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This Quarter Offers a Lot of Challenges for Smart Phone Vendors with Fruit in Their Names!

Submitted by Reggie Middleton on 08/25/2010 07:27 -0400

My series on the battle for mobile computing
dominance is now over 21 articles long. It was started less than a
month ago, yet so many things have changed since then. Google's strategic initiatives are blooming and it is showing that Google's management is capable of executing at a very high level with a very distant level of foresight. Their investment in broadband services, mobile OSs, and
cloud services have virtually guaranteed them a very viable path
outside of their current core reliance on search ad revenue. The issues
on the plate for interested parties are a) quantifying the monetizaton to be had from such efforts (it is not necessarily bullish for the equity in this particular environment), b) gauging the progress and potential of Google's biggest and
most capable competitors in this race (although Google looks to be
successful in diversifying, that doesn't necessarily mean it will win
the mobile computing wars, and c) as always, get the timing right.

I have went into this in detail in the first four installments of my mobile war seriers:

The second article listed, “Google’s response” had a very interesting graphic in it that many may have missed…

Notice how Google has directly funded all of the technologies that
have converged to threaten to topple Apple’s smartphone hegemony?
Sprint’s 4G Wimax tech, HTC’s collaborative use of the Android OS and
the customization of the interface through HTC Sense! Google is, and has
been for the last two years, Apples biggest threat.

Has it worked? Well, I’ll let you be the judge, but before you rush
off to judgment, be aware that my Sprint HTC Evo handset just picked up a
4G signal today. I was interested, so I downloaded a speed test app to
run it through its paces, as well as testing video conferencing, Flash
video streaming off of Amazon, etc. Spring hasn’t announced 4G
availability in NYC yet, probably because they are still testing, but I
must admit that it is impressively fast. The fasted I have seen on a
portable device on a cellular network. Much faster than most DSL, as
fast as come cable modems/WiFi, and able to wirelessly hotspot for up to
8 devices (at 4G speeds), or an unlimited amount if rooted. Below are
the details of my findings.

Below are the results of the ad hoc tests that I ran in Brooklyn, NY using the Speed Test app from the Android Market.

Date	ConnType	Visual Signal Strength	Download	Upload	Latency	ServerName	ExternalIp
8/24/2010 18:53	Wifi(n)/Optimum Cable	4 bars	1109079	680335	31	Clifton, NJ	72.63.199.79
8/24/2010 18:53	Wifi(n)/Optimum Cable	2 bars	132663	486902	28	Clifton, NJ	72.63.199.79
8/24/2010 18:52	Wifi(n)/Optimum Cable	2 bars	414773	674119	31	Clifton, NJ	72.63.199.79
8/24/2010 18:47	Sprint 3G	5 bars	144330	41250	218	Clifton, NJ	72.63.199.79
8/24/2010 18:34	Sprint 4G	3 bars	837349	133116	89	Clifton, NJ	72.63.199.79
8/24/2010 18:33	Sprint 4G	1 bar	742814	1501	96	Clifton, NJ	72.63.199.79
8/24/2010 18:16	Sprint 4G	2 bars	792933	134027	119	Clifton, NJ	72.63.199.79

Notes:

Notice the signal strength in “bars”. These tests were purposefully
conducted in areas that had signal encumbrances, ex. Not directly in
front of a router or cell tower.
The Sprint 4G network in NYC has not even been announced yet, it is
in testing. More cell towers are sure to be implemented, materially
increasing signal strength
The Sprint 4G network in NYC appears to be quite competitive with Cablevisions “wired” broadband service.
Standing one room away from my WiFi (n) router on Cablevision’s
Optimum Online service at 3 am (low peak load time) yields me 12.17 Mps
down and 5.1 Mps up, for the sake of comparison.
While this may pale to the direct to modem speeds of Verizon’s FIOS
of 25 Mbs and higher, it trounces any and all cell offerings, all DSL
offerings and even some cable offerings. This is quite interesting for
the Evo 4G and the Samsung Galaxy offshoot with 4G capabilities are
actually smart phone hardware that can handle this here, and now. These
are essentially the best of breed in hand held computing – the fastest,
most advanced, and most flexible devices offered to the public to date.
Subscribers should take note of our recent research note on telecomm providers ( The Race for 4G Next Generation Broadband Deployment), click here to subscribe. This will heat up and one provider has a big leg up on the others.

