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Empirical Evidence of Android Eating Apple, Literally!
Continuing my analysis of the high growth smartphone market and
putting the finishing touches on the RIMM, GOOG and AAPL models, I had
my team perform extensive drill downs of market share and market
penetration of the various players involved. As stated in my in my earlier posts,
many (if not a majority of) retail investors and surprisingly enough –
quite a few professional investors fail to take a purely empirical look
at Apple, and instead inject a significant and material amount of
passion and subjectivity into their perspectives. It is my opinion that
this could potentially set some Apple investors up for an unpleasant
surprise.
Below, please find the results of our market share and market
penetration drill down for Apple. We have performed identical analysis
for Nokia, Research in Motion and HTC. This dynamic model (complete with
data populated from Gartner, Canalyis, Nielson and other sources)
provides a very rich, in depth view off the trends in handset sales
growth, market share growth, and smart phone market penetration (an
aspect I never see discussed on the web) for all of the players
mentioned above. It is available for download as an Excel model to
BoomBustBlog professional and institutional subscribers, here: 
Smartphone Market Model – Blog Download Version. Those who wish to subscribe or upgrade their subscription can do so here.
I often scan the comment sections of many blogs and websites to get a
feel for the readers’ perspective. One premise I see espoused often is
that Android is succeeding at the expense of Nokia, RIM and MSFT, and
not that of Apple. Both I, and the facts, disagree with this notion. As
it stands now, Android is literally eating Apple’s smart phone market
share, and as of last quarter – which does include a partial month of
the big sellers from both the Apple (iPhone 4) and Android (Evo, Samsung
Galaxy, Droid X) camps – Apple’s phone sales are actually growing
slower than the market is expanding. In comparison to the near parabolic
growth of the last few years, it is evident that that growth is going
somewhere. Where do you think it is going? The potential for lag in
phone sales right before a major hardware upgrade should be taken into
consideration, for there was probably a lull in Apple phone sales in
anticipation of the iPhone 4 release, but the same can be said for the
Android handsets as well (all around the month of June).
Below is a graph showing the longer term trend of Apple market share
in the smart phone space. It illustrates the explosive growth Apple has
had through its iPhone series, and it also shows some seasonality (ex.
lull before hardware upgrade season, etc.). As you can see, the growth
trend, viewed either directly or as a moving average, shows marked
downward momentum. Of course, it is highly unreasonable to expect a
company to continue to grow at the pace that Apple has, but that is
exactly what many Apple valuation models that I have come across have –
literally hard-coded in. This is folly, in my opinion – particularly
considering the effect of the Android competition that is already
showing up. If you look closely, Apple’s smart phone market share is
already showing NEGATIVE growth!
Since I know that the chart may be a little difficult to read at the
tail end encompassing several years of data, I have taken the liberty to
drill down to the past year to get a closer look. Remember, Android
sales didn’t really get started until 8 months ago, and the big surge
didn’t occur until the Evo/Droid X/Samsung Galaxy series were launched
in June, July and August – most of which is not captured here. The same
is to be said for Apple and the iPhone 4.
Click to enlarge to printer size!
Despite increases in both the overall mobile market and more importantly, the smart phone contingent’s penetration of said market:
- Apple’s smart phone shipments are showing a negative growth trend
- and more importantly, Apple’s smart phone market share is
experiencing a very sharp downward trend as shown by both direct
observation and that of the 2 period moving average.
By trailing the actual growth of the smart phone market, it is far
from a foregone conclusion that Apple, nor any other company for that
matter, can necessarily tread water by relying on the expansion of the
smart phone market. It is quite possible for the winner in this space to
capture enough market share to put a material hurting (in terms of
valuation multiples) on the loser, primarily if that winner becomes a de
facto standard (ex. Android OS, MSFT OS, iOS or even Nokia’s Symbian
OS) that can lock out the users of the competing devices for much of the
smart phone functionality.
I will be exploring this concept in illustrative detail with the
release of the Research in Motion forensic analysis and valuation within
roughly 48 hours.
More on the Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars!
- There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
- The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift
- An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
- Don’t Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet
- 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
- A First in the Mainstream Media: Apple’s Flagship Product Loses In a Comparison Review to HTC’s Google-Powered Phone
- After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play
- Android is gaining preference as the long-term choice of application developers
- A Glimpse of the BoomBustBlog Internal Discussion Concerning the Fate of Apple
- Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance
- Apple on the Margin
- RIM Smart Phone Market Share, RIP?
