedia features. 2009 consideration. and navigation users get traffic updates over the air. but not a requirement for these users. and integration with enterprise messaging systems (like MS Exchange. Navigation devices don’t have QWERTY keyboards. Lotus Notes. but allows for full page text reading. 36 Mike Abramsky . and seamless integration with third-party multimedia stores are a consideration. Amazon Kindle users can purchase books over the air. Integration of work use. to organize their lives. PIM-centric users are data-centric users who rely heavily on traditional personal information management features like contacts.. applications and content along with related service costs. applications and content along with related service costs. and notes. PIM-centric users seek smartphones with robust mobile/connected PIM features and usability.g. PIM-centric users may prioritize a tactile QWERTY keyboard for rapid data entry and usage. high resolution digital camera)..38"). but not a requirement. While users’ needs are as diverse as the tasks. multimedia. and Groupwise). Cost/pricing/features of multimedia features. Specialized users are data-centric users who prefer a mobile device designed for a particular task. calendar. along with basic email integration. photographic capabilities (e. Cost/pricing/features of multimedia features. Amazon Kindle). applications and content are key purchase requirements. are key purchase requirements. the cost of mobile data service is built into the up-front cost of the device (e. gaming. such as book reading. instead relying on touchscreens for infrequent data input. Specialized users prize features that materially improve the user experience for the specific task. functionality and data is important to PIM-centric users. Multimedia capabilities such as powerful media players.g. Amazon Kindle has a large form factor (10. mobile data is crucial for the full experience.2" x 0. iPod Touch users can download apps and multimedia.4" x 7. For example. for these users.

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

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

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

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

Small details that perfect the data experience become prized skills.g. music players. competitors have tried but have been unable to reliably engineer and optimize their smartphones to provide similar battery life to the BlackBerry. including revenue share and costs to develop and support (standard revenue share is now 7080%. legacy Palm OS. Similarly. maximum developer profitability.). they often make choices regarding which platforms they will develop applications for. Microsoft dominated the PC platform. multimodal wireless technologies (EDGE. 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. for example. greater storage. like Android.) and other capabilities (GPS. Despite skill disadvantages in software. A good example is Adobe Flash. miniaturization. smartphone vendors must master the technical complexities of integrating new hardware. • Ease of app development (e.. Successful smartphone challengers offer powerful. to enhance the user experience. Challengers have developed wireless hardware technology skills unique to smartphones and data. such as power management.g. processing power.. standard programming languages. before iPhone’s App store. etc. including key position and shape. HTC has built promising software capabilities. the BlackBerry keyboard.g. Winning developers to a smartphone OS means offering: • Greatest # of "eyeballs" or addressable market. partially because of a thriving software application and developer ecosystem atop Windows. media features (higher quality cameras. • Broad distribution through app stores to reach entire install base (as opposed to fragmented through third parties).August 18. antenna design. etc. Apple’s App Store and Apps can be viewed as a by-product of a thriving developer ecosystem. track wheel for onehanded navigation and data retrieval. with high-resolution. leading smartphone platforms will develop a sustainable ecosystem of mobile applications and developer ecosystems atop popular Mobile Operating Systems. most cost-effective and powerful development tools. despite its proprietary format. powerful SDK with good tools and thus is a favorite of developers everywhere on the Web.). some incumbent vendors may successfully upgrade their software skills to become smartphone leaders. For example. data network coverage/spectrum constraints and wireless security. applications. 4G. and integrated shortcuts via software. These choices can make or break the success of an OS and a developer. and wireless protocols and standards. HSDPA. particularly at the early stage of evolution of a new computing platform. Developers! Developers! Developers! A Thriving Developer Ecosystem Matters. Bluetooth. revenue share was only 50%). Great Smartphone Software = A Great SDK. speakers. • Visibility to consumers amidst other applications (a drawback of Apple’s App Store given large number of apps). EV-DO. or iTunes/media/content). etc. marketing support. 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 vendors become adept at engineering “converged” portable computing devices. accelerometers. History has shown that developers care less about standards and more about which platform has the easiest. Wi-Fi. A strong developer SDK includes such capabilities as: Mike Abramsky 41 . along with iconic Windows-based applications (spreadsheet. developer-friendly and supported SDKs that make development easy and cost-effective on their platform.. etc. 2009 Wireless Industry Some horizontally integrated vendors may yet succeed. OS support. which has a strong.). word processing) that popularized the PC platform. developer tools and resources. went through many iterations to make it usable and compact. In addition. favoring first-mover platforms with a critical mass of users that can support sufficient application sales (e. iPhone/iPod Touch have 45 million users double the install base of Sony PS3). faster processors. • Consumer engagement on the platform (e. interactive displays. access to APIs. Smartphone Vendor Hardware Skills. developing innovative and unique UI layers on top of third-party operating systems.

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

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

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

but under flat-rate pricing. 4G network technologies like LTE deliver higher capacity through higher spectrum efficiency (e. Alternatively. given the significant noise and interference that exists in the environment. reads at least three articles from a mobile Web site such as CNN. some 3G carriers are looking to seamlessly offload capacity to Wi-Fi hotspots or users’ home wireline networks. this amount of data usage would require roughly 20. as opposed to larger spectrum (25x) and spectrum efficiency improvements (25x). 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. network capacity in wireless is constrained.August 18. 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. You need 50x as much bandwidth (15MB/s) for video versus voice (4-7kb/sec).. Translated into voice minutes. caps on consumed data volumes tend to be typical carrier responses. These tiers as discussed may also include free Wi-Fi access to offload network loads while maintaining the smartphone user’s experience. as the iPhone has already set the standard for unlimited browsing. which will appeal to price-sensitive mainstream voice/SMS users to entice them to shift from voice to data. Data Pricing To Evolve To “Tiers”. However.. As carrier networks become clogged with bandwidthconsumptive apps. due predominately to smaller cell sizes (1600x). Orange UK launched prepaid BlackBerry data plans at £5/month in January 2009. in our view.000 times since 1957. 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. Unlike wireline networks. data service pricing is.86 bps/Hz for HSPA) and greater spectrum Mike Abramsky 45 .g. but the ability to do this remains limited given that the power needed to overcome increasing interference is nearing limits. carriers can’t charge 50x as much as voice for video.000. However. engineers have been able to expand wireless network capacity 1. carriers have made expensive investments in additional network infrastructure to reduce cell sizes to expand network capacity.com. Yet as smartphones grow market share. • Source: RBC Capital Markets Exhibit 37: Double Data Airtime devoted to different data applications vs.000 minutes per month. Within 3G networks. 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). 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.6GB worth of capacity per month.1 bps/Hz for LTE versus 0. Regardless. Within this hostile environment. 2. with unlimited email but limited browsing). A user with an unlimited data plan who watches 15 minutes of video per day. all three of these factors remain constrained and force tradeoffs to further improve network capacity. and checks email using his company’s virtual private network uses about 1. For example. LTE May Take Time.g.

Wireless Industry

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

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

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

46 Mike Abramsky

August 18, 2009

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

Mike Abramsky 47

Wireless Industry

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

48 Mike Abramsky

sustainably selling smartphones to the mass market. Motorola. in our opinion. and their managements are highly capable. Accordingly. HP. 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. Controlling over 96% of the global cellphone market today. However. Motorola. it is possible a few of the incumbent vendors may evolve and compete successfully with smartphone challengers. organizational. These incumbents have strong execution. We estimate each 25bps global handset share gain (based on an estimated 1. Samsung. and Sony Ericsson historically grew to dominance by helping develop standards like GSM. or an estimated $1 billion in incremental revenue (assuming an average selling price of $326). have built dominant brands and leading technology.2 billion total units in calendar 2008) equates to an additional 3 million units. Nokia. including GSM. Mike Abramsky 49 . and innovating around mobile voice network technologies (particularly around digital-based 2G networks. some cellphone/PC/consumer electronics incumbents (e. intense customer focus. incumbent handset vendors like Nokia.g. these challenges are not insurmountable. 2009 Wireless Industry Some Incumbents To Face Challenges Despite their goals for smartphone dominance. Dell. from 96% of TAM in calendar 2008 to 84% in calendar 2012. LG. 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. Samsung. 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. customer and shareholder barriers as well as cannibalization. iDEN and CDMA).August 18. Sony. we see some voice-centric phone vendors losing market share to leading smartphone challengers.. Sony Ericsson and LG) will face challenges competing with the new challengers in smartphones – held back by technological. While difficult. 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.

it was these vendors who were viewed as the innovators. the StarTAC was more expensive to buy. Nokia. Motorola.000. on GPRS networks.Wireless Industry Exhibit 40: Early Mobile Phones Motorola 4500x/4800x August 18.500. Consumers lined up to pay its $1. Exhibit 41: Iconic Mobile Phones Motorola StarTAC Nokia 8110 Ericsson T28 Motorola RAZR Source: Company reports 50 Mike Abramsky . and features (e. The MicroTAC in 1989 created the “flipphone” form factor that weighed only 340g costing $2. priced expensively (initially) at $600 (before rebate). Motorola and others launched new designs reminiscent of Star Trek communicators and/or Dick Tracey’s Watch Phone. releasing iconic handsets that captured the hearts (and wallets) of consumers enamored with the latest technology. launching the lightweight “candybar” form factor. Ericsson. Motorola introduced the StarTAC. size/weight. Motorola continuously shrunk the phone form factor to the relatively diminutive DynaTAC 8000X in 1983 for $4. weighting only 81g. Motorola launched the RAZR. the world’s thinnest handset (13mm) in late 2004. They rapidly launched new innovations in designs. ring tones) that popularized cellphones to the mass market. with Nokia launching the sleek Nokia 8110 in 1998 at 152g.. cost. voice quality. displays. battery life. Form factors continued to shrink.500 hefty price tag (at 3. weighing 800g and delivering an hour of talk time and 30-number memory. Nokia released the Nokia 1010 in 1992.g. offered a flip communicator-like design (with vibrate function). 2009 Motorola DynaTac 8000x Source: Company reports Dick Tracy and James T. Capitalizing on consumers’ thirst for new innovations in phone technologies and their willingness to pay a premium for new form factors. with a second battery option to extend talk time). by weight. than pure gold) despite a poorly-designed user interface and other drawbacks (the antenna was prone to damage). and Ericsson releasing the tiny T28 in 1999. and Sony – in the early 1990s. In 1996.500-3. Kirk. which at 88g and 60 minutes of talk time (12 hours standby.1 ounces.

