BII Express: Key Takeaways From Phonemakers' Earnings

BII Express: Key Takeaways From phonemakers' Earnings

We now know how most of the big phonemakers are doing: Apple, Samsung, RIM, Nokia and Motorola. To summarize very quickly: Apple and Samsung are doing smashingly well, Nokia seems to be recovering with good early shipment numbers for its latest Windows phones, and RIM and Motorola are stuck in a ditch. 

What to make of it all?

  • The smartphone opportunity is almost too big to fathom. We wrote about this before. It's a "blue ocean" market. We spend so much time (justifiably) wondering about whether iOS or Android is winning or whether Nokia has a chance that we forget how, collectively, these companies are winning by putting next-generation smartphones in people's hands. Even though Samsung and Apple are both direct competitors, they're both winning, and winning very big. The phone companies are like kayakers racing down rapids: If you're just good enough, you'll go very very fast, and if you're very good, you'll go extremely fast (but if you're not careful, you'll bash your head against the rocks).  
  • What a difference clear-headedness makes. The parallel between Nokia and RIM couldn't be more striking. They were both big incumbents who suddenly found themselves outmatched by a new entrant. Nokia fired its CEO, faced up to the reality of the situation (which is much easier said than done), and completely changed its strategy, ditching its previous platform to go with Windows Phone (to howls of derision at the time). RIM, meanwhile, is still, to this day, burying its head in the sand, replacing its co-CEOs with an insider who says "no drastic change needed." It's way too early to tell if Nokia's turnaround will succeed, but by now it's obvious that it at least has a good fighting chance, while RIM is already dead. 
  • Google is strapping a dead elephant to its back. Motorola delivered yet another terrible quarter. And Google is buying the company. Probably because it really wants to make phones and tablets. Oh boy.
  • Everything could still change, and this probably isn't a winner-take-all market. Before Apple delivered its unfathomable monster quarter, the conventional wisdom was that Android was winning with its flood-the-market strategy. Now early indications are that iOS has caught up with Android in market share, at least in the US, riding eye-popping iPhone 4S sales. The reason why people care so much about the market shares of the mobile platforms, even though Android and iOS have such different unit economics, is because they believe these platforms have network effects, and whoever has the most marketshare will dominate for twenty years à la Windows. We don't think that's right. First of all, we think network effects in general are overrated. Second of all, the circumstances are different, because a) smartphones are much more "personal" devices where differences in design, etc. matter more to consumers and b) the importance of the web and HTML5 makes exclusive apps less differentiating. We could very well end up with a two-winner or three-winner market. If so, that's good for (almost) everyone, Google, Samsung, Apple, Microsoft, Nokia — except RIM. Poor RIM.

In other news...

Spotify now has 3 million paying subscribers — more than 20 percent of its total users. That's up from 2.5 million subscribers a few months ago, and also a higher percentage of paying customers than last March, proving that "freemium" businesses can work. See our earlier explainer of Spotify here →

Citigroup analyst Mark Mahaney upgraded Netflix to buy after last night's huge earnings beat. Mahaney believes its subscriber base has stabilized after the Qwikster debacle and projects increased growth and margins in the streaming business.

The iPad had 96% marketshare in enterprise tablets in Q4, and iPhones were 53% of new smartphone activations, according to enterprise mobile vendor Good Technology.

Samsung posted a record $4.7 billion quarterly operating profit, driven by booming smartphone sales. The company plans to invest to expand its smartphone and tablet operations. Between Apple's record quarter and the Android ecosystem's strength, what's striking is the size of the overall smartphone opportunity, moreso than whether Android or iOS is winning.

"Samsung Electronics Co Ltd said on Friday that a German court has ruled against it in a patent suit with Apple Inc over mobile technology, the latest verdict in an intensifying global legal battle between the two technology giants."

Motorola Mobility lost $80 million on revenues of $3.4 billion last quarter. Motorola shipped 18.7 million smartphones and 1 million tablets in 2011 — but the mobile division, which also includes feature phones — had an operating loss of $285 million for the year. 

Yahoo is holding talks on how to best sell its stake in Yahoo Japan, according to the Wall Street Journal. It is reportedly still considering the 'cash-rich split' to save billions of dollars in capital gains taxes. Click here to read our note on what's next for Yahoo after Jerry Yang's resignation→

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