- Motorola, the Company That INVENTED the Cellphone is Trying to Uninvent the iPad With Android
- Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space
- There
Goes Those Fancy eBook Aspirations from Apple, Barnes and Noble, and
Amazon: 100,000’s of FREE eBooks from the Public Library - How
Google is Looking to Cut Apple’s Margin and How the Sell Side of Wall
Street Will Enable This Without Sheeple Investor’s Having a Clue
- advertisements -
Market share isn't money. When will you delve into the weakness of an ad supported model Reggie? If Apple can deliver songs at a buck a tune, it's quite conceivable they can also deliver text ads at a profit. Quite frankly, if they delivered the text ads at a buck a click, google would be instantly and mortally wounded.
The assumption that the ad-supported model is unassailable is quite naive.
Good. Piss on Apple/Jobs' little control scheme. Lock it down, arrest bloggers, force iTunes, have a shitty carrier, change your firmware/OS if it becomes accessible.
Now there is competition and the iPhone will be good for nothing more than temporary relief of status anxiety.
"Apple on Tuesday reported strong earnings for its third fiscal quarter of 2010, with strong iPhone, Mac and iPad sales helping revenue exceed analyst expectations.
The company in the quarter released the iPhone 4, which CEO Steve Jobs characterized as the most successful product launch in the company's history. Apple also launched the iPad during the third quarter, with shipments totaling 3.27 million units.
Apple sold 8.4 million iPhones during the quarter, a 61 percent year-over-year growth.
Market research firm iSuppli on Tuesday said it expects iPad shipments to touch 12.9 million units in calendar 2010, an increase from the previous forecast of 7.1 million units."
http://www.businessweek.com/idg/2010-07-20/apple-enjoys-solid-q3-on-stro...
Reggie - any idea how the iPad fits into this? I have never seen so many non-Apple people buy an Apple product as the iPad. Old, young - I mean CRAZY - almost everyone I run into as one - or two. Much faster acceptance than the iPhone. Apple must be giddy - wonder if the profit is higher per iPhone or iPad?
The reason why the ipad sells so well is because it is truly best in class. I even own one and I do not buy into Apple marketing, but their tablet's appeal is functionality and not marketing driven.
The downside here is that the Android tablets threaten to surpass that functionality by offering similar performance with greater interoperability and flexibility at a lower price point. It is a very good time to be a consumer of these products because the companies are really starting to deliver on their r and d.
Is this due more to Apple being stuck with ATT until Jan 2011 or something else? Rumors of an i4 upgrade at Christmas then Verizon roll out Jan 2011...though this may get smacked down due to expiring tax cuts eating into people's fun money.
Google has charts showing sexual partners versus what phone they use. iPhone users are the biggest sluts and blackberry users are the most chaste.
So that explains..........(deleted)
Excellent post. Thanks for all your work. Along with Davids taking on the Goliaths, this morning’s New York Times provides details on the newest attack on the dominance of Intel.
“A group of investors, including companies from the United States, Europe and the United Arab Emirates, has formed a bid to disrupt one of Santa Clara chipmaker Intel’s most lucrative franchises.
“The companies have put $48 million into Smooth-Stone, a startup based in Austin, Texas, betting that it can modify low-power smart-phone chips to run servers, the computers in corporate data centers. If successful, Smooth-Stone would undermine Intel’s server-chip business and offer companies—especially those with vast data centers like Mountain View’s Google and Palo Alto’s Facebook—enormous energy cost savings.”
Note the David reference, “Smooth-Stone,” to hit Goliath.
And this, after Jon Leibowitz used his power at the Federal Trade Commission, which has jurisdiction over virtually all American business activities, to fabricate an antitrust complaint against the company… “using his bully pulpit to explain to a compliant press corps that Intel really was an evil, greedy company that was guilty of all charges,” according to S.M. Oliva in his recent blockbuster, The Media and the Regime: Joined at the Hip.
Said Oliva: “Fortunately, since the case was ‘settled,’ the FTC would never have to produce any evidence to prove those charges, and the public would remain ignorant of what really transpired behind closed doors…
“The company abandoned litigation before there was even a trial and signed an order giving, as Leibowitz put it, 22 of the 26 demands proposed in the FTC's complaint.
“Intel's concessions effectively gave Leibowitz and the FTC unprecedented veto power over the company's future R&D and customer relations. Even some antitrust enthusiasts were appalled.”
http://www.lewrockwell.com/orig9/oliva4.1.1.html
http://www.youtube.com/watch?v=ZN5PoW7_kdA
well its seems that this has become a battle between iphone n android...with android taking the lead..android os on all smart phones like windows on all comps....with iphone being the thing for wat apple is today for non window users..that is basically surving cos of their fan base that doesn't care much abt how things work, only cares abt how cool things look...
great post and hope few apple lovers will try an orange....
No need to try an orange. Apple is the sinfull fruit, not oranges.
Eve new which fruit tot ake, she had the damn whole garden.