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

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

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

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

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

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

LG. similarly. In our view.1% of TAM Apple needs to achieve 8.7% Motorola 2.4% Motorola 3.5% Palm 3% HTC 5% Palm 4% HTC 7% Samsung 5. Mike Abramsky 57 .2% Apple 16% 2012E Data-Centric Smartphone Share (Units) RIM Other 29% 18% 18% Apple 11% Nokia Nokia 36% 26% 2008A-2012E Data-Centric Smartphone Share (Units) Shifts 100% % of Data-Centric Smartphone Units 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2008A Source: RBC Capital Markets estimates Palm Other RIM Apple HTC Nokia 2009E 2010E 2011E 2012E Challenger Share Gains = 2-3x Growth Upside.. “RIM versus Apple” misses the larger opportunity as both should be able take share from some incumbent voice/SMS.7% Sony Ericsson 2. With 1. 2009 Wireless Industry Vendor Share Outlook Smartphone Market Large Enough to Support Multiple Vendors.5% of TAM to triple its current smartphone revenue. and consumer electronics vendors.August 18. We believe the smartphone market is large enough to accommodate four to five smartphone vendor leaders. with 1. PC. Sony Ericsson) equates to $4 billion in incremental revenue. Off share gains from incumbent vendors. At 165 million users in calendar 2008 and projected to grow to 766 million by calendar 2012.8% of TAM in 2008. Samsung. Exhibit 44: Data-Centric Smartphone (Units) Vendor Share Outlook 2008A Data-Centric Smartphone Share (Units) RIM Other 27% Samsung 3. we believe that the fast-growing global smartphone market can support both Apple and RIM. Motorola. Each 100bps global handset share gain from the incumbents (Nokia. RIM needs to achieve 10% of TAM in order to triple current revenue. we believe successful challengers may double or triple their revenue by 2012.0% Sony Ericsson 1.

. expanding in-carrier distribution in more countries by eliminating exclusivity and expanding third-party distribution channels. Apple’s greatest risk – and greatest asset – in our opinion remains its iconic CEO Steve Jobs. driven by its unique talent pool. Based on RBC CM’s 21% FTM EBIT margin outlook and 17x FTM P/E. we forecast Apple’s market share to grow to 5.0% 186. etc. slow its growth rate and increase its vulnerability to competition. advanced gaming. and growing its lead in mobile applications. While we believe Apple can continue to launch products. moving to more attractive pricing (starting at $99).5% 93. 5. We believe Apple will sustain its lead in content.5 60% 69% 60% Apple RIM 4 % Share Price Impact: 5 Apple 23% 1.7 million handsets in calendar 2008. which we expect to expand to include mobile commerce.).4 181% 206% 181% 69% Bullish 15. a possible entry-level. Despite the iPhone’s introduction more than two years ago. We also expect Apple will continue to surprise investors and consumers with iPhone-related innovations that further expand iPhone’s addressable market opportunities (media. and tight multimedia integration.5% 31. prepaid iPod/phone) and variations in iPhone form factors for certain markets such as China (e. This may affect Apple’s abilities to sustain its premium margins.0 $10. 58 Mike Abramsky . should Steve depart and the pace of innovation slow. Challenges. Our long-term outlook reflects upside from possible additional iPhone SKUs (including next-generation LTE iPhone. just a dynamic of the stock that bears ongoing monitoring. Based on RBC CM’s current $17.5x FTM P/E. competitors continue to lag iPhone’s sleek touchscreen experience.g. <$99 subsidized. video.7% of TAM by calendar 2012. low-cost. it may. Source: RBC Capital Markets estimates Apple Apple to Capture 5. 2009 Base 7. We view the iPhone as a 10-year platform. iPhone) if Steve Jobs were not involved with the company. no WiFi).7B FTM non-GAAP revenue outlook. 3. Based on RBC CM’s 24% FTM non-GAAP EBIT margin outlook and 19. be challenging to sustain the same unique level of significant. There is a huge upgrade opportunity.0 $62. etc. games. sustaining above-peer margins for its smartphones.3B FTM revenue outlook. 4. Apple is expected to retain its premium carrier subsidy versus competitors. computing. robust third-party applications platform. and apps. innovation. Innovation remains alive and well at Apple. Apple has already taken steps to accelerate iPhone momentum and share gains. Based on RBC CM’s $44. further assisted by the strength of its global brand and its Mac franchise.7% Global Share by 2012. strong management team and multi-year product roadmap.0 $31. retain its competitive advantages and lead in its key markets without Steve. 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. and customer loyalty. disruptive innovations (iPod. However. user-generated content. supporting pay as you go and other carrier sales models.7 363% 412% 361% 138% 2. Shipping 13. Off the strength of its brand. iPhone advantages include Apple’s 100 million+ iPod install base and 300 million + iTunes users globally. Based on smartphone industry average ASP of $337. however. we do not view this as a near-term risk for investors.Wireless Industry Exhibit 45: Sensitivity Analysis of Market Share Gains Conservative Incremental Smartphone Share (%) # of Smartphone Units (MM) Incremental Revenue Impact ($B) % Impact to FTM Smartphone Revenue: RIM 2 3 1 August 18. 2. with significant growth and share gains yet ahead. Apple holds an estimated 1.1% of TAM.

Unlike Apple. and BES/BIS server. RIM may need to evolve its UI.1 16.4 16.3% 5. reliability and battery life. RIM’s sustainable advantages. A significant source of RIM’s competitive advantage continues to be its global carrier leverage. Pearls) which consumers.9% 374. Challenges. we forecast RIM’s market share to grow to 6. elegant smartphone UI. Europeans like sliders) and we expect additional SKUs and innovations.0% 1.6 million handsets in calendar 2008.6% Source: RBC Capital Markets estimates RIM RIM Forecast to Capture 6. not just for its email experience. application and mobile media experiences (both on devices and on the PC). email client. wireless stack. have remained essentially unchanged. reliability and Mike Abramsky 59 .. RIM has – at several times in its history – successfully reinvented itself.6 10.9 82. RIM’s design strategy is to expand its trademark Crackberry experience to multiple form factors (flip. craved push-based “Crackberry” messaging experience.5 54. while maintaining its superior security. RIM’s smartphone brand has grown in strength globally.7 91. there is a growing consumer demand – popularized by Apple. thus continuing to expand its addressable markets and outsell incumbents.4% 2009E 164.). RIM’s UI and PIM. Shipping 22.2 16. SDK.5% 4.7% 766. NOC.1 130.4 35. RIM may also need to improve its SDK to be more developer-friendly.5 33. RIM is now on most carriers (over 500 worldwide) and so growth now comes from upgrades.8% of TAM. in our view. a thriving consumer application ecosystem. and intuitive.8 13. Examples include evolving its BlackBerry pagers to voice/data devices.0% 247. as we expect RIM will continue to innovate to improve ROI and productivity of its devices and solutions. include the intuitive.8% 2. is with “front end” software (browsing. While not always first to market.7 14. powerful data experiences. 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 126.8 13. bundled and downloadable applications. One growing challenge RIM faces. Enterprise as well should continue to be an area of BlackBerry domination. and it is increasingly known for compelling handset styles and designs. and its NOC/software/hardware ownership creating its unique.1% 0. We believe RIM is fully aware of these issues and is already moving to address them while retaining its trademark spectrum efficiency. 2009 Exhibit 46: Apple as % of Forecast Market.0% 2012E 503.5% of TAM by calendar 2012.8% 2010E 250. battery life. to pace competitors and meet evolving consumer expectations. internationally.7 10. price-sensitive consumer markets via its broad pricing ranges. benefiting from carrier promotions discounting older iconic handsets (like Curves. iconic smartphones. with RIM as its undisputed king – both for consumers and businesses. achieved via its superior spectrum efficiency and other unique aspects of its platform. evolving its QWERTY smartphones to the successful Pearl with SureType.5% TAM by Calendar 2012. reliability and manageability advantages prized by IT. SMBs and enterprises continue to snap up – as well as launching entry-level devices like the BlackBerry 8500. while reliable and functional.5% 2.2% 2. Ahead.5% 0. and Google – for rich mobile browsing. RIM’s market opportunity lies along four fronts: domestically. Mobile email is expected to remain the smartphone “killer app” globally. etc. consumer and business – all of which remain underpenetrated for smartphones. and increasing BlackBerry share and sales productivity across its carrier partners.5 13.0 15. browsing. To succeed in the consumer market.8 17. touchscreen) to penetrate additional compelling markets (e. UI. RIM continues to address larger. in our view.8% 1. RIM holds an estimated 1.3% Wireless Industry 2011E 376. and expanding from business to consumer markets.7 14. evolving core designs via new innovations into new. BlackBerry remains compelling for carriers.9 22. North Americans like flip phones. as it offers superior carrier profitability. Palm.1% 553.1 56. Internationally.1% 2. RIM possesses both unique hardware and advanced “back end” software capabilities. having developed: its OS.August 18.g.1% 165. In the rapidly expanding consumer smartphone market. new data subscribers.