So, What Does This Portend for the Race to Mobile Computing Dominance?

I will be visiting the flasgship Apple store in Manhattan by FAO
Schwartz to run some one on one tests against Verizon phones and the
iPhone, and will record the event in 720 HD via an Android-based Evo –
should be interesting. Take note that Android phones such as the
Samsung Epic and the HTC Evo in the chart above are inherently and
significantly faster than the iPhone to begin with (see this head to
head test for proof, fast forward to the speed comparison – Phone 4 Vs. Samsung Captivate (Galaxy S)).
When you add in broadband speeds that are literally multiples of that
of the carrier that the iPhone is running (currently AT&T, but all
of the networks are now materially slower in many big cities than
Sprint’s offerings), you get an extreme difference in performance.
Again, more evidence of the onset of margin compression in Apple
products as they will either have to compete on features (more R&D
and production expense) or price (lower ASP), see 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.

As I have said many times in the past, many Apple consumers and
investors are literally enamored with Apple. The Apple marketing
technique should be studied in business schools world wide, for I have
never been witness to a C corporation that has inspired such fanaticsm.
Despite Apple’s runaway marketing successes, and its applaudable success
with its mobile products (iPod, iPod Touch, iPhone, iPad, notebooks,
etc. – there have been a laudable amount of success here), the FACTS on
the ground still show Empirical Evidence of Android Eating Apple!.
We are still fine tuning our valuation models for Google and Apple, for
there are a lot of variables that I want to capture on a realistic
basis. One is the effect of the iPhone being launched on other
platforms. If Apple were to do this before Android took off, they would
have waltzed through the CDMA market, since MSFT was on the decline.
Now, I am not so sure. They have ample demand and mind share, but they
also have very real (if not superior) competion in the form of Android.
They will also face further margin compression, for I doubt other
carriers will bend over in the fashion that AT&T did after seeing
how expensive that endeavor was, and being empowered through Android
into say we have capable alternatives, that are currently outgrowing
your (as in Apple’s) offerings. Now, I know there are many saying that
Apple will walk all over Android if released from AT&T. I say hold
on there, Kemosabe! (as I channel Tonto, for anyone old enough to
remember the Lone Ranger). AT&T is not necessarily the cause of
Apple’s reduction in market share. For one, Apple is matched or bested
by Android handsets in terms of ability. The Evo bests it with industry
standards-based features that a closed system like iOS won’t offer, see HTC EVO 4G HDMI demo for an example. The Evo also beats the iPhone in a head to head features and functionality battle – see CNET Prizefight: iPhone 4 vs. HTC Evo 4G.
I have spend ample time with both and I find the Evo superior, by far,
although there are some aspects of the iPhone that I do like better.

Even if we compared the offerings solely offered on the AT&T
network, the Android is easily holding its own. AT&T currently does
not offer a very high end Android phone like that of those available on
Sprint (Evo, Epic, etc.), but its 2nd tier Android offerings are
literally taking customers away from the iPhone. Yeah, I know – Apple
diehards find this hard to conceive, nonetheless believe. Well, let’s
take a look at what the people had to say who bought the Samsung
Captivate from AT&T instead of the iPhone. Cnet currently has over
one hundred reviews with an aggregate rating of 4 out of 5 stars, or
excellent. You can read all 104 comments here. I have taken the liberty of excerpting acouple…

“Fast, powerful, great* screen, fun and easy to use”by okmft on 2010-07-17 20:35:43.0*

Pros: Absolutely beautiful screen
Smooth (Touchwiz) interface
Camera works great and takes clear pictures
Solid build, yet very light and pocketable
Battery life is comparable with other smartphones including iPhone 4 (which I returned and got Captivate)