Why do you compare Apple, a company, with Android, an operating system? You also make statements to the effect that Apple had it easy in the phone market a few years back....but now...its difficult. Apple entered a mature market then and now is a major player. So they did not have it easy then and they have done just fine. Also Microsoft never gave away it's o/s like Google is doing. So to compare their growth models is not appropriate. Microsoft, Google and Apple are all very large tech companies that will all continue to succeed for the forseeable future. Your analysis here is lacking compared to your work on other investing ideas which I think you have done a great job with.
Google doesn't GIVE AWAY IT'S CODE. It participates in the free software foundation open source licensing wich is starting to get some huge freaking pull. You have no idea how many routers appliances etc have Linux in them illegally.
It was hard to get people to cooperate with the Free Software Foundation as linux was lacking enough that people would just dive in and develop proprietary stuff. But now it's bring so much to the table it's making it nearly impossible to compete against. When you can commit a team of 12 coders for 2 years develpe and maintain what you want out of it and compare it to a sublicensing process where you are forced to provide all the hard code (device drivers) anyway. Pay and still have to support plus get yourself involved in a cut-throat type situation. (Thnk Microsoft screwing over nivida for x-box gpu's in exchange for screwing over ATI with 10.1 spec direct x cut at the last minute to 9.0 spec rending ATI's gpu offerings a bit uncompetitive for over a year and half.)
Google does summer of code and coding projects for Open Source. They contribute quite a bit to it and get a hell of a lot out of it.
But google isn't all fluffy bunnies. They have access to dark pool bandwith they don't pay for and are so far up government's ass they stink. You take a tech company and get it involved in law enforcement and it get's an evil taint on it that you just can't hide with perfume. It killed AT&T and it'll kill google.
I am not, I am comparing Apple, a company, with HTC/Nokia/RIM - all competing companies. As quoted, "Continuing my analysis of the high growth smartphone market and putting the finishing touches on the RIMM, GOOG and AAPL models, I had my team perform extensive drill downs of market share and market penetration of the various players involved."
Android comes in as the cause for Apple's (and the other companies') loss of market share.
They did have it relatively easy. They produced a unique product that satisfied consumer demand, and marketed it very, very well. the market they entered was far, far from mature. Actually, it was closer to a nascent market, and still very much in its development stages. The smartphone market is, by far, the minority of the mobile handheld universe.
Why not? Google gives away the OS to gain access to deliver cloud services. Microsoft has attempted with Windows (ex. IE) and several other products to produce loss leaders in order to effectuate penetration for the sake of market share.
Possibly, depending on your definition of "succeed".
I'll venture to say thank you here, under the assumption that you didn't understand the underpinnings behind the post. :-)
{ Possibly, depending on your definition of "succeed". }
Well... yes!
So you came up with a metric suggesting than Apple isn't carrying all before them.
Whoopdeedoo.
They are still selling phones hand over fist, pretty much as fast as they can make them.
They have Billions in the bank and can fight this battle for the long term.
I don't think they are going to be crying into their beer just yet.
"Hopefully after Google will stop android fragmentation with v 3.0 ( unified UI) than it should start making a leap jump."
Is that what's gonna happen with 3.0? I have been putting off getting an android because I didn't want to rely on the hardware manufacturer every time google release a new update. Like now I have the Droid Incredible, but I can't update to 2.2 yet, but Evo 4g, droid x and droid 2 can.
The main idea for android 3.0 is the change of the UI, that's why they hire the cto fro palm who was responcible for for palmpre UI.
There still will be some fragmentations left due to different hardware from different manufactures, and as far as i know google plans to follow the suit for the v 4 to force manufactures on standartized harware like Microsoft is doing with windows mobile 7.
But at least for now , with v 3 we will have less update time to mainstream version by all manufactures.
With upcomming rummors of verizon iphone , things may change and if that rumors are true - there are other markets for CDMA iphone ( including china- not sure it will do any good there) , Japan and few other markets ( not big once).
I have android, wm 6.5 and iphone. While Android is growing rapidly, i noticed that it's more for a tech people, while iphone is general consumer. Hopefully after Google will stop android fragmentation with v 3.0 ( unified UI) than it should start making a leap jump.
But HTC has done a much better job at GUI design than the Android team. As a matter of fact, it is my opinion that Android 2.2 with HTC Sense overlay is the best GUI available on a mobile handset in distribution now. HTC also worked wonders with Windows 6 as well. The guys really know what they are doing.
As for the release as CDMA, it will give a significant boost to iPhone sales, IMO, but Apple waited too long (this is actually inaccurate, since they were probably contractually obligated, so let's say took too long) to do so. Most of the comparably priced Android 2.1/2.2 devices are either on par or superior to that of the iPhone. Apple could have waltzed through much of the CDMA market a year and a half ago. Now, they truly have competition, and that competition will just get more intense, not less.