6% share (1. we believe Palm has the potential for a remarkable smartphone turnaround.4% 1. we also expect Palm may encounter execution “speed bumps” (quality. We assume Palm continues its global carrier distribution expansion following Sprint. As a turnaround. Challenges. expanding to multiple carriers globally over the next two years. and thus may need to be more measured in its product and distribution roll out. above competitors. preRubenstein execution and product stumbles that caused Palm to lose share leadership. growing from an estimated 1. Targeting the PIM-centric segment of the Palm legacy.9 92. etc.8% 2012E 503. WebOS product line and under the direction of a new management team headed by ex-Apple executive Jon Rubenstein.5 15. Palm.0 12.3% 2011E 376.3% Source: RBC Capital Markets estimates Palm The New Palm. Application Store. and subsequently with other North American and European carriers. differentiated from incumbent vendors. targeting a broad addressable application developer community.7 15. 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.1% 1.S. As well.Wireless Industry August 18.6 17. and.1 15. production.3% of TAM) or 18. At this early turnaround phase. in our opinion. The accolades for Pre – despite its early drawbacks (one carrier. While lacking the scale. developer-friendly SDK.4% 5.1 57. Exhibit 47: RIM as % of Forecast Market. We see WebOS as a platform.5 15. its first WebOS device – despite the already broad awareness of iPhone – illustrates pent-up demand for innovative. the opening up of its platform to third-party developers.5 65.9 34.9% 2010E 250. scale.5 37.2 million units in calendar 2012. Palm 60 Mike Abramsky .8% 1. brand and distribution of Apple and RIM. limited applications) – also show Palm has the potential to provide that rare iconic smartphone experience.1% 2. spawning a family of smartphones addressing a global market opportunity at multiple price points and form factors.1 20. Following a period of decline and facing oblivion. including a $99 GSM version expected to launch first in the U. including: a) execution. 2009 carrier profitability.2% TAM) or 2. OTA downloads. Palm in our view faces near-term risks but has the “special sauce”: vertically integrated. in the interim. we believe Palm’s strong management team has the potential for superior execution.1 115.4% 6. well positioned for smartphone leadership.4 49. matching it to its available resources.1% 247. subsequently recovered ground once launching its versions. Palm does not benefit from strong brand tailwinds. HTML email.8% 165. network. a ground-up developed smartphone OS platform with unique innovations like multitasking. We note that RIM.1% 374. and compelling and clever hardware/software designs – all combine to offer a unique.7% 0. Our outlook calls for Palm to quickly recover. some incumbents and in the company of RIM and Apple. utilizing WebKit-based mobile web browsing. Palm faces near-term challenges. The huge positive reception to the launch of Palm’s Pre.7 83.3% data-centric smartphone shipment market share (0. while historically lagging competitors in rolling out software innovations (attachment viewing. controlling the end-to-end smartphone software and hardware platform.8 22.6% 2009E 164. With its new strategy. Synergy (user data integration).8% 4. 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. which could stretch out its product/carrier ramp. Palm (like RIM and Apple) is. iconic smartphone experience. and others). integrating an intuitive UI and friendly notifications – and using popular Web development standards.2 21.5% 766. b) product and distribution ramp. non-intimidating smartphone user experiences.2 million units in calendar 2009 to 3. c) litigation/other.0% 553.5 19.7% 3. marketing budgets and balance sheets as do RIM and Apple. may continue to offer Windows Mobile devices like the Treo for enterprises.).5 17. initially with Bell in Canada and O2/Telefonica in Europe. though these could be phased out over time as WebOS gains enterprise features. avoiding many of the historic.8 18.0% 0.

0 8.2 3.7 0. and Palm’s introduction of new innovations to the market. improving manufacturing quality.0 14. HTC offers integration with Microsoft Exchange and ActiveSync on its branded devices. 2009 Wireless Industry must woo back disenfranchised users and carriers who lived through quality problems at the “old” Palm.3% 2012E 503. offered on the Android-powered HTC Hero. Exhibit 48: Palm as % of Forecast Market.2% 2011E 376.4 0. Currently shipping ~7 million units per year. new screen technology. deepening its software capabilities (now has 1.6% 374. expect these risks to diminish as Palm gains scale and momentum. The company may also encounter other roadblocks (like litigation from Apple). it faces challenges as it remains dependent on Microsoft and Google’s underlying applications. UIs and custom apps..8% 0. architecture and their media.1 2.4% 0.0 0.). to also become a leading smartphone vendor.5 years since Apple first demonstrated it.1 3.9 18. In December 2008.0 2.1% HTC Corporation Transforming from ODM to Smartphone Contender.8% 553.3% 766. however.5 0. new sensors.8 2. Touch Cruise. in our view. For example.8 3.8 5. our forecast is for HTC to rise from 0. While HTC has increased its investments in software. and increasingly utilizing Google’s Android OS.2 0.2% 247. text. used in the WinMo-powered Touch Diamond 2. and Touch HD.5% 126. email.1 6.4 0. etc.0 23. calendar.1% 0.7 0. Challenges.9 2.5 1. Windows Mobile has yet to support multi-touch. Mike Abramsky 61 .3 1. may position it for smartphone leadership in some segments. RIM and Palm. HTC has also developed its proprietary Sense UI user interface. 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. 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). HTC has the potential.000+ total employees).5 3. waiting for Microsoft or Google OS updates to support certain new hardware features (e. email.3% 165. content and services strategies. Apple. moving away from the ODM model. increasing its mix of HTC-branded device launches. social networking) into a single view. HTC acquired One & Company to transform external designs of HTC’s smartphones and develop HTC’s TouchFLO UI. coupled with its unique and innovative form factors. While not as vertically integrated as RIM and Apple (because HTC still relies on the Android).000 software engineers of 8.6% 1.6 2.8 2.8% 0.1% 2010E 250.8% 0.1 17. Additionally.5% of TAM in calendar 2008 to 2. We do.5% of TAM by calendar 2012.7% 0. however.1% 0. tools.g.2 1. new innovations may be delayed. we believe there is ample room in the market for four to five vendors to dominate.4 7.6 2. as discussed. Recently. which incorporates user customizable widgets that display pushed content (twitter feeds. HTC has reinvented itself.1 0. and integrates various communication modes (phone.2 0. and thus HTC’s success is not necessarily a zero sum game for Apple.6 4.7 10.5 0. weather. world times).3% 0.5 10.August 18. 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. However.5% 0. 2. HTC’s move towards owning both software and hardware technology.

7 54.1 4.2% 0.4 10. out of 400 million phones. While Nokia has led the market in delivering stylish.9 8.5% 2.4 40.9 11. from 3. not yet available for N97.5 billion in software and data acquisitions (Intellisync. and others).0% 1.5 28. Nokia. data and content.1 7. its Symbian-powered user experiences lag the richer.1 6.1% 0. 2009 2009E 164.5 7.7 15. PLAZES.3 7.6 5.9% 0.2 0. Nokia’s subscription “Comes with Music” service. files.7% 0. We expect Nokia to lose some smartphone share.1% 553. particularly with software.8% in calendar 2012 (Nokia’s overall share of TAM should still grow. appealing-looking smartphones offering the latest hardware features (some superior to RIM and Apple like higher-res cameras.1% 126. sharing (user-generated photos.Wireless Industry Exhibit 49: HTC as % of Forecast Market. These issues are not insurmountable. OZ Communications. – has been to date disappointing (based on early reviews). given smartphone market growth). Loudeye.g. gaming (N-Gage). but available for Nokia 5800) and involves an ~$100 premium versus devices without “Comes with Music”.1 20.1 15.7% 1.8% TAM to 9. integrated flash memory size. may continue to face challenges transitioning to smartphones. with some buyers using them as PIM organizers with voice/SMS only (no data plan).2% 1. Symbian-powered Nokia smartphones don’t offer multi-touch UIs (have resistive rather than capacitive touchscreens).0% TAM in calendar 2012.1% 2.2% 0. Nokia may be able to address these challenges and successfully compete in the smartphone market.9 35. bit-side.0 6.1 6. 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. Some of its smartphones have been criticized as being too complex for data-centric functionality like email and browsing.8 7. in our opinion. and innovative media players. since they are limited to playback on certain devices and for a limited time.5 3. application ecosystems. This has not been through lack of trying: Nokia has spent more than $8.1 25. and sync of calendars. As shown by Microsoft’s Zune struggle against Apple.9% 2012E 503.0% 247.4% 2010E 250..6 5. Nokia shipped only an estimated 47 million data-centric smartphones in calendar 2008 (this would exclude Nokia’s smartphones bought without full data plans).9 16.5% 766. acquired by Nokia in 2008 (Nokia plans to make the platform available as open source to other manufacturers). However.8% of smartphone units in calendar 2008 to 25.6% 2011E 376. intuitive smartphone data experiences of RIM and Apple’s OSs. videos). The global leader in handsets with 468 million units shipped in calendar 2008.4 17.8 6. Microsoft recently announced it is planning to bring Microsoft Office Mobile and other Microsoft software to Nokia’s Symbian devices. consumers have shown little interest in DRM-restricted music subscription services.1 7. etc. dropping from 36. app purchases. which allows unlimited downloads of DRM-restricted music for two years. 62 Mike Abramsky . gate5. wireless technology). rich mobile web browsing.3 7. ringtones.5% 165.2% Nokia Nokia: Defending Market Position.7 11. is only available on a select number of handsets (e. Mobile content as well has proved a challenge for Nokia: its Ovi mobile content service – offering content like music. contacts. Nokia’s smartphones run Symbian OS.4% 374.8 7. downloads. NAVTEQ. Twango.

Epix.7% 0. Samsung may commission developers to release proprietary games and apps available only on its app store for its Android devices.August 18.9 4. We expect Samsung to grow its smartphone franchise from 0.9 27.1 15.g.0% 1.5 8.0% 766.9 25. Blackjack.5% 9.5% 2012E 503.5 20.9 0.4 247. its first Android-powered smartphone.4% TAM in calendar 2008 to 1. and is horizontally integrated.0 3. music player. As the second largest mobile phone manufacturer shipping 200 million units annually.4% 1.1 40.0 766.8 0. 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.4 70.. We believe Samsung will focus on being first to market with innovative new hardware (like high resolution screens.5% Wireless Industry 2011E 376.3% 0.1 111.5% 2009E 164.9% 8.8% 9.9 3.5% 0.7 3.7% 4.4% 2011E 376.5 82. “world’s thinnest Android smartphone”).1% 2. Samsung offers a variety of Windows Mobile smartphones.8 46.g.8% 3.4 26.8 4.3 374.2 5. photo browser.3 28.8 4. etc.0% 2010E 250. to the Propel slider and the Omnia touchscreen.0% 5. users are required to navigate between the TouchWiz UI and Windows. Omnia)).0 33.1 5.9% 4. as well as integrate its Android devices with its “Samsung Mobile Applications” app store.1 206.8% 374. face some losses to RIM.6 29. and cameras) and packaging/form factors (e.2% 3. 2008A-2012E 2008A RBC Data-Centric Smartphone Units (MM) Samsung Units Forecast % Data Centric Smartphone Units % TAM (units) Samsung Shipments By OS Platform (MM) Google Android Microsoft Windows Other RBC Data-Centric Smartphone Users (MM) Samsung User Forecast % Data Centric Smartphone Users % of Total Mobile Phone Users Source: RBC Capital Markets estimates 2009E 164.) Samsung launched the i7500 Galaxy in 2009.0 3. Samsung’s Omnia smartphone series incorporates Samsung’s TouchWiz UI for Windows Mobile.4 5. Samsung had only 0. 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.5 108. which some reviewers have disliked.2 56.9 6.8% 2. Exhibit 51: Samsung as % of Forecast Market. Symbian and Android (over an estimated 80% of Samsung’s smartphones sold in calendar 2008 were running Windows Mobile). We expect Samsung to differentiate its Android devices and offer a customized touchscreen UI with 3D animations and transitions. 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 126.1 0. Apple and Palm in software capabilities.2 0.3 6. 2009 Exhibit 50: Nokia as % of Forecast Market.1 34.. from the QWERTY keyboard Jack.3 29. Apple and other smartphone leaders.6% 0. Samsung’s expected Android smartphone launches in late 2009.1 16. Ace and Saga.9% TAM in calendar 2012.9 28.0% 1.7 36.8 165.3 5. its overall voice/SMS handset market share will.9 32.2% Source: RBC Capital Markets estimates Samsung Balancing Windows Mobile and Android.9 0.1% 5. lacking its own proprietary smartphone OS.2% 553.7 28. (Similar to other UI layers on top of Windows.4% 1.1% 0.6 5.1 11. in our opinion.4 12.8% 126.2% Mike Abramsky 63 .9 129.4% 0.0 553.5% 0.6% 2012E 503.8% 165.6% 0.2% 2010E 250.4% TAM (5 million units) in smartphones in calendar 2008. utilizing Windows Mobile.7 3.5% 0.5 5.7 161.8% 247. Conversely. Samsung lags RIM.9% 12.9 53.

