The smartphone industry meltdown continues. June 29, 2007 saw Apple [AAPL] storm into the sector with the introduction of the first iPhone, closely followed by the debut of the first Android-based devices. Today’s reports claim BlackBerry-maker, RIM, is considering splitting its hardware business from its messaging network — and the industry is in “wait–see” mode while it looks to Apple’s Fall introduction of the NFC-enabled iPhone 5. [EDIT UPDATE: RIM is now moving to deny the Sunday Times report as “silly fantasy”.]
[ABOVE: Microsoft’s Steve Ballmer laughed at the first iPhone. He isn’t laughing so much at the moment.]
RIM on the rocks
Citing the paywall-protected Sunday Times, The Toronto Sun claims the former smartphone giant may even sell its handset division, while building a new business from its messaging network, potentially opening the latter up to Apple and Google for inclusion on their devices. RIM is denying the report, yet the competitive landscape for the firm remains as tough as that described below.
Sale of a stake in the company to Microsoft is also being considered, the report said. This follows a series of takeover discussions across 2011.
RIM’s woes are matched to the tragedy unfolding across Nokia, where the former mobile phone industry leader is also teetering on the brink, placing all its hopes in its “special” relationship with Microsoft. Similar woes too at other former giants, including the former Sony Ericsson, a company which now barely figures on mobile phone sales charts. Even HTC has announced plans to withdraw from some markets, Brazil, for example.
These problems pretty much guarantee a wave of strategic merger and acquisition activity as the disrupted industry is reshuffled, with Apple, Google and Samsung forming the new poles of mobile industry activity.
In a way, of course, it doesn’t really matter.
For many consumers, names such as Nokia, Blackberry or HTC don’t mean a thing, even if they choose to use products from those firms. You walk into your local friendly but often annoyingly inefficient mobile phone retailer and walk out with the phone you can best afford. Many consumers remain extremely resistant to the Apple hype; others begin with a Galaxy. Beyond the hardcore Apple and/or Android fans, most consumers don’t really care for the brand name.
Nokia and RIM’s woes will continue into Fall. Carriers are holding off on support for new devices pending introduction of Microsoft’s Windows Phone 8 platform and the launch of the iPhone 5 later this year.
Malik Saadi of Informa notes this, saying: “Operators and users will hold on until the new devices are in the market this coming autumn. This will have a serious impact on Nokia’s financial performance this quarter as the company relies strongly on Windows Phones as the main platform for its smartphones.”
Apple meanwhile continues to develop iOS 6, expected to usher in over 200 improvements to its popular mobile platform and predicted to reach market just shortly before launch of the iPhone 5 (somewhat confusingly, Apple’s sixth-generation smartphone and potentially called something else).
Waiting on the iPhone 5 effect…
The iPhone 5 is expected to be a major update to the mobile platform, equipped with a 4-inch display, multi-core processors, and a range of hardware design and utility features that together the company hopes will set a gold standard for smartphone competitors. Apple will sell millions of these things when it ships the product in the calendar fourth quarter.
As Saadi notes, carriers will be waiting to see what kind of beast the iPhone is before they make investment in new hardware from other operators. In other words, right now, Apple holds the balance in the sector.
Prime Apple competitor, Google, faces its own problems with carriers and developers waiting to see just how closely aligned its Android OS division becomes with its newly-acquired Motorola Mobility brand.
Hardware makers will be wondering if they can compete with Motorola once it begins to introduce top class devices developed in collusion with the Android OS team and marketed with the full weight of the search giant behind it.
Google’s execution here will be closely watched by its Android partners: they won’t want the firm to give preferential treatment to Motorola, but with the cost of that acquisition being in excess of $12 billion, a close relationship seems inevitable. That’s a development which will damage Google’s existing relationships with hardware partners.
This collection of unmeasured threats may be part of what is informing analysts who reacted to Samsung’s strong results by reducing their ratings on the company, citing numerous factors.
Infinite growth, finite resources
Samsung has also admitted to problems securing components, clear evidence that strong smartphone sales are beginning to impact upstream suppliers, and suggesting Apple’s decision to focus on using common components across its mobile product range gives it some advantages — it can order more of its chosen components, making its business more important to an already stretched supply chain. Apple has also begun securing components for the next iPhone, placing further stress on the chain.
Foxconn’s warning that Apple’s iPhone will be the Galaxy-killer will also be on their mind.
Autumn will also see the wide appearance of a range of devices using Microsoft’s Windows 8 phone OS. This will likely attract some support from manufacturers, and will benefit from as much media attention as that company can raise. Microsoft knows it must get it right if it wants to remain relevant in the changing computer world. Microsoft’s success is not, however, rubber-clad.
Like all players, RIM and Nokia also face the big challenge that all this intense competition in the sector takes place within a truly terrible global economy. Grim economic reality will inevitably impact consumer sales, meaning hardware makers will be fighting too and nail to grab what crumbs remain available in a tough global situation.
Economy and choice
Consumers will be increasingly risk-averse and will want to stick to tried, tested and reliable platforms. This favors Apple and, to a lesser extent, Android.
— Android suffers from some fragmentation, an opaque environment for device software updates and widely varying product reliability/quality.
— Despite its controlling nature (even to the extent Apple’s local country staff aren’t permitted to be photographed picking up tech industry awards) and walled garden around the iTunes ecosystem, the company’s satisfaction ratings are off the charts, its products hold value even in the second user market, and its OS and hardware offerings always aim to define the standard for best in class.
In this challenging industry it seems increasingly doubtful that RIM or Nokia can expect much in the way of immediate salvation. This will be a war of attrition, with the most likely outcome for both firms being a Microsoft takeover.
Any such triptych of three: Microsoft, Nokia, RIM may yet find itself unable to summon the fortune it needs to prevail against Apple and Android. Indeed, the sector seems so utterly competitive you can expect other second-tier players to hit the wall.
I predict we’ll be able to identify who is most impacted by Q1 2013, when the iPhone 5 effect is felt across the smartphone value chain. Though you can get a good sense of who else is on the way out by taking a look at this informative Asymco post from last month — will LG be next?
Apple’s iPhone 5 with global 4G heads to world’s biggest carrier, China Mobile
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WWDC 2012: Facebook integration, Apple Maps for Fall’s iOS 6
Apple WWDC: iOS 6 says farewell to Google Maps
iPhone 5 release: Apple’s September launch, what to expect
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