Friday, April 22, 2011

The market for handheld devices

OK, this is a rarity for this blog, which generally talks about macroeconomic issues, but I've decided to do a posting about the market for handheld devices or smartphones. This is because things are getting REALLY interesting in this market with recent events in the stockmarkets for the companies that make these devices also reflecting the uncertainty about the future!

So what are these events you may ask?  First, I would say the unbridled success of the iPad has taken a lot of people by surprise. So things got even more exciting when Apple recently launched the iPad2, and announced record profits, sending its stock soaring yet again. Second, on the other side of the Atlantic in Espoo, Finland, back in February a memo leaked from Nokia's new Canadian CEO, Stephen Elop, which talked about a "burning oil rig" and making the choice to either jump into the icy waters (presumably off Newfoundland or Norway as to my knowledge, Finland has no oil rigs!) or stay on the burning deck. In other words something big was about to happen.  Nokia's stock price edged higher after it announced slightly disappointing 4th quarter results, in anticipation of Elop's announcement on February 11th of a long-term strategic alliance with Microsoft. When the announcement came it was a big surprise for Europeans: Symbian would be scrapped, Meego downgraded to "future disruptions" and Windows OS will run on Nokia hardware with new phones to be released later this year. The share price sagged by nearly 20%. The next event was the Blackberry Q2 results, which were better than expected, but the sales growth was mostly outside the US and likely would still pale in comparison to Apple's results, so Research in Motion (the Canadian manufacturers of the Blackberry) experienced nearly a 10% selloff. Apple's results were astonishing, showing that the company had now overtaken Nokia (in terms of revenue) as the biggest supplier of cellphones, with an 86% increase in units sold, taking them to 18.6m units in Q1 of 2011. And yet Nokia still manages to ship 108.5m handsets worldwide, completely eclipsing all competitors.

What is interesting about the handheld device market is that it is boiling down to 4 major competitors worldwide: Apple, Google, Blackberry, and Nokia/Microsoft. These "ecosystems" will form the basis of future developments not only of smartphones, but also of tablet devices. Apple apparently has the advantage in both handheld devices and tablets, as it's iPhone continues to fly off the shelves, a new iPhone is on the way in the fall, and it's iPad2 begins to sell in major quantities. Google's approach is a little different - it essentially licenses its flexible software platform - Android - to phone makers, and Blackberry has tremendous support in the business community and is gaining support overseas. The new alliance between Nokia and Microsoft implies that Nokia will play to its competitive strengths - hardware, and Microsoft will supply the mobile version of Windows as the OS. The big unknown is Meego - Nokia's linux-based system that is still under development with Intel, and although the previous linux-based OS called Maemo did ship in a Nokia handset (the versatile N900) it was a phone mostly sought after by developers and geeks and not particularly user friendly.

While Apple is clearly fighting for the upmarket brand-conscious developed world consumer, Nokia has clearly got a huge range of devices to support the developing world market, and unless Chinese competition knocks it off its stride, it can continue to rely on some brand loyalty in these markets. Blackberry phones have cornered the business executive market, and although they are not "fun" phones with 1000s of apps, their users are loyal, and will likelly not change handsets. This is why Nokia's Elop said recently that in fact it was Google's Android that was the main competitor to a Nokia/Microsoft handset, and not the iPhone.

So where does that leave the consumer?  Given the choice out there right now, likely dazed and confused by the options available!  The different business models will likely sell differently in different parts of the world, and so it is not clear whether further consolidation will take place quickly. Certainly Apple's growth cannot be unlimited, but at the same time Nokia was already on a second life after it's disastrous forays into TVs after it's humble beginnings as a maker of tires and business furnishings. So can its alliance with Microsoft really bring the products to market that developed and developing world consumers want? Microsoft is widely seen as a dinosaur of the computing industry but it certainly does give Nokia access to a ready made OS and the North American market. Will the Android system morph into something more flexible and will Google loosen it's control on accessing the source code? Clearly a winning OS is not enough - you have to have a certain critical mass of apps and a quality piece of hardware to make a winning phone. So far Apple has clearly won the battle, but to win the war, it will have to ensure that it's future hardware lives up to expectations - the iPhone4 reception problems luckily did not pan out into anything more serious - but clearly (and this goes for all handset makers) one bad misstep and fickle consumers could depart in droves.

Featured Post

Free Trade on Trial - What are the Lessons for Economists?

This election season in the US there has been an extraordinary and disturbing trend at work: vilifying free trade as a "job kille...

Popular Posts

Search This Blog