g.1% 2010E 250.0% 0.7 4. Windows Mobile.2 28. widgets and mobile services has not yet been proven. 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 164.8% in calendar 2007 to 8. Motorola represents a “Hail Mary” play in smartphones. Motorola Q) along with another 1. We expect Motorola to grow from 0. down 37% from 159 million units in calendar 2007. user confusion and complexity as software and data become more important to the smartphone experience.4 9.6 2.3% by calendar 2012.6% 126.2% 0. Sony Ericsson remains committed to three major smartphone platforms – Symbian.6 3.8 2.2% in calendar 2008.3% 2011E 376. Exhibit 52: Motorola as % of Forecast Market.9% 0. 2009 Motorola "Hail Mary" Smartphone Play.8 2. as shown in its Xperia X1 smartphone.9 3.1 12. but lacking its own smartphone OS. with its total handset share falling from 8. similar to its “panel” UI for Windows Mobile.3 0. Motorola to date has had limited success (sold only <1 million WinMo-powered smartphones in 2008 (e. 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. We expect Sony Ericsson’s share of the smartphone market to remain essentially static.g.9 18.9 3. lacks multi-touch). To us. slowed product development. Motorola has faced losses in handset market share.8 0. call.4% 2012E 503. at 0.3 2.9 1. we believe Sony Ericsson is developing an innovative UI atop Android.9 1. and departing key employees. to face losses to RIM. Positioned as a premium feature phone vendor. The Xperia experience remains constrained by Windows Mobile limitations (e. customers.6% 0.8% share of TAM in calendar 2012 versus 0.7% 374. in our opinion. likely to 64 Mike Abramsky .2 3.2% in calendar 2008. To differentiate its Android-based devices. which features a unique “panel” UI on top of Windows Mobile.3% 766.3% 0.2% 165.0 0. In smartphones.7 5.2 0.4 2. While the launch of these devices is likely a near-term positive for Motorola’s smartphone franchise.Wireless Industry August 18. and Android – which increases support costs. the company shipped 100 million units in calendar 2008. Facing larger challenges with its global handset franchise.1% 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. Sony Ericsson has lost market share through the market’s shift to smartphones.2% TAM in calendar 2008 to 1. while Motorola’s overall voice/SMS handset market share will continue.7% 1..1 4. given its larger challenges. with its turnaround largely dependent on the sustained success of its pending Android-powered offerings.7 9. Some reviewers have disliked Xperia’s user experience (appears unpolished and inconsistent. SMS notifications)).1% Sony Ericsson Juggling Three Smartphone Platforms.8 2.1 6. Apple and other smartphone leaders.8 11.g. Sony Ericsson’s strategy of differentiating its smartphone experiences atop these platforms through innovative UIs. Symbian and Linux).8 3. Pending Android smartphone launches in late 2009 and 2010 are expected to improve MOT’s smartphone momentum. 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.3% 247.1% 553.8% 1.4 19. requiring users to manually switch between the “panel” UI and Windows Mobile and offering weak integration with core phone functionality (e..5 0.9 0.1 5..5 14.0 3.6% 0.7 0. Still the third largest mobile phone manufacturer.0 3.7% 0.

NEC.3% 0.6 1.2% 165.2 1.9 1.9 30. However.8% 2011E 376. Sony is likely to integrate its Android devices with its MyPlay online music store.3 1.1 1.4 17. Playstation and/or Cybershot franchises and incorporate robust multimedia.0% 165. Phone.4 44.7 1.8 1.6% 2.4 4.0 3.) We expect other vendors.3 17.6% 5.5% 0.0% Source: RBC Capital Markets estimates Mike Abramsky 65 .0 2. Exhibit 53: Sony Ericsson as % of Forecast Market.4% 2010E 250.1 80.1% 2010E 250.1% 0.8 2. etc. gaming and/or camera capabilities into its Android handsets.3% 2. Sony Ericsson may leverage Sony’s Walkman. and Fujitsu) to launch smartphones and connected mobile devices – particularly. Over time.9% 0. HP. Acer.0% 0.3 2.5% 1.7 19. channels or customer bases where they are dominant.7 104.5 58.2 44. with their shares declining from 19.9 1. Panasonic.7 27. We see the aforementioned smaller mobile phone vendors losing share to smartphone challengers.7 2. the PC vendors.0 0.3% 126.4 2.0 0.7 16.6 1.8% 3.2% 2012E 503. or in certain niches. 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.9 11.1% Other Vendors (PC.7% 374.6 18.0 2.3 6.7% 0.8 3.1 150.August 18.2 0. and Lenovo) as well as smaller phone manufacturers (LG. Exhibit 54: Other Vendors as % of Forecast Market. including PC manufactures (Dell.1% 2011E 376.6% 1. 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 164.8 24. 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 126.5 7.8 21.0% 1.5 66.0% 553. 2009 Wireless Industry feature sleek 3D animations and transitions.1% 0.5 0. where the rise in netbooks and the commoditization of traditional PCs is forcing PC manufacturers to prioritize mobile devices and smartphones.3 1.1% 247. value-add widgets.1 10.2% 2012E 503.8 19.2 18.2% 2009E 164.4 3.6% 0.6 1.2% 0.1% 0.6% of data-centric units in calendar 2008 to 17.1% in calendar 2012 on growth in the smartphone market).4% 374.5% 6.5% in calendar 2012 (TAM rises from 2.8% 766.6 4. which it has already launched for O2 UK.3 1.6 17.9% 2.7% 3. Sharp.7% 247.7 2.9 88.0% in calendar 2008 to 6. niche smartphone players).1 3.1 23.0 1. They may survive by selling smartphone units bundled with their own offerings. direct integration with social networking services and other custom apps.1% 766.6% 553.

Still Early. tools). in our view. RIM. consumer convenience (App stores. for example. RIM.Wireless Industry August 18. or Mozilla. declining from 13% of total data-centric smartphone units in calendar 2008 to 11. Given our thesis for early smartphone market segmentation (as described in the Smartphone Market Segmentation section). app-enabled OS software and SDK. 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. mobile applications lagged the vibrant third-party applications marketplace associated with the PC or the PDA because of OS fragmentation. Our outlook on Palm is positive. our outlook assumes Microsoft’s share modestly 66 Mike Abramsky . 3-4 OS. carrier reluctance to open their networks.8% share of total data-centric smartphone units in calendar 2008 to 18. but each has its own up/down scenarios dependent on overcoming challenges. iTunes. newspaper and magazine websites were simple HTML versions of their print publications). Windows Mobile has lagged innovations from Apple. largely at the expense of Microsoft as a rising number of handset OEMs like Motorola.) and a developer-friendly ecosystem (SDK.5B downloads to date) have seemingly exploded. we see room in the market initially for perhaps three to four dominant smartphone operating systems (if that. face significant challenges. @Home. and Google. With its compelling WebOS user experience and increasing carrier momentum. With the iPhone and its App Store. etc. Palm is expected to increase its OS share from 1.g. similar to consolidation in other consumer tech platforms like gaming consoles. Google. Symbian will. distribution. Microsoft is planning a significant release. RIM. We see Apple. 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). PCs. and Google Seen To Dominate Near Term. etc. is likely to lead near term given its near-term traction with OEM smartphone vendors but faces uncertain status longer term. tools and PC technologies developed. as well as OEMs using Android to replace RTOS (real-time operating systems) on high-end feature phones. data subscribers. Windows Mobile 7.. and successful uptake of pending product cycles. given the challenges that wireless carriers face in supporting more than one or two smartphone platforms. Given its later re-entry into the consumer market (with WinMo 7) and assuming it sustains its current pricing structure. Lycos.1% of total data-centric smartphone units in calendar 2009 to 3.5% in calendar 2010. We believe it is very early in the evolution of the smartphone application/OS market. Although apps on the iPhone (now numbering 65k with 1. Initially. with the survivors not necessarily first movers (recall Excite. LG and Sony Ericsson shift to Android from Windows. etc. further innovations and lower priced devices. AOL. Samsung. and scale). along with content/app developers who also can only support two to three platforms). Microsoft is expected to cede some OS share to Android. Netscape. Similar to how iconic software applications popularized PCs (e.. Internet search. mobile applications are a critical catalyst for future growth of data-centric smartphones. building competitive advantages. VisiCalc for Apple II and Lotus 1-2-3 for IBM PC). RIM’s share is expected rise from 17. which paled in richness to some of today’s interactive. 2009 Mobile OS Share Outlook OS/Platforms Becoming Standards. browsers. Google Android is expected to quickly accelerate share gains. rising from a 0. and a lack of economic incentive (revenue. and is expected to lose share to OS from Apple.5% in calendar 2012. and a vibrant app ecosystem is fast becoming “table stakes” for smartphone differentiation and success. Hotbot. with Apple in the lead due to its dominance of the media-centric segment. In time. Ask Jeeves. Significant Smartphone Platform Share Shifts Expected. Apple.5% share of total data-centric smartphone units in calendar 2008 to 12% calendar 2012. Along with subsequent application stores from Google (Android) and RIM. Apple opened the floodgates to mobile application momentum. smartphone operating systems may further consolidate to two or three.). RIM. this stage of app development is to us reminiscent of early websites (a time when. and RIM leading the productivity-centric smartphone segment. and Google and thus ceded market share. and no more. app-centric OSs. Palm’s WebOS is expected to stake out a smaller but significant leadership position within the PIM-centric segment. and vendor dominance. and Google initially dominating the smartphone OS market. multimedia website experiences as network speeds. While this release may close innovation gaps.4% in calendar 2012 on international momentum and a move into late adopter buyers. third-party apps for smartphones began to flourish. in our opinion. in 2010 which may help it regain momentum. easy payment.

