Matos Kapetanakis

Smart < feature phones = the unbalanced equation (100 Million Club series)

Smart < feature phones = the unbalanced equation (100 Million Club series)

[Smartphones get all the media attention, but it’s feature phones that are still driving the mobile industry. Marketing Manager Matos Kapetanakis examines this unbalanced equation and makes sense of the numbers published in the latest 100 Million Club]

100 Million Club - Smart < feature phones: the unbalanced equation

Welcome back to the 100 Million Club. This 6th edition of our watchlist tracking successful mobile software companies debunks the smartphone myth and paints a detailed picture behind the 34 software products – from BREW to Webkit  – which have shipped in more than 100 million handsets as of the end of H1 2010. Click here to download the watchlist.

Key insights
– Despite the hype, smartphone platforms account for less than 20 percent of the 620+ million handsets shipped globally in Q1 and Q2 of 2010. More than 80 percent of total shipments are driven by feature phones, the majority of which use proprietary software platforms.

– BlackBerry is now the second smartphone platform, after Symbian, to break the 100M handset barrier. As of the end of June 2010, RIM has sold more than 100 million BlackBerry devices.

– A total of 350M handsets have shipped with a WebKit-powered mobile browser up to the end of 2Q10. The biggest contributors to shipments of the open source browser engine are the Series 40 and Symbian OSs, while the steep rise of Android will play a bigger role in WebKit going forward.

– Only a handful of mobile software products were shipped in more than 100 million devices during the first half of 2010. Among them are the T9/XT9 text input engines by Nuance, the vRapid Mobile software update engine by Red Bend and the Nucleus real-time OS by Mentor Graphics.

– Symbian alone has more shipments in H1 2010 than iOS and Android combined. Moreover, when combined, the Google and Apple mobile operating systems make up less than 20% of Series 40 shipments in Q1 and Q2 2010.

What’s new in the Club?
In this 6th edition of the 100 Million Club we ‘ve introduced a dedicated watchlist tracking mobile platform shipments.

The watchlist comprises of 10 application environment software products, OSs and RTOSs with more than 100 million installations. Our latest members in these categories are the BlackBerry OS by Research in Motion and ThreadX by Express Logic. We have also added media favourites Android, iOS and Windows Phone 7, for comparative purposes, since they are well below the 100 million mark.

The Embedded Software Shipments watchlist features 24 products that have been pre-installed in more than 100 million handsets. This latestedition of the club sees the addition of the Media EXP, an audio/video codec and frameworks suite by Aricent and MSIP, a mobile analytics software agent, by Carrier IQ.

[caption id="attachment_1942" align="alignnone" width="500" caption="Click on the image to download the full pdf"]100 Million Club - 1H10 - Mobile Platform Shipments[/caption]

The smart vs. ‘dumb’ phone equation
The impact of smartphones to the industry is way overrated. It’s a little-told secret that smartphones account for only 20% of worldwide handset shipments, a fact we tend to forget in the face of the one-sided media storm that surrounds smartphones. A key observation from the 100 Million Club is that the ‘proprietary’ Nokia’s Series 40 and Qualcomm BREW are shipped in many times more handsets than Android, iOS, BlackBerry even the older Windows Mobile and Symbian OSs. In fact, with 638 million cumulative shipments by the end of Q2 2010, BREW is the most widely deployed licensable mobile operating system. If one considers real-time OSes for application and baseband processors, then the shipments scale to the billions of phones.

[caption id="attachment_1935" align="alignnone" width="500" caption="Click on the image to download the full watchlist"]OS, RTOS shipments H1 2010[/caption]

So, is Nokia’s Series 40 the most successful OS ever? Not exactly; the handset market is very much dependent on internal OEM platforms, which power more than 45% of total handset shipments for H1 2010. Samsung and LG, ranking 2nd and 3rd in the top-five handset OEM leaderboard, are largely responsible for proprietary platform shipments. Samsung has heavily ramped up smartphone shipments starting in Q2 2010 (which should become visible in H2 results) and is investing in its home-grown Bada platform, a C++ layer on top of its proprietary SHP operating system. LG also hopes to get a larger piece of the smartphone pie, by releasing 20 new smartphone models in 2H10.

The 20% share of smartphone shipments is set to grow rapidly driven by two phenomena; firstly the growth of Internet-borne platforms, namely iOS and Android. Secondly, the carrier drive to commission and subsidise smartphone handsets as a differentiating strategy, which is driving the carrier-happy tier-1 OEMs (Motorola, Sony Ericsson, Samsung and LG) to bend over backwards and ramp-up smartphone production. This is unprecedented growth in share of smartphone sales, which was neighbouring at 10 percent back in 2007.

The shift of attention of traditional handset OEMs towards smartphones, coupled with the rise of smartphone-only vendors, seems to indicate a balance shift in the smartphone vs. feature phone balance. It might seem a foregone conclusion that that pretty soon we’ll have a majority of smartphones flooding the global market. However, that is not going to happen overnight, i.e. not in the next 3-4 years. Smartphone shipments of traditional OEMs are but a fraction of their overall shipments, while Apple, RIM, HTC and ZTE cannot yet hope to meet the demand of huge, feature phone-dependant, price-sensitive markets, like India and China.

Clash of the platform titans
In the clash between the more familiar platforms, Symbian and BlackBerry rule over newcomers Android and iPhone’s iOS, in terms of cumulative shipments. But the picture is quite different in terms of growth, where Android has been the clear winner, growing by leaps and bounds (from 100K activations a day in May 2010, to 160K a month later and 200K in August – activations are not the same as sales, but the growth is still impressive). RIM and Apple have seen a healthy increase in their handset sales, while Symbian has suffered a small (~3-4%) decrease in market share between H2 2009 and H1 2010, despite Nokia’s growth in the handset market. However, Symbian’s market share is bound to drop even more, considering the recent decision by Samsung and Sony Ericsson to drop Symbian altogether, as well as Nokia’s choice of MeeGo over Symbian^3 for their latest N-series. Symbian is fast becoming a Nokia-only OS so we should expect the end of the line for the Symbian Foundation within the next few months as well.

Where are MeeGo, Chrome OS and webOS in this picture? The short answer is that they are nowhere to be found in mobile devices in the first half of 2010. MeeGo is rumoured to be appearing in Q2 2010 in the market, with Nokia targeting to make first impressions last while facing delays in Qt integration and the departure of key personnel. Chrome OS will most likely be shipped solely in tablets and netbooks, while HP aims at delivering new webOS devices in early 2011.

Last but certainly not least, we should not ignore Microsoft’s latest bid for dominance in the mobile industry: Windows Phone 7. The newly released OS has been completely redesigned to offer iPhone-style margins with an Android-style business model, while targeting untapped pockets of Xbox and PC developers instead of making up with Windows Mobile developers who were left with a bitter aftertaste (see our Developer Economics research). Windows Phone 7 already seems to be building momentum, with 9 new models coming to the market in Q4, $500 million in marketing budgets and a tightly integrated hardware and software platform (see our earlier article on Windows Phone for a detailed strategic analysis).

Not museum material…yet
In summary, smartphones captivate our minds, but it’s still ‘dumb’ phones that we carry around with us. Someday in the foreseeable future, non-touch screen phones will take their place in a telecoms museum (right next to the old, ‘brick’ mobile phones), but that day is not as close as mainstream media have us think.

– Matos

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