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iSuppli Continues to Validate BoomBustBlog’s Original Thesis: Android as the Viral Game Changer!

Submitted by Reggie Middleton on 10/13/2010 03:49 -0400

iSuppli has released a summary of its latest report:

In a sign of the growing momentum behind
Google Corp.’s Android, makers of handsets utilizing the operating
system represented the majority of the fastest-growing firms among the
Top 10 smart phone brands in the second quarter, according to the
mobile and wireless research firm iSuppli Corp.

Droid phone specialist HTC Corp.
achieved industry-leading growth, with its smart phone shipments rising
by a stunning 63.1 percent in the second quarter compared to the
first. Meanwhile, on the strength of its Android-based Galaxy line of
smart phones, Samsung Electronics posted the second strongest
performance, with a 55.6 percent sequential rise. New Android licensee
Sony Ericsson came in fourth in terms of growth, with shipments rising
by 15.4 percent. Finally, Droid-focused Motorola Inc. ranked fifth,
with an increase of 12.5 percent.

“Every brand that has put effort into
designing smart phones using Google’s mobile operating system is
riding the Android wave,” said Tina Teng, senior analyst for wireless
communications at iSuppli. “From the spectacular growth of HTC and
Samsung, to the steady advances of Motorola, Android is the secret
sauce for smart phone growth for many companies in 2010.”

We have attempted to make very clear that Android is poised to become the number one OS very soon. For those who are not familiar with my work, I refer you to my track record in making such claims.

Reference:

Also from the release…

HTC on Center Stage
HTC’s Android success can be traced to wireless
operators that want to showcase the capabilities of their upgraded
networks by offering handsets with sophisticated features to
subscribers. For example, U.S. wireless carrier Sprint Nextel Corp. is
offering HTC’s EVO 4G, a feature-packed Android handset that can
capitalize on the high speed of its WiMAX-based 4G network. To keep its
momentum going, HTC is expected to offer an Android phone that
supports Long Term Evolution (LTE)—the other major standard for 4G.

HTC’s share of global smart
phone shipments in the second quarter rose to 8 percent, up from 5.3
percent in the first quarter, allowing the company to solidify its No. 4
position in the market.

And in regards to other major Android vendors…

Meanwhile, the share of
No.5-ranked Samsung rose to 4.6 percent during the same period, up from
3.2 percent in the first quarter. The company’s advance is being
driven by its Android-based Galaxy S smart phones, which are enjoying
strong acceptance from consumers. In contrast, Samsung’s phones using
its own bada platform don’t appear to be garnering as much interest.
The company’s ranking in the global smart phone market rose one
position from sixth place in the first quarter.

…

Motorola’s Droid Success
While Motorola’s second-quarter growth was
relatively modest compared to the high-flying results of HTC and
Samsung, there are signs that the company’s decision to put all its
eggs in the Android basket are paying off. On the strength of its Droid
product line, Motorola now has experienced five consecutive quarters
of growth starting in the second quarter of 2009—and has outgrown the
overall smart phone market for the last four quarters.

Motorola’s Droid strategy is
paying off. In North America, Motorola is benefitting from its
advertising campaign with Verizon. Motorola also has been refreshing
its smart phone portfolio constantly, keeping consumers interested in
its product line.

However, even this success
wasn’t enough to keep Motorola from slipping one position to sixth
place, down from fifth in the first quarter because of Samsung’s
prodigious growth.

We outlined the technically superior features of HTC’s flagship phones in “A First in the Mainstream Media: Apple’s Flagship Product Loses In a Comparison Review to HTC’s Google-Powered Phone”
as well as supplying a graphical comparison of the major Android
handset releases compared to their most potent competition – Research in
Motion Blackberries and the Apple iPhone:

Note to Subscribers, this chart takes precedent over the one included in the Apple business strategy document, Apple business model note. This also ties in with Apple iPhone Profit Margin Scenario Analysis Model.

iSuppli’s analysis also validates our forecasts that Apple will lose
additional market share to Android handsets in the upcoming quarters:

Slight Setback for Apple
Amid the advance of Android, Apple Inc. suffered a
4 percent drop in smart phone shipments in the second quarter.
However, the decline doesn’t represent a major setback for the
benchmark iPhone brand. Apple’s decline in the second quarter was
because of the transition from the iPhone 3G S to the iPhone 4. The
iPhone 3G S was reaching the end of its life, causing sales to drop
off. Meanwhile, Apple had trouble keeping up with iPhone 4 demand,
resulting in the small decline in shipments. The contraction caused
Apple’s share of smart phone shipments to fall to 13.9 percent in the
second quarter, down from 15.7 percent in the first quarter.
Nonetheless, the company maintained a firm grip on third place in the
global smart phone market.

This is occurring exactly as we publicly forecast two quarters ago. As excerpted from Empirical Evidence of Android Eating Apple!:

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
Gartnehttp://boombustblog.com/index.php?option=com_wpmuadmin&blog_id=1&task=po...,
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: File Icon 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.