0% Microsoft 12.2% 9. particularly with RTOS voice/SMS phone vendor OEMs. browsing experience. price-sensitive former users of these phones upgrading to smartphones. along with the Open Handset Alliance.0% RIM 18. in our view. high level of customizability.4% Apple 10. a group of 47 hardware. with Google well suited for entry-level.3% Apple 16.August 18.4% RIM 17.5% in calendar 2008 (0.1% TAM) to 12. Google’s open-source mobile platform (unveiled in November 2007. tight integration with Google’s cloud services.3% Microsoft 13. We expect Android’s share of data-centric handsets to steadily rise from 0.8% 2012E Data-Centric Smartphone Share (Units) Other Palm 3. 2009 Wireless Industry recovers to 12.5% in calendar 2012. Android’s advantages include its: low/no cost to OEMs.5% Google Android 12.8% Symbian 35. Android appears positioned to gain early momentum with a portion of the entry-level voice/SMS phone market moving to smartphones.3% Symbian 46.0% in calendar 2012 (4. Android will see near-term traction with OEM smartphone vendors who prize the opportunity to leverage Google’s 100 million-plus online base. Mike Abramsky 67 .5% 2. Exhibit 55: Data-Centric Smartphone (Units) Platform Share Outlook 2008A Data-Centric Smartphone Share (Units) Other Palm 2. Symbian shows the most dramatic decline. software and telecom partners that manage development) has recently had strong near-term momentum as an OEM smartphone OS.2% TAM). Thus. and. vibrant developer and mobile app ecosystem. which is contingent on Microsoft regaining OEM handset share following the release of WinMo 7. Other platforms (like Linux) are forecasted to decline from 9% in 2008 to 2% in 2012.5% 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.0% Google Android 0. from a 46% share of the data-centric smartphone market in calendar 2008 to 35% in calendar 2012. bundled Android UI and apps.

where OEMs sign a distribution agreement with Google and may install Google apps.9 15. though device development may remain challenging. 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). including advertising. with a webkit-based mobile browser. Gmail. including HTC. Android Launch Timing HTC Samsung Motorola Sony Ericsson Fall 2008 Fall 2009 Fall 2009 Fall 2009 2008 Voice/SMS Handset Shipments (MM) 0. OEM software/hardware updates may be delayed until Google makes necessary changes to Android. • Android OS updates must accommodate customized implementations across multiple OEM partners.Wireless Industry August 18. potentially creating delays in deploying new innovations. Support is more critical and challenging in mobile (than on the Internet or PCs) where superior performance. flash. in contrast to the strong consistently applied.. but they may not use any Google apps (e.) unique UI constraints.1% 8.0% 15.g. assuming Windows Mobile charges $10/unit for a smartphone with average $200 bill of materials (BOMs).8% 1. full installs of Google apps and unrestricted access to the Android market. etc. We believe most vendors will adopt the implementation “with strings”.). and location-based marketing.1 96. Android is available to OEMs under three models: 1) obligation free. processing.7% 2008 Smartphone Shipments (MM) 6.9 0.1% 7. in-store purchase transactions. which isn’t available as part of “The Google Experience” on competitor devices (or even HTC’s Google-branded devices). LG. spectrum efficiency. where they can develop their own UI and apps on top of the Android. limited resources (storage. • The rising number of OEMs may lead to inconsistent user support experiences across OEMs and carriers. given: • Despite customization. calendar.7 2.0% 2008 Windows-Based Smartphones (MM) 5. iconic smartphone user experiences of RIM and Apple. yet still use Google apps. physical device limitations. the smartphone experiences of horizontally integrated Android OEMs are expected to lag user experiences from RIM. For example. with few exceptions (perhaps.9 Share (%) 4. Motorola.1% 0.0 196. 2) implementation “with strings”.2 10. with Google branding on the handset. Apple. etc. Also.7% 0. HTC) Android-powered smartphone vendors may face challenges becoming “iPhone killers”. app ecosystem (Android market).7% 3. a large number of whom appear committed to launching Android devices. Sony Ericsson and others. • Customization by OEMs fragments the Android user experience.9 3. reliability and user experience are more difficult to achieve given the unique constraints of mobile (battery life. giving OEMs liberty to customize and install on a variety of devices. Early OEM momentum has been uneven – with some OEMs having difficulty releasing devices on schedule due to engineering challenges.0% 3. 2009 OEM Value Proposition. functional multimedia and mobile email (Gmail-centric). We expect OEMs to address the UI shortcomings as they come up the learning curve and begin to roll out proprietary UIs.9 0. The standard Android UI provides a modern smartphone experience. HTC has added support for Microsoft Exchange and Exchange ActiveSync on its non-Google branded devices.). for example. touchscreen UI. Exhibit 56: Profiles of Android OEMs Est.5 Sha re (%) 13. While providing OEMs with satisfactory smartphone user experiences. carriage fees (broadcasting).3 1.6 393. 68 Mike Abramsky . Samsung. Android continues to gain critical mass with handset OEMs. and Palm.3 Sha re (%) 0.5% 20.6 100. Conversely.8% 31. etc. Google may over time grow new sources of mobile revenues. Google’s pricing – free – may offer 5% cost advantages over a licensed OS like Microsoft. who benefit from tighter integration of software/hardware via vertical integration.6% Equates to 66% of total Windows Mobile Smartphone shipments Source: RBC Capital Markets Not iPhone Killers. 3) “The Google Experience”.6 4.7% 1.9% 8.

Exchange. etc.1 3.1% 2012E 503.August 18.9 9.5 5.6 11. etc.).3 1.6 17.0% Microsoft Windows Mobile – Aiming To Regain Leadership. cultures.9 60. Apple.5% in calendar 2012.2% 15.5% 1.8 0. QWERTY versus touchscreen keyboards. etc.5) this year offering improved UI with touch control. Apple and Google in consumer smartphone innovations (UI. WinMo 7 is also expected to leverage Mike Abramsky 69 .1 24.3 247.5 10. in 2010. WinMo 7 is expected to deliver more complete consumer.9 5.8 0.g.1 2.0 165.).8 0. which we forecast will decline from 13% of total data-centric smartphone units in calendar 2008 to 11. 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.5% 3. The user experiences of the WinMo 7 release may well close prior innovation gaps with RIM and Apple. 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. Windows Mobile 7.0% 11.0 6. however. to become successful in smartphones. Windows Mobile has lagged RIM.3 0. Examples include various screen resolutions. content. Zune.0% in calendar 2008 (16. Web. end-to-end experiences.1 84.5% in calendar 2010.0 0. deeper integration with its other platforms (Xbox.0 0.4% in calendar 2007 (15. Android alone may not elevate incumbent voice/SMS vendors to smartphone leadership. Microsoft is expected to cede some OS share to Android in the near term.7% 126.7 50. user and developer market share to RIM. As discussed in the Some Incumbents To Face Challenges section.3 5.0% 4. which should improve OEM smartphone development. hardware/software features. given competitors will also continue to evolve their experiences. videos. Microsoft has ceded OEM. visibility to the competitiveness of these future offerings remains limited. along with structured tools.1% 2010E 250.6 0.5 766. Having prioritized the enterprise and attempting to dislodge BlackBerry in this space over the past two years. As a result.0 0. updated Internet Explorer and some integration with cloud services like “Windows Marketplace for Mobile” apps store and “MyPhone” for syncing text messages.1 12.. WinMo’s share of data-centric handsets dropped from 18.2% 1. memory. apps. Windows.7% 7. and contacts to the Web.4 5.4 2.9 9.1% 0. 2008A-2012E 2009E 164.4 7.5 39.5% 3. break carrier influences and recognize and fill skill gaps. etc. Office.5% 0.9 374. GPS. Windows Mobile 7.6 0. Given its 2010 re-entry in the market with Windows Mobile 7 (see below) and assuming it sustains its current pricing structure.0 0.4% 0. 2009 • Wireless Industry Despite its Open Source architecture.1 553. Microsoft launched an interim WinMo release (6. photos.1% 0.) as well as continued to face some reliability and usability issues.2 0.4 21.3 8. accelerometer. slower than the rise in the market). Microsoft is planning a more significant release.and business-oriented.2% 0. sensors (e. however.5 12.1 12.5% 2011E 376. entrenched hierarchies. which is contingent on Microsoft regaining OEM handset share following the release of WinMo 7.3 1. Microsoft believes WinMo 7 will help it regain mobile OS share momentum. Our outlook assumes Microsoft’s share modestly recovers to 12. and Google.4% 0. developer tools.1 3. and Wi-Fi support.1 9.0% 1. processor speeds.6 0.3 million units) to 13.5 million units – an increase. some voice/data incumbents may need to successfully upend legacy business processes.