Cons: GPS had slow signal acquisition at times, even with clear view of sky
Problems syncing with MS Vista (looped into MTP mode when connected to PC)
Can’t see buttons unless screen is active
AT&T duplicates stock Android apps with their own useless apps

Summary: I stood in line and got an iPhone 4,
returned it for obvious reasons (as well as a desire to use Google
Voice in an integrated manner), and now am the satisfied owner of the
Samsung Captivate. Overall, this is a very nice device and I am
extremely pleased. Calls …

>>>

“Bottom line: amazing.” by JBeau33 on August 23, 2010

Pros: The 4 1/2″ super AMOLED 720p hd screen is awesome

The 1GHz processor feels like a desktop computer at times

Captures pics and video in crystal clear hd

All around great phone… In my opinion, it blows the iphone 4 out of the water

Cons: Having difficulty hooking up to my computer

Other than that, its a cell phone so it ain’t perfect but haven’t had much trouble as of yet

>>>

There are 102 more reviews for you to peruse if you are in doubt. I,
personally, have no doubt that Apple’s distribution through other
carriers will result in a spike in revenues. What I do doubt, and seriously doubt, is
Apple’s ability to stem the tide of Android’s growth and market share
capture by doing such. Apple is bound to get caught in a
feature/usability battle, and that will impact margins. There is no way
around it, now that the Android as been let out of the bag. You cannot
produce and improve upon this stuff for free!

And What About That Blackberry from Research in Motion?

The Blackberry is now, officially out of the running in my opinion,
both in terms of mind share and capability, and it is just a matter of
time. The release of their newest hardware, the Blackberry Torch,
running their newest software, the Blackberry OS 6, was a non-event.
This handset/software combo, although a significant improvement upon
what they were currently offering, is already behind the curve in
respect to what is being offered by Apple, HTC, Motorola, Samsung, and
soon even Sony (the PSP phone running Android?). It is almost guaranteed
that Microsoft Phone 7 handsets will hook securely and handily into
Microsoft Exchange Server, and then that happens (probably in a month),
exactly what is RIMM to do? They will be losing the assault in the
consumer and potentially even the enterprise markets. They do not have
any other markets to fun to!

Research in Motion’s share price is agreeing with both me and my forensic analysis. See Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion and The BoomBustBlog Multivariate Research in Motion Valuation Model: Ready for Download for more than evidence than a prudent investor needs. Or maybe a pic will do the trick…

The
result of a bearish position taken as of my first warning of RIM's
obsolescence. 155% ROI short the stock (20:1) and 100%+ gains ATM
options. The OTM options were dirt cheap and threw off much higher
gains!!! For some reason, options market makers do not see what I see.

The market sees the writing on the wall for RIMM, the question is now
how far will it fall given "X" loss in market share and/or "Y" loss in
margin, and more importantly… How much of a loss is too much and when
will it be adequately valued?

The BoomBustBlog Multivariate Research in Motion Valuation Model
(Pro & Institutional subscribers only) is an abbreviated plug and
play version of our proprietary RIMM valuation model that allows you to
answer those very questions using our proprietary, internal analytics.

The full Research in Motion Forensic Valuation reports are available to subscribers below (click here to subscribe or upgrade your subscription):

RIMM Forensic Analysis and Valuation – Professional & Institutional (45 pages)
RIMM Forensic Analysis and Valuation – Retail (10 pages)

Later on today, after I address S&P playing catch up to, and
verifying our (what used to be) contrarian research by cutting Ireland’s
rating due to being overbankd (which is exactly what we said while
Ireland was being held up as the poster child for austerity success many
months ago, see Many Institutions Believe Ireland To Be A Model of Austerity Implementation But the Facts Beg to Differ!), I will release the proprietary mobile OS model to subscribers
and allow the public to get a sneak peak on who is trouncing who, and
how. This will be the OS centric version (which will capture the
potential for tablets as well as smart phones) of the dynamic handset
market model (complete with data populated from Gartner, Canalyis,
Nielson and other sources) that 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.

