Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple's (Short-lived?) Dominance

It appears to be official. Apple’s iPhone is no longer the fastest
growing smart phone in the world’s largest and most important smart
phone market – the US! This is a very critical time for Apple and its
investors, for Apple has executed wonderfully in the smart phone space
and has risen from a non-existent manufacturer to the most profitable in
the world and simultaneously the fastest growing – at least until
recently. The phenomenal success has bolstered the iPhone and from zero
to nearly 45% of Apple’s revenues and nearly 70% of their profits. With
such a earnings and revenue concentration in a single device, multiples
and valuations are becoming quite susceptible, particularly when that
single device has gathered competition from some of the biggest, most
capable companies in the world – companies who have arguably already
released a better product being adopted at a faster rate than that of
Apple’s.

According to technology consulting firm, Canalys:

• Although Nokia grew shipments 41% from last year and has a substantial lead of 38% total market share, its market dominance is not as unassailable as it once was, with its performance outpaced by growth in the smart phone market as a whole. The smart phone market grew by 64% annually worldwide in Q2 2010. According to BoomBustBlog research, Nokia has lost market share for several quarters running and year over year (see There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All).
• Shipments of RIM’s BlackBerry smart phones grew by 41%. Helped by the continued strong performances of devices such as the Curve 8520, it was once again the second placed vendor with an 18% market share, while also retaining its leadership position in North and Latin America. BoomBustBlog’s proprietary research shows RIM is also losing both market share and growth momentum.

• Canalys states “Apple’s initial shipments of the iPhone 4 were predictably strong and contributed to Apple’s 61% growth and worldwide market share of 13% for the quarter. But analysis of Canalys’ detailed, globally consistent data shows it is the collective growth of Android device shipments across a range of handset vendors’ portfolios that is most remarkable. With key products from HTC, Motorola, Samsung, Sony Ericsson and LG, among others, shipments of smart phones running the Google-backed Android operating system grew an impressive 886% in Q2 2010.”
• We, at the BoomBust, have warned that the Android threat is woefully underestimated, see The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift. A 900% growth rate is, to our knowledge, unprecedented, particularly at a time such as this where the smart phone competitive landscape is deeper, broader and more intense than it has ever been.

• More from the Canalys release:
  • “‘The latest release of our detailed and complete country-level smart phone shipment data for Q2 2010 clearly reveals the impressive momentum Android is gaining in markets around the world,’
  • In the United States, for example, we have seen the largest carrier, Verizon Wireless, heavily promoting high-profile Android devices, such as the Droid by Motorola and the Droid Incredible by HTC. These products have been well received by the market, with consumers eager to download and engage with mobile applications and services, such as Internet browsing, social networking, games and navigation.’
  • The United States smart phone market grew 41% year on year. It is the largest smart phone market in the world by a significant margin, with 14.7 million units accounting for 23% of global shipments in Q2 2010. Android devices collectively represented a 34% share of the US market in the quarter, and with growth of 851% Android became the largest smart phone platform in the country.
  • ‘The story in the Asia Pacific region is similarly optimistic around Android,’ noted Senior Analyst, TY Lau.‘Android devices are gaining good traction in markets such as mainland China and South Korea, with growing numbers of consumers wanting more sophisticated smart phones.’ China was the world’s second largest smart phone market in Q2 2010 for the sixth consecutive quarter, with shipments of 6.9 million units representing 11% of the worldwide total. Android devices combined reached almost 475,000 units in Q2 2010 from no presence in the country a year ago. It is also important to note that China Mobile is committed to developing its own platform, OMS, based on Android, and an additional 174,000 smart phones shipped in the quarter running OMS.
  • Motorola and Samsung, as well as local vendors, such as Dopod, Lenovo and Huawei, are achieving promising volumes on the platform, and Android devices held a 7% share in China this quarter.’ Despite a close relationship with its strategic partner Dopod, HTC, the world’s leading Android device vendor, announced last week that it is entering the Chinese market with its own-branded smart phones. With a population of 1.3 billion, China represents a market with enormous growth potential and Canalys expects Android to be among the platforms that will drive growth in the coming quarters and years.

As I explained in The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift and An iPhone 4 Recall Will Hurt Apple More By Opening Additional Opportunity for Android Devices Than Increased Expenses,
it is nearly impossible for Apple to compete with the Android upgrade
cycle and feature set due to the amount intellectual development
capacity and marketing prowess being pushed into it as both an open
sourced platform and a platform being relied upon by dozens and dozens
of vendors whose ranks are growing daily.

Such growth was bound to attract developer attention, reference Android is gaining preference as the long-term choice of application developers:

• One key fact that the survey highlights “Despite all of Apple’s success, developers see that the winner long-term will be the mobile operating system that has the most capabilities and flexibility in scenarios beyond phones.”

I recommend subscribers download this 27 page, complete description
of Apple’s business model and strategy which outlines their strengths
and weaknesses. It is a considerably extended version of what was posted
on the BoomBust a couple of weeks ago (An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught). The download is available here: Apple business model note, and you may click here to subscribe.

We will be releasing FULL forensic analysis of Google, Apple and RIM
in the upcoming week and a half for subscribers, as well as juicy
tidbits of empirical analysis along the way.

Earlier must read analysis from the same guys who predicted the downfall of Bear Stearns, Lehman Brothers, WaMu, and GGP:

1. There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
2. The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift
3. An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
4. Don’t Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet
5. This article should drive the point home: An iPhone 4 Recall Will Hurt Apple More By Opening Additional Opportunity for Android Devices Than Increased Expenses
6. A First in the Mainstream Media: Apple’s Flagship Product Loses In a Comparison Review to HTC’s Google-Powered Phone
7. After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play