enabling superior.e.0% 1.6% Symbian Transitioning to Open Source. competitors certainly won’t be standing still.9% 126. and innovative multimedia. with some buyers using them as PIM organizers with voice/SMS only (no data plan).8 16. and hotmail (350 million users).3% 5. not just data-centric units). As an example. A significant portion of Symbian users do not fall under our data-centric definition. 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.5% 2.7 68. 2009 Microsoft’s large Xbox install base (28 million users).9 20.9 12. Symbian-powered Nokia smartphones don’t offer multi-touch UIs.5% 4.9 0.5 13.4 247. As with Google.0 12.2 12. a broad app ecosystem. Going forward.1 12.2% 1.3% 1.1 553.4% 20. the horizontally integrated Microsoft OEM model. However. Nokia accounts for 85-90% of total Symbian shipments.2 13.4 8. at this stage of the smartphone market. i.1 44. Often.3 0.4% 1.4% 3. Microsoft Windows Mobile 7 may.7 15.5 20.0 14. Symbian’s user experience is also 70 Mike Abramsky . rich web browsing. Uphill Battle. Exhibit 58: Microsoft as % of Forecast Market.5 14.Wireless Industry August 18. including OEM share lost to Google. however.8% 2010E 250..0% 1.5 32. unique.5% 0.8 0.7 4.4 6. delightful.7 0. some Symbian smartphones have been criticized as being too complex for data-centric functionalities like email and browsing versus competitors.9 3. if WinMo 7’s user experiences and possible innovations in OEM smartphone tools are strong. PC install base (500 million “home” users). possibly offering consumers management of and access to their personal data and content across platforms. apps) and not taking full data plans.2 4. With more than 200 million handsets shipped to date and a 52% share of the total smartphone OS market (all devices shipped. in our view. tight integration of software/hardware.0% 2011E 376. Regardless of its advantages.8 12. by the time Windows 7 reaches the market.7 12. Nokia has not yet (may not) open up its Ovi mobile services strategy to other Symbian partners. Microsoft could re-gain OEM handset share versus Android which could potentially shift market share back in Microsoft’s favor. Symbian to date has been the world’s most popular OS. Thus.8 11.0% 0.8% 7. Microsoft faces an uphill battle in regaining market share.1 6. Horizontal Integration.9 0.4 28.9 0. however. aren’t utilizing full data (browsing. email.9 2.5 46.5) faces inherent challenges to creating an “iPhone killer”. 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. Per our thesis. at this stage (6.2 766.1 95. 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. iconic smartphone user experiences are best provided via deep vertical integration.9 0. Some Symbian-powered smartphone user experiences continue to lag the rich. our forecast for Symbian shows dramatic decline. Now owned by Nokia (acquired in 2008).4 11. from 46% share of the data-centric smartphone market in calendar 2008 to 35% in calendar 2012. particularly if it sustains its existing software pricing model versus Google’s “free” offering without delivering a differentiated and superior user experience.5% 2012E 503.2 24.5% 16.4% 10.9 165. intuitive smartphone data experiences of RIM and Apple’s OSs.8 4.1 6.5 374.9 62.

August 18, 2009

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

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

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

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

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

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

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

Source: RBC Capital Markets estimates

Mike Abramsky 71

Wireless Industry

August 18, 2009

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

Smartphone Units
Source: RBC Capital Markets estimates

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

72 Mike Abramsky

August 18, 2009

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

Mike Abramsky 73

0% 2009E 30.0% 43. We see these favorable conditions remaining in place until the gap between the iconic.7% 43. smartphone vendors. 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. and ROI.5% to 39. suppliers and competitors. the best smartphone experience will continue to win at this stage of the cycle. which would be in addition to royalties from other patent holders. and for Apple. Nokia. We expect entry-level smartphones. brand and market momentum than today.4% and ASPs from $345 to $287.3% 41.Wireless Industry August 18. scale. 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.0% 44.6% 2012E 47. These increases could be offset by higher pricing for the new technology. This industry structure. c) iconic smartphone platforms are gaining a critical mass of developers and content. 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. That only a few vendors will lead the market. like the BlackBerry Pearl Flip or a possible iPhone “Nano”. reliability. at which point we would foresee greater threats to margins. In other words. consumers. 2009 upgraded data subscribers. sustaining competitive barriers to most incumbents and new entrants. Royalty Costs . manufacturers may have difficultly fully passing along higher licensing costs to consumers. establishes conditions for strong industry profitability. These “gating factors” include: a) the complexity of making iconic smartphones. Attractive Industry Structure.9% 2010E 36. carriers are also expected to continue to subsidize smartphones with superior security. we do not foresee this occurring for several years. blended iPhone non-GAAP GMs in our model drop from 55% to 45% and blended iPhone ASPs from $550 to $450. which remains underpenetrated. Royalty costs remain a risk to smartphone margins. We expect smartphone industry GMs to decline 590bps from 43% in calendar 2008 to 37% in calendar 2012.3% 37. and still more attractive than the low 30% average voice/SMS handset GMs in calendar 2008. In our view.6% 45. These “gating factors” limit smartphone vendor competition to a select few leading vendors. however.8% $200 $343 $279 31.7% $191 $333 $265 29. Ericsson and others. and.9% $209 $354 $300 32.3% 44. Smartphone manufacturers currently pay royalties of approximately 3-5% of the handset’s ASP to key 3G patent holders like Qualcomm. RBC CM Smartphone Margin Outlook Smartphone ASPs and GMs Outlook. to rise from 26% of total smartphone units in calendar 2008 to 48% in calendar 2012. in our model this translates to a decline in GMs from 43. who also can only support two to three platforms.4% 2011E 44. with the four times increase in market size. Nortel (large LTE patent holder) has suggested that a 1% royalty for its patents on all LTE handsets is reasonable. d) the size of the segment sufficient as to be commercially attractive to carriers. 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.1% 74 Mike Abramsky .6% 40. developers.2% $219 $365 $321 33.4% $229 $376 $337 35.0% 46. b) the fact that wireless carriers are unable to support or subsidize more than one or two smartphone OSs or iconic handsets each. and other stakeholders. manageability.0% 38. For RIM. by which time we expect Apple and RIM will have significantly greater share. 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. Within the enterprise and SMB market. However. in our opinion. helps support higher pricing and margin power over carriers.

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

for the following reasons: 1) new product cycles (handsets. Affirming our view.4% Smartphone Upgrade Cycle (Years) 1.9 Bull Case 4% 5.1% 45. 2) smartphones appear less discretionary than other purchases.Wireless Industry August 18.2% Consumer 104 Business 23 Source: RBC Capital Markets estimates Bear Case -1% 4. and smartphone upgrade cycles. networks) and global transition from voice to smartphones help the smartphone sector outperform the slowing economic cycle.1 (8% CAGR) 1. Our Bear Case assumes a global recession. applications. high emerging market demand. and the data-centric smartphone market (particularly the consumer segment) remains at risk from economic headwinds.5 (5% CAGR) 19. only 3% of respondents would part with their cellphone service. While the total global handset market remains vulnerable to global economic slowdown. Smartphone Market Forecast Scenarios. our Bull Case assumes stronger-than-expected global consumer uptake. home phones (23%). growing faster than the general handset market. consumers are unwilling to part with their cellphones. offsetting slower regions.7 Global Mobile Phone Shipments (B) CAGR) 1.8 540 (34% CAGR) 766 (47% CAGR) 993 (57% CAGR) 459 667 874 81 100 119 300 (24% CAGR) 504 (41% CAGR) 675 (52% CAGR) 21. vertical markets. with intensive competition. The analysis shows smartphone market growth ranging from 24-52% CAGR and handsets from 300 to 675 million in calendar 2012.6% 1. 4) lower data pricing and handset pricing trends are improving smartphone affordability. 6) ROI of mobile deployments. or DVD/movie rentals (11%). Exhibit 63: Scenario Analysis 2008A Assumptions: CY10 GDP Growth (%) Global Mobile Phone Users (B) (CAGR) 3.4% 1.4 (3% CAGR) 11. Our scenarios (see Exhibit 63 and 64) vary assumptions on GDP.6 Results: Data-Centric Smartphone Users (MM) (CAGR) 165 Consumer 135 Business 30 Data-Centric Smartphone Handsets (MM) 127 Handsets % of TAM 10. students. recent RBC IQ / Changewave survey data (May 2009. total mobile phone penetration and growth. While many would part with TV service (44%).4 (4% CAGR) 15. with growth in developing/emerging economies expanding rapidly. which helps to offset weakness in traditional phone market segments. 30% downside (Bear Case) to our datacentric global smartphone user/unit forecasts. we see the data-enabled smartphone market as a “market within a market”.5% 255 438 594 45 66 81 76 Mike Abramsky .9 (7% CAGR) 1. smartphone penetration and growth. 3) the data-centric smartphone market is international.1% 2.6% 35.700 respondents) shows that despite tightening consumer wallets. Under three scenarios for economic growth/slowdown. and. contracting consumer and business spending.2 Smartphone Penetration (% of TAM) 4.4 2012E Outlook Base Case 2% 5 (8% CAGR) 1. 5) smartphones are just beginning to penetrate broader market segments like SMBs. our Scenario Analysis suggests 30% upside (Bull Case). 1. 2009 Smartphone Market Scenario Analysis Product Cycles Versus Business Cycles. discounted data/handset pricing. and steady enterprise penetration.

S. business users grow from 30 million in calendar 2008 to 100 million in calendar 2012 (13%). tight credit. and upgrades to smartphones and mobile devices remain resilient on compelling new devices. job losses and unemployment. Despite early positive Mike Abramsky 77 .6 years).S. with adoption/replacement of smartphones. In this case. with -4% U. and pessimism on home prices and stock markets restrain consumer spending. iPods. Discretionary consumer spending contracts. and international growth. the U. Data-centric smartphone handsets rise from 127 million in calendar 2008 to 504 million in calendar 2012. and poor consumer confidence following collapses in home prices and stock markets. before slowly recovering in calendars 2011/2012. with GDP growth slowing to -3% in calendar 2009 and subsequently recovering to 2% in calendar 2010. 2. enterprise ROI. or 35% of TAM and a CAGR of 41%.August 18. etc. and Western Europe.S. PC cards/modules.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. new services/applications. or 15% of total mobile phone users and a 47% CAGR. Consumer data-centric smartphone users rise from 135 million in calendar 2008 to 667 million in calendar 2012 (87% of total). Bear Case: Global Recession and Competitive Headwinds Hurt Smartphones. International economies also slow on recessionary pressures – although not as slow as in the U. With intensifying pressures from rising debt loads. data-centric smartphone users grow from 165 million in calendar 2008 to 766 million in calendar 2012. lower pricing. a 35% CAGR. with the replacement cycle easing modestly to 1. In this scenario. Rising debt loads. this scenario assumes a more protracted W-shaped or L-shaped recession. HDTVs. concerns about job security.200 Data-Centric Smartphone Users (MM) 1. economy undergoes a sluggish U-shaped recession through calendars 2009/2010. Adoption/replacement of mobile phones. GDP growth in calendar 2009 and remaining weak in calendar 2010 at -1%. visibly slowing. 2009 Exhibit 64: Scenarios for Global Smartphone Penetration 1.9 years (from 1. Base Case (RBC CM Forecast): Resilient Smartphone Uptake Within a Sluggish Economy. a 49% CAGR.