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

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Wed, 08/25/2010 - 12:19 | 543182 RockyRacoon

Great stuff -- lots of info and some kewl graphs. If my phone will make calls I'll be happy.

Not only do I have a land-line, I have a phone that does not require 110v to operate. Took a while to find one but got one at Walgreens for under $10 that has the M&M characters on it. Rings really funny, like little bells or something. When the power goes out, and the towers are inoperative, I'll have phone service (to people similarly equiped).

Wed, 08/25/2010 - 11:09 | 542974 JohnKing

21 articles long and still assuming that google's ad-supported model is unassailable.

That's just not like you Reggie, have you looked into click fraud? Potential disrupters to the auction based pay per click model? Google revenue growth meets all the criteria for "too good to be true", you usually sniff that stuff out.

Wed, 08/25/2010 - 11:34 | 543030 infotechsailor

another iphone user Mr. King?

the ad model does not apply to the android OS...(although many apps may be ad driven in their free versions).

furthermore, the sale of information, and the inclusion of GPS (or relative via cell tower) location to further increase the precision of ad-targeting may make their ad-model for their web services that much more marketable. That is to say, when users visit websites on their android powered devices, information can be provided by the phone that will make the ads even more relevant.

Relying solely on a Per-Click basis has never really been Google's model, that is so 1990's.

Wed, 08/25/2010 - 15:21 | 543888 JohnKing

No, no iphone and one old mac in the corner, I would never buy another one.

>Relying solely on a Per-Click basis has never really been Google's model, that is so 1990's.

Never been google's model? WTF are you talking about? Do they have some stealth revenue source we are unaware of? 90+ % of google revs are from people clicking ads.

Wed, 08/25/2010 - 11:03 | 542953 geno-econ

Reggie , How does all this impact Qualcoms position?

Wed, 08/25/2010 - 10:48 | 542905 Rogerwilco

Hey Reggie, if Google is so clever, why are they pushing a mobile OS that contains a built-in lawsuit generator? Under the Android license, developers have to indemnify GOOG and users against legal actions if the origins of their code are challenged. How silly is that?

A guy sitting in his skivvies in a one-room apartment creates an app, and oops, it has some code in it he "borrowed" from an IBM product. The app is successful, sells well, and spurs many copy-cat versions. IBM finds the purloined code is being used in an Android app and calls in the legal eagles. Does anyone really think the IBM lawyers are going to be swayed when Google waves that piece of paper and tells them to go sue Mr. Underpants? Of course not, they will go where the money is and sue the hell out of Google.

Application developers are not generally stupid people. It will only take a few lawsuits to poison the well of app development for the Android platform. Everyone rags on Apple for its locked-down, curated app store and development process. Maybe there is a method to their madness?

Wed, 08/25/2010 - 11:29 | 543016 infotechsailor

almost a good argument against open source dev... except google doesn't get paid for the application sales.

the dev does. good try.

Wed, 08/25/2010 - 11:51 | 543082 Rogerwilco

@infotech

I guess you've never been caught in the legal crossfire when large corporations go to war. Your flimsy "We didn't get paid, he did" parry would last about ten seconds. Mark my words, this license issue will be the biggest problem for Android going forward. Sooner or later Google will have to "fix" it by locking down their development process and screening apps, just like Apple does now.

Wed, 08/25/2010 - 08:22 | 542538 Tic tock

I'm shocked.. huh, RM, auto companies are putting in some solid sales figures. Do you think these are bona fide customer sales?

This Quarter Offers a Lot of Challenges for Smart Phone Vendors with Fruit in Their Names!

So, What Does This Portend for the Race to Mobile Computing Dominance?

“Fast, powerful, *great* screen, fun and easy to use”by okmft on 2010-07-17 20:35:43.0

“Bottom line: amazing.” by JBeau33 on August 23, 2010

And What About That Blackberry from Research in Motion?

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“Fast, powerful, great* screen, fun and easy to use”by okmft on 2010-07-17 20:35:43.0*