These other articles should also drive the point home:

The profitable Research in Motion Forensic Valuation Analysis is now available for free

Now that Research in Motion has reached our valuation target and
offered the opportunity for material gain for our subscribers, I have
decided to released the full 45 page professional Forensic Valuation
report to the public. It is quite extensive, and has been quite accurate
to date - RIMM Forensic Analysis and Valuation – Professional & Institutional: Formerly available to Pro and institutional subscribers, now released to the public (simply click the link). The BoomBustBlog Multivariate Research in Motion Valuation Model is available only as a professional subscription,
for it allows you to update and change the assumptions/inputs in our
valuation model to keep pace with this rapidly developing market, ex.
the introduction of RIM’s new QNX tablet.

And from the valuation section of our Forensic Report (those who have downloaded it can refer to page 30)…

As you can see, we did a phenomenal job at anticipating the share
price fall and the practical floor. Those of you who used options and/or
leverage with proper risk management should have benefited
handsomely. Of course, this particularly industry segment moves much
more rapidly than most, which is why we have taken the opportunity to
add flexibility in our valuations and analysis (page 32)…

As is usual, I welcome any and all to compare BoomBustBlog research
to anything available from the sell side. I am confident many will wish to subscribe
after an apples to apples comparison. This report release to the public
is done in anticipation of the much more comprehensive, 65 page
Google Forensic Valuation (hopefully by later on today or tomorrow
morning) and the upcoming Apple Forensic Valuation. Please keep in
mind that the Research in Motion story is not over, by a long shot. It
looks as if they may have pulled a much needed rabbit out of their
hat with their new tablet, but at this point it is still vaporware
from our perspective since I have yet to get my hands on one. If it is
what it is chocked up to be, it will then be up to management to
execute. Their track record over their last 3 attempts at larger
screen form factors have been wanting, at best, but maybe the fourth
time around is a charm.

Professional subscribers should take advantage of the interactive
valuation tools that I have made available to adjust the assumptions in
the valuation model to keep abreast of the RIM situation (see RIMM Multivariate Valuation Model).
We have not updated the assumptions since before the earnings
announcement, so there is some fine tuning to be done regarding the
valuation report, but the gist of the story remains the same, and the
report’s premise remains quite valid. I recommend all paying subscribers
use the market share tools to assist in fine tuning their assumptions
moving forward. This is a rapidly changing landscape, and what was
once the underdog may become the champion – seemingly overnight. I,
personally, am still quite skeptical of RIM management’s ability to
execute in this environment, but I am keeping my eyes open.

Related Subscription content (click here to subscribe):

Smartphone Market Model – Blog Download Version – all paying subscribers
Mobile Operating System Market Share Model – all paying subscribers – This model is key to showing the trends across operating systems, and not just handset manufacturers.

More on the Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars!

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Wed, 10/13/2010 - 09:33 | 645754 beastie

While I don't doubt that Android will be the dominant force in the market don't forget Larry Ellison. He no likee google.

http://www.infoworld.com/t/languages-and-standards/oracle-ibm-pact-cuts-...

Wed, 10/13/2010 - 09:07 | 645715 The Iconoclast

I think AT&T exclusivity is hurting the iPhone a lot. And the iPhone 4's hardware problems ("antennagate" and the easily cracked glass) have also hurt. Both can be remedied.

Wed, 10/13/2010 - 08:49 | 645666 Widowmaker

Not going to lie, Apple is making more and more critical miscalculations in my opinion. They are deviating from exceptional user experience and elegance to instead shifting focus to shoveling consumers into their store at the expense of experience.

Classic mistake made repeatedly by MBA's hunting for dimes in all the wrong places.

New Apple TV is a flop for this reason (Apple store between customers and all their own media with itunes Home Sharing nonsense) and I see it in their phones too.

The second a company puts themselves before customers is the instant market share deteriorates. AAPL should not be so stupid, these are classic blunders and the reason I am now short AAPL until they get a clue.

Putting your customers second never wins (ask Microsoft), no matter how much "potential"is buried in the numbers.

Rookie mistakes are stacking up.

Wed, 10/13/2010 - 08:50 | 645692 Dagny Taggart

I want to short AAPL as well, however it doesn't seem to reflect its fundamentals or technicals. We might be trading against PDs in about 20 days. If AAPL is still on Mr. Sack's happy list...

...if AAPL couldn't sell a single iProduct, and the Fed POMOed it good, would the stock price still go down?

Wed, 10/13/2010 - 09:59 | 645804 chopper read

what is that stat? roughly 70% of the average equity's movement can be attributed to the broad market?

Wed, 10/13/2010 - 08:59 | 645702 Widowmaker

The direction they are heading illustrates classic execution incompetence, which is time for (this investor) to bail.

Look for quality of their products to slip next (some say it's already arrived).

Customer second strategies always lose in the long run -- always.

Wed, 10/13/2010 - 04:03 | 645511 Conrad Murray

Anyone who thinks Android phones aren't the way of the future is crazy. iPhone had its day when it was the only game in town, but now it has to compete with an open source OS. There is no way Apple can pump out new models as fast as all these other companies can innovate. Sure, the loyalists will stick to iPhones, but many others are going to simply switch over as contracts expire now that there are options. If Verizon would have got the iPhone, it may have stemmed the flood for a while, but forget it now. Barring some sort of crazy patent infringement case, I don't see how Apple can stop this(and even that wouldn't really do it).

iSuppli Continues to Validate BoomBustBlog’s Original Thesis: Android as the Viral Game Changer!

The profitable Research in Motion Forensic Valuation Analysis is now available for free

More on the Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars!

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