enterprise users reach 119 million in calendar 2012 (12%).16) and F2011 estimates become $21.43 EPS (prior $20. for a CAGR of 28%. Raising Estimates. $70.1% TAM in calendar 2009 and 4. The resilience of global consumer discretionary spending on smartphones and wireless data surprises investors. We are introducing our F2012 estimates of $25. Data-centric smartphone handsets rise at a CAGR of 52%. or 22% of TAM. Russia.1 billion.72. (NASDAQ: PALM. a 59% CAGR. with the replacement cycle slowing to 2. $4. more full-featured 3G models. Data-centric smartphone handsets rise from 127 million in calendar 2008 to 300 million in calendar 2012. along with its unique.8 years on innovative devices and innovative service plans. Bull Case: Smartphone Surprise. India. The shift to the next wave of computing will likely develop over the next several years. Apple Inc. driven by iconic new handsets (like Storm 2.26 (prior $15. Our Scenario Analysis shows F2011 revenues from $17. and then recovering to over 4% growth in calendar 2010. consumer data-centric smartphone users are expected to grow from 135 million in calendar 2008 to 459 million in calendar 2012 (85% of total). on Apple from $190 to $250. CDMA. (NASDAQ: AAPL. Spending on smartphones and mobile devices remains resilient (market growth estimated at 50-60% CAGR). Although the U. On stronger smartphone growth. global carrier data promotions. or at a CAGR of 36%. mobile email takes off more slowly outside the U.40 in EPS. iPhone 3GS.Wireless Industry August 18. data-centric smartphone users rise from 165 million in calendar 2008 to 540 million in calendar 2012. We are raising our price targets on RIM from $100 to $150. faster. representing a CAGR of 34%. as visibility improves to the huge smartphone opportunity. Speculative Risk) represent compelling investment opportunities which warrant investor attention. and Palm Pre) and form factors.4 years (from 1. Forecast to Capture 6. $5.82.23. it is only a short-lived V-shaped recession.6 years) as businesses reign in spending and consumers reduce discretionary spending. The smartphone market globally also gets a boost via adoption of mobile email and mobile browsing. reliability and battery life. students. With a pull-back in consumer spending. and on Palm from $18 to $25. With an estimated 1.5% TAM by 2012. Above Average Risk). along with upgrades from older 2G to newer.59. is positioned for long-term smartphone leadership and we foresee significant additions and expansion of its product line (consumer. We believe RIM will continue to possess sustainable advantages in intuitive. GSM. Above Average Risk).1% TAM in calendar 2010 to 78 Mike Abramsky . and Palm. RIM: Raising Target to $150 RIM Positioned for Smartphone Leadership. and global economies still face pressures. with U.2 billion (32% Y/Y) in revenue and $5. 2009 indications. the emerging leaders in the smartphone market such as Research in Motion Limited (NASDAQ: RIMM. 3G. $13. consumer data-centric smartphone users jump to 874 million in calendar 2012 (88% of total). offering a headwind to smartphone traction. In this scenario. powerful data experiences. or 20% of total mobile phone users. Smartphone uptake also grows faster than expected within broader geographies (China. compelling applications and international smartphone acceleration. RIM. Inc. In our opinion. craved push-based “Crackberry” messaging experience. Western Europe. Our Bull Case scenario calls for data-centric smartphone users to reach 993 million in calendar 2012. On significant consumer uptake. representing a CAGR of 57%. RIM needs only to achieve 3. justified by increased market shares which.8 billion (22% Y/Y) in revenues and $6.16). Outperform.9 billion.S. with the replacement cycle steady at 1. Outperform. with higher-than-expected global replacement of voice phones. for a 24% CAGR.8% TAM (18% smartphones) in 2008.0-22.S. enterprise.S. offer upside to financials and potential multiple expansion. GDP growth only slowing to -2% in calendar 2009 (includes a strong second-half calendar 2009). or 11% TAM. business users reach 81 million in calendar 2012 (15%).). and its NOC/software/hardware ownership.06-$5. etc. or 46% of TAM. in our view.0 billion and EPS from $4. lower data pricing. and form factors) to continue market penetration. representing a 41% CAGR. our F2010 estimates become $16.0 billion (32% Y/Y) in revenue and EPS of $4. Raising Targets Raising Price Targets. $159. 3. small businesses. than expected. particularly in emerging economies. Latin America. reaching 675 million in calendar 2012. Outperform. particularly among new market segments (younger buyers. and vertical markets).

151 32% 53.151 32% 53.5%).1 52% 41. with strong fundamentals and products targeting multiple segments.5% 20.8 63.2 18.5% 20.4% $5.5 20.8 20.0% 21.2% 21.40 18% $21.8 21.August 18.966 15% 41.7% 21.0 23. and Mike Abramsky 79 . Challenges.6% $6. Apple: Raising Target to $250 Apple Positioned for Smartphone Leadership.06 6% $19.088 26% 50.768 22% 70. RIM may face further margin/ASP downshifts.5% 20. 2009 Wireless Industry exceed our revised growth expectations for the next two years.2% $7.43 27% Prior $20.3 66.).4% $5.3 91. as it targets the mass smartphone market.1 49% 41.9 34% 39.3 94.0 78. UI.957 33% 56.16 20% F2011E Current $21.16 24% F2012E New $25.0 27. 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. Additionally. We believe RIM is already moving to address these challenges.5% 19.9 64.032 12% 48. In our view.768 22% 70.9 64.43 27% $25.9 44% 40. based on 1) revised higher F10/F11 EPS outlook (see above).2 70% 42.2% 21. profitability and valuation upside.8 17.3 42.2 54% 42.4% $4.5% 19. Our revised $150 target is DCF-based (10.1% $5.0% $4. driven by distribution expansion.82 30% $26.3 42.2% 18.5% terminal rate.995 45% 38.26 23% Prior $15. bundled and downloadable applications. We view the iPhone as a 10-year platform. 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.0 27. Our outlook reflects continued share gains in domestic and international markets.4% $5.40 18% Source: RBC Capital Markets estimates Reaffirming Outperform and Raising Target to $150 (from $100).4 42% 40.3 91.2 70% 42. FTM cash $6.656 21% 72.0 58.46 10% $21.5% WACC (prior 11.13 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. SDK.1 17.9% $4.4% $4.40/share). while retaining its trademark advantages.6% $6. innovations in user experience. RIM has lagged competitors in “front-end” software (browsing.1% 18. on mix.5 28. etc.5 43% 42. While not insurmountable.8 21.910 44% 37. RIM will deliver above-peer growth.4 42% 40. 4.1 52% 41. with significant growth and share gains ahead.

2% F2011E Base Case F2010E F2011E Bull Case F2010E F2011E 1. 2.208 3. it may be challenging to sustain the same level of disruptive innovation if Steve Jobs were not involved with the company. software. Our F2010 estimates become $42.25 13. Exhibit 67: Apple Scenario Analysis Bear Case F2010E Assumptions: iPhone Units (MM) Y/Y Growth (%) Results: Macintosh Music (iPo d.9 67.108 20. Apple’s iTunes/iTunes Store/device ecosystem remains a significant source of competitive advantage. 2009 additional iPhone SKUs.3 57. $7.46 $7. however.860 $45.08-$8.7% 36.1% TAM (11% smartphones).226 12.4% 8.975 3.08 13. Apple may face margin/ASP downshifts.0 billion revenue (11% Y/Y) and $5. We are introducing F2011 estimates of $50.6% 36.8% 9.4 20.5% 35.676 $43.5 62.4 24.90 in GAAP EPS.9% 36.9% $7.35 15.3 billion revenue (18% Y/Y) and $8.062 12.176 19. on mix.7% TAM by 2012.3% 55.94.91 $7.94 25.3% 9.955 12. service.676 $42.833 18.0% TAM in calendar 2009 and 2.780 20.3% 49. Other includes Peripherals.7-52. Source: RBC Capital Markets estimates 80 Mike Abramsky .141 12. Our Scenario Analysis shows F2011 revenues from $45.730 8.9% TAM in calendar 2010 to exceed our revised outlook.1 billion and EPS from $7.860 $52.61 $7. iTunes) iPhone 1 Other Total Revenue ($MM) To tal Reve nue Growth (%) Gross Margin (%) EBIT ($MM) EBIT Margin (%) Non-GAAP EPS2 GAAP EPS 13. Raising Estimates.08 $6.619 18.Wireless Industry August 18. With an estimated 1.23 in GAAP EPS (prior $42.55 $8.455 18.1% 33. as it targets the mass smartphone market.4 million shipments (52% Y/Y).271 21.955 12.955 12.8 billion revenue (19% Y/Y) and $7.336 17.995 19.284 3.97 15.2% 10.860 $50. near term we believe CEO Jobs’ return will accelerate Apple’s already strong product innovation.9% 33. Forecast to Reach 5.42 $8.786 20.761 20.062 12.3% $8.676 $41.5% $6.425 3.9% 8.682 3.260 13.7% $11.23 15. Innovation remains alive and well at Apple.4 52.062 12.6 billion.3 million iPhones (57% Y/Y).9% 9.5% $9.0% 31.981 16.00) on 31. Apple needs only to achieve 2. However.126 14. Our F2009 estimates remain $36. Challenges.795 3.6% 30.25 in GAAP EPS on 49. Adjusted for iPhone subscription accounting.9% $9.119 21.9% 36.

25 1. software.637 18. Adjusted for iPhone subscription accounting. and unique innovations.31-1.3% $8.25 in non-GAAP EPS (prior $1.42). any related valuation volatility offers entry points.011 10.23 Prior $42. Our revised target is DCF-based (10.119 21. Palm needs only to achieve 0. 4) additional innovations increasing demand.619 18.9% 13.865 35.795 3.84 $5. These challenges are expected to dissipate with growth and momentum.068 6.August 18.2% TAM in calendar 2009 and 0. FTM cash $48. For F2011. While facing near-term challenges.89 $5.90 Prior $36.995 19.826 20. service.336 17. Mike Abramsky 81 . including: a) execution.3% $8. ground-up designed WebOS platform.774 3.0% WACC (prior 10.865 35. Reiterate Our Outperform Thesis: 1) WebOS is a key asset and competitive advantage in user experience. scale.676 36.7 billion. and.75 non-GAAP EPS ($2.8% 7.5 billion.1 billion revenue (177% Y/Y) and $0. based on: 1) revised higher F2010/F2011 EPS outlook (see above). 2) we expect multiple WebOS devices.2% 8. vertically integrated model.833 18. and thus may need to be more measured in its product and distribution roll out.55 $8. we expect $3.6 billion and EPS from $0.6% TAM in calendar 2010 to exceed our outlook. Raising Estimates. Our Scenario Analysis shows F2011 revenue from $2. Palm faces near-term challenges. the “New Palm” in our view possesses the “special sauce” necessary for global smartphone leadership: This includes its management team.955 12. and. iTunes) iPhone Other 1 Gross Margin (%) EBIT ($MM) EBIT Margin (%) Non-GAAP EPS2 GAAP EPS $36.8% 7.4-3.676 36.294 12.785 3.9% $9.90 F2010E Current $42. We foresee additional share gains.4% 13.294 12.3% $8. 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.5%).5% 15. $0.9% 13. 3) expansion in global distribution. 2009 Exhibit 68: Apple Estimates Revision F2009E Current Revenue ($MM) Growth (%) Macintosh Music (iPod. Our F2010 estimates become $2.2 billion (52% Y/Y) and $0. Other includes Peripherals.955 12.062 12.3% 9.9% 13. Forecast to Reach 1. Palm: Raising Target to $25 “The New Palm”. and. Challenges. As a turnaround.7% $8. marketing budgets and balance sheets of RIM and Apple. 2.809 3. Source: RBC Capital Markets estimates Raising Target to $250 (from $190). 4.8% 9.860 35. matching it to its available resources.196 12. Palm lacks the strong brand tailwinds.305 20.3% TAM by 2012. With an estimated 0.3% TAM (3% smartphones) in 2008. $0.071 6.06.307 20.91 $7.004 10.08).975 3.00 Wireless Industry F2011E New $50. c) litigation/other.5% terminal rate.28 $7.74/share).226 12. b) product and distribution ramp.

9% $1.225 $1.75 August 18.625 113. Our revised target is DCF-based (10.7% $0.086 4.900 $3.9% 12.215 52.142 3.0x on improving investor sentiment as Palm continues to successfully scale and gain market share.461 5. and FTM net cash of $8.115 177. Source: RBC Capital Markets estimates Exhibit 70: Palm Estimates Revision F2010E Non-GAAP Total Smartphone Units (000s) webOS Units (000s) Treo/Centro Units (000s) Revenue ($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).744 $3. 2% terminal growth.086 4.4% 5. stock-based compensation.30 F11E 9.6% $0.08 1.399 8.374 712 $2.25 Prior 4.430 712 $1.387 4.00 F11E 6.42 Current 5. and.Wireless Industry Exhibit 69: Palm Scenario Analysis Low Case Non-GAAP Total Smartphone Units (000s) webOS Units (000s) Revenue ($MM) Y/Y Growth (%) Pro Forma EBIT Margin (%) Pro Forma EPS 1 F10E 3.2% 2.4x F2010 EV/non-GAAP sales from 2.7% $0.744 499 $3. Adjusted for amortization of intangible assets.02/share).215 52.5% WACC (prior 11%). Source: RBC Capital Markets estimates Raising Target to $25 (from $18).3% $0.0% 10.240 193.0% 6.675 $2.962 499 $2.115 177.583 59.243 7. 2) multiple re-rating to 2.099 5.4% 5. Adjusted for amortization of intangible assets.0% 10.75 Prior 6.6% 7.937 3.3% $0.4% 3.3% $0.9% 5. 2009 High Case F10E 5.4% $0.9% $0. 82 Mike Abramsky .243 7.31 Base Case F10E 5.718 125. and restructuring charges.519 46.25 F11E 8.06 1.357 45. and restructuring charges.4% $0.600 $2. stock-based compensation.374 $2.

retail data.) Mike Abramsky 83 . 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. Books.August 18. etc. 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. Movies. Content Providers Data Providers (demographics. etc.

and online search and premium content. (NASDAQ: AAPL). Inc. iWork. Speculative Risk) Research in Motion Limited (NASDAQ: RIMM. Apple has approximately 18. customer relationship. OEM radio modems. Products include the Macintosh line of personal computers.23. Apple. Research in Motion (NASDAQ: RIMM. $444. Not Rated) Nokia Corp. $12. Revenues are generated from the sale of wireless devices. which consist of email and instant messaging services. services. and the iPhone smartphone. (NASDAQ: PALM. enterprise server software revenue. 2009 Companies Mentioned Apple Inc. $70. including SQL database server and ISA server. Not Rated) Microsoft Corp (NASDAQ: MSFT. $13. $159. The company has five divisions. Microsoft Corporation develops software. is a Waterloo-based developer. the iTunes online media store. Microsoft Corporation (NASDAQ: MSFT). and messaging-based wireless services. has a strong global brand and fiercely loyal customer base. is a developer and manufacturer of mobile devices and smartphones. The Server and Tools division develops and maintains components of the Windows Server System. Average Risk)* HTC Corporation (Taipei: 2498.72. Not Rated) *Covered by Ross Sandler ** Covered by Mark Sue Company Descriptions Apple Inc. The Business Division includes the Information Worker segment (Office Suite) and Business Solutions segment. and peripherals.com domains. The company’s products include Palm Treo. Outperform. as well as manufactures. Above Average Risk)** Palm. BlackBerry Enterprise Server (BES) software. the iPod line of portable digital media players. Client division develops and sells the Windows operating systems for PCs. The Entertainment and Devices division is comprised of the Mobile and Embedded Devices segment. services. Palm products are sold through wireless carriers and third-party retailers throughout the world. Outperform. manufacturer. $7. founded in 1976. Average Risk) Motorola (NYSE: MOT. Above Average Risk) Samsung (Korea: 005930. Above Average Risk) Google Inc. established 1984. Inc. TWD 339. (NASDAQ: AAPL. licenses. and Palm’s online store. Products include the BlackBerry wireless handhelds. and the Home and Entertainment segment. Outperform. etc. Palm.Wireless Industry August 18. (NASDAQ: PALM). as well as software. and marketer of differentiated personal computers. software. and is supported by its retail store network. and nonrecurring engineering (NRE) revenues. Outperform.59. Mac OS X operating system and related application software (iLife. and accessories. and supply chain management functions. software and services. and supports software products for various computing devices worldwide. (NASDAQ: GOOG. recurring service fees (“redirector fees”) for managing carrier messaging infrastructure. manufacturer. and marketer of wireless handheld devices.000 employees. and Web and mobile services. Outperform. which offers mobile software platforms that reside on PDAs. it also provides Internet access. and other devices.45. JPY 2605. which offers the Xbox video game system.89.). 84 Mike Abramsky . Pre and Centro phones. is a California-based designer. KRW 720616. (NYSE: NOK. Not Rated) Sony Ericsson (Tokyo: 6758. $23. which provide software to manage financial. smartphones. Inc. The Online Service Group includes MSN and Live. Research In Motion.06. TSX: RIM). Apple is positioned in the high-end consumer sector. the sale of radio modems to OEM manufacturers. and the BlackBerry data service backed by RIM’s NOC (Network Operations Center) infrastructure. Outperform. CA-based Palm.25.

3DES – Triple Data Encryption Standard. Mike Abramsky 85 .11 technologies use an over-the-air interface to connect a device (for example. such as network services and program-to-program commands. AES supports key lengths ranging from 128 to 256 bits. 2G systems traditionally supported voice and circuit-switched data service. 3G technology has been or will be implemented as CDMA2000.5G and 3G networks. keyboards. Based on digital technology. 1G wireless networks were designed to carry voice traffic only.11g and 802. The first analog cellular phone system commercially deployed in the 1980s. Based on digital technology. API – Application Programming Interface. WCDMA/UMTS and HSDPA/HSUPA. the width or capacity of a communications channel. adding 2. Bluetooth supports both voice and data communications. 802. Access Point – A network device. A set of standard methods or functions that application programs can use to access a particular set of services or tools.11b. Differs from traditional GPS by adding an assistance server. an early wireless network technology involving the modulation of radio signals.11 – 802.5G wireless technology to a 2G network provides packet-data service and improved data rates.11 family of technologies includes 802. 802. which shares tasks with the A-GPS receiver to expedite position location. The 802. As defined by the International Telecommunications Union (ITU). AES – Advanced Encryption Standard. The monthly revenue generated by a consumer’s wireless device usage. sports or stock quotes. Bandwidth – In wireless communications. Bluetooth – A short-range wireless technology that interconnects devices such as phones.11 refers to the body of standards issued by the IEEE (Institute of Electrical and Electronics Engineers) for WLANs (wireless local area networks). 802. the standards body that oversees WCDMA . 3GPP2 – Third Generation Partnership Project 2. 3G wireless networks offer increased voice capacity and provide higher data rates than 2G and 2. Digital bandwidth is the volume of data that a channel can carry and is measured in bits per second (bps). that connects wireless devices to a wired local area network (LAN). A standard for encryption intended to replace the DES (Data Encryption Standard). 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.5G technology has been implemented as GPRS. BCMCS – Broadcast Multicast Service. or communication hub. news. BREW® provides a set of APIs for the development of applications for wireless devices.August 18. that protects computer data by encoding (converting) the data three times for greater security. microphones and mice.11n. a Wi-Fi-enabled laptop) and an access point to another network. A private key symmetric cryptographic algorithm. CDMA2000 1xEV-DO. 2G wireless networks offer increased voice quality and capacity over 1G systems. 2009 Wireless Industry Glossary 1G – First Generation wireless technology. A standard being developed for third-generation (3G) cellular networks. the standards body that oversees CDMA2000. computers. 2. 2G – Second Generation wireless technology. For example.5G – Based on digital technology. Based on analog or AMPS technology. Provides transmission of multimedia data from a single source to all subscribers in a specific area.5G networks. 3GPP – Third Generation Partnership Project. Analog bandwidth is measured in hertz (Hz). 802. 3G – Third Generation wireless technology.11a. Analog – In telecommunications. Examples of multicast content could include video and movie clips. ARPU – Average Revenue Per User. 3DES was issued as a Federal Information Processing Standard and is an updated version of DES. A-GPS – Assisted-Global Positioning System. AMPS – Advanced Mobile Phone Service. 2G systems are being replaced today by 2. which transmit information as sound waves over radio signals allowing one call per channel. A technology used to determine an end-user’s position in urban areas or dense outdoor environments. 2.

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

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